Income Tax Appellate Tribunal - Delhi
Acit, New Delhi vs Shri Sameer Gupta, New Delhi on 23 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'G', NEW DELHI
BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER
AND MISS SUCHITRA KAMBLE, JUDICIAL MEMBER
ITA No. 514,515/Del./2017
Asstt. Year : 2011-12, 2012-13
ACIT Vs. Sameer Gupta
Central Circle-04, Room No. R/o 19/49, Punjabi Bagh
331, New Delhi
ARA Centre, Jhandewalan Extn. PAN : AADPG8131D
New Delhi
Appellant Respondent
Assessee by : Ms. Rano Jain, Adv., Sh. Aashish
Goyal,CA
Revenue by : Sh. S.S.Rana, CIT. D.R.
Date of Hearing: 25 05 2017
Date of Pronouncement: 23 08 2017
ORDER
PER R.K. PANDA, ACCOUNTANT MEMBER :
The above two appeals filed by the revenue are directed against the common order dated 23.11.2016 of the CIT(A)-23 New Delhi relating to assessment year 2011-12 and 2012-13 respectively. For the sake of convenience, these appeals were heard together and are being dispose of by this common order.
2. First we take up ITA no. 514/Del/2017 for assessment year 2011-12 as the lead case :- Facts of the case, in brief, are that the assessee is an individual and had filed his original return of income on 30th March, 2012 declaring total income of Rs. 3,92,11,220/-. The Assessee is the Managing Director of M/s.
ITA No.514, 515/Del/2017 2Jakson Group of Companies. A search and seizure operation u/s 132 of the IT Act was carried out in Jacson Group of cases on 3rd October, 2013. In response to notice u/s 153A of the I.T.Act, 1961 the assessee filed the return of income on 5th January, 2015 declaring total income of Rs. 3,92,11,220/-.
3. During the course of assessment proceedings the AO asked the assessed to explain the huge capital gains from sale of shares amounting to Rs. 5,62,61,726/- which was claimed as exempt income. He referred to the statement of Shri Sundeep Gupta recorded during the course of search at his residence wherein he failed to give the details of these share profits and had stated that he has no idea about any shares bought or sold by them in the last 5 to 6 years. The assessee was not present in India during the search at his residence. The AO further noted that when the same questions were put to Shri Sundeep Gupta again during the course of search at the corporate office of his Group, his answers were quite different. He gave the details of the various shares which he and his family members have invested in last few years. He stated that these shares were bought by him and his family members through their common friend Mr. Vipin Jain on his recommendation. He also gave the address of Shri Vipin Jain. The assessee filed the details of long term capital gain on account of purchase shares.
3.1. The AO noted that during the survey u/s 133A at the premises of Shri Vipin Jain with respect to the long term capital gain by the key members of the Jakson family, his statement was recorded u/s 131(1A) which clearly established that the assessee and Jakson Group took accommodation entry in the form of long term capital gain in shares through Shri Sanjay Jhunjhunwala. He, therefore, asked the assessee to explain as to why the amount of long term capital gain should not be held as accommodation entry and should not be added to the total income of the assessee. The assessee furnished documents ITA No.514, 515/Del/2017 3 i.e. copy of allotment letters of shares, copy of invoices of sale of shares and duplicate copy of contract notes issued by the brokers etc.
4. The AO refered to the notices u/s 133(6) which were issued to M/s Clarus Finance & Securities Ltd. [now known as M/s Scan Steels Ltd.] and M/s S.V.Electricals Ltd. [now known as M/s Nivyah Infrastructure & Telecom Services Ltd.] and observed that no replies were received till date. Further field enquiry was conducted by his office to confirm the genuineness of M/s. S.V. Electricals Ltd. and it was found that no such company existed on the address available on records. He therefore directed the assessee to produce the directors of the above said two companies but no compliance has been made in this regard till date. He further noted that in response to notice u/s 133(6) to BSE asking for details such as Name, address, PAN and contact numbers of the persons who have purchased the shares sold by these assesses, they have given part reply.
5. The AO also referred to the statement of Shri Vipin Jain recorded on 14th March, 2016 wherein he stated that he had not arranged any meeting of Shri Sanjay Jhunjhunwala, Kolkata. He had not made any suggestion that any kind of negotiation could be made with Shri Jhunjhunwala. The AO referred to the modus operandi adopted by different persons for claiming bogus long term capital gain by pre-arranged trading in shares of various non descript listed companies aiming at availing income tax-exempt long term capital gains on trading in shares of various listed scripts. He observed that during the course of search on Kedia group of cases on 13.06.2014 conducted by DDIT (Inv.) Unit- 3(3), Delhi, statement of Shri R.K.Kedia was recorded who deposed on oath that he is an entry operator who arranges different types of accommodation entries such as bogus long term capital gains (LTCG), share capital/premium etc to various beneficiaries through various entry operators in order to help ITA No.514, 515/Del/2017 4 bring unaccounted money of different beneficiaries in their books in a manner that the beneficiaries don't have to pay any tax on such money, which they were otherwise legally obliged to pay. He noted that in the case of the assessee the transactions were carried out through DB (International) Stock Brokers Limited. As per the statement of Sh. R.K.Kedia recorded during the search operation, he had stated that -DB International is not doing any actual work but is being used for providing long term (LT) entries to various beneficiaries. The company arranges investment in the shares of various company on behalf of some of the beneficiaries who wanted to reap LTCG in future out of the funds received from them for the purpose. This company is controlled and managed by two entry operators Sh. S.N. Daga operating from Connaught Place, New Delhi and his nephew Sh. Natwarlal Daga operating from Mumbai having office at Andheri West Mumbai.
