Income Tax Appellate Tribunal - Jaipur
Nisha Jain, Jaipur vs Ito, Jaipur on 31 January, 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 VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 368 /JP/2017
fu/kZkj.k o"kZ@Assessment Year : 2013-14
Shri Pramod Jain cuke The DCIT,
D-260 Devi Marg, Bani Park, Vs. Circle- 3,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AALPJ8838J
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 369 /JP/2017
fu/kZkj.k o"kZ@Assessment Year : 2013-14
Shri Ankit Jain cuke The DCIT,
D-260 Devi Marg, Bani Park, Vs. Circle- 3,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AFTPJ0723P
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 370/JP/2017
fu/kZkj.k o"kZ@Assessment Year : 2013-14
Shri Sunil Jain cuke The DCIT,
D-260 Devi Marg, Bani Park, Vs. Circle- 3,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ACQPJ1286P
vihykFkhZ@Appellant izR;FkhZ@Respondent
ITA No. 368 & 372/JP/2017
Shri Pramod Jain Vs. DCIT, Jaipur.
vk;dj vihy la-@ITA No. 371/JP/2017
fu/kZkj.k o"kZ@Assessment Year : 2013-14
Smt. Nina Jain cuke The ITO,
D-260 Devi Marg, Bani Park, Vs. Ward-3(2),
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AALPJ8842N
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 372/JP/2017
fu/kZkj.k o"kZ@Assessment Year : 2013-14
Smt. Nisha Jain cuke The ITO,
D-260 Devi Marg, Bani Park, Vs. Ward-3(2),
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AALPJ8841R
vihykFkhZ@Appellant izR;FkhZ@Respondent
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s Assessee by : Shri P.C. Parwal (C.A.)
jktLo dh vksj ls@ Revenue by : Shri Rajender Jha (Addl. CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 27/11/2017
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 31/01/2018
vkns'k@ ORDER
PER BENCH:
These five appeals by five assessees who are family members/related persons are directed against the five separate orders of ld. CIT(A) all dated 23.03.2017 for the assessment year 2013-14.
These appeals arose from the identical facts and circumstances of purchase and sale of shares treated as bogus transactions by the AO 2 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
and thereby the long term capital gain declared by the assessee was assessed as an unexplained income. Since, all the appeals are connected and involve common issues arising from the identical facts, therefore, for the sake of convenience these five appeals were clubbed for the purpose of hearing and are being disposed off by this composite order. For the purpose of recording the facts as well as analyzing the facts and evidences the appeal in ITA No. 268/JP/2017 is taken as lead case wherein the assessee has raised the following grounds:-
"1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in confirming the addition of Rs. 2,64,04,191/- made in the assessment completed u/s 143(3) by the AO by treating the long term capital gain income claimed exempt u/s 10(38), as unexplained income u/s 69 of the I .T .Act 1961, without any basis and with the sole purpose to make additions vvithout brining on record any corroborative material found during the course of assessment proceedings, and also by completely ignoring the well established law that no addition can be made solely on the basis of statements recorded on oath during the course of survey conducted just on the basis of information received from Investigation Wing of Income Tax, Kolkota communicated to AO through DGIT ( Inv. ) , Jaipur , without making its own independent enquiry and efforts. Thus, the additions made solely on the basis of such retracted statements deserve to be deleted.
1.1That , the Ld. CIT(A) has grossly erred in confirming the addition made in the assessment completed u/s 143(3) solely on the basis of statements of Shri Deepak Patwari recorded by I.T. 3 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
Officials after giving summons u/s 131 of the I.T. Act 1961 during the course of search operations carried out on the entry providers and survey conducted on the broking houses in Kolkata , by the Income Tax Officials . And also no opportunity of cross examining Shri Deepak Patwari was provided. Thus , the assessment order deserves to be held bad in law and the additions made there under deserve to be deleted .
2. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in confirming the addition of Rs. 2,64,04,191/- made in the assessment completed u/s 143(3) by the AO by treating the long term capital gain income claimed exempt u/s 10(38) , as unexplained income u/s 68 of the I .T .Act 1961, as the provisions of section 68 are applicable only when the assessee is maintaining books of accounts and in the present case assessee is a salaried individual not requiring to maintain the books of accounts . Thus, the additions made by the Ld. CIT(A) by applying the provision of section 68 is bad in law and deserves to be deleted .
3. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in making addition of Rs. 1,32,020/- on presumptions and assumptions @ 0.50 % of transaction amount of long term capital gain , without any basis and with out establishing the as to how the amount has been paid to the broker. Thus additions made without any basis just on presumptions and assumptions is bad in law and deserves to be deleted .
3.1 That, the Ld. AO and the Ld. CIT(A) has further erred in making the addition of Rs. 1,32,020 /- solely on the basis of the statements given by Shri Deepak Patwari, recorded by I.T. Officials after giving summons u/s 131 of the I.T. Act 1961 during the course of search operations carried out on the entry providers and survey conducted on the broking houses in Kolkata , by the Income Tax Officials . No documentary evidence of payment made could be brought on record by the ld AO . Thus 4 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
additions made without any basis just on presumptions and assumptions is bad in law and deserves to be deleted .
4. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in disallowing the sum of Rs. 12,500/- claimed by the assessee on account of legal expenditure, without providing any opportunity to give explanation and justification for. claiming the expenditure . Also no opportunity given to produce the evidence of claiming the expenditure. Thus the additions made without providing any opportunity to give justification and produce the evidence of claiming the expenditure is bad in law and deserves to be deleted.
5. That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of haring of appeal."
2. Ground Nos. 1 and 2 are regarding capital gain declared by the assessee was treated as unexplained income. The assessee is an individual and Director of ARL Infratech Limited and filed its return of income on 20.09.2013 declaring total income of Rs. 1,58,70,180/- which includes the income from salary, house property & income from other sources. During the scrutiny assessment the Assessing Officer noticed that the assessee has earned income from long term capital gain from sale share of M/s Luminaire Technologies Ltd. and M/s Oasis Cine Communication Ltd. amounting to Rs. 2,64,04,191. This income from long term capital gain has been claimed as exempt u/s 10(38) of the Act. The Assessing Officer doubted the genuineness of the 5 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
transactions in view of the fact that the Investigation Wing of Kolkata had carried out search u/s 132 of the Income Tax Act on some entry providers including one Shri Deepak Patwari. The Directorate of Investigation Kolkata vide their letter F. No. 4/2012-13 dated 30.03.2014 addressed to DGIT (Inv) Jaipur informed that in the course of survey operation carried out at the office of the broking houses were being made by companies of Kolkata for purchase of mostly penny stocks at BSE. Further, investigation revealed that all the purchasing companies were paper companies operated by an entry operator Shri Deepak Patwari and in his statement recorded u/s 131 of the Act accepted that he was merely an operator and was buying shares by using money provided by other operators for creating bogus entry of long term capital gains. The AO after discussing the modus operandi of entry providing operator as well as the statement of Shri Deepak Patwari issue a show cause notice to the assessee as to prove that the transactions carried out were genuine and exempt long term capital gain earned by it is beyond doubt. The assessee was also asked to make appearance of principal officers of the companies whose shares were purchased and sold by the assessee. In response the assessee filed its reply vide letter dated 15.03.2016 and explained that the 6 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
assessee has purchased the shares of M/s Gravity Barter Pvt. Ltd. subsequently changed its name to M/s Gravity Barter Ltd. and thereafter got merged with M/s Oasis Cine Communication Ltd. after approval of Hon'ble Kolkata High Court. The shares were purchased against the consideration paid by the assessee through cheque and the shares were transferred in the name by the assessee by the companies which were dully taken on record by the Registrar of companies. Similarly the assessee purchased shares of M/s Paridhi Properties Ltd. which also got merged with a listed company M/s Luninaire Technologies Ltd. and therefore subsequent to merger the assessee was issued the shares of the new entity in the exchange ratio as provided in the scheme of merger/ amalgamation. The assessee filed all the relevant details and supporting documents including the correspondence between the assessee and these companies at the time of purchase of shares and subsequent allotment of shares and resolution of the Board of Directors as well as the documents which were filed before the ROC in respect of change of name, shares certificate, transfer of shares, the order of Hon'ble Kolkata High Court and Bombay High Court approving amalgamation and merging of the companies and dematerialization of the shares in the demat account 7 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
and thereafter sale of the shares. The Assessing Officer has not disputed the dematerialized of shares as per the demat account record as well as subsequent sale of the shares by the assessee however, the AO doubted that the assessee has earned extraordinary profit/ gain on these transactions which are apparently not genuine. The AO analyzed the face value and prevailing market price of the shares at the time when the assessee allegedly purchased and then steep hike in the share price of the shares when the assessee sold the same. Since, the shares were purchased from the companies belonging to Shri Deepak Patwari, therefore, the AO held that the transactions are not genuine and consequently the capital gain declared by the assessee was treated as unexplained income of the assessee. The assessee challenged the action of the AO before the ld. CIT(A) but could not succeed.
