Income Tax Appellate Tribunal - Jaipur
Vivek Agarwal, 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. 292/JP/2017
fu/kZkj.k o"kZ@Assessment Years : 2013-14.
Shri Vivek Agarwal, cuke The Income Tax Officer
C/o S.L. Poddar & Co., Vs. Ward 1(2),
E-3A, Gokul, Kanti Chandra Road, Jaipur.
Bani Park, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. ABWPA 3003 A
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@Assessee by : Shri S.L. Poddar (Advocate)
jktLo dh vksj ls@ Revenue by : Shri J.C. Kulhari (JCIT)
lquokbZ dh rkjh[k@ Date of Hearing : 14.03.2018.
?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 27.03.2017 of ld. CIT (A)-I, Jaipur for the assessment year 2013-14. The assessee has raised the following grounds of appeal :-
" 1. Under the facts and circumstances of the case the learned CIT (A) has erred in confirming the addition of Rs. 4,78,38,157/- on account of the long term capital gain treating the same as undisclosed income of the assessee whereas the assessee has 2 ITA No. 292/JP/2017 Shri Vivek Agarwal, Jaipur.
shown the long term capital gain income exempt u/s 10(38) of the Income Tax Act, 1961.
2. Under the facts and circumstances of the case the learned CIT (A) has erred in confirming the addition of Rs. 4,78,38,157/- without providing opportunity to the assessee for cross examination and rebutting the material collected at the back of the assessee.
3. Under the facts and circumstances of the case the learned CIT (A) has erred by not treating the sale of share as genuine transaction on the ground of human probabilities inspite of submitting credible evidences which are more reliable.
4. 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 assessee is an Individual and derives income from business or profession, house property and income from other sources. The assessee filed his return of income on 27th September, 2013 declaring total income of Rs. 9,86,410/-. The assessee has claimed exempt income of Rs. 4,78,38,157/- under the head Long Term Capital Gains on account of shares. The AO while passing the assessment order under section 143(3) has held that the long term capital gains claimed by the assessee is bogus as the assessee has arranged the accommodation entries from the persons who are engaged in providing bogus accommodation entries of capital gains. 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. 10,00,000/- by cheque. The shares were allotted to the assessee in the private placement by the company. The ld. A/R of 3 ITA No. 292/JP/2017 Shri Vivek Agarwal, Jaipur.
the assessee has referred to the application dated 27.02.2011 for allotment of shares in private placement and also the details of the payments vide cheque no. 260359 dated 28th February, 2011 drawn on SBBJ SMS Highway, Jaipur. He has thus submitted that when the assessee has paid the consideration for purchase of shares directly to the company, namely M/s. Paridhi Properties Ltd. and against the said payment and application, the said company has allotted 10,000 shares vide allotment letter dated 21st March, 2011 which is placed at page 3 of the paper book. The ld. A/R has referred to the share certificate with folio no. V000004 dated 19.03.2011 at page 4 of the paper book. Thus the ld. A/R has submitted that the acquisition of the shares by the assessee under private placement directly from the company has been established without any doubt and without any involvement of any so called broker or other person as alleged by the AO. The ld. A/R has then explained that the said company M/s. Paridhi Properties Ltd. was amalgamated with M/s. Luminaire Technologies Ltd. and consequently the assessee was allotted 100000 shares of M/s. Luminaire Technologies Ltd in lieu of the shares of M/s. Paridhi Properties Ltd. These shares were then dematerialized on 25th October, 2012 as reflected in the demat account. The ld. A/R has referred to the demat account wherein the shares are credited and dematerialized. Subsequently, the assessee sold these shares between the period 20th November, 2012 to 13th March, 2013 through Stock Exchange and the sale was effected from the Demat account of the assessee. The copies of contract notes in respect of sale of the shares are placed at pages 6 to 52 of the paper book. Thus the ld. A/R has contended that when the acquisition of the shares as well as the sale of shares are duly reflected from the evidence produced by the assessee then the action of the AO to treat this 4 ITA No. 292/JP/2017 Shri Vivek Agarwal, Jaipur.
transaction as bogus is without any basis and merely on presumption and assumption of facts by relying on the statement of Shri Deepak Patwari recorded by the Investigation Wing, Kolkata. The ld. A/R has relied upon the decision of the Coordinate Bench of this Tribunal dated 31.01.2018 in the case of Shri Pramod Jain & Others vs. DCIT & Others in ITA Nos. 368 to 370/JP/2017 and submitted that the same script was involved in the said case and by considering an identical case, the Tribunal has decided the issue of genuineness of the transaction of purchase and sale of shares and consequential capital gain.