6. The AO further observed that in its order vide WTM/RKA/ISD/162/2014 dated 19.12.14, under sections 11(1), 11(4) and 11B of The Securities and Exchange Board of India Act, 1992 in the matter of M/s First Financial Services Ltd. SEBI has found and held that there has been manipulative trading in the shares/ scrips of First Financial Services Ltd. Based on huge rise in traded price and volume of the scrips, compared to the financials of this company, preliminary investigations of SEBI have revealed that there were certain parties related to this entity who helped in consistent rigging in its shares and many related parties with no creditworthiness have helped many preferential allottees (beneficiaries) reaping bogus LTCG to help them evading their tax liabilities by purchasing shares from it at manipulatively elevated price and providing them profitable exit. Further vide its order no. WTM/RKA/ISD/31/2015 dated 20.04.2015 under section 11 and 11B of The Securities and Exchange Board of India Act, 1992 in the matter of M/s First ITA No.514, 515/Del/2017 5 Financial Services Limited SEBI confirmed its earlier order that there has been manipulative trading in the shares / scrips of First Financial Services Ltd. In view of the above the AO held that there was manipulative trading in shares / scrips of M/s First Financial Limited, in order to provide bogus LTCG, LTCL, STCG, STCL etc. to various beneficiaries. The investment in the shares of M/s Clarus Finance & Securities Ltd. and M/s S. V. Electricals Ltd. by the assessee is a similar case where bogus LTCG was earned by manipulative trading in the shares of M/s Clarus Finance & Securities Ltd. and M/s S. V. Electricals Ltd. Services Ltd.]. Apart from the above, he noted that there are other incriminating features also in these listed scrips which further strengthens the allegation and observation that there have been manipulations in trading of these scrips in order to provide bogus LTCG to the assessee. The AO listed some of such incriminating features which are as under :
"1). The trading volume of shares during the period, in which manipulations are done to raise the market price, is extremely thin.
2). The volume of trade in all these scrips has jumped manifold immediately when the market prices of their shares reached at a minimum threshold level so as to result in LTCG assured to the beneficiaries/assessee."
6.1 He further observed that the financials of M/s Clarus Finance & Securities Ltd. and M/s S. V. Electricals Ltd. have been very weak. As SEBI has observed in the case of First Financial, investment in a company having such poor and meager financial fundamentals cannot prima facie be termed as a rational investment behavior. Hence according to the AO it is clear that the assessee has failed to discharge his onus of proving the genuineness of exempt Long term capital gain. Further, no regular business activity is being carried out by M/s Clarus Finance & Securities Ltd. and M/s S. V. Electricals ITA No.514, 515/Del/2017 6 Ltd. The investment in the shares of these companies by the assessee was only with a view to earn bogus exempt long term capital gain. Also, Sh Vipin Jain did not provide any basis for his retraction on the question of arranging accommodation entry in long term capital gain to the assessee. Hence, the long term capital gain amounting to Rs.5,62,61,726/- claimed as exempt income during the year was treated by the AO as bogus and he accordingly disallowed the claim.
7. Before CIT(A) it was submitted that during the course of search proceedings no incriminating material, whatsoever, was found which is evident from the Punchnama and assessment order itself. It was submitted that the assessee is filing its return of income regularly. There is no undisclosed money, bullion or jewellery found during the course of search. It was submitted that the addition of Rs. 5,62,61,726/- on account of bogus long term capital gain was not based on any incriminating material found during the course of search. Relying on the decision of Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla reported in 2015 (9) TMI 80 (Delhi High Court) it was argued that in absence of finding of any incriminating material no addition can be made in the order passed u/s 153A / 143(3).
7.1 So far as the merit of the case is concerned, it was argued that the assessee has provided all details along with documents to establish the genuineness of sale of shares and long term capital gain earned thereon. If the AO was not satisfied with the reply given by the assessed, he could have asked for other documentary evidences. However, the AO neither asked for any further documents nor pointed out any discrepancies in the documentary evidences provided by the assessee in support of its contention. It was argued that long term capital gain on sale of mutual funds ITA No.514, 515/Del/2017 7 amounting to Rs. 13,13,062/- added by the AO as bogus long term capital gain shows that the AO has completely ignored the bifurcation of long term capital gain. It was argued that even if the genuineness of the share transaction is doubted by the AO, he could not have added the long term capital gain on sale of mutual funds.
8. So far as the long term capital gain on sale of shares amounting to Rs. 5,49,48,664/- on account of sale of 30,000/- shares of M/s. S.V.Electricals Ltd. is concerned, it was submitted that the assessee has purchased 30,000/- shares of M/s S.V.Electricals Ltd. on 1st December, 2009 and 700,000/- shares CFSL on 5.12.2009 respectively for Rs. 30,00,000/-. These shares were sold during financial year 2010-11 for Rs. 5,81,46,569.75 on different dates. Assessee has paid brokerage, service tax, STT, transaction charges etc. And thereafter determined the long term capital gain at Rs. 5,,49,45,695.27/- after deducting all the above expenses. Assessee submitted that each and every details of the said transaction was provided to the A.O. in a very precise manner. The Assessee argued that it has provided the detailed transaction ledger issued by the broker D.B. International Stock Broker Ltd. reflecting the details of transaction from 01/04/2010 to 3rd March 2011. The Copy of contract notes issued by DB International Stock Broker Ltd., Broker of the assessee, wherein each transaction executed by the broker on order of assessee at different dates and rates was provided. The assessee had also provided the copy of transaction statement issued by NSDL. It was submitted that these transaction of sale/purchase of shares is confirmed by the broker of the assessee vide email sent by the broker to the A.O. In the said email it was stated that the sale of shares was done in the normal course of business through recognised stock exchange. It was clarified that the transaction was ITA No.514, 515/Del/2017 8 executed at the exchange level and details of buyer who has purchased the shares sold by the assessee was not available with them.
8.1 So far as non-compliance to notice u/s 133(6) by S.V.Electricals Ltd. is concerned it was submitted that the said notice was duly served on that company. Therefore, the assessee can not persuade or force the 3rd party to co-operate in departmental inquiries. It was submitted that even if there was no compliance by the said party, it cannot be concluded that the investment in shares or trading in shares by the assessee are bogus. Relying on various decisions, it was submitted that when the assessee has fully discharged his onus by submitting the necessary particulars / documentary evidences and nothing adverse has been brought on record by the AO, he cannot draw adverse inference against the assessee merely because there was no compliance to the said notice. The Assessee also submitted replies on various allegations of the AO such as statement of Shri Vipin Jain, modus operandi adopted in case of accommodation entries, statement of Shri R.K.Kedia, comparison with first financial services Pvt. Ltd. etc. It was accordingly argued that the addition made by the AO is uncalled for.
9. Based on the arguments advanced by the assessee, the CIT(A) deleted the addition made by the AO on account of sale of shares on the ground that no incriminating material was found during the course of search. While doing so he relied on the decision of Hon'ble Delhi High Court on the case of CIT vs. Kabul Chawla and various other decisions. The relevant observation of the Ld. CIT(A) from para 4.3 to 4.3.4 is as under :
ITA No.514, 515/Del/2017 9"4.3 In ground nos. 04 & 05 the appellant has challenged the assessment made u/s 153A of the Act on the ground that the reassessments in both the assessment years were "completed" and not abated and therefore reassessment u/s 153A of the Act could not have been made since no incriminating document/information belonging to the appellant was found from the premises of the searched person at the time of search u/s 132 of the Act. In view of the fact that these grounds are the legal grounds going to the root of the case, these are taken up for consideration and adjudication first.
4.3.2 The fact of the cases of both the years are that a search & seizure operation was conducted in the Jakson Group cases including the assessee on 03.10.2013. The returns of income of both the respective years were filed originally u/s 139(1) of the Act on 30.03.2012 & 30.03.2013 at income of Rs. 3,92,11,220/- & Rs.7,39,92,640/- respectively. Since no notice u/s 143(2) of the Act had been issued in both the years and the limitation for issuance of notice in both the years had expired on 30.09.2012 & 30.09.2013 respectively, the assessments for these years therefore stood "completed" within the meaning of the 2nd Proviso to S.153A(1) of the Act. On perusal of the assessment order it is observed that the AO has made referred to the statements of Sh. Vipin Jain and Sh. R.K Kedia, the latter recorded during the search in the Kedia group separately on 13.06.2014, enquiries conducted u/s 133(6) of the Act and the findings of SEBI in another case, M/s First Financial Services Ltd. (FFSL), and has made addition on account of purchases of shares of SV Electricals Ltd.(SVEL) in AY 2011-12 and of Clarus Finance & Securities Ltd. (CFSL) in AY 2012-13 but there is no reference to any seized material found during the search in the group cases on 03.10.2013, least any incriminating material relevant to the purchases and sale of shares made by the appellant enquired by the AO.
4.3.3 As mentioned above, from the reassessment order it is observed that there is no reference of any seized material, least incriminating documents, in the reassessment order, and the additions made on account of the purchase and sale of shares in the orders u/s 153A of the Act were already disclosed in the original return of income and already available in the financial statements filed with the original return of, and the addition is not based on any seized material, least incriminating documents. In CIT (C)- II vs. Kabul Chawla (Delhi) [2015] 61 taxmann.com 412 (Delhi), 234 ITA No.514, 515/Del/2017 10 Taxman 300 the Hon'ble jurisdictional High Court of Delhi have held that an assessment has to be made under this section only on the basis of seized material and in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made, and that completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment, and concluded that since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. This judgment has been considered in all the existing judgments on the matter, some of which have been referred to by the appellant in his submissions.
4.3.4 In view of the facts of the case discussed above and the position of law enunciated by the jurisdictional High Court in the case of Kabul Chawla (supra), CIT (Central)-I Vs Jakson Engineers Ltd. 2015 TIOL 2789 HC DEL IT order dated 07.12.2015 in ITA Nos.910 to 913/2015 and Praveen Kumar Jolly and TJG Holding Pvt. Ltd. vs. Director General Of Income Tax (lnvestigation) Delhi & Others 2016(3) TMI 976-Delhi High Court, and the judgments of the Hon'ble Bombay High Court in CIT vs. Continental Warehousing Corporation (374 ITR 645) (2015), (2015) 58 taxmann.com 78 (Bom.) and All Cargo Global Logistics Ltd. vs. DCIT in ITA No. 1969 of 2013, and other judgments relied upon by the appellant's AR mentioned in his written submission, it is held that the AO was not within the jurisdiction bestowed on him by law to make the impugned additions in the assessment u/s 153A of the Act, and therefore the impugned re-assessment order cannot be sustained. It is held accordingly and the re-assessment order is quashed."
10. The ld. CIT(A) further held that the reassessment order is not sustainable since the statements of 3rd party, which were the basis for addition, were not confronted to the assessee nor any opportunity to cross-examine these persons was provided to the assessed. According to him the same is against the principle of natural justice. The relevant observation of Ld. CIT(A) at para ITA No.514, 515/Del/2017 11 4.4 of the order reads as under :
"4.4 In Ground no. 09 the appellant has contended that the statements of third party were not confronted to the appellant nor was opportunity to cross-examine these persons was provided to the appellant thus denying necessary opportunity against the principle of natural justice. It has been submitted that copies of the statements of Sh. Vipin Jain recorded u/s 131(1 A) of the Act during survey conducted bv the J3DIT(lnv.) Noida at his premises on 16.12.2013 & again by the AO on 14.03.2016, and that of Sh.R K. Kedia recorded on 13.06.2014 during the search on Kedia group conducted by the DDIT(lnv.) Unit-lll(3) New Delhi were not provided to the appellant and appellant was not provided opportunity to cross-examine these persons. From the assessment order it is observed that a questionnaire u/s 142(1) of the Act was issued on 12.10.2015 reference to survey u/s 133A of the Act at the premises of Sh. Vipin Jain and his statement has been made (ref. page-03 of assessment order) but there is no mention that the statements of these persons were confronted to the appellant or that opportunity to cross-examine these persons were provided to the appellant. From the assessment order it is also observed that the AO has referred to the findings of SEBI in the matter of M/s FFSL regarding manipulative trading in shares of FFSL but there is no mentioned that these findings were confronted to the appellant providing opportunity for rebuttal or counter-comments. It is settled law that failure to provide sufficient opportunity to the appellant, confrontation of material & statements utilized for arriving at adverse finding against the assessee and non-provision of opportunity to cross-examine the third parties whose statements or information is utilized to arrive at findings adverse to the assessee are violation of principle of natural justice and is fatal to the assessment as held in M/s Andaman Timber Industries v Commissioner of Central Excise Kolkata-ll in Civil Appeal No. 4228 of 2006 (SC), R. B. Shreeram Durga Prasad and Fatechand Nursing Das v/s Settlement Commission (IT and WT) and another (1989) 43 Taxman 34 (SC), C.B.Gautam v. Union of India (1992) 65 Taxman 440 (SC), Bagsu Devi Bafna v. CIT (1966) 62 ITR 506 (Cal.), Kisnichand Chellaram v. CIT, Bombay City II (1980) 125 ITR 713 (SC)/(1980) 4 Taxman 29 (SC), Commissioner of Income-tax v.
Rajesh Kumar [2008] 172 Taxman 74 (Delhi), Commissioner of Income-tax v. Pradeep Kumar Gupta [2008] 303 ITR 95 (DELHI), ITA No.514, 515/Del/2017 12 Commissioner of Income-tax, Delhi-IV, New Delhi v. Dharam Pal Prem Chand Ltd.* [2008] 167 Taxman 168 (Delhi) and CIT v Eastern Commercial Enterprises (1994) 210 ITR 103 (Cal), Rajesh Kumar and Others v Deputy Commissioner of Income- Tax and Others (2006) 157 Taxman 168 (SC), (1993) 1 SSC 78, Commissioner of Income Tax v. Dharam Pal Prem Chand Ltd (2008) 167 Taxman 168 (Delhi)], Prakash Chand Nahta v. Commissioner of Income -Tax [(2008) 170 Taxman 520 (MP). The re-assessment order is not sustainable on this ground too. I hold accordingly."
11. So far as merit of the case is concerned, the Ld. CIT(A) also deleted the same on the ground that the addition was made by the AO in both the years on presumptions and surmises without sans any material or facts relevant to the transaction involved. The relevant observation of Ld. CIT(A) from para 4.5 to para 4.5.4 reads as under :
4.5 Ground no. 08 in both the years relate to addition of Rs.
549,48,664/- and Rs.9,54,62,250/- u/s 68 in the AYs 2011-12 and 2012-13 respectively on account of gain on sale of shares. The AO vide questionnaire u/s 142(1) of the Act dt. 12.10.2015 asked the appellant that in view of the divergence in the statement of Sh. Sundeep Gupta, brother of the appellant, during the search and the statement of Sh. Vipin Jian recorded during survey at his premise why the long term capital gain (LTCG) on the sale of shares of SV Electricals Ltd.(SVEL) in AY 2011-12 and of Clarus Finance & Securities Ltd. (CFSL) in AY 2012-13 be not held as accommodation entry. The appellant had purchased 3,00,000 shares of SVEL on 01.12.2009 and 7,00,000 shares of CFSL 05.12.2009 respectively for the acquisition cost of Rs.30,00,000/- and Rs.70,00,000/- respectively through preferential allotment payment for which was made through cheque nos. 706973 and cheque no.706969 respectively drawn on his bank account no. 02781930000250 with HDFC Bank New Delhi debited on 24.11.2009 and 02.12.2009 respectively. These shares are duly reflected in the transaction statement of NSDL for the year 2009-10, alongwith 38,000 shares of PSL Financial Services Ltd. being carry forward since FY 2007-08. The shares of SVEL & CFSL were sold on various dates in FY 2010-11 & 2011-12 respectively, that of SVEL between 28.12.2010 to 19.01.2011 and that of CFSL between 18.05.2011 and 28.06.2011.
ITA No.514, 515/Del/2017 13During the appellate proceedings the appellant was asked to submit a detailed statement in excel sheet of the date-wise purchase and sale of these shares alongwith the rate of purchase and sale as also the payment details with copy of the bank statement. The same have been submitted, as Annx.-2 with WS on 09.11.2016 for AY 2011-12 and at pages-161-164 of PB filed with WS for AY 2012-13 which are enclosed as Annx.1 and Annx. 2 to this order. On perusal of these details it is observed that the shares of the two companies were purchased at the same rate at one go while these have been sold on different dates at varying rates, that of SVEL @ Rs.189/- on 28.12.2010 to @ Rs.194.90 on 19.01.2011 and that of CFSL @ Rs.148.00 on 18.05.2011 to @ Rs.163.90 on 28.06.2011. It is also noted that the sale rate is not constant and while that of SVEL was sold @ Rs.204/- on 05.01.2011 it was later sold even @ Rs. 187.50 on 18.01.2011 and similarly those of CFSL were sold even @ Rs.137.75 on 25.05.2011, increasing to Rs.156/- on 17.06.2011 and again @ Rs.140/- on 22.06.2011. The corresponding date-wise receipts have also been credited in the appellant's bank account no. 13741000025854 with HDFC Bank New Delhi. Thus, it cannot be said that the appellant indulged in sale at manipulative prices/rates nor is there any evidence brought on record by the AO including information available in the seized documents, if any, and therefore there is no case of manipulation and accommodation entry in this regard.
4.5.2 On perusal of the assessment order of both years it is observed that there is no discussion at all on the facts related to the transactions for purchase and sale of shares of the above companies as well as the source of purchase of shares and no evidence has been brought on record to suggest that the appellant took accommodation entries on sale of shares by payment in cash to SVEL and CFSL, or to the brokers M/s DB (International) Stock Brokers Ltd. Gurgaon. The AO has completely circumvented the facts related to the matter and even there is no evidence emanating from the search/survey against the appellant group discernible from the assessment order. The appellant has submitted copies of the online contracts/bills of each transaction related to the shares' sale which were also submitted to the AO but the AO has not given any credence to these facts and documents and has completely ignored them. In fact the AO issued letter u/s133(6) to the Bombay Stock Exchange (BSE) on 15.02.2016 asking for the name, address, PAN and contact numbers of the persons who purchased the shares sold ITA No.514, 515/Del/2017 14 by the appellant, mentioned at para-4.4 of the assessment order. The appellant's AR in the WS has submitted that the BSE replied to the AO through e-mail in response to the e-mail sent by the AO from his mail Id [email protected] to Sh. Rajesh Dubey on the mail Id [email protected] on 22.03.2016, copies of the e-mails has been submitted at page-120-121 of PB. BSE duly replied to the AO on 23.03.2016 through the e-mail sent by Ms. Lipika Mahunta from mail id [email protected] alongwith copy marked also at "[email protected]" wherein they sent the tradelog data of the four entities (Sh. Sundeep Gupta, Smt. Anita Gupta, Sh. Sameer Gupta and Smt. Bhawna Gupta) in the scrips of CFSL (511672) and SVEL (517534) for the period 01.04.2009 to 31.03.2013 alongwith the counter party details and stated that "trades are executed on the Exchange as per the order matching mechanism of the BSE Online Trading (BOLT) System/BOLT Plus System wherein the identity/details of the counter party member/client are not revealed to each other. The appellant on being asked during the appellate proceedings submitted that only copy of the e-mails were provided to them by the AO but the tradelog data was not provided, but the AO has not willfully mentioned in the assessment order the reply of BSE nor what was provided in the tradelog data and has only stated that "part reply was received". It is to be noted that SVEL and CFSL are listed companies and anybody can purchase or sale their shares through demat account through any registered broker. In this context it is pertinent to mention that the AO has also mentioned at para-4.3 of the assessment order that the appellant was asked to produce the Directors of the above companies. CFSL and SVEL, but no compliance has been made by the appellant and the appellant's AR has submitted in this regard that these companies are live and active as per information available in the public domain/MCA website and has submitted copies or the master data of these two companies and financial statements of SVEL and CFSL at pages-122- 153 of PB in AY 2011-12 and pages-125-160 of PB in AY 2012-13 according to which SVEL (We Internet Ltd.) has its registered address at Sodani Coplex, 39, AB Road, Patwardhan Marg, Dewas, Madhya Pradesh and CFSL (Scan Steels Ltd.) has its registered address at Office No. 104/105, E-Square Subhash Road, Opp. Havmore Ice Cream, Vile Parle, Mumbai and the other details are also available. It has been submitted that these companies being listed companies it was not possible for the appellant to produce ITA No.514, 515/Del/2017 15 their Directors. In my opinion anyone can invest in the shares of listed companies and if all such investors, in their respective assessments, are asked to produce the Directors of such listed companies it would not only amount to travesty of investigation and justice, it would lead to chaos. The AO had the authority to summon anybody for the purpose of investigation and enquiry which powers the AO did not exercise. The appellant has relied upon the judgment of the Hon'ble Delhi High Court in CIT v. Victor Electrodes Ltd. [2012] 20 taxmann.com 680 (Delhi) wherein it has been held as under:
"9. There was no legal obligation on the assessee to produce some director or other representative of the applicant-companies before the Assessing Officer. Therefore, failure of the assessee to produce them could not, by itself, have justified the additions made by the Assessing Officer, when the assessee had furnished documents, on the basis of which, the Assessing Officer, if he so wanted, could have summoned them for verification. No attempt was made by the Assessing Officer to summon the directors of the applicant- companies. The addresses of these companies must be available on the share applications, memorandum and articles of association and their income-tax returns. If the Assessing Officer had any doubt about identity of the share applicants, he could have summoned the directors of the applicant-companies. No such attempt was, however, made by him. Therefore, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal, in our view, were justified in holding that the identity of the share applicants and the genuineness of the transactions had been established by the assessee. "
Furthermore, in the master data the names of the Directors of the two companies are also available - the Directors of SVEL are Sh. Parind Sushil Parekh, Ajit Kumar Singh, Ashish Kumar Ray, Bhushan Sagarmalji Punamiya, and Cajetan Jerome Dsouza and those of CFSL are Rajesh Kumar Gadodia, Runvijay Singh, Debjani Sahu, Prabir kumar Das, Ankur Madaan, Vinay Goyal, Punit Kedia and Gobinda Chandra Nayak - who are apparently not related to the appellant family, nor is there any evidence brought on record of any insider trading. In these circumstances it can only be concluded that the additions are based on presumptions and surmises sans any material evidence, which I take up for consideration now in terms of ITA No.514, 515/Del/2017 16 submissions of the appellant's AR on the respective observations of the AO which were considered by the AO for arriving at the conclusions he did for making the addition.
4.5.2 The AO in the assessment order has referred to the statements of Sh. Vipin Jain and Sh. R. K Kedia. The statement of Sh. Vipin Jain was recorded on 16.12.2013 by the DDIT(lnv.) Noida during the survey at his premises and the AO, in the show cause notice u/s 142(1) of the Act dt. 12.10.2015 has mentioned that the appellant/Jakson group took accommodation entry in the form of long term capital gain in shares through Sh. Sanjay Jhunjhunwala. The appellant has filed copy of this statement at pages-20 to 27 of PB for AY 2011-12 & pages-18 to 25 of PB for AY 2012-13 (starting from Q.no.06 to the last Q.no.20) on perusal of which it is observed that he stated that he has never done any share trading for any third party, that he was not associated in any manner in the LTCG in respect of share of SVEL and CFSL, that he was not involve in any purchase and sale of any share for any member of the Jakson group, that he had introduced the Managing Director of Jakson group, Sh. Sameer Gupta, to one broker Sh. Sanjay Jhunjhunwala of Kolkata (whom he knew since 2005/2006) during the process of buying of one Company, M/s Good View Trading Pvt. Ltd., by Jakson group in 2009 I his office at Delhi and he provided the address of S. Jhunjhunwala & Co. of Kolkata, and that he did not know of any details of any transaction between the Jakson group and Sh. Sanjay Jhunjhunwala. The statement of Sh. Vipin Jain was again recorded by the AO on 14.03.2016 and the AO has observed at para-4.5 of the assessment order that Sh. Vipin Jain stated that he had not arranged any meeting with Sh. Sanjay Jhunjhunwala with a view to assist anybody in getting any kind of accommodation entry in the form of LTCG in shares. The AO has observed that Sh. Jain retracted from his earlier statement but, as mentioned above, I find that Sh. Jain had even earlier stated that he had not arranged any accommodation entry for the appellant/Jakson group nor that he had introduced Sh. Jhunjhunwala for this purpose? The AO has not mentioned the statement recorded by him in detail in the assessment order nor had he provided copy of the statement to the appellant, and therefore I a m unable to see as to how and in what context he retracted from earlier statement, if at all. In any case, as mentioned earlier as well, copy of the statements were not provided to the appellant during the assessment stage nor opportunity to ITA No.514, 515/Del/2017 17 cross-examine Sh. Jain WAS allowed to the appellant, and therefore such deposition of any third party cannot be held as evidence against the appellant.
4.5.3.2The AO has mentioned at paras-4.8 and 4.9 of the assessment order regarding the statement of Sh. R.K Kedia recorded during the search in the Kedia group separately on 13.06.2014 and has mentioned that Sh. Kedia in his deposition stated that M/s D B (International) Stock Brokers Ltd. (DBISL) was "not doing any actual work but is being used for providing long term entries to various beneficiaries" and that the company is controlled by two entry operators, Sh. S.N Daga and Sh. Natwar Lai Daga, operating from Connaught Place in New Delhi and Mumbai respectively. Beside this observation there is no further fact brought out in the assessment order including as to whether any enquiry was conducted against DBISL or against the two Dagas and whether any or what information was collected/available linking the transactions of the appellant with any such accommodation entry or that the transaction entered into by the appellant for purchase of shares of SVEL and CFSL through DBISL were in fact not genuine transactions. The observation and conclusion of the AO is simply based on the alleged statement of Sh. Kedia against DBISL which in any case is at best a general statement sans any specific case or transaction cited by Sh. Kedia or the AO. Besides, even the statement of Sh. Kedia, as mentioned earlier, was not confronted to the appellant during the assessment stage nor opportunity to cross-examine Sh. Jain was allowed to the appellant, and therefore such deposition of any third party cannot be held as evidence against the appellant.
4.5.3.3 Thereafter the AO has referred to the order dt. 19.12.2014 and 20.04.2015 of the SEBI in the case of M/s First Financial Services Ltd. (FFSL) and has at para-4.10 of the assessment order stated that "SEBI has found and held that there has been manipulative trading in the shares of the scrips of FFSL" and that "based on huge rise in traded price and volume of the scrips compared to the financial of this company preliminary investigations of SEBI have revealed that there were certain parties related to this entity who helped in consistent rigging in its shares and many related parties with no creditworthiness have helped many preferential allottees (beneficiaries) reaping bogus LTCG". Based on this finding of SEBI in respect of the shares of FFSL the AO has presumptively concluded ITA No.514, 515/Del/2017 18 that the shares of SVEL and CFSL had also been manipulative without bringing on record any evidence of such manipulation and rigging in the shares of these two companies, nor did the AO make any enquiry with SEBI, or for that matter from any other authority or source, to gather necessary information related to these two companies, if any. There is no information or any shred of evidence brought on record of such manipulation and rigging in the shares SVEL and CFSL and the AO's conclusion is at best presumptive sans any evidence.
4.5.3.4 The AO has also mentioned that letter u/s 133(6) of the Act were issued to SVEL and CFSL but that their replies were not received and that he got enquiry conducted and found that these companies were not existing at the given addresses. As mentioned above earlier in this order these companies are listed companies whose shares were traded at BSE which even BSE confirmed in reply to the AO. Even otherwise the enquiries were conducted at the back of the assessee and he was not confronted with such enquiry or its results as contended by the appellant's AR, and is therefore against the principle of natural justice. Such conclusion of the AO is presumptive without any basis and against facts available as mentioned earlier in this order.
4.5.4 On the conspectus of facts discussed herein above I find that the addition has been made in both the years on presumptions and surmises sans any material evidence or fact relevant to the transaction involved, and therefore the addition in both the years on this account is not sustainable even on merits. I hold accordingly and the addition is therefore deleted."
12. Aggrieved with such order of the CIT(A) deleting the addition made by the AO, the revenue is in appeal before us with the following grounds :-
" 1. The order of Ld. CIT(A) is not correct in law and facts.
2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs. 9,54,62,250/- made by the Assessing Officer on account of gain on sale of investment."
(Identical grounds have been raised by the revenue for assessment year 2012-13 :-) ITA No.514, 515/Del/2017 19
13. The ld. DR heavily relied on the order of the AO. So far as the order of the CIT(A) deleting the addition in absence of any incriminating material found during the course of search by relying on the decision in case of Kabul Chawla (Supra) is concerned, the ld. DR referring to the decision of the Hon'ble Delhi High Court in the case of Smt. Dayawanti vs. CIT reported in 290 CTR 361 submitted that the Hon'ble Delhi High Court in the said decision has held that where inferences drawn in respect of undeclared income of assessee were premised on materials found as well as statements recorded by assessee's son in course of search operation and the assessee had not been able to show as to how estimation made by the AO was arbitrary or unreasonable, addition was made by AO by rejecting books of accounts was justified.
14. Referring to the decision of Hon'ble Kerala High Court in the case of E.N. Gopakumar vs. CIT reported in [(2016) 75 taxmann.com 215 (Kerala)}], he submitted that the Hon'ble High Court in the said decision has held that assessment proceedings generated by issuance of a notice u/s 153A(1)(a) can be concluded against interest of assessee including making additions even without any incriminating material being available against assessee in search u/s 132 on basis of which notice was issued u/s 153(A)(1)(a). He submitted that the Hon'ble Kerala High Court has passed the order after considering the following cases which have been relied on the Hon'ble CIT(A).
"(i) CIT vs. Kabul Chawla [2016] 380 ITR 573/[2015] 234 Taxman 300/61 taxmann. Com 412 (Delhi0 (para4).
(ii) CIT vs. Continental Warehousing Corpn. (Nhava Sheva) Ltd. [2015]374ITR 645/232 Taxman 270/58 taxmann. Com 78 (Bom.) (para 4),
(iii) Principal CIT v. Kurele Paper Mills (P) Ltd. [2016] 380 ITR 571 (Delhi) (para 4),
(iv) CIT v. Lancy Constructions [2016] 383 ITR 168/237 Taxman 728/66 taxmann. Com 264 (Kar.) (para 4)
(v) CIT v. ST. Francies Clay Décor Tiles [2016] 240 Taxman 168/70 taxman.com 234 (Ker.) (para 5) and ITA No.514, 515/Del/2017 20
(vi) CIT v. Promy Kuriakose [2016] 386 ITR 597 (Ker.) (para 5)."
15. Referring to the decisions of Hon'ble Allahabad High Court in case of CIT vs. Raj Kumar Arora [2014] 52 reported in 367 ITR and in the case of CIT vs. Kesarwani Zarda Bhandar Sahson Alld. Vide ITA no. 270 of 2014, he submitted that the Hon'ble Allahabad High Court in the above decisions has held that assessing officer has power to reassess returns of assessee not only for the undisclosed income found during the search operation but also with regard to material available at time of original assessment.
16. So far as merit of the case is concerned, the ld. DR heavily relied on the order of the AO. He submitted that despite issue of notice u/s. 133(6), no reply was received from the two companies namely M/s. Clarus Finance & Securities Ltd. (CFSL) and M/s. SV Electricals Ltd.(SVEL). Filed enquiry showed that M/s. S.V. Electricals Ltd. did not exist at the given address. Shri R.K.Kedia in his statement had stated that he is an entry operator through his company D.B.International. Relying on various decisions, he submitted that the order of Ld. CIT(A) be reversed and that of the AO be restored.
17. The ld. Counsel for the assessee on the other hand heavily relied on the order of the CIT(A). She submitted that no incriminating material was found during the course of search. Therefore, no assessment u/s 153A could have been made. So far as the submission of the ld. DR that statement of Vipin Jain was recorded, she submitted that the statement was recorded during the course of survey which was conducted after the search in the case of the assessee. So far as the decision in the case of M/s. Dayawanti (supra) is concerned, she submitted that the said decision is distinguishable on facts and not applicable ITA No.514, 515/Del/2017 21 to the present case. Further in that case, there was under line material as per para 14 of the said order. Referring to the decision of the Hon'ble High Court in the case of M/s Smt. Dayawanti, the Ld. Counsel for the assessee drew the attention of the bench to para 14 of the order which read as under :-
" Mr. Dilip Shivpuri justified the impugned order and stated that the additions were based on the searched materials. These materials were in the form of documents kuchapurcha, sale deeds and other materials, which disclosed the extent of concealed income, and materials to justify a block assessment. This clearly indicated that the declared sale consideration was lower than the actual sale consideration."
18. Referring to the reply given by the Son of the assessee to question no. 10 in the said decision, she submitted that the son had also admitted in the case of Smt. Dawamti which read as under :-
"Q,. No. 10-I am showing your annexure A-3 (Page 60 and 61) found I seized from your residence at A-2/14-A, Model Town-I, Delhi on 23.03.2006 during the course of search, seizure please explain the nature, contents and details of these small hand written paichies.
Ans: These small hand written on unaccounted cash purchase/sales of various items in Supari which were made by firm M/s. Asom Supari Traders and M/s. Balaji perfumes. Also purchase dated 19.10 on page no. 60 of this Annexure represented unaccounted and credited."
19. She accordingly submitted that the facts in the case of Smt. Dayawanti (Supra) is not applicable to the facts of the present case. So far as the various other decisions relied on by the Ld. DR are concerned she submitted that all those decisions are also distinguishable and not applicable to the facts of the present case. As regards the decision of Hon'ble Kerala High Court in the case of E.N. Gopakumar (Supra) is concerned, she submitted that in view of the decision of the Jurisdictional High Court in the case of Kabul Chawla (supra), the same is binding on the Tribunal at Delhi. She accordingly submitted that in ITA No.514, 515/Del/2017 22 absence of any incriminating material found during the course of search, no addition could have been in the hands of the assessee.
20. So far as the statement of various persons which have been relied on by the Ld. DR concerned, She submitted that the statements cannot be considered as incriminating material unearthed during the course of search. She submitted that the period of issue of notice u/s 143(2) had lapsed. The revenue was already having the information which was filed along with return of income. Therefore by making fishing and roving inquiries, revenue cannot make any addition.
21. So far as the merit of the case is concerned she submitted that the assessee had provided all the requisite evidences and the same were not proved to be false. If the AO was not satisfied with the evidences filed before him, he could have asked the assessee to produce some further information. She submitted that the various notices issued u/s 133(6) have never come back to the AO which proves that they were duly served on those persons. The AO has never confronted the assessee about the address of those companies nor has asked the assessee to produce the Directors. The assessee was not aware about what was asked and what was replied. Therefore, assessee cannot be held responsible for non-compliance of those persons or non- submission of reply by those companies. So far as the allegation of the AO that SEBI had found manipulative trading in the shares and discrepancies of FFSL is concerned, she submitted that the assessee is not aware about the non- compliance by Shri Pawan Kumar Sharma under the SEBI Act. She submitted ITA No.514, 515/Del/2017 23 that the assessee is not aware who is Mr. Kedia, therefore, the same cannot be held against the assessee.
22. She further submitted that there is no direct allegation against the assessee by the AO. The AO has not pointed out any mistake in the various evidences submitted by the assessee. Further, those statements were never confronted to the assessee nor assessee was given any opportunity to cross examine those persons. Referring to various decisions, she submitted that the AO cannot make any addition without pointing out any mistake in the documents filed by the assessee. Further when any material is collected behind the back of the assessee, addition cannot be made on the basis of such material unless the same is confronted to the assessee. She also referred to the decision of the Hon'ble Delhi High Court in the case of Principal CIT vs. Lakhan Industrial Ltd. reported in 2017 (3) TMI 1531.
23. The ld. Counsel for the assessee finally referring to the grounds of appeal filed by the revenue submitted that they have challenged the order of the CIT(A) in deleting the addition on merit but have not challenged the order of the CIT(A) in deleting the addition in absence of any incriminating material.
24. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has filed his original return of income on 30th March, 2012 declaring total income of Rs. 3,92,11,220/-. In response to notice u/s. 153A of the IT Act, the assessee filed return in response to notice u/s 153A on 5th January, 2015 declaring the same income. The assessee in his ITA No.514, 515/Del/2017 24 return of income had claimed exemption of long term capital gain of Rs. 5,62,61,726/-. The assessment order was passed u/s 143(3) read with section 153A by making addition of the long term capital gain as bogus. From the order of the assessing officer, we find nowhere it is mentioned that any incriminating material was found during the course of search. The entire addition made by the AO is based on post search inquiries. There is also no ground by the revenue that any such incriminating material was found other than the statement of Shri Sundeep Gupta at the time of search. Under these circumstances, we have to adjudicate as to whether the CIT(A) has erred in deleting the addition made by the AO in absence of any incriminating material.
25. We find the ld. CIT(A) while deleting the addition has relied on various decisions including the decision of the Hon'ble Jurisidictional High Court in the case of CIT vs. Kabul Chawala reported in 21 taxman.com 412 (234 taxman
300). Finding of the CIT(A) on this issue has already been reproduced in the presiding paragraphs. So far as the reliance by the Ld. DR in the case of Smt. Dayawanti vs. CIT (supra) is concerned, we find the facts of that case are completely different from that of the facts of the present case. In that case the son of the assessee had categorically admitted that there were unaccounted purchase and sale of various items in Supari from different parties. He had also admitted that certain purchases are unaccounted and accordingly he had surrendered certain income. However, in the present case there is no unaccounted transaction found during the course of search. The capital gain that arose from the sale of shares are already recorded in the books of accounts and no incriminating material whatsoever was found during the course of search . Therefore, the said decision in our opinion is not applicable to the facts of the present case.
ITA No.514, 515/Del/2017 2526. It has come to our notice subsequent to the hearing that the Hon'ble Delhi High Court in the case of Pr. CIT vs. Meeta Gutgutia reported in 2017 (5) TMI 1224 has held that addition cannot be made in absence of any incriminating material and the decision in the case of Smt. Dayawanti Gupta has been duly considered. So far as the decision of Hon'ble Kerala High Court in the case of E. N. Gopal Kumar (supra) relied by the Ld. Dr is concerned, we find the said decision is of a non-jurisdictional High Court and the Tribunal is bound by the decision of the Jurisdictional High Court. Since the Hon'ble High Court in a number of cases recently has held that addition cannot be made in order passed u/s. 153A r.w.s. 143(3) in absence of any incriminating material found during the course of search in the case of completed assessments, therefore, we do not find any infirmity in the order of the CIT(A) deleting the addition in absence of any incriminating material found during the course of search.
27. We further find the revenue has not challenged the vital legal ground on which the Ld. CIT(A) has deleted the addition. Since the Hon'ble Jurisdictional High Court has clearly held that addition in order passed u/s 143(3)/ 153A cannot be made in absence of any incriminating material and since in the instant case, there is no evidence whatsoever on record that any incriminating material was found during the course of search and since the addition was made on the basis of certain inquiries conducted subsequent to the search on the basis of return already filed, therefore, on this issue itself addition has to be deleted. We, therefore, uphold the order of the CIT(A) and dismiss the ground raised by the revenue.
ITA No. 515/Del./2017 ITA No.514, 515/Del/2017 26
28. After hearing both the sides, we find the ground raised by the revenue is identical to the ground raised by the Revenue ITA no. 514/Del/2017. We have already decided the issue and the ground raised by the revenue has been dismissed. Following the same reasonings this ground by the revenue is also dismissed.
29. In the result, both the appeals filed by the revenue are dismissed.
Order Pronounced in the Open Court 23.8.2017
Sd/- Sd/-
(SUCHITRA KAMBLE) (R.K. PANDA)
Judicial Member Accountant Member
DATED: 23 .08.2017
*Binita*
Copy forwarded to:-
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
Assistant Registrar
ITA No.514, 515/Del/2017 27
Date Initial
1. Draft dictated on 3/08/2017
2. Draft placed before author 3/08/2017
3. Draft proposed & placed before the /08/2017
second member
4. Draft discussed/approved by /08/2017
Second Member.
5. Approved Draft comes to the /08/2017
Sr.PS/PS
6. Kept for pronouncement on /08/2017
7. File sent to the Bench Clerk
8. Date on which file goes to the AR
9. Date on which file goes to the Head
Clerk.
10. Date of dispatch of Order.
ITA No.514, 515/Del/2017 28