3. Before us, the ld. AR of the assessee has submitted that during the financial year 2010-11 the assessee purchased 800 equity shares having face value of Rs. 10 each of M/s Gravity Barter Ltd. for a consideration of Rs. 4,00,000/-. The shares were purchased from M/s Winall Vinimay Pvt. Ltd. The ld. AR has referred to the sale bill dated 25.01.2011 and 03.02.2011 under which 400 shares on each day were purchased by the assessee @ Rs. 500 per shares. Accordingly the 8 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
assessee paid a total consideration of Rs. 4,00,000/- for purchase of 800 equity shares. The ld. AR has then referred to the bank statement of the assessee and submitted that the payment of Rs. 4,00,000/- was made through cheque on 17.05.2011 and therefore, M/s Winall Vinimay Pvt. Ltd. is shown as as creditor in the balance sheet as on 31.03.2011. He has further submitted that in the mean time M/s Gravity Barter Pvt. Ltd. changed its name and status from 'private limited' to a 'public limited' company vide Board of resolution dated 08.01.2011, which was approved by the Registrar of companies and fresh certificate of incorporation was issued on 05.02.2011 placed at page no. 43-46 of the paper book. The ld. AR has further submitted that Pvt. subsequently amalgamated with M/s Oasis Cine Communication Ltd. as per the order dated 25.08.2011 of Hon'ble Kolkata High Court and as per the terms of scheme of amalgamation approved by the Hon'ble High court every shareholder of M/s Gravity Barter Ltd. was allotted 44 shares of M/s Oasis Cine Communication Ltd. for each share held by it. The ld. AR has referred to the letter dated 01.11.2011 of M/s Oasis Cine Communication Ltd. whereby the assessee was communicated about the amalgamation of consequential allotment advice along with physical share certificates of 35,200 equity shares in the name of the 9 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
assessee were issued on 04.02.2012. The ld. AR of the assessee has referred to the share certificate issued by M/s Oasis Cine Communication Ltd. at page No. 101-104 of the paper book. Thereafter these shares were dematerialized on 16.02.2012 and a copy of demat account is placed at 149-153 of the paper book. The ld. AR has then pointed out that the name of the M/s Oasis Cine Communication Ltd. was changed to M/s Ecowave Infotech Ltd. w.e.f. 14.08.2012 as per the certificate at page No. 112 of the paper books. Accordingly, the shares appearing in the dematerialized account before that date was of M/s Oasis Cine Communication Ltd. and thereafter of M/s Ecowave Infotech Ltd. Out of these shares the assessee sold 18,000 equity shares in the month of July, 2012 as per the contract a note at page No. 106-110 of the P.B. The shares sold were consequently debited in the demat account of the assessee and the remaining 17,200 equity shares are still held by the assessee as reflected in the demat account and the balance sheet as on 31.03.2016.
4. Similarly the assessee purchased 50,000 shares of the M/s Paridhi Properties Ltd. having face value of Rs. 10/- each on 26.03.2011. The share application of money of Rs. 5,00,000/- was paid and debited in the bank account of the assesse on 28.03.2011. The ld. AR has referred 10 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
to the share application at page No. 113 of the paper books and the bank statement of the assessee at page 114 of the P.B. The shares were allotted to the assessee on31.03.2011 which were subsequently dematerialized and credited in the demant account of the assesse on 21.10.2011. Thereafter M/s Paridhi Properties Ltd. got merged with M/s Luninaire Technologies Ltd. as per the scheme of merger approved by the Hon'ble Bombay High Court vide order dated 27.07.2012. The assessee was allotted one equity share of Rs. 1/- each in the swap ratio of 1:1. He has referred to allotment of shares as communicated by M/s Luninaire Technologies Ltd. vide letter dated 4th September, 2012 at page No. 124 of the P.B. Accordingly, the assessee was allotted 5 lacs equity share of Rs. 1/- each of M/s Luninaire Technologies Ltd. which is credit in the demat account of the assessee. These shares were sold by the assessee between period 01.11.2012 to 14.12.2012 as per contract notes at page No. 125-145 of the P.B. for a consideration of Rs. 2,12,34,671/-. The sale proceeds were credited in the bank account of the assessee. Thus, the ld. AR has contended that when the assessee produced all evidences to prove the transactions of purchase of shares, the payment of purchase consideration, amalgamation and merger of the companies subsequent to the purchase of shares, allotment of the 11 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
shares of the merge entity, dematerialization of shares in the demat account and subsequent sale of the share from demat account of the assessee then the finding of the authorities below are based on presumption and suspicion along. He has further contended that the AO has given its finding on the basis of the statement of Shri Deepak Patwari without giving an opportunity to the assessee to cross examine. Further, Shri Deepak Patwari was nowhere stated that the assesseee ever approached him for providing entry for capital gains. Rather the assessee has purchased the shares paying the consideration through cheques. The Assessing Officer has doubted the transactions because of the changed name of the companies and subsequent amalgamation and mergers without appreciating the facts that all these changes were effected through proper procedure and were duly approved by the Registrar of companies issuing a fresh certificate. The fresh certificate of incorporation was issued by the ROC on 05.02.2011 when M/s Gravity Barter Pvt. Ltd. converted into public limited and the changed the name of M/s Gravity Barter Pvt. Ltd. However, the authorities below have ignored the certificate issued by the ROC on 05.02.2011 and gave much emphasis on the date mentioned in the order of the High Court as 18.04.2011. The ld. AR has pointed out that the date mentioned in 12 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
the order of the Hon'ble Kolkata High Court is a typographical mistake as the fresh certificate of incorporation was dully issued by the ROC on 05.02.2011 and a copy of which was duly placed before the authorities below as well as at page No. 46 of the paper book. Therefore, the said discrepancy in the date mentioned by the High Court has no relevancy to the genuineness of the transfer of the shares when the assessee purchased the shares of M/s Gravity Barter Ltd. prior to the fresh certificate by the ROC. Reliance is placed by the AO on the statement of Shri Deepak Patwari recorded by the Investigation Wing of Kolkata is unwarranted and not sustainable when the assessee was not given an opportunity to cross examine to Shri Deepak Patwari. In support of his contention, he has relied upon the decision of Hon'ble Supreme Court in case of Andaman Timber Industries vs. CCE 127 DTR 241 wherein the Hon'ble Supreme Court has held that the denial of opportunity to the assessee to cross examine the witness whose statements were made the sole basis of assessment is a serious flaw rendering the order a nullity in as much as it amounts to violation of principles of natural justice. Therefore, when there is no allegation by Shri Deepak Patwari that assessee ever approached him for any bogus entry for long term capital gain or he has provided any entry to the 13 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
assessee then, the authorities below are not justified on drawing adverse inference against the assessee on the basis of the price of the shares quoted in the stock exchange. The ld. AR has also relied upon the decision of Hon'ble Supreme Court in case of Lalchand Bhagar Ambika Ram vs. CIT 37 ITR 288 and submitted that the Hon'ble Supreme Court has held that the suspicion or presumption howsoever strong it may appear to be to true needs to be corroborated by some evidence to establish a link that the assessee has brought back his unaccount income in form of Long term capital gain. The ld. AR has also relied upon the decision of Mumbai Special Bench of this Tribunal in case of GTC Industries vs. ACIT 164 ITD 1. Thus the ld. AR has contended that in case of the assessee, there is no direct evidence brought on record by the AO to hold that the assessee introduced his own unaccounted money by way of bogus long term capital gain. The assessee has furnished all the evidences in support of its claim showing the investment in the shares and purchases of the shares has been accepted by the AO in the year of its acquisition and thereafter, until the same were sold. The ld. AR has submitted that the assessee has shown the shares in the balance sheet as on 31.03.2011 which were not doubted by the AO and only when the same were sold, the 14 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
Assessing Officer has raised the suspicion of genuineness of the transactions. Further, the assessee still holds 17,200 equity shares of M/s Oasis Cine Communication Ltd./ M/s Ecowave Infotech Ltd. The assessee is regulary investing in the shares as can be seen from the various shares appearing in his balance sheet and in the Demat account. The transactions of purchase and sale are all through account payee cheque and the same is reflected in the Demant account. The sale of shares suffered STT, brokerages, etc. and therefore eligible for exemption u/s 10(38) of the Income Tax Act. The ld. AR has relied upon the decision of Hon'ble jurisdiction High Court in case of CIT vs. Smt. Pooja Agrawal in DBIT appeal No. 385/2011 dated 11.09.2017 as well as decision of Hon'ble Madras High Court dated 11.08.2017 in case of M/s Lalitha Jewellery Mart P. Ltd. vs. DCIT.
5. On the other hand ld. DR has relied upon the authorities below and submitted that during the investigation carried out by the Kolkata Investigation Wing, Shri Deepak Patwari has admitted operating as an entry provider in respect of the penny stock of various companies. M/s Luminaire Technologies Ltd. is one of such company as admitted by him and clearly mentioned in the statement recorded by the Investigation wing Kolkata and the assessee has failed to prove the 15 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
genuineness of the transactions. The AO asked the assessee to produce the principal Officers M/s Gravity Barter Ltd. as well as M/s paridhi Properties Ltd but the assessee failed to comply with the notices issued by the AO. The AO has clearly made out the fact that the assessee has shown the shares certificate whereby the assessee purchase the share of M/s Gravity Barter Ltd. on 25.01.2011 and 03.02.2011 whereas the Hon'ble High Court has stated in the order that the date of certificate of corroboration after the name change is 18.04.2011. Thus, how could the assessee purchase the shares of a public limited company prior to 18.04.2011. The Assessing Officer has made the analysis of the facts and circumstances where the assessee has claimed to have earned exceptional and extraordinary long term capital gain in a short duration which clearly shows that the transactions of long term capital gain are nothing but the bogus entry provided by the paper company.
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 16 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
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 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 17 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
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 18 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
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 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 19 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
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 motive of purchase of the share is to earn an extraordinary gain because of some internal information available to the assessee.
20
ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
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 21 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
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.
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 22 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
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 23 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
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 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 24 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
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 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 25 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
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 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 26 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
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 link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion 27 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
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:-28
ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
"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 report of DCIT, Central Circle-3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of 29 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
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 30 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
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.
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.
10. Ground No. 4 is regarding disallowance of legal expenditure of Rs. 12,500/- .
11. We have heard ld. AR as well as ld. DR and considered the relevant material on record. The AO has disallowed the claim of the assessee on the ground that it does not pertain to the long term capital gain which was treated as bogus by the AO. The ld. CIT(A) has 31 ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
confirmed the disallowance by holding that as per section 57 of the Act an expenditure can be allowed which is incurred to earn the income changeable to tax. The ld. CIT(A) has thus observed that there is no nexus between the expenditure and earning of interest income which is offered to tax under the head income from other sources. We find that the assessee claimed the payment of Rs. 12,500/- to M/s R. Mangal & Co., Chartered Accountants towards legal fees for filing the income tax return. The genuineness of the payment has not be doubted by the authorities below. Therefore, the said expenditure is allowable claim against income declared by the assessee under the head income from other sources for which the assessee has filed the return of income and paid taxes. Accordingly we allow the claim of the assessee.
12. In the rest of the appeals the issue raised by the assessees are common and arising from identical facts as in the appeal in ITA No. 368/JP/2017 except the difference of addition made by the AO. Accordingly, in view of our finding on these issues in ITA No. 368/JP/2017 the grounds raised in these appeals in ITA No. 369/JP/2017 to 372/JP/2017 are decided in favour of the assessee.
In the result, the appeals of the assessees are allowed. 32
ITA No. 368 & 372/JP/2017 Shri Pramod Jain Vs. DCIT, Jaipur.
Order pronounced in the open court on 31/01/2018 Sd/- Sd/-
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(Vikram Singh Yadav) (Vijay Pal Rao)
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vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Shri Pramod Jain and others, Jaipur.
2. izR;FkhZ@ The Respondent- DCIT, Circle-3/ ITO,Ward-3(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. 368 to 372/JP/2017} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar 33