3.1. On the other hand, the ld. D/R has relied upon the orders of the authorities below as well as the decision of Hon'ble Bombay High Court dated 10th April, 2017 in case of Sanjay Bimalchand Jain vs. CIT in ITA No. 18/2017.
4. We have considered the rival submissions as well as the relevant material on record. At the outset, we note that an identical issue of purchase and sale of shares of M/s. Paridhi Properties Ltd. which was got merged with M/s. Luminaire Technologies Ltd. and subsequent to the merger, the shares of M/s. Luminaire Technologies Ltd. were allotted to the assessee which were duly dematerialized in the Demat account and thereafter sold by the assessee was considered by the Coordinate Bench of this Tribunal in the case of Shri Pramod Jain & Others vs. DCIT & others (supra) in para 7 to 9 as under :-
"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 5 ITA No. 292/JP/2017 Shri Vivek Agarwal, Jaipur.
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.6 ITA No. 292/JP/2017
Shri Vivek Agarwal, 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 7 ITA No. 292/JP/2017 Shri Vivek Agarwal, Jaipur.
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 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 8 ITA No. 292/JP/2017 Shri Vivek Agarwal, Jaipur.
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 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, 9 ITA No. 292/JP/2017 Shri Vivek Agarwal, Jaipur.
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 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 10 ITA No. 292/JP/2017 Shri Vivek Agarwal, Jaipur.
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 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:-
11ITA No. 292/JP/2017
Shri Vivek Agarwal, Jaipur.
"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 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 12 ITA No. 292/JP/2017 Shri Vivek Agarwal, Jaipur.
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 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, 13 ITA No. 292/JP/2017 Shri Vivek Agarwal, Jaipur.
therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account.
9. Ground No. 3 is regarding addition on account of payment of commission to Shri Deepak Patwari. This issue is consequential to the issue involved in ground no. 1 and 2 therefore, when we have given a finding the transaction of purchase and sale shares and consequential long term capital gain cannot be treated as bogus then the addition made by the AO on account of notional commission paid to Shri Deepak Patwari will not be sustainable being consequential to the first issue and hence deleted."
Thus it is clear that so far as the facts of the present case of acquiring the shares of M/s. Paridhi Properties Ltd. under private placement directly from the company and subsequently on merger of the said company with M/s. Luminaire Technologies Ltd. the shares of the new entity were allotted to the assessee which were duly dematerialized and then sold from the Demat account are identical to the case of Shri Pramod Jain & Others vs. DCIT & others. In view of the finding of the Coordinate Bench on the identical issue, we find that when the payment of purchase consideration paid through cheque directly to the company and the subsequent merger of the company as per the scheme of merger approved by the High Court, then the transaction and sale of shares in question cannot be held as bogus. The AO has passed the impugned order on the basis of the statement of Shri Deepak Patwari which is identical as in the case of Shri Pramod Jain & others vs. DCIT. Accordingly following the order of the Coordinate Bench of this Tribunal, we hold that the addition made by the AO is merely based on suspicion and surmises without any cogent material to controvert the evidence filed by the assessee in support of 14 ITA No. 292/JP/2017 Shri Vivek Agarwal, Jaipur.
the claim. Further, the AO has also failed to establish that the assessee has brought back his unaccounted income in the shape of long term capital gain. Hence we delete the addition made by the AO on this account.
4. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 06/04/2018.
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(BHAGCHAND) ( VIJAY PAL RAO )
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fnukad@Dated:- 06/04/2018.
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vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant-Shri Vivek Agarwal, Jaipur.
2. izR;FkhZ@ The Respondent-The ITO, Ward 1(2), Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File {ITA No.292/JP/2017} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar