Income Tax Appellate Tribunal - Chandigarh
Smt. Aarti Singal, Chandigarh vs Dcit, Cc-1, Chandigarh on 7 February, 2020
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "ए" , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH "A", CHANDIGARH ी एन.के.सैनी, उपा य एवं ी संजय गग$, या%यक सद'य BEFORE: SHRI. N.K.SAINI, VP & SHRI , SANJAY GARG, JM आयकर अपील सं./ ITA No. 706, 707 & 709/Chd/2018 नधा रण वष / Assessment Year : 2008-09, 2010-11 & 2012-13 Shri Sanjay Singhal बनाम The DCIT 3- Industrial Area, Phase-1 Central Circle-1 Chandigarh Chandigarh थायी लेखा सं./PAN No: ANRPS7985C अपीलाथ /Appellant यथ /Respondent आयकर अपील सं./ ITA No. 712, 713 & 715/Chd/2018 नधा रण वष / Assessment Year : 2008-09, 2010-11 & 2012-13 Smt. Aarti Singhal बनाम The DCIT 3- Industrial Area, Phase-1 Central Circle-1 Chandigarh Chandigarh थायी लेखा सं./PAN No: ANRPS7985C अपीलाथ /Appellant यथ /Respondent नधा रती क! ओर से/Assessee by : Shri S.K. Tulsiyan, Advocate Shri Ashwani Kumar, C.A Ms. Abha Aggarwal, C.A Ms. Bhoomija Verma, Advocate Mr. Aditya Kumar, C.A राज व क! ओर से/ Revenue by : Shri. G.C. Srivastava, Special Counsel सन ु वाई क! तार&ख/Date of Hearing : 04/02/2020 उदघोषणा क! तार&ख/Date of Pronouncement : 07/02/2020 आदे श/Order PER BENCH:
All the above appeals filed by the different Assessees are arising out of the common order dt. 31/03/2018passed by the Ld. CIT(A)-3, Gurgaon.
2. These appeals were earlier heard on 01/10/2019, at that time, one of the contention of the Ld. Counsel for the Assessee was that these appeals are 2 squarely covered vide order dt. 31/10/2018 of the ITAT Delhi Bench in the case of Shri Brij Bhushan Singal & Ors Vs. ACIT in ITA Nos. 1412-1414, 1476-1478, 1482, 1485- 1487/Del/2018. To clarify this fact that as to whether the said order has been confirmed or reversed by the higher forum, these cases was fixed for clarification on 04/02/2020 i.e. the date on which another cases of the same group to which these assessees belong are fixed. The Ld. Counsel for the assessee clarified that the Departmental appeals against the said order dated 31/10/2018, were belated by approximately 200 days and till date those appeals had not been admitted by the Hon'ble Jurisdictional High Court and as such the said order dt. 31/10/2018 in the case of another persons belonging to the same group and decided by the ITAT Delhi Bench, is intact.
2.1 Since the issues involved are common having similar facts in all these appeals which were heard together, so these are being disposed off by this consolidated order for the sake of convenience and brevity.
3. At the first instance we will deal with the appeal in ITA No. 706/Chd/2018 wherein following grounds have been raised:
1. That order dated 31.03.2018 passed u/s 250(6) of the Income Tax Act, 1961 (hereinafter called the "Act") by the Ld. Commissioner of Income Tax (Appeals)-3, Gurgaon is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assessing Officer in initiating proceedings u/s 153A of the Act despite the fact that no incriminating material was found during the course of search u/s 132 conducted on 21-02-2014 whereby the order passed is without jurisdiction, bad in law and void ab-initio.
2. That the Ld Commissioner of income Tax (Appeals)-3, Gurgaon gravely erred in upholding the action of the Ld. Assessing Officer in making an addition of Rs. 40,05,419/- representing the sale proceeds of listed equity shares held by the Appellant for more than 12 months by invoking the provisions of Sec. 68 of the Act by ignoring the relevant specific facts and circumstances of the case and by relying on extraneous arguments and evidences, including in particular, circumstantial evidence, which has no bearing and applicability to the case.
3. That the Ld Commissioner of Income Tax (Appeals)-3, Gurgaon was not justified to uphold the action of the Ld. Assessing Officer in treating the transactions relating to purchase and sale of equity shares as ingenuine transactions.3
4. That the Ld Commissioner of Income Tax (Appeals)-3, Gurgaon further gravely erred in upholding the action of the Id. Assessing Officer in making an addition of Rs. 2,40,956/- on account of alleged commission expenses paid by the Appellant for arranging the alleged entries in respect of Long Term Capital Gains by invoking the provisions of Sec. 69C of the Act on sheer presumptive basis.
5. That the Ld. Commissioner of Income Tax (Appeals)-3, Gurgaon while adjudicating the appeal, has dismissed various grounds of appeal raised by the Appellant by relying on statements of various persons and data without affording any opportunity to cross examine such persons thereby ignoring the basic principles of natural justice despite the fact that a specific ground was raised to this effect.
4. The ground nos. 1 & 5 are legal grounds vide which the assessee had challenged the jurisdiction of the A.O. in initiating the proceedings under section 153A of the Act when no incriminating material was found during the course of search. These legal grounds were argued at the first instance by both the parties.
5. Facts relating to the issue as emerging from the order of the authorities below in brief are that a search and seizure operation under section 132(1) of the Income Tax Act (here-in-after referred as "Act"), was carried out by the Department at the business premises of the assessee Group i.e; Bhushan Power & Steel Group (BPSL in short) alongwith residential / business premises of its Directors and other related entities & persons on 03/03/2010.
6. During the course of search certain incriminating documents, papers, books of accounts etc. were found and seized. The A.O. mentioned that the assessee being the Director and key person of the Group filed letter dt. 18/06/2010 before the Investigation Wing surrendering an amount of Rs. 302 Crores in the hands of various Group Companies, his wife and himself as undisclosed income emanating from the seized documents. The surrender was made as under:
Sr. Name of the person making Amount of Assessment Yeatr of No. disclosure disclosure made Surrender 1 Shri Sanjay Singal Rs. 110 Crores 2010-11 4 2 Smt. Aarti Singal Rs. 140 Crores 2010-11 3 M/S Bhushan Power & Steel Ltd. Rs. 8 Crores 2010-11 4 M/S Diyajyoti Steel Pvt Ltd Rs. 10 Crores 2010-11 5 M/S Vision Steel Pvt Ltd Rs. 9 Crores 2010-11 6 M/S Marsh Steel Pvt Ltd Rs. 12 Crores 2010-11 7 M/S Jasmine Steel Pvt Ltd Rs. 13 Crores 2010-11 6.1 Later on the settlement application was filed by the Company M/S Bhushan Power & Steel Group (BPSL)but the Department took a view in the Rule- 9 report submitted by the Ld. CIT(Central) that the income surrendered in the hands of the individuals assessee was actually the income of M/s BPSL and that the income not disclosed by the Assessee should have been taxed in the hands of the M/s BPSL, therefore the protective assessment was made in the hands of the assessee. Thereafter, the Settlement Commission passed the order dt.
30/06/2013 under section 245D(4) for the A.Y. 2004-05 to 2011-12 in the case of M/s BPSL and gave the following decision relating to income surrendered by the Assessee in the individual capacity:
"19.5 It may be mentioned that Shri Sanjay Singhal and Smt. Arti Singhal have in their individual hands made a declaration of Rs. 239,11,90,780/-. After examining the facts on record, it is not possible to accept the contention of the Department that both credit and debit entries be added, as in our view this goes against the basic accounting principles. After hearing both the parties we are of the view that the income of the applicant company can be quantified at the amount of Rs. 239,11,90,780/- minus Rs. 168,26,80,893/- (amount of opening balance pertaining to Smt. Arti Singhal and Shri Sanjay Singhal in the seized Annexures) and balance amount of Rs. 70,85,09,887/- is treated as undisclosed income of the applicant company. As the said income of Rs. 70,85,09,88 7/- has been declared in the hands of Shri Sanjay Singhal and his wife Smt. Aarti Singhal which is to be shifted in the hands of applicant company on the basis of stand taken by the Department, we direct that this income will be excluded from Shri Sanjay Singhal and Smt. Aarti Singhal in the ratio of 107:32 respectively. We further direct that the taxes paid by Shri Sanjay Singhal and his wife Smt. Aarti Singhal in the ratio o f 107:132 on income of Rs. 70,85,09,887/- will be given credit to the applicant company. For this direction, we are guided by the decision of Hon'ble Supreme' Court in the case of Bachu Lal Kapoor Kewal Ram 60 ITR 74 (SC) in order to avoid taxation of the same income."
By following the order of the Settlement Commission the AO revised the assessment order on 01/08/2013.
56.2 In the present case the another survey was conducted on 27/12/2012 in M/s BPSL Group by DIT(Investigation), Chandigarh which resulted in voluntary disclosure of Rs. 70.36 Crores for the A.Y. 2013-14 on account of unexplained credits, cash payment for land purchase and interest disallowance in the hands of various Group concerns. Thereafter, another search and seizure operation on 21/02/2014 was initiated by the Department at the business premises alongwith residential / business premises of the Directors and other related persons of BPSL.
6.3 The AO also observed that various new evidences in the form of soft as well as hard data including statements of Numerous Entry Operators were found / recorded which prime facie indicated that bogus Long Term Capital Gain (LTCG), accommodation entries in the case of individuals of BPSL group and One Time accommodation (OT) towards share capital /share premium in the case of group concerns were obtained which suggested that BPSL Group had been continuously involved in introducing its unaccounted income in garb of LTCG, OT etc. The AO pointed out that during the course of search and seizure action on 22/02/2014 the key person of the BPSL Group Shri Sanjay Singhal i.e; the assessee was confronted with the various incriminating evidences alongwith the statement of various connected persons and his statement under section 132(4) of the Act was recorded wherein in reply to last question he disclosed additional income of Rs. 250 crores for the A.Y's. 2011-12 & 2012-13 which included the following income:
1. Mrs. Aarti Singal 82.38 crores
2. Mr. Sanjay Singal 55.57 crores
3. Sanjay Singal (HUF) 21.66 crores Total 159.61 crores It was also stated that the details of balance amount were to be submitted after examining the seized material.6
6.4 The AO pointed out that in the return of income filed in response to notice under section 153A of the Act, it was found that the surrendered income had not been reflected. The AO thereafter issued the notices under section 143(2) and 142(1) of the Act. The Assessee objected to the assessment proceedings initiated under section 153A of the Act on the ground that no incriminating evidences were found from him and that the books of accounts and other data maintained in the server of the Assessee Group at 3, Industrial Area Phase-I, Chandigarh was cloned and thereafter seized. The AO observed that the details of the cheques / RTGS transactions of assessee as well as group concerns with the paper entities of entry providers were mentioned in the cloned data seized from the assessee and those details matched with the data seized from the various entry providers located at various places which suggested that OT accommodation entries and LTCG were obtained by the Assessee Group in lieu of cash and with the nexus of the assessee with the entry providers and incriminating nature of data seized was established, therefore the objection of the assessee was not accepted. The A.O. observed that during the course of investigation and assessment proceedings, it was exercised that the assessee had shown Long Term Capital Gain(LTCG) as exempt income, through sale of share of various companies from A.Y. 2008-09 to 2014-15, details of which were as under:
Sl. Amount of capital gain as per information with this office (In Rs. Crores) No. Name of the Script Companies A.Y. A.Y. A.Y. A.Y. 2011- A.Y. A.Y. 2013- A.Y. 2014- 2008-09 2009-10 2010-11 12 2012-13 14 15 1 M/s Pranneta Industries Ltd. (now known as 54.36 1.20 Aadhar Ventures India Limited) 2 DB (International) Stock Brokers Ltd. 15.66 3 Blue Circle Services Ltd. 40.43 4 Unisys Software &Holding Indust. Ltd. 3.18 7.75 5 Nouveau Multimedia Ltd. 0.37 6 Action Financial Services (India ) Ltd. 0.72 7 Rutron International Ltd. 9.62 8 Rander Corporation Ltd.
9 P.L. Enterprises Ltd. now known as Mantra 7 Kausal Enterprises Ltd.
10 Matra Kaushal Enterprises Ltd.
11 Grandma Trading & Agencies Ltd.
12 Asiallak Capital & Finance Ltd now known as 35.04 Glot>al Infratech Ltd.
13 Global Infratech & Finance Ltd. 13.99
14 G-tech Info 0.23
Total 0.37 0.00 0.23 54.36 60.48 8.48 58.65
6.5 The A.O. asked the assessee to furnish the complete details of exempt
LTCG earned in the various assessment years and the details of bank accounts in which exempt income earned was deposited. He further observed that the assessee failed to furnish information in this regard, however, the Department gathered various evidences during the course of search and seizure proceedings which primafacie proved that he transaction of LTCG were not genuine. According to the A.O. the evidences gathered were confronted to the assessee and the explanation was sought. As regards to the evidence relating to the accommodation entries in respect of share of M/s Praneta Industries Ltd.
(PIL), the A.O. observed that the search and seizure operation under section 132 of the Act was conducted in the case of Shri Shrish Chandrakant Shah (SCS) on 09/04/2013 and it was found that M/s BPSL Group had received huge amount of accommodation entries from the cartel of companies managed and controlled by SCS and various other entry operators. He also pointed out that following evidences were in possession of the Department:
DOCUMENTRY EVIDENCES IN POSSESSION OF THE DEPARTMENT:-
S.No Particulars of the Evidence File description Path in case of digital Hereinafter evidence referred to as
1. Cheque Sheets for the period Final all ot up F:' Shetty\c Documents and "OT ENTRIES"
310312.xls O1.O4.2009 to 31.03.2012. Settings\user2\Destop
2. Account of R.K. Kedia in the "Kedia 2" sheet in MS Excel F:\pen drive back up1 ""Kedia 2" sheet books of Shirish Shah file ac 1 .xls Removable Disk/ Bips backup maintained in MS Excel format 14.02.12 (till 14.02.12)
3. Cheque received from Singal "Cheque received from Cheque received Group by SCS singals" from Singals 8 Group by SCS ORAL EVIDENCE IN POSSESSION OF THE DEPARTMENT :-
Sr.No. Name of the Persons Association with SCS Date of statement and section under which recorded 1 Shinsh Chandrakant Shah 132(4) dated 13.04.13, 03.06.13, 11.06.13 and (SCS) u/s. 131(1 A) dated 25.11.13 and 13.01.14 (Relevant Parts) 2 Rajan Kachalia Main person handling the accounting and 09.04.2013 u/s. 132(4); 11.04.2013 u/s. 131(1 documentation part. A) 3 Chandan Kumar Singh Mam person handling cash and bank transactions 09.04.2013 u/s. 132(4) and 10.04.2013 and preparation of primary receipt payment u/s. 131(1 A) documents.
5 Damodar Attal Main person handling share trading and 09.04.2013 u/s. 131(1 A) synchronized trading work.
6 Devang D. Master Key- associate handling the compliance work and 09.04.2013 u/s. 132(4) and 10.04.2013 involved in legal planning u/s. 131(1 A) 7 Devang Jhaveri Key associate handling day to day compliances and u/s. 132(4) dated 09.04.2013 verification of documents. 8 Prakash Dave Employee of Shirish Shah u/s. 132(4) dated 09.04.2013 9 Naresh Parmar Employee of Shirish Shah, prepares cash and u/s. 132(4) dated 10.04 2013 cheques sheets. 10 Kumar Raichand Madan Person supplying Directors and Addresses u/s. 131(1 A) dated 09.04.3013 for the companies of 1 Shirish Shah. He has also been found to be Director in many of the companies of Shinsh Shah 11 Praveen Kumar Jain (alias Accommodation entry provider, facilitated u/s. 131(1 A) dated 11.10.2013 Pintu alias Chintan) conversion of cash into RTGS/cheques in the accounts of Shirish Shah's entities. 12 Satish Saraf Accommodation entry provider, facilitated u/s. 131(1 A) dated 05.10.2013 conversion of cash into RTGS/cheques in the accounts of Shirish Shah's entities. 13 Om Prakash Promoter and Director of M/s. Prraneta Industires u/s. 132(4) dated 30.05.2013 Anandilal Limited, a listed company found and accepted to be Khandelwal controlled by Shirish Shah. 14 Yogendra Kumar Promoter and Director of M/s. Mahan Industires u/s. 131(1 A) dated 26.12.2013 Gupta Limited, a listed company found and accepted to be controlled by Shirish Shah. 15 Jayesh Raichand Promoter and Director of M/s. Prabhav Industries u/s. 131(1 A) dated 10.02.2014 Thakkar Limited, a listed company found and accepted to be controlled by Shirish Shak. 16. Shri Satyaprakash Goel Director of Avance Technologies Limited, listed u/s. 131 (1 A) dated 26.10.2012 company controlled and managed by Shirish Shah. 6.6 The A.O. also observed that during the course of search and seizure at the
office premises of SCS, backup of the books of accounts was taken and than an excel sheet named "Kedia 2" was impounded in which details of the shares of M/s PIL sold by the assessee and his family had been recorded under the 9 heading " new account" which contained details of cash received by the SCS from Kedia (i.e. Shri Raj Kumar Kedia or R.K. Kedia of Delhi) on behalf of the BPSL Group against the payment made on the purchase of shares. The A.O. mentioned names of the entities to whom the shares of M/s PIL held by the assessee and his family were sold at page no 10 of the assessment order, for the cost of repetition the same are not reproduced herein. The A.O. pointed out that the analysis of the time difference between the order placed and the trade execution by the assessee and his family had been carried out on the data received from the BSE which revealed that out of the total 3138 share sold, transactions entered into by the assessee and his family i.e. 48% of the total traded were executed within one minute of the order placed in the exchange and more than 71% orders were executed within five minutes of placing the orders on the Exchange. He also pointed out that modus operandi followed by the SCS for providing exempt LTCG had been explained in details in his various sworn statements recorded during the course of search and post search proceedings which had been corroborated and collated with the evidences found and seized / impounded during the course of search and survey proceedings conducted in the case of SCS at various premises. The evidences and the statements of employees of SCS were confronted to him during the course of search and in the post search proceedings and SCS in his statement admitted to have provided various types of accommodation entries against receipt of cash from the clients either directly or through intermediaries and also admitted to be engaged in synchronized trading in the shares of various listed companies managed and controlled by him so as to facilitate LTCG to the clients against receipt of cash from them. The A.O. mentioned that the modus operandi followed by SCS for providing accommodation entries of LTCG was as under:
o The preferential shares are allotted by way of private placement by the listed companies controlled and managed him me to various 10 clients/beneficiaries who approach him for getting accommodation entry of long term capital gains.
o In certain cases the clients purchase shares from the companies under his control on BOLT at low prices.
o Thereafter, the price of share of the listed companies is artificially raised by way of purchase and sale of shares through the web of companies.
o When the share prices are raised to high levels, the shares of these clients are purchased by the companies and individuals under his control on BOLT using the cash received from the clients that has been layered in the buyer company/individual's bank account after layering the funds through the group companies.
6.7 According to the A.O., SCS in his statement recorded on 11/06/2013 under section 132(4) of the Act admitted to have provided LTCG entries in the shares of M/s PIL of around Rs. 560 Croes against receipt of cash to various clients and that the details of the shares purchased by him through companies and persons controlled by him were recorded in various files in the "Bips Folder". The A.O. observed that during the course of search on M/s PIL at Ahmedabad on 09/04/2013 it was established that the said company was only a paper company without any activities and was being used by SCS for providing various types of accommodation entries including LTCG and in this regard statement of MD, Shri Omprakash Anandialal khandelwal (OPK)was recorded under section 132(4) of the Act wherein he mentioned that M/s PIL had been engaged in providing accommodation entries for providing LTCG against receipt of cash.
The A.O. summarized the modus operandi stated by SCS and OPK as under:
o SCS approaches promoters of defunct listed companies and enters into an arrangement with them to use their companies for giving accommodation entries. He then appoints dummy Directors in such companies and opens a bank account of such companies in Mumbai which is operated by him. With regard to PIL it is clear from the statement of SCS and OPK, discussed above. o To have effective control over the shares of the penny stock companies, the share capital of these penny stock companies is structured by SCS by allotting a large number of fresh shares through private placement. The structuring of share capital involves two types of allotment:
b. Majority of the shares are allotted a number of private companies which too are under control of SCS. The investment is made by the private limited companies in the shares of listed companies following two modus operandi:11
■ Firstly, the unaccounted cash received from clients is layered into the investing private company which invests in the shares of the listed company and the listed company in turn provides accommodation entry of share capital/premium to the client from whom cash was received.
■ Secondly, an artificial structure of share capital of the listed company is created, wherein, a private limited company managed by SCS subscribes to the shares of the listed company. The listed company in turn advances these funds to another private limited company managed by SCS. This money so received by the second private limited company is layered in the web of companies managed by SCS and another private limited company invests in the share capital of the listed company. In this manner the cycle of layering and increasing the share capital of the listed company is repeated several times. In this way the share capital of the listed company is artificially structured without actual flow of funds into the entities under the control of SCS.
6.8 The A.O. pointed out that the share's price in the case of PIL jacked up from Rs. 2.25/- per share to Rs. 87.10/- per share during the period April 2009 to March 2011. The A.O. mentioned that it was clearly established from the statement of Shri Omprakash Anandialal Khandelwal that :
o PIL is a paper company with no activities.
o PIL has been engaged in providing various types of accommodation
entries.
o The entire turnover of the company is /paper turnover.
o The share capital recorded to have been raised in the books of the
company is mere accommodation entry.
o The shares of the company held by the promoters were transferred to the
persons under control of Shirish Shah by Omprakash Khandelwal so as to provide LTCG in the shares of the company through synchronized trading.
o The Directors of the company are dummy directors and the effective control and management of the company was with SCS.
6.9 The A.O. observed that SCS had accepted these facts during the course of his statement recorded on 13/04/2013, 03/06/2013, 11/06/2013, 25/11/2013 and 13/01/2014 that the synchronized trading was resorted to so as to jack up the price of the shares to buy the shares from the clients and to provide them payout against receipt of cash from them and that the beneficiary clients were the assessee, his family and group concern.
6.10 The A.O. also observed that the key employees of SCS namely Shri Chandan Kumar Singh and Shri Rajen Kachaliya stated in their statement that 12 day to day receipt of cash was recorded in the cash sheets which were maintained in the computer at the office of SCS situated at "Dwarka Ashish Building" and the physical copies of the printouts were also maintained at the said office which were found during the course of survey conducted on 09/04/2013 at the office of Shri SCS. The A.O. pointed out that the name, code name or the initials of the client/intermediary from or through whose reference, cash had been received or paid was recorded in the column "PARTY", and the amount of cash received/collected by or on behalf of SCS from /through the person mentioned in the "Party" column was entered in the column "Received". The A.O. also pointed out that in the most of instances the cash received by SCS from the assessee & Group had been paid to Pintu alias Chintan (Praveen Kumar Jain) and the same had also been found to have been recorded in the books independently maintained by Pintu, seized during the course of search conducted in his own case. The A.O. reproduced the details of new accounts in Kedia 2 Sheet at page no. 19 to 27 of the assessment order, the contents of the same was extracted as under:
Date DETAILS QTY Rate AMT DEPOSIT PAID RECEIVE D Balance
1 2 3 4 5 6 7 8 9
22.07.10 P RAN ETA NEW 100000 46.25 46.25,000.00 -50,000.00 45,75,000.00
22.07.10 COMM ON 40.97 @ 4.75 COMM 1,94,607.50 47,69.607.50
%
22.07.10 CASH RCD 50,00.000.00 -2,30.3 92.50
22.07.10 ANGAD1A CHRG 12,500.00 -2,17,892.50
26.07.10 CASH RCD 50,00,000.00 -52,17,892.50
26.07.10 ANGADIA CHRG 12,500.00 -52,05,392.50
o At Column No. (1), the date of transaction is recorded,
o At column No. (2) the nature of the transactions for which the amounts
have been credited and debited in the said sheet has been recorded. • "Prraneta New" refers to transaction of purchase and sale of shares of M/s. Prraneta Industries Limited (PIL) • "4.75%" represents commission charged on the LTCG provided to the client (This was charged From Mr. Kedia who charged at higher rate from clients).
• "cash red" represents cash received from the client and credited to the account of the client at Column No. (8) 13 • "Angadiya charges" refer to the cash courier expenses debited to the account of the party/client.
o At column No. (3), the quantity of shares of the company mentioned at Column No (2) sold or purchased is recorded. The + Ve sign denotes purchase of shares of the company recorded at Column No. 2 by SCS though persons and companies controlled by him wherein the counterparty is the seller which has provided cash to SCS and has received payout through synchronized trading. In this case Rs. 1,00,000/- shares of M/s Pranneta Industries Ltd. have been purchased by SCS from counter party from whom cash has been received. o At column No. (4), the rate per share (in certain cases the average rate of the shares purchased by SCS through synchronized trade from the client) of shares of the company mentioned at Column No (2) is recorded. In this case the rate per share is Rs. 46.25 per share.
o At column No. (5), the total trade value of the shares sold by the client and purchased by SCS (through persons controlled by him on BSE) is recorded. In this case the total trade value of the purchase of shares of M/s Pranneta Industries Ltd.from the client is Rs. 46,25,000/-. This column represents the debit made by SCS to the account of the client. In this case the account of BPSL Group has been debited by Rs. 46,25,000/-.
o At column No. (6), the commission debited to the account (Rs. 194607.5/- in this case) of the client on the total LTCG facilitated to the client by SCS is recorded. In the present case the rate of commission has been charged at 4.75% of the net LTCG (Refer column No.2). The value of LTCG has been computed by SCS at Rs. 40.97 (Lakhs) (i.e. sale price per share minus the purchase price multiplied by the number of shares sold by the client to SCS. In the present case the purchase price is Rs. 2.25 per share and the sale price is Rs. 46.25 and the no of shares sold by BPSL Group is 100000. Thus, LTCG is 44 X 100000 = 44,00,000/-) .
o At Column No. (7) the details of any amount paid by SCS to the client Sanjay Singal have been recorded. The entries recorded in this column are also of the nature of debit made by SCS to the client account.
o At column No. (8), the amount received by SCS from the client is recorded. The entries recorded in this column are in the nature of credits made by SCS to the clients account. For instance the cash of Rs. 50,00,000/- received by SCS from the client in this case is credited to his account at column No. (8). The nature of credit or the mode of receipt is recorded at Column No. 2 (Details) of the sheet.
o At column No. (9), the balance in the account of the client BPSL Group is recorded. Positive balance represents debit balance i.e. the amount receivable by SCS from the client and vice versa.
According to the A.O. the entries in the Kedia 2 Sheet completely correlated with the shares trading data of M/s PIL as obtained from the BSE which revealed that 3,00,000 shares of M/s PIL had been traded on 14/02/2011 @ Rs. 68.75/- per 14 share and exactly total 3,00,000 shares had been sold by the various individuals to M/s BPSL Group as per following details:
Date No. of Rate Payout Amount Name of the buyer Name of the Shares (Rs.) seller 14-02-2011 1510 68.75 103812.5 Kinita Real Estate Sanjay Singal Pvt. Ltd. HUF 14-02-2011 23490 68.75 1614937.5 Kinita Real Estate Sanjay Singal Pvt. Ltd. HUF 14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Sanjay Singal Ltd. HUF 14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Aarti Singal Ltd.
14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Aarti Singal Ltd.
14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Aarti Singal Ltd.
14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Aarti Singal Ltd.
14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Aarti Singal Ltd.
14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Aarti Singal Ltd.
14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Sanjay Singal Ltd.
14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Sanjay Singal Ltd.
14-02-2011 25000 68.75 1718750 Kinita Real Estate Sanjay Singal Pvt. Ltd.
14-02-2011 25000 68.75 1718750 Kinita Real Estate Sanjay | Singal Pvt. Ltd.
Total 3,00,000/- Rs. 2,06,25,000/- 6.11 On the basis of above the A.O. observed that the rates, number of shares
and the amount of total payout received by various individuals of M/s BPSL Group exactly matched with the entries as recorded in the Kedia 2 Sheet as impounded during the course of survey in the case of SCS. The A.O. also reproduced transaction record in the Kedia 2 Sheet vis a vis trade data of M/s PIL at page no. 32 to 34 of the assessment order which revealed that M/s PIL paid Rs. 3,73,52,500/-, Rs. 4,53,52,250/- and Rs. 2,09,53,899/- to various individuals of the BPSL Group on 15/03/2011, 16/03/2011 and 17/03/2011 respectively. The 15 A.O. also observed that the search and seizure action was again conducted at the office and residential premises of Shri R.K. Kedia Group on 13/06/2014 and all the evidences and findings of search action on SCS Group and other related groups were confronted to Shri R.K. Kedia who stated on oath that he had arranged LTCG accommodation entries for the various individuals of M/s BPSL Group on the request of assessee and Shri R.P. Goyal. He also pointed out that Shri Praveen Kumar Jain (Pintu) admitted on oath that he was in business of providing accommodation entries and used to collect cash from angadias on behalf of SCS and then equal amount through cheques / RTGS were paid to SCS. The comparative analysis of Kedia 2 Sheet in the books of SCS and the SCS account in the books of Pintu was mentioned by the A.O. at page no. 35 to 58 of the assessment order for the cost of repetition the same is not reproduced herein.
6.12 The A.O. pointed out that the details which were found in the books of accounts of SCS entities matched with the details found in books of accounts and document seized from Shri R.K. Kedia who admitted that the code language has been used and a dot(.) had been placed before two zeroes (.00) while recording the amount of transaction in the books of accounts. The same fact was admitted by the employees of Shri R.K. Kedia in their statements recorded on oath. He also observed that the details of LTCG accommodation entries arranged by Shri R.K. Kedia through listed paper entities like M/s PIL of SCS had been found seized in the case of Shri R.K. Kedia. The AO prepared a cash trail showing the flow of unaccounted cash from various individual of BPSL Group to SCS through Shri R.K. Kedia at page no. 60 of the assessment order and observed that the evidence in the form of seized books of accounts from three independent searches on SCS Group, Kedia Group and Pintu Group at different point of time, having the exactly same details of accommodation entries in lieu of unaccounted cash established beyond any doubt that various individuals of the BPSL Group had taken LTCG accommodation entries with the help of 16 accommodation entry operators. He also pointed out that the documents revealed that SCS had charged commission @4.75% for arranging LTCG accommodation entries from Shri R.K. Kedia in whose case the search and survey action was taken on 21/02/2014 and he was asked to explain his role in arranging the accommodation entries for various individuals of the BPSL Group, he was also confronted the evidences found during the search action on SCS and his statement was recorded under section 132(4) of the Act on 09/04/2013, 03/06/2013, 05/06/2013, 11/06/2013, 25/11/2013 and 13/01/2014. The A.O. also observed that the search and survey action was again carried out on the residential / business premises of Shri R.K. Kedia on 13/06/2014 and certain incriminating documents pertaining to his business of providing accommodation entries were found in the custody of his accountant Shri Manish Arora who was asked to decode the books of accounts maintained in tally pertaining to business of accommodation entries. Shri Manish Arora stated on oath that books of accounts found and seized during the search at his residence were related to the accommodation entries business of Shri R.K. Kedia on whose instructions he used to enter the transactions in the books of accounts. The A.O. pointed out that statement of Shri R.K. Kedia was again recorded under section 132(4) of the Act on 13/06/2014 in which it was admitted that he was in the business of providing accommodation entries after charging certain percentage of commission and arranged accommodation entries for various beneficiaries like BPSL group from different entry operators.
The A.O. on the basis of statement of Shri R. K. Kedia and his accountant Shri Manish Arora was of the view that the Shri R.K. Kedia had provided accommodation entries from his paper concerns and had arranged accommodation entries for various beneficiaries from different entry operators in lieu of unaccounted cash after charging certain percentage of commission in cash and that he also told the name of persons who contacted him for taking accommodation entries on behalf of various beneficiaries who delivered 17 unaccounted cash to his employees on behalf of the beneficiaries. The A.O. on the basis of statement of Shri R.K. Kedia observed as under:
o Sh. R.K. Kedia was in the business of providing accommodation entries in lieu of unaccounted cash receipts.
o Sh. R.K. Kedia also arranges various kind of accommodation entries from different entry operators (SCS in this case) for his different client beneficiaries various individuals of the BPSL group in this case, after charging a fixed percentage of commission in cash.
o Out of the total percentage of commission received in cash (6 - 7%) from Bhushan Power & steel Group he paid around 4.50-4.75% of commission to SCS and 0.25% to angadias for cash courier.
6.13 The A.O. observed that Shri R.K. Kedia and his employee Shri Manish Arora admitted on oath that they were in the business of providing accommodation entries and had arranged various kinds of accommodation entries for the various individuals of the BPSL Group and received commission @ 6% of the entries provided by them and that upon being confronted with the evidences the assessee disclosed additional income of Rs. 250 Crores under section 132(4) in the sworn statement recorded on 22/02/2014 and backed it up with disclosure letter, however he could not give any satisfactorily reply to the question asked by the authorized officers and reiterated the disclosure of unaccounted income of Rs. 250 Crores under section 132(4) of the Act in the whole group. The A.O. pointed out that aforesaid surrenderred amount included Rs. 159.61 crores of LTCG earned through M/s PIL for the A.Y. 2011-12 and in the hands of the assessee (Rs. 55.57 Crores) Sanjay Singhal HUF(Rs. 21.66 Crores) and Smt. Aarti Singhal (Rs. 82.38 Crores) for the A.Y. 2012-13, however no further bifurcation for the remaining amount was submitted by him. The A.O. also observed that the assessee and his family members claimed exempt income on account of sale of shares of various listed penny stock companies other than M/s PIL in different assessment years, the details of which was given as under:
SI. No. Name of the company
1 DB (International) Stock Brokers Ltd.
18
2 Blue Circle Services Ltd.
3 Unisys Software &Holding Indust. Ltd.
4 Nouveau Multimedia Ltd.
5 Action Financial Services (India ) Ltd.
6 Global Infratech & Finance Ltd. now
known as Asian Lak Capital & Finance
Ltd.
7 Rutron International Ltd.
8 Rander Corporation Ltd.
9 Matra Kaushal Enterprises Ltd.
Grandma Trading & Agencies Ltd.
6.14 The A.O. pointed out that Shri R.K. Kedia in his statement dt. 13/06/2014
stated that the most of the companies were paper companies controlled and managed by various accommodation entries operators and those companies were not doing actual work but were being used for providing LTCG to various beneficiaries. The A.O. reproduced the relevant part of statement of Shri R.K. Kedia at page no. 66 to 69 of the assessment order, for the cost of repetition the same is not reproduced herein. The A.O. also mentioned the names of the listed paper companies alongwith names of the entry operators controlling and managing the affairs of such companies as under:
Sr. No. Name of the Company Name of entry operator controlling and managing the affairs of the company 1 Pranneta Industries Ltd. Sh. Shirish Chandrakant Shah 2 DB International Stock Brokr Ltd. Sh. S.N. Daga 3 Blue Circle Services Ltd. Sh. Jagdish Prashad Purohit 4 Unisys Software & Holding Ltd. Sh. Jagdish Prashad Purohit 5 Action Financial Services (India) Ltd. Sh. Bakul Parikh 6 Global Infratech Ltd. Sh. Jagdish Prashad Purohit 7 Rutron International Ltd. Sh. Anil Aggarwal 8 Matra Kaushal Enterprises Ltd. Shri Krishan Kumar Khadaria 9 Rander Corporation Ltd. Sh. Natwar Lai Daga and Krishan Kumar Khadaria 10 Grandama Trading Agencies Ltd. Sh. Sawan Jaju 11 Nouveau Multimedia Ltd. Shri Krishan Kumar Khadaria 12 PS Infrstructure & Services Ltd. (Parag Sh. Jagdish Purohit Shilpa Invesments Ltd) 6.15 The A.O. observed that during the post search investigation various information related to the above named companies was collected which 19 proved that all these companies were paper companies doing no actual business and were being used for giving exempt LTCG accommodation entries by various entry operators. The A.O. discussed the investment pattern in the case of M/s Blue Circle Services Ltd. (BCSL) used for providing accommodation entries to various beneficiaries at page no. 70 to 75 of the assessment order for the cost of repetition the same is not reproduced herein. The A.O. observed that most of the beneficiaries booked bogus LTCG between October 2011 to November, 2012 and after that the prices had fallen to rock bottom, therefore the study of share prices history of BCSL also proved how this company had been used for providing accommodation entries to various beneficiaries. He also observed that the trade details of BCSL revealed that the most of the share brokers through whom most of the purchases had been, done had admitted on oath that they helped various beneficiaries in arranging bogus LTCG accommodation entries which were artificially jacking up the prices of a defunct listed paper company. The said company was controlled and managed by Shri Jagdish Prasad Purohit, but various other entry operators like Shri Anand Sharma, Shri Deepak Patwari, Shri Praveen Agarwal and Shri R.K. Kedia etc. also helped in raising the prices of the shares to the desired level and after one year the beneficiary handed over the unaccounted cash to the entry operators who had contracted for arranging LTCG accommodation entry. He also pointed out that statement of Shri Deepak Patwari an entry operator from Kolkata was recorded on oath under section 131 of the Act on 22/07/2013 wherein he stated that he had traded in shares of listed penny stocks for helping in providing LTCG accommodation entries, and that Shri Praveen Agarwal who was a known entry operator from Kolkata also helped in providing bogus LTCG accommodation entry by using his paper entities. The A.O. observed that during the search action on Shri R.K. Kedia various evidences related to manipulation of share price of BCSL and providing bogus LTCG accommodation entry to various beneficiaries, were found and seized which revealed that Shri R.K. Kedia 20 sold 2,00,000 shares of BCSL held in the name of Shri Aniket Singal @ an average rate of Rs. 79.93 for approx. Rs. 1,59,86,000/- on 13/09/2012, also 2,00,000 shares @ an average price of Rs. 79.88 for approx Rs. 1,59,76,000/- and on 17/09/2012, 13,000 shares @ an average price of Rs. 79.87 for apporx Rs. 1,03,83,100/- were sold. The A.O. also mentioned that in the pages found during the course of search at Shri R.K. Kedia, the details of Chopra Account /BPSL Account, reconciliation of the said accounts had been given wherein the details of the cash received by Shri R.K. Kedia from Shri Suresh Gupta on behalf of BPSL Group and cheque payments to and from the entities of BPSL Group for providing various kind of accommodation entries were given and details of commission charged/premium received @6.5% for arranging bogus LTCG accommodation entry on account of sale of shares of BCSL were also given.
6.16 The A.O. also pointed out that the SEBI had carried out investigation in few listed companies on the basis of common trading pattern, identical developments like stock splits, preferential allotments, insignificant economic activity and exorbitantly high stock prices. Some of the companies which had been investigated by SEBI were as under:
Sr. Name of the Company No.
1. M/s Greencrest Financial Services Ltd. (GCFS) (Earlier known as Mangold Glass Industries Ltd.)
2. M/s Maa Jagdambe Tradelinks Ltd (MJTL)
3. Ms Mishka Finance and Trading Ltd(MFTL)
4. M/s Parag Shilpa Investments Ltd (PCSL)
5. M/s Surabhi Chemicals & Investment Ltd (SCIL)
6. M/s Premier Capital Services Ltd. (PCSL)
7. M/s Global Infratech & Finance Ltd (GIFL)
8. M/s Dhenu Buildocn Infra Ltd
9. M/s First Financial Services Ltd
10. M/s DB (International) Stock Broker Ltd.
11. M/s Dhanleela Investments Trading Company Ltd
12. M/s Grandma Trading & Agencies Ltd
13. M/s Matra Kaushal Enterprises Ltd
14. M/s Pine Animation Ltd.
15. M/s Rajlaxmi Corporation Ltd
16. M/s Rander Corporation Ltd.
17. M/s Shreekrishna Biotech Ltd.21
6.17 The A.O. also pointed out that out of the above 17 companies, BPSL group had taken bogus LTCG accommodation entries by trading shares of companies at Sr. No. 2,4,7,10,12,13,16 & 17. The A.O. observed that the investigation carried out by SEBI, an independent agency also indicated and supported the investigation findings of the department and that it had specifically investigated the role of the assessee and his family members. The A.O. also observed that Shri R.K. Kedia was an entry operator who had arranged various kinds of accommodation entries for different beneficiaries which was clear from the following facts.
o Admittance by Sh. R.K. Kedia himself on oath u/s 132(4) of Income Tax Act, that he is in the business of providing accommodation entries, o Statement by Sh. Manish Arora on oath that Sh. R.K. Kedia is in the business of providing accommodation entries, o Hand written cash receipt and payment account related to accommodation providing business of Sh. R.K. Kedia found and seized from the residence of Sh. Manish Arora.
o Coded tally books of accounts pertaining to accommodation entry business of Sh. R.K. Kedia found and seized from the residence of Sh. Manish Arora, Accountant of Sh. R.K. Kedia.
o Date and time wise mail communications between Sh. R.K. Kedia and other entry operators for providing various kind of accommodation entries found as printouts and seized. These mails printouts also establishes beyond doubt that Sh. R.K. Kedia has provided accommodation entries. These mails printouts also have details to decipher the codes used while entering transations in tally in coded language.
o Coded SMS communication (generally currency notes numbers) while receiving and delivering cash from beneficiaries to entry operators through angadias from the phone of Sh. Manish Arora.
o Statement on oath given by Sh. San jay Kumar and Sh. Bishu Jain two employees of Sh. R. K.Kedia, that they used to collect cash and deliver that to angadias on the instructions of Sh. R.K. Kedia.
6.18 The A.O. observed that the evidence seized from Shri Parveen Agarwal an entry provider based at Kolkata revealed the modus operandi adopted to provide various accommodation entries in collusion with Shri R.K. Kedia. He also 22 produced the Flow Chart of modus operandi of accommodation entries and correlation of data between Shri Kedia and Parveen Agarwal. However, the assessee submitted that statement of Shri R.K. Kedia and Shri Manish Arora were not reliable.
6.19 The A.O. also observed that the Director of M/s Safal Reality Pvt. Ltd., Shri Uday Hasmukhlal Vora and Partner of M/s Safal Developers, Shri Dhiren Hasmukhlal Vora, filed affidavit dt. 26/11/2015 before their A.O. and disclosed additional income which was also offered for taxation before the Income Tax Settlement Commission, Mumbai in their application and that they had accepted that this income was ploughed back through companies managed and controlled by Shri Shirish C. Saha (SCS) by making investment in preferential share capital in one of their group concern namely M/s Andura Infrastructure Products Pvt. Ltd. which clearly revealed that the companies managed and controlled by SCS were mere paper companies and all the financial dealings of the assessee group with SCS and his companies were in the nature of accommodation entries. The A.O. further observed that in the case of SCS, on the basis of entries recorded in the evidence seized / impounded during the search, details of year wise commission and deposits supposed to have been received by SCS for providing accommodation entries were prepared which was quantified at Rs. 92.79 Crores and the same was not challenged by SCS, who however claimed that various expenses were incurred against such commission.
6.20 He also observed that Shri Praveen Agarwal had been assessed as being in business of providing accommodation entries and he admitted unaccounted income of Rs. 25 Crores, the disclosure was mainly commission income earned through his activities of providing various kind of accommodation entries and that all the financial dealings of BPSL group with the companies managed and controlled by Shri Praveen Kumar Agarwal were in the nature of accommodation entries.
237. The A.O. mentioned that various incriminating documents in the form of Hard/Soft data were found and seized on 13/06/2014 by the investigation wing which were confronted to Shri R.K. Kedia whose sworn statement were recorded from 13/06/2014 to 16/06/2014 and detailed statement of his accountant Shri Manish Arora were also recorded on various dates in which he described the whole modus operandi of providing accommodation entries and also explained each and every papers alongwith the code words mentioned on them and when there was no escape route Shri R.K. Kedia accepted all the facts mentioned by Shri Manish Arora. However Shri R.K. Kedia vide letter dt. 20/10/2014 retracted from the sworn statement given earlier and stated that those were given under mental stress. The A.O. again recorded the statement of Shri R.K. Kedia under oath on 26/03/2015 wherein he was confronted with the evidences gathered and he again confirmed that he was an entry provider and also confirmed all the sworn statements given earlier. The A.O. did not accept this contention of the assessee that the department put a lot of pressure on Shri Manish Arora to receive favourable remarks from him. He therefore asked the assessee to show cause as to why the receipts credited in the books of account on account of sale of shares should not be brought to tax under section 68 of the Act and that as to why the commission @ 6.5% paid in cash to get accommodation entries of exempt LTCG from various bogus scripts / companies should not be brought to tax under section 68 of the Act as unaccounted expenditure. The Assessee was also required to produce all the persons (including contra parties and brokers) from whom money was received, along with their books of accounts, ITR details, relevant vouchers and ledger account etc. The A.O. issued a detailed show cause notice dt. 23/10/2015 to the assessee on the issue of bogus LTCG accommodation entries received from M/s Praneeta Industries Ltd.(PLI) (Now known as Aadhar Ventures India Ltd. ).
8. In response the assessee submitted that he had invested in the share warrants of PIL and subsequently these shares were converted to equity shares 24 and all the shares were credited to DEMAT account, the shares of PIL were held for more than 12 months and the sales were affected on various dates during the year under consideration and all the shares were sold through stock broker registered with Bombay Stock Exchange(BSE) through recognized stock exchange and that the Securities Transaction Tax (STT) on the entire sale was duly paid, as such, the assessee had earned LTCG on sales of shears of PIL which was claimed as exempt under section 10(38) of the Act. It was also submitted that all the proceeds from the sales of shares were received through banking channels from stock broker through whom the shares were sold and duly credited to the assessee's bank accounts, copies of the contract notes and sale bills as an evidence towards sale of shares of M/s PIL claimed as exempt under section 10(38) of the Act were furnished. It was submitted that the assessee did not know any person by the name Shri Shirish Chandrakant Shah (SCS) and had nothing to do with the contents of various documents found and seized from the possession of Shri SCS and that no cash was ever paid to any person and no accommodation entries had been received. As regards to the issue relating to the counter parties purchasing the shares of M/s PIL from the assessee were controlled by SCS, it was stated that there were various other counter parties which were not included in the list of 212 companies managed and controlled by SCS. As regards to the analysis of the timing difference that most of the trades were executed within one minute and majority of orders were executed within five minutes of placing of order. It was stated that no adverse inference on the basis of analysis of trade data could have been made. As regards to the fact that corroborative sworn statements had been given by the dummy directors of 212 companies controlled by SCS, it was stated that the assessee did not know any of those persons and was not aware as to why and under what circumstances these statements were given by those persons. It was also stated that cross examination of SCS and all other persons which were covered 25 alongwith SCS and gave sworn statements, should have been allowed to the assessee.
9. As regards to the decision of investment in M/s PIL the assessee submitted as under:
5. Regarding the decision of investment in M/s PIL, the assessee submitted that, "Investment was made on the perception that M/s Prraneta Industries Limited was planning to setup big projects in Gujarat, Mumbai and overseas. The Assessee further came to know that M/s Prraneta Industries Limited was getting a huge contract for land development work from PACL. The company planned to undertake expansion programmes by looking for prospective Mergers/Acquisitions, and promoting companies in the financial sectors. The company was also planning to enter into new areas of information technology sector like Software development, Internet, Mobile, Networking related solution etc. The Assessee was attracted by the low price and huge expansion plans of the company. Considering it as a low risk investment, the assessee decided to invest in the shares o f Prraneta Industries Limited. The Assessee's belief to invest in the shares o f Prraneta Industries Ltd. was further strengthened due to the reason that even the I promoters/promoter group companies were subscribing to preferential allotment of share warrants of Prraneta Industries Ltd. Since the promoters were hiking their stake in the company and the share price was very low, the Assessee was attracted to invest in the shares of Prraneta Industries Ltd.
When the share price of Prraneta Industries Limited appreciated, the Assessee decided to dispose o f f the shares through his brokers. As already mentioned in the earlier para of reply, the entire sale was through registered stock broker and the sale transactions of shares of Prraneta Industries Ltd. were effected online and the payments against the same were received through banking channels from the stock broker. "
10. As regards to the detail of cash as recorded in BIPS folder, it was stated that the assessee was not aware of the basis / purposes of maintaining those records and that no adverse inference could have been drawn merely on the basis of statement of SCS and that he was not aware of the transactions between SCS and Shri R.K. Kedia.
11. As regard to the transactions recorded in the form of cash sheets and cheques sheets seized from the premises of SCS, the assessee submitted that he was not aware of nor was he in any way concerned with the transactions recorded in the seized documents. He denied to know SCS, Praveen Kumar Jain and any other person except R.K. Kedia. On the issue that the transaction 26 mentioned on various documents seized from Shri Kedia, SCS and Praveen Kumar Jain tallies exactly between themselves and independently with the transactions recorded in the books of the assessee group , it was stated that the documents nowhere contained the name of the assessee or his family members. However it was acknowledged that the amount and number of shares recorded in the data seized from entry providers matched with the actual sale of shares of M/s PIL by the assessee and his family members, but stated that no conclusion could have been drawn against him on that basis.
12. With regard to the admission of Shri R.K. Kedia being an entry provider the assessee submitted that Shri R.K. Kedia was not a reliable person and he had taken different stands during the course of statement recorded on various dates i.e. 22/02/2014, 20/03/2014, 13/06/2014 and his letter filed on 20/10/2014. Regarding the maintenance of data of LTCG transactions of BPSL family and group by Shri R.K. Kedia the assessee submitted that he was not aware of the purpose of maintaining such records by him and that he might have been expecting some commission since he had advised for investment in the shares of PIL and the assessee had earned a handsome amount from the said investment. However no such commission was ever agreed or paid to him.
13. As regard to the voluntary surrender of Rs. 250 crores made by the assessee during the course of search proceedings, it was submitted before the A.O. that during the course of search on 21/02/2014 the assessee was under a lot of mental stress and psychological pressure and hence a letter offering an amount of Rs. 250 Crores as additional income in the entire group of cases was made to avoid litigation and to purchase peace of mind. It was further submitted that offer of Rs. 159.61 crores pertaining to LTCG on shares of M/s PIL was made without any factual basis and there was no admission or acknowledgment that any accommodation entry was received or any unaccounted income had been earned. It was also submitted that the offer of additional income had been made under mental stress, and psychological 27 pressure, so, it was withdrawn. However the A.O. after considering the submissions of the assessee observed that the assessee had not commented or offerred any explanation on the merits of the evidence/documents seized from Mr. Kedia, SCS and Praveen Kumar Jain which tallied exactly between themselves and independently with the transactions recorded in the books of the assessee group. He further observed that upon being confronted with solid evidence establishing the transaction of sale of shares of penny stock companies as sham transaction undertaken through a syndicate of entry providers, the onus cast on the assessee doubles under section 68 of the Act to prove that the transactions were genuine and mere filing of Demat account, bank account, contract notes, bills etc was not adequate to discharge the heavy onus cast upon the assessee. He also observed that the assessee was required to produce the brokers through whom transactions were undertaken in stock exchange, produce the counter parties who purchased the shares and the directors of penny stock companies etc for examination to prove identity, creditworthiness, genuineness of transaction which the assessee failed to do. Therefore the income was taxable under section 68 of the Act. The reliance was placed on the following case laws:
i. CIT Vs. N.R. Portfolio Pvt. Ltd. in ITA No. 1018,1019/2100 (Delhi) dt.
22/11/2013 ii. CIT Vs. Nova Prompters and Finlease (P) Ltd. (Del) reported at 342 ITR 169 iii. CIT Vs. Krishnaveni Ammal (Mad) reported at 158 ITR 826 iv. Madathi Brothers Vs. DCIT (Mad) reported at 30 ITR 345 13.1 The A.O. observed that it was strange that the assessee denied knowing Shri Sirish Chandrakant Shah (SCS) even though the group concerns of assessee had taken share capital at huge premium and have advanced huge sums of money to paper concerns controlled and managed by SCS. He also observed that the assessee had accepted that RTGS payments were made by BPSL to various companies managed and controlled by SCS as advance for purchase 28 of capital assets in the normal course of business. Therefore, the stand taken by the assessee that he did not know any person named as Sirish Chanrakant Shah was baseless and contrary to his own submissions. The A.O. observed that nexus between different entry providers operating from various locations had been adequately established and it was not necessary that only one entry provider worked on share for jacking up the price of share and that the evidence found, suggested that different entry operators worked in tandem in trading of shares of penny stock companies for jacking up the price for final purchase. Therefore, he was of the view that the assessee's contention that various parties other than the ones controlled and managed by SCS group purchased the shares of PIL had no relevance. The A.O. pointed out that during the course of assessment proceedings and after the submission of the assessee on 03/02/2016 some other incriminating documents were noticed which had huge evidentiary value regarding flow of funds between flagship company M/s BPSL and various companies of an entry operator Shri Praveen Kumar Agarwal, based at Kolkata from whose possession the documents were found and seized on13/09/2012 by Kolkata Investigation Unit and the data seized contained four excel sheets found in a hard disc which contained date wise details of cheques/RTGS received from various parties and cheque/RTGS paid to various parties including M/s PACL India Ltd. (PACL), Axis Structurals Pvt. Ltd. and various companies of BPSL Group in F.Y. 2010-11 & 2011-12. The A.O. also pointed out that trail of funds from M/s PACL, Axis Structurals Pvt. Ltd. etc to various concerns of BPSL Group was made which establish that multiple layers were created among the group concern of Shri Praveen Kumar Agarwal before remitting the funds to the final beneficiaries including BPSL Group companies and that data also established that OT (One Time) Entries were received by BPSL Group from the entries managed and controlled by Shri Parveen Kumar Agarwal whose modus operandi was that the beneficiaries wanting to book bogus expenses were linked through a maze of paper concerns with the beneficiary wanting to 29 plough back their unaccounted income back into business as share capital / premium and that the need to deposit cash into the bank account was bypassed. The A.O. mentioned the details of all the cheques received from and paid to various parties as found on an excel sheet seized from Shri Praveen Agarwal at page no. 116 to 120 of the assessment order, for the cost of repetition the same is not reproduced herein.
13.2 The A.O. on the basis of the aforesaid excel sheet observed that in the column of 'Party' various names were mentioned like Roshan, Mishra, Pramod, Kabra, SKJ, Sunil, Subhas, Ravi, NSE, LKS etc and the particulars mentioned in the 'Account' were important to note wherein abbreviations like BB, W, Billing contract, Advance billing, Donation, Shares sales, Share purchase, Property surrendered, Property Sale, Property forfeited etc were mentioned which gave the true nature of transaction of beneficiary with Shri Praveen Agarwal's entities in respect of cheque received / issued and conclusively proved that Shri Praveen Agarwal had been in the business of giving accommodation entries for various purposes like share capital, LTCG, bogus bill etc. for earning commission.
The A.O. was of the view that M/s PACL India Ltd. siphoned off its funds in garb of land development for which bogus bills were arranged through the companies managed and controlled by Shri Praveen Kumar Agarwal. The A.O. also observed that the assessee had stated that investment in the shares of M/s PIL was made on the perception that it was planning to set up big projects in Gujrat, Mumabi and overseas and that he had knowledge about land development contract awarded to M/s PIL by M/s PACL India Ltd., therefore, he decided to invest in the shares of that company. The A.O. observed that the details found maintained by Shri Praveen Kumar Agarwal established that all those contracts were completely bogus and it was a network created for benefit of all the beneficiaries indulged in tax avoidance practices. Therefore the contention regarding decision of investment in M/s PIL was base-less without any supporting evidence. He also observed that the assessee remained silent 30 with regard to the cash transactions against accommodation entries recorded in BIPL folder and did not comment or offerred any explanation. The A.O. also mentioned that the data seized from various persons and location matched among themselves and with the entries recorded in the assessee's books, authenticated the correctness of the data and if the seized data suggested that accommodation entries had been taken in lieu of cash then it was a conclusive proof. As regard to the assessee's stand that Shri R.K. Kedia was not a reliable person, the A.O. observed that Shri Kedia backed up his statement by filing an affidavit dated 31/03/2015 confirming the facts narrated in the statement dt. 26/03/2015, therefore the assessee's contention do not hold much ground, particularly when the assessee could not satisfactorily explained the reason for maintaining data pertaining to details of share capital / premium received by the assessee group, details of advances paid and details of shares sold by it, clandestinely by Mr. Kedia who had long association with BPSL group and delt directly with the key person like assessee.
14. With regard to the disclosure of Rs. 250 Crores mae under section 132(4) of the Act by the assessee and its retraction, the A.O. observed that during the course of search and seizure operation the assessee was confronted with various documentary evidences and statements of various entry operators like SCS, Omprakash Anandilal Khandelwal (director of PIL), R K Kedia etc. and when the assessee found himself cornered by the department, he admitted undisclosed income of Rs. 250 Crores and a surrender letter was also furnished wherein it was stated that the detailed bifurcation would be submitted later and that the assessee on 06/03/2014 furnished a letter clearly stating that out of the surrender of Rs. 250 Crores, Rs. 159.61 Crores had been surrendered for the LTCG shown from M/s PIL in the assessment year 2011-12 and 2012-13 in the hands of the assessee, his HUF and his wife Smt. Arti Singal. Therefore the claim of the assessee that the surrender was without any basis was itself baseless and factually incorrect.
3114.1 The A.O. also mentioned that the documents seized from the possession of the entry providers contained details of RTGS/Cheque payments which tallied with the bank account of BPSL group concerns and family members then it was deemed that all the contents of the documents were true and correct. The A.O. reiterated the explanation of the assessee at page no. 124 and 125 of the assessment order and mentioned that the assessee stated that the statement of all the persons were recorded at the back and if the department wanted to rely on any part of the statements for drawing any adverse inference against the assessee, then he may be intimated regarding the specific charge made against the assessee out of their statement and he may also be allowed an opportunity to cross examine and that how the conclusion was drawn from financial statements of penny stock which were not doing any meaningful business activity, it was stated that various things regarding those companies attracted him to make investments and that he was not aware of the activity of any entities / individuals involved and nor was assessee in any way connected with the activities if any of such entities / individuals. The A.O. observed that assessee did not elaborate or explain the things which attracted him about those companies and did not file any supporting documents.
14.2 The Assessee submitted to the A.O. that he did not know any of the person whose statements were recorded and was not in any way connected with their activities and that the statement of those brokers / sub brokers / employees/ associates of broker were recorded at the back of the assessee and reliance sought to be placed for drawing any adverse inference against the assessee on the basis of statements recorded without the presence of the assessee was unwarranted. The assessee also submitted that he did not know any person by name Shri Manish Arora with whom he never dealt either directly or through any of his employees. It was also alleged that the statements given by Shri Manish Arora were not out of free mind and had been given under enormous pressure as the same continued for a period of almost 25 days, 32 therefore, he was bound to be under a lot of stress and psychological pressure and his statement recorded under those circumstances could not be relied upon. The assessee also stated that he was not aware for what purposes "Chopra Account" was prepared by Shri R.K. Kedia and Shri Manish Arora to whom he never paid any cash and had nothing to do with the cash transactions recorded in "Chopra Account" in the books of JMD Associates.
15. With regard to the observations regarding payment of commission @ 6% to 7% in cash for receiving the accommodation entries through Mr. Kedia, the assesse outrightly denied this fact. The A.O. however observed that most of the entry providers had specifically admitted that they were in the business of providing entry through various companies managed and controlled by them and that the actual activity of their companies was to provide accommodation entries and no genuine business activities were undertaken and that the thousands of persons across country were benefitted from their activities in evading tax and the assessee was one of them. The A.O. also observed that the assessee had not explained how and what specific information he had which prompted him to make huge investments in the companies particularly when he did not file any evidence to substantiate his claim and that the Balance Sheets of these companies revealed that there was no significant fixed assets, capital work in progress was NIL, bank balance was almost NIL, funds received as share capital / premium or unsecured loans were immediately advanced as loan or invested as share capital / premium, the profit & loss account of those companies suggested only trading activity wherein the employee cost, administrative expense, finance charge etc which were necessary to conduct genuine activity were negligible and no dividend was ever declared by those companies and the earning per share was almost NIL. He also observed that the financial statement of all the penny stock companies from which the assessee earned huge profits had similar pattern and that any investor could see that there was no future prospects and no meaningful activities in those companies, 33 therefore no prudent person would invest any money in shares of those companies, yet the assessee alongwith his family choose to invest not in one but in at least 15 such companies and earned extraordinary income of approx Rs. 750 crores on sale of shares over a period of five years which was beyond human probability and hence the transactions were treated as sham.
16. With regard to the issue of jacking up the price of shares the A.O. observed that there were direct and circumstantial evidences which established that the price of those penny stocks were artificially jacked up the cartel of various entry providers and this fact had duly been accepted by SCS in his sworn statements. He also observed that the statement of S/Shri R.K. Kedia, Manish Arora, Shrish Chanderkant Shah(SCS), Jagdish Purohit, Parveen Jain (Pintu alias Chintan), Parveen Kumar Agarwal etc were based on the clinching evidences in the form of various hard & soft documents which directly established that the assessee group was one of the major beneficiaries of their activities and the statements of those brokers / sub brokers were only corroborative & circumstantial evidence to prove the case of the department. He also observed that the detailed statements of Shri Manish Arora was recorded over a period of 25 days which strengthens the authenticity of the statements which remained consistent throughout the period and that the evidences found and seized from Shri R.K. Kedia, SCS and Shri Praveen Jain established that those people were working hand in glove in providing various types of accommodation entries to various beneficiaries including BPSL group and that the entries recorded in the name of "JMD Associates" and "Chopra Account" were described at length by Manish Arora and those entries were cross matched from the actual transaction recorded in the assessee's books, therefore, the authenticity of the documents seized from the possession of Shri Kedia and Manish Arora could not be doubled and since Mr. Chopra was an employee of BPSL and working for this group for a long time, therefore, "Chopra Account" was not mere imaginary creation of Shri. Kedia and Manish Arora.
3417. With regard to commission paid in cash to the entry providers, the A.O. observed that commission @ 6% to 7 % was being paid to Shri Kedia was based on the entries recorded in various excel sheets by Shri R.K. Kedia and the assessee could not satisfactorily explained the reason for maintaining data pertaining to him clandestinely by Shri Kedia and his accountant Shri Manish Arora and that Shri Kedia had long association with BPSL group and delt directly with the key person i.e; the assessee. Therefore there was no inconsistency in charging of the commission from the beneficiaries.
18. With regard to the cross examination of persons whose statements were relied upon by the Department, the A.O. observed that vide order sheet entry dt. 05/02/2016 the authorized representative of the assessee was asked to give the names of the persons whom the assessee wanted to cross examine, but nothing was submitted and after taking more than 15 days, authorized representative of the assessee submitted that the assessee wanted to cross examine all the persons whose statements had been relied upon and provided to the assessee. The A.O. was of the view that cross examination was required only where there were no documentary evidence and where the addition was made merely on the basis of statement of a third person but in this case solid evidences were found and the statement only corroborated the evidences found in the form of electronic data seized from various entry provider located at various part of the country which was collected independently from remote locations, tallied and matched not only with each other but also with the regular books of account of the assessee and its group concerns. He further observed that the assessee was confronted with all the data and evidences collected by the department but he could not explain or comment on merits of the evidences. The A.O. pointed out that none of the persons to whom summons were issued appeared for cross examination coupled with the fact that the assessee failed to offer any reasonable explanation on merits of the hardcore evidences established the unholy nexus between the entry providers 35 and beneficiaries, and that for the service of providing accommodation entries hefty commission was charged from the beneficiaries by entry providers which had been disclosed by some of them and offered to tax and once service was provided for money, a contractual nexus was created between the service providers and the beneficiary which could not be easily broken. Therefore, the request for cross examination and non compliance of summons exposed the unnatural bonding between the assessee and entry operators being used by the assessee to thwart income tax proceedings in the name of natural justice. The A.O. also observed that no natural justice required that there should be kind of a formal cross examination which is a procedural justice and is governed by rule of evidence, reference was made to the following case laws:
• Dhakeshwari Cotton Mills Ltd. Vs. CIT reported at 26 ITR 775, 783 (SC) • Kishinchand Chellaram Vs. CIT reported at 125 ITR 713 (SC) • Gunda Subbayya Vs. CIT reported at 7 ITR 21,28 (SC) • Moti lal Padampat Udyog Ltd. Vs. CIT reported at 160 Taxman 233 (Alld) • Kishanlal Agarwalla Vs. Collector of Land Customs (AIR 1967 Cal. 80) • Satellite Engineering Ltd. Vs. Union of India & Ors. (1983 ELT 2177 Bom) • Kanungo & Co. Vs. Collector of Central Excise (1983 ELT 1486 SC) • Union of India & Anr. Vs. Tulsiram Patel (AIR 85 SC 1416) • DCW Ltd. Vs. Collector of Central Excise • GTC Industries Ltd. Vs. Assitant Commissioner of Income Tax reported at 65 ITD 380 • CIT Vs. Nova Promoters & Finlease (P) Ltd. reported at 342 ITR 169 (Delhi) • Smt. Kusum Lata Thakral Vs. CIT, Karnal reported at 185 Taxman 237 (P&H) 18.1 The A.O. observed that in the aforesaid cases the Hon'ble court held that the rules of natural justice are not rigid rules, they are flexible and their application depends upon the background of statutory provisions, nature of the right which may be effected and the consequences which may entail its application depending upon the facts and circumstances of each case and that the natural justice is mistress and not the master of justice and it is used to 36 support the cause of justice and can never be used to defeat the cause of justice. The A.O. was of the view that the cross examination is required to support the cause of justice and can never be used to defeat the cause of justice and that in the present case evidences gathered proved that assessee had taken accommodation entries, the statement of the entry provider corroborated the primary evidence, those documentary evidences and the statements were provided to the assessee for his explanation but in response the assessee had not offered any explanation on the merit of the evidences but merely denied any such transactions and knowledge of existence of such evidence. He sought cross examination of the entry providers whose statements were relied upon by the department. The A.O. also pointed out that the summons under section 131 of the Act were issued to 20 such persons but none responded. The A.O. held that having confronted with the evidence indicating sham transaction, the burden of proof shifted back on the assessee and heavy onus was cast on him under section 68 of the Act to prove his case beyond doubt by producing so called investors but the assessee had failed to do so.
Therefore the cross examination was not relevant and not necessary for the finalization of the assessment. The A.O. also held that the pattern of movement of funds for layering, non existence of genuine business activities of such investors etc. coupled with the fact that the assessee failed to produce the investor for examination could safely lead to conclusion that share capital / premium received from companies against which there was no direct evidence was also taxable under section 68. The reliance was placed on the following case laws:
• Sumati Dayal Vs. CIT (1995) 125 CTR (SC) 124 : 1995 Supp. (2) SCC 453(SC) • CIT Vs. P. Mohanakala & Othrs reported in 291 ITR 0278 (2007)(SC) • Chandan Gupta Vs. CIT in ITA No. 196 of 2014 18.2 Accordingly the total receipts credited in various bank accounts of the assessee against the alleged transactions was treated as unexplained income 37 of the assessee under section 68 of the Act, alongwith unaccounted commission expenditure @ 6.5% of the total LTCG of the year for arranging those entries. The A.O. made the addition of Rs. 42,46,375/- in the following manner:
Total Sale proceeds u/s 68 Rs. 40,05,419/-
6.5% of NET gain (LTCG) u/s 69C towards Rs. 2,40,956/-
commission expenses TOTAL Addition to the returned income Rs.42,46,375/-
19. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and challenged the validity of the initiation of proceedings under section 153A of the Act as no incriminating material was found during the course of search under section 132 of the Act on 21/02/2014 and submitted as under:
(1) It is humbly submitted that as on the date of search i.e. 21-02-2014, assessment proceedings for A/Y 2012-13 had already been completed vide order no CPC/1213/P4/1306877063 dated 19/01/2014 passed u/s 143(1) of the Act (copy enclosed) and no incriminating material had been found during the course of search with respect to the year under appeal.
(2) In this connection, Your Honour's attention is invited to the provisions of Section 153A of the Act the relevant parts of which read as follows; -
153A. (1) Notwithstanding anything contained in Section 139, section 147, section 148, section 149, section 151 and section 153, the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall-
(a) issue notice to such person requiring him to furnish within such period as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;
(b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made:
Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment year:
Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this 38 [sub section] pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate.
(3) It is implicit in the above provisions that where an assessment order has already been passed for a year within the relevant six assessment years, then the Assessing Officer is duty bound to reopen those proceedings and reassess the total income but by taking note of the undisclosed income if any, unearthed during the search. The legislative intent behind incorporating the said provisions into the statute book was to establish a live link/ undeniable nexus between some incriminating material/document etc. found/unearthed/discovered in the course of search u/s 132 and undisclosed income arising there from.
(4) In this regard, it is humbly and respectfully submitted that the provisions of law, as enshrined in Section 153A of the Act and as interpreted by various Courts, including the Delhi High Court, and jurisdictional Income Tax Appellate Tribunal, Chandigarh from time to time, in a number of cases clearly lay down that only those assessment proceedings which are pending before an Assessing Officer on the date of initiation of the search shall abate and merge into assessment proceedings initiated u/s 153A of the Act Undoubtedly, in such cases the scope of assessment is wide open and would cover matters reflected in the original return of income and also matters reflected from the material seized in the course of search u/s 132 of the Act (5) However, importantly and pertinently it should be noted that completed proceedings will not merge with the proceedings initiated u/s 153A but will survive and their sanctity will , inviolably, have to be respected unless indelibly violated by any incriminating material found during the course of search u/s 132 of the Act. To put it differently completed proceedings, whether u/s 143(3) or even u/s 143(l)(a) of the Act can be interfered with by proceedings u/s 153A only on the basis of some positively incriminating search material found during the course of action u/s 132 of the Act.
(6) In view of the same since no incriminating document pertaining to the year under appeal i.e A/Y2012-13 has been found during the course of search, it is submitted that no cause lies for the issue of the said notices by resort to the provisions of section 153A of the Act and accordingly the said notices are void ab-initio rendering them infructuous.
(7) In this connection reference may also be made to the judgement passed by Hon'ble Delhi High Court in the case of Commissioner of Income-Tax (Central) -
III vs. Kabul Chawla [(2016) 380 ITR 573 (Delhi)] wherein it has been clearly held that completed assessments can be interfered with by Ld Assessing Officer while making assessment under section 153A only on basis of some incriminating material unearthed during course of search which was not produced or not already disclosed or made known in course of original assessment. While delivering the aforesaid judgement Their Lordships have analyzed the provisions of Section 153A as following:-
i. Once a search takes place under Section 132 of the Act, notice under Section 153A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.39
ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as afresh exercise.
iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".
iv. Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment 'can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this Section only on the basis of seized material"
v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.
vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153A 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. (8) Since in the instant case since no incriminating documents/material or information of any sort has been unearthed/discovered in the search operation u/s 132A of the Act the completed assessments cannot be interfered with and accordingly the assessment order is bad in law void and infructuous. In this connection, Your Honour's attention is also invited to the following decided case laws: -
> Commissioner of Income -tax vs Anil Kumar Bhatia [(2013) 352 ITR 493 (Delhi)]; > Commissioner of Income -tax vs Chetan Das Lachman Das [(2012) 254 CTR 392 (Del)];
> Sanjay Aggarwal vs Deputy Commissioner of Income -tax, Central Circle -5, New Delhi [(2014) 150ITD 692 (Delhi-Trib)] > Smt Rashmi Wadhwa vs. DCIT, Central Circle-8, New Delhi [order dated 18.01.2016 in ITA No. 5184/Del/2014 passed by the Hon'ble ITAT Delhi Bench', New Delhi;
40> M/s Siriago Pharma (P) Ltd. vs. DCIT, Central Circle-3, Jaipur [order dated 13.01.2016 in ITA No. 1010/JPI/2013 passed by the Hon'ble ITAT Jaipur Bench, Jaipur;
> Dy. Commissioner of Income Tax, Central Circle 23 vs. Sh. Himanshu B. Kanakia [order dated 18.01.2016 in ITA No. 3187/Mum/2014 passed by the Hon'ble ITAT "H"Bench ", Mumbai.
(9) In particular, it may be noted that the jurisdictional Chandigarh Bench of the Hon'ble Income Tax Appellate Tribunal in the case of Mala Builders (P) Ltd vs ACIT, Central Circle -II, Chandigarh vide order dated 23/08/2016 in ITA Nos. 433 to 437 of 2014 has also unequivocally affirmed the above interpretation of law.
It is respectfully prayed that the above ground may kindly be adjudicated in the light of the submissions made above.
20. As regards to the merits of the case relating to the addition by invoking the provisions of Section 68 of the Act the submissions of the assessee had been reproduced by the Ld. CIT(A) at page no. 124 to 154 of the assessment order, the same are reproduced verbatim as under:
(1) The Appellant had, from time to time, invested in shares/share warrants (which were subsequently converted into equity shares) of various companies and which were subsequently credited to his DEMAT account, the details of which are as under:-
SNo. Name of the Company No of Shares Purchase Year of
Amount Investment
M/s Pranneta Industries Ltd 8000000 18000000 2009-10
(i) (Now known as Aadhar
Ventures India Limited)
DB (International) Stock Brokers 1750000 10150000 2009-10
(ii)
Ltd
(iii) Blue Circle Services Ltd 5500000 8250000 2010-11
(iv) Unisys Software & Holding 575000 10647949 2009-10
Industries Ltd
(2) During the assessment year under appeal, the Appellant sold the shares of the said companies, as per the following details:-
SNo. Name of the Company No of Shares Sale Long Term
consideration Capital Gains
M/s Pranneta Industries Ltd (Now 198487 12488355 12041759
(i)
known as Aadhar Ventures India
Limited)
DB (International) Stock Brokers Ltd 1750000 166846614 156696614
(ii)
(iii) Blue Circle Services Ltd 5500000 412557740 404307740
(iv) Unisys Software & Holding Industries Ltd 157290 34746157 31833434
41
(3) The sale was effected on various dates during the year and the details
alongwith copies of contract notes alongwith the requisite documentary evidence for the same were duly filed before the Id Assessing Officer vide letters dated 29/02/2016 and 11/12/2015 (copies again being enclosed herewith). The entire sale of shares, which had been undisputedly held by the Appellant for more than twelve months before the date of sale, was affected through a broker registered on a recognized Stock Exchange, (BSE in this case) and Securities Transaction Tax (STT) was duly paid on the transaction.
(4) As a result of the said sale of shares, the Appellant had earned Long Term Capital Gain(LTCG) ofRs 60,48,79,547/ which was claimed as exempt u/s 10(38) of the Act since all the conditions laid down therein stood duly fulfilled and complied with.
(5) However, ignoring the specific provisions of law and the facts of the case, the Ld Assessing Officer has proceeded to unjustifiably add back the entire sale proceeds aggregating to Rs. 62,66,38,865/- to the income of the Appellant u/s 68 of the Act as an alleged unexplained cash credit by denying exemption u/s 10(38) of the Act notwithstanding the fact that all the conditions specified therein for grant of exemption were duly satisfied.
(6) While passing a voluminous and, ostensibly, detailed reasoned order justifying the aforesaid action, the Ld Assessing Officer has relied on various reasons and factors including statements of various persons recorded during the course of search/survey actions (on the Appellant as well as other unrelated independent entities/persons), and documents/information allegedly recovered/found therein, analysis of the financial and trade data of the Companies, elaborate but largely irrelevant discussion on the modus-operandi followed by entry operators, application of the principle of preponderance of probabilities etc. by disregarding the documentary evidence/submissions filed/made on behalf of the Appellant. However, it may be prima-facie submitted that whatever data has been used by the Ld. Assessing Officer in making the impugned additions does not even remotely suggest that the Long-
Term Capital Gains earned by the Appellant were allegedly not genuine and the result of alleged sham transactions.
(7) While passing the impugned assessment order the Ld. Assessing Offer has relied solely upon the findings of the Investigation Wing and information that he came to be in the know of from other sources and has not carried out any independent enquiry on his own thereby indicating, to some extent, a non- application of mind.
(8) At the outset, it is submitted that the shares of the companies on which LTCG has been earned were allotted to the Appellant by way of a preferential allotment or directly purchased from the open market and were subsequently credited to the Appellant's DEMAT account. Moreover, their sale (undisputedly after being held by the Appellant for a period of more than twelve months) was effected through a broker registered on a recognized Stock Exchange and Securities Transaction Tax was duly paid on the transaction. The sale proceeds for the sale of shares were received through normal and regular banking channels from the stock broker through whom the shares had been sold (who, in turn, received the same from the Stock Exchange through its designated payout mechanism) and stood duly credited to the Appellant's Bank Account(s).
42(9) In order to evidence the said transactions, copies of share purchase documents, DEMAT account, share certificates, contract notes and bank statements highlighting the relevant entries regarding payments made against the purchase of share and receipts against sale of shares and ledger accounts of the Appellant in the books of the Broker through whom the shares have been sold were duly filed before the Ld. Assessing Officer and are again being enclosed herewith.
(10) In this connection, before proceeding further, Your Honour's kind attention is invited to the provisions of Section 10(38) of the Act as per which "any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity-oriented fund where
(a) the transaction of sale of such equity share or unit is entered on or after the date on which Chapter VII of the Finance (No 2) Act, 2004 comes into force; and
(b) such transaction is chargeable to securities transaction tax under that Chapter.
shall not form part of the total income."
(11) The above section provides that any long-term capital gain arising from the transfer of equity shares shall not form part of the total income provided the twin conditions referred in Section 10(38) viz the transaction having been entered into on or after 1st October, 2004 and Securities Transactions Tax (STT) having been duly paid thereon are cumulatively satisfied. In the given case, the transactions giving rise to the LTCG entered by the Appellant duly comply with the said conditions specified in Section 10(38) of the Act in as much as while they have been entered in the F/Y 2011-12 i.e. much after 1st October, 2004 (the date on which the provisions came into force) they were also chargeable to Securities Transaction Tax (STT) which fact also stands duly documented and is not disputed. Accordingly, the LTCG earned by the Appellant are undisputedly covered by the provisions of Section 10(38) of the Act and will therefore not be a part of his total income.
(12) It should be noted and strongly emphasized here that any long-term capital gain arising from the transfer of equity shares in a company which fulfils the aforesaid conditions specified in Section 10(38) of the Act cumulatively would not form a part of the total income. It cannot be over-emphasized, to any extent or degree, that the Act (as amended from time to time and for the time being in force) being an independent sovereign statute should be read, interpreted and implemented "only" with reference to the conditions prescribed therein and reference or extrapolation to any other statute/rule/regulatory body even miniscule is permissible only if expressly mandated by the relevant provisions of the Act. To put it differently any reference to any law, rule or even the results of any investigation carried out by any other body cannot be used/referred to, unless expressly and specifically permitted while administering the provisions of the Act It should be noted that the Act is a fiscal statute enacted by the Parliament to provide a framework for the levy and collection of taxes on income and providing the administrative and judicial apparatus relating thereto as opposed to it being an instrument of public policy and accordingly its reach, functions, applicability and jurisdiction should be limited thereto.
43(13) The provisions of Section 10(38) of the Act also need to be viewed in conjunction with the manner of functioning of the securities market, in particular stock exchanges. With the advent of online-trading, the trades on any stock- exchange (NSE/BSE etc) are conducted online through a registered broker on the respective exchange. The entire dealing in securities takes place electronically whereby there is no physical contact/communication and all the transactions get consummated through online matching of the bids and pffers of the respective parties viz buyers or sellers. The securities traded, being invariably held in De-materialized (DEMAT) form, are transferred from/to the accounts of the relevant parties involved and the accounts (Delivery of shares as well as financial) are settled inter-se brokers and with their clients, both with respect to the delivery of shares and settlement of accounts due as per in the mechanism of the concerned exchange. It may be mentioned here that the securities markets function with the framework of the rules/regulations/procedures of the relevant exchange and also under the strict regulation, control and monitoring of the Securities and Exchange Board of India, statutory body which functions as the market regulator and watchdog.
(14) With the above background, albeit brief, on the functioning of the stock exchanges, and the fact of the manner, mode and procedure for the purchase of shares having not been disputed, it may be mentioned here that the shares in question sold, were of a listed company, and were sold at the prevailing rates through the Bombay Stock Exchange Online Trading (BOLT) platform of the Bombay Stock Exchange and all the payments against the same were received through account payee cheques/RTGS from the stock broker, through whom the shares were sold, who, as already stated above, in turn received the payment from the stock exchange as per the specified designated payment mechanism. It may be mentioned that under the online web-based trading platforms of the relevant exchanges as per the applicable, recognized and prevalent procedures and practices, the broker only acts as the intermediary in the online market place where, in the absence of any physical interaction between the parties, the identity of the counter- party (whether buyer or seller) is not available and is consequently also not known to the party (ies) entering into the transaction thereby almost completely eliminating the possibility of any collusion between the parties. The entire transaction is documented and evidenced by contract notes/bills of the relevant brokers issued in the form and in a manner as prescribed by the regulatory authorities.
(15) In such a regulated and formalized scenario, the possibility of rigged trading to generate allegedly bogus LTCG accommodation through a syndicate of accommodation entry operators through dummy entities was not only negligible, but well-nigh impossible.
(16) Carrying on the above argument further it should be noted here that the transactions were entered into by the Appellant as an investor with a view to earn profit from the appreciation, whether long term/short term, in the price of the underlying shares. The Appellant did not have any kind or degree of relationship/ or control with/over the said companies, save as that of a passive investor, and neither was he involved in the management thereof at any point of time what to talk of its capital market operations or influencing to any degree or extent its stock market prices. The transactions were entered into as a stock market investor on the basis of information available, the Appellant's perception 44 and anticipation as to future price movements, performance of the Company etc. and as soon as in his opinion they reached a particular level, considered as optimal, the same were divested. The objective of the Appellant was to keep a track of the prices of the securities only, which formed the sole pivot for all his actions related thereto.
(17) It may be submitted that in the case of the Appellant, the acquisition of shares, through a preferential allotment/purchase from the open market and which were subsequently duly credited to his DEMAT account, stands duly and comprehensively documented. Further, the sales of the securities took place through a registered broker on the NSE/BSE in accordance with the prescribed regulatory procedures, rules and applicable laws whereby both the limbs of the transaction vis purchase and sale of shares gets duly authenticated. The transactions were also, in all cases, concluded through regular banking channels. The said facts and circumstances, though not relevant from the point of view of determining the taxability or otherwise of the Capital Gains under the Act, are decisive determinants as to the genuineness and validity of the transactions and their being in compliance with all the applicable relevant statutory provisions, rules, procedures and practices.
(18) A large part of the Ld Assessing Officer's arguments are based on the perceived and alleged price-manipulation and rigging through a perceived arrangement between various parties/brokers and individuals. Given the above discussion on the functioning of stock-exchanges, it should be noted that since the Appellant, who is just an investor and a minor player on the stock exchange was not only but also could not be aware of the person/entity buying the shares there was no way formal, informal or even collusive, what to talk of legal whereby he could have any control to ensure that the shares could be sold to a particular person/entity or to any price manipulation therein. In such a regulated and formalized scenario, the possibility of rigged trading to generate allegedly bogus LTCG accommodation through a syndicate of accommodation entry operators through dummy entities is not only negligible, but well-nigh impossible.
(19) With the above background the various, arguments both legal and factual, garnered by the Ld Assessing Officer in support of his action are being countered separately and seriatim as under: -
A LTCG from Penny Stocks (i) The Ld Assessing Officer has relied upon certain, which can at least be
termed extraneous and largely irrelevant, factors and circumstances to hold that the LTCG earned from the alleged penny stocks is actually "Income from undisclosed sources". The factorstaken into account while arriving at the aforesaid conclusion include the following :-
> Huge LTCG from penny stock companies operated by entry operators by investing a minuscule amount;
> Onus on assessee to substantiate genuineness of exempt income; > Analysis of financial and manipulation in market price; > Transfer of shares in a collusive manner with predetermined parties. > Investment in these companies is not prima facia a rational investment behavior;
> In the whole process principle of price discovery kept aside and market lost its purpose.45
(ii) At the outset, it may be vehemently emphasized that the investment in the shares of the various companies was made on the basis of their expected growth potential, the information in respect of which came to be known to the Appellant through various sources. Simply because the share price of a small Company had appreciated substantially, and the Appellant had earned substantial capital gains therefrom does not call for the entire transaction to be viewed prejudicially with a jaundiced eye/ prejudicial mind. The fact that any person was able to earn substantial gains, translating, may be, into astronomical rate of returns, could be the result of various factors including the Investors foresight, ability to exploit any bits and pieces of information that he may become privy to or even sheer fortitude - none of which call for a negation of the entire transaction so as to strike at the roots of its authenticity, nature and character.
(iii) The Ld Assessing Officer has also placed reliance on the fact of the apparently phenomenal rise in the prices of the shares compared to their revenues/ operating results / assets base/ business health and the apparent absence of any new development which promises bright future for the shareholders which apparently defies logic of share trading pattern of primary or secondary markets. The said argument goes against the basic grain, manner and functioning of the capital market wherein price discovery of the underlying security and its movement is the result of the complex interplay of a set of intricate and diverse set of factors, sometimes mutually exclusive, sometimes competing and sometimes even-conflicting and on almost all of whom an investor has no control and of which revenues/operating results is just one solitary factor. The movement of price on the stock exchanges and the underlying indices are dependent on a host of factors including the general economic sentiment, political situation, specific sectoral growth, liquidity, future growth prospects, reputation of the promoters, industrial situation etc. all of which act in tandem and correlation to determine the movement of prices.
(iv) In fact, in the modern day inter connected world wherein global linkages and factors have acquired prominence, several intricate and even notional factors come into play. The behavior of the stock exchanges is also influenced by global sentiments and cues, cross-border movement of funds, international political developments, perception ofFII's, crude prices, economic indices in various countries across the glo be, domestic as well as international political developments and a host of other tangible/intangible/perceptual and even sentimental factors.
(v) An analysis of the security price movements of companies on the stock exchange would make it clear that in no case have the prices been determined solely or even majorly/predominantly by their sales/revenue/profits. In fact, even companies in the same industry/sector, with similar profiles and operating in almost identical environments can and do invariably exhibit extremely divergent stock-market behavior as would be evident from the highly divergent P/E ratios of companies listed in the securities markets. The LdAssessing Officer has, through graphical representations and charts relied on the apparent divergent trends in the stock market prices of the impugned companies by ignoring the fact that such trends are observed in all the companies on the stock exchange at some point of time or the other.
(vi) Given the fact that the entire process functions within the framework of the rules/regulations of the stock exchange(s) and ever watchful eyes of the 46 market regulator and watchdog viz the Securities and Exchange Board of India (SEBI) and the fact that the Appellant does not have any role direct, indirect or even notional in the management of the subject companies or any degree of control thereon, he cannot even nationally have any role to play in the movement of prices of the said companies. In such a situation, the Appellant cannot be deemed to be a part of any wrong doing/non-compliance, including price manipulation, to which the company or any its promoters may be a part. It should be noted that in a free-market environment, fluctuation in share price(s) is a natural phenomenon and cannot be made the basis for doubting any transaction for the purchase/sale of shares.
(vii) It is pertinent to mention here that the process of preferential allotment of shares as well as follow up public issue(s) is the culmination of a rigorous exercise wherein various statutory/regulatory bodies such as SEBI, the Stock Exchanges etc are involved. The entire process involves a multi-stage, rigorous, coordinated and time-bound process involving comprehensive due-diligence, vetting of documents, background check of the promoters, compliance with well-laid out guidelines and parameters etc. An already listed or an unlisted company intending to go in for a public issue can allot shares by way of a preferential allotment only after getting the approval of SEBI. In fact, in the entire process, SEBI also approves the list of persons/entities to whom shares are to be allotted on preferential basis, also incorporating therein the terms and conditions including, lock in, if any subject to which the share are to be issued.
(viii) In this background and situation, to disregard an entire process the foundation of which is laid on a comprehensive multi-stage process, multi-agency approval is not only the negation of an act committed with due compliance of law but also exhibits, we may submit with respect, a complete disdain therefor.
The Appellant cannot be faulted for relying on a commercial proposition which was duly compliant with law, including approval of SEBI and which has resulted in huge profits. A large part of the arguments of the Learned Assessing Officer are based on the apparently unrealistic high rate of returns and supernormal profits ignoring the fact that the rate of return is a function of various factors on only some of which an entity/person can have some control. The fact of a high rate of returns should not, by itself, prejudice the mind of any person while judging the transaction.
(ix) To disregard the activities conducted by a Company as dummy when its entire spectrum of activities has been pre-scrutinized and approved by various agencies, including the capital markets regulator SEBI would be disregarding the functioning of bodies operating under a law enacted by the Parliament of India. It may be noted that actual activities, both in nature and quantum, are bound to vary, sometimes even widely, from that forecasted/planned and the benefit of hindsight cannot be used to negate the results therefrom.
(x) In this connection it is also vehemently submitted that while there is no statistically acceptable definition of the term "penny stocks", the said findings/ investigations/ recommendations cannot ipso-facto and unilaterally be applied to the Appellant since there is no evidence of any degree, or form whatsoever that he was a part of any organized system whereby artificial long term capital gains were created through manipulative means. The said findings, if any, cannot be unilaterally and in the absence of concrete authoritative evidence, 47 extrapolated to apply to the Appellant. Moreover, the various documents/reports/findings/order have been relied upon by the Ld Assessing Officer only generally and no specific case has been made out against the Appellant. There is not an iota of evidence to suggest that the Appellant indulged in the price rigging since he was neither connected with the alleged unusual price movement of shares nor there is any concrete evidence of his complicity in this regard and there is no allegation of any wrong -doing with regard to the Appellant.
(xi) The efforts of the Ld Assessing Officer, rather unfairly, seek to conjure a negative image with respect to "penny stocks". In fact globally, in the context of the working of the securities markets and in the normally used and colloquially accepted terminology of people trading/advising in securities, "penny stocks" are those which trade at a very low price and have very low market capitalization whereby although there is a high-risk, the probability of a rapid upside and the opportunity to gain from even a small rise in price is very high. In this situation, it is a common practice among investors to look for suitable (penny) stocks where the possibility of earning higher returns with a comparatively lower investment is very high. Such an investment behavior, although somewhat risky, and not generally recommended by conservative investment advisors, is not unusual or unheard of and does not carry the taint of illegality or wrong doing in any manner. Accordingly, it would not be correct to look at any transaction in the so called "penny stocks" with even a slightly suspicious or slanted view since not only are they perfectly legal but also can be a part of any traders/investors legitimate portfolio. In fact, to better appreciate the legality and legitimacy of trading in "penny stocks" it should be noted that the respected national daily "Economic Times", which has the widest circulation among economic newspapers in the Country, carries out a weekly survey of penny stocks vis-a-vis their price trends, market capitalization etc.
(xii) In this connection it is also submitted that the provisions of the Act must be implemented administered and interpreted only with reference to its specific provisions and any income-tax authority is estopped from stepping into the shoes of any assessee so as to question its rationality, prudence or acceptability from a common-sense point of view. So long as any action/transaction meets the specific conditions laid down in the Act an attempt to seek to negate it or interpret it by applying the yardsticks of rationality, prudence etc. which in any case are highly and extremely subjective, would not meet the ends of justice and basic tenets of judicial interpretation/ tax administration. The same argument would hold good regards variation in the volume of transactions in the shares of the companies on different dates, over which again an Assessee has no control whatsoever.
It should be again emphasized, even at the cost of umpteen repetitions, that the Assessee has only transacted in the shares of the said companies to the limited extent as an investor with a view to benefit from the long-term appreciation in the price of underlying shares with absolutely no control decisive or even persuasive or say, even minuscule or notional say in the management thereof, what to say in its share market price.
(xiii) It should be noted here that the Ld Assessing Officer has not disputed any part of the transaction relating to the purchase of shares in any manner -whether payment, allotment, conversion or any other aspect/limb related thereto. His entire case, almost solely, rests on the procedure for sale and the alleged, 48 somewhat conjectural, manipulation in the sale thereof and other circumstantial/third-party evidence, the entire gamut of which is being negated hereinafter. Notwithstanding the said arguments, it should be noted that any action based and conclusion drawn on a partial view of the entire transaction, where the other part has not been disputed, even microscopically, can only be of questionable quality.
B Documentary evidence gathered during search, statements of entry/exit provides and Investigation of PIT (Inv) Kolkata and Mumbai
(i) At the outset the charge that the Appellant had been the beneficiary of allegedly bogus LTCG entries is vehemently denied. The LTCG arising to the Appellant arose from genuine transactions carried out in accordance with the prescribed procedures and duly compliant with the relevant regulatory laws and regulations.
(ii) The action of the Ld. Assessing Officer relies, almost solely, on independent search and survey operations carried out by the Department on some entities, alleged entry operators, the findings of the Investigation Wing and orders passed by SEBI whereby it has been concluded generally that the huge capital gains earned within a very short period of time, by investing in a penny stock whose fundamentals/ financials had no support, was neither the result of a coincidence nor of a genuine investment activity but allegedly created through a well planned and executed scheme in which the company, the brokers and the buyers and sellers of the scrip worked deliberately to achieve predetermined objectives. The Ld. Assessing Officer has not made any independent enquiries in this regard and has relied solely upon the information provided by the Investigation Wing and that which came to his knowledge from other sources.
(iii) The conclusion arrived at by the Ld Assessing Officer is based upon the statements of different persons recorded by the Investigation Wing of the Income-tax Department, during the course of separate search/survey proceedings carried out on various persons unconnected with the Appellant at various stages, geographical locations at different time periods. The Ld Assessing Officer has rather erroneously stated that various evidences were gathered during the course of search and seizure proceedings which, allegedly, prove that the transactions resulting in LTCG were not genuine whereas the fact of the matter is that no such evidence/material/ evidence was found during the course of search at the premises of the Appellant. While the legal validity of the reliance on such statements, being in violation of the principles of natural justice, is itself disputed and argued separately, the specific arguments with respect to the various securities are being dealt with as follows: -
(I) M/S PRANNETA INDUSTRIES LTD (NOWAADHAR VENTURES INDIA LIMITED)
(a) With respect to the above Company an adverse conclusion has been sought to be drawn on the basis of investigations carried out and statements recorded ofS/Sh Shrish Chanderkant Shah (SCS), R K Kedia, Manish Arora, Om Prakash, Anandilal Khandewal, Radhey Shyam Sharma, Kumar Rai Chand Madan, Deepak Shanghani, Damodar Atal and Praveen Kumar Jain (alias Pintu).
(b) At the outset it is vehemently stated that the Appellant does not know, what to talk of having any kind or degree of relationship with and has not entered into any dealing either directly, indirectly, peripherally, tangentially and no cash has ever been paid by the Appellant to SCS either directly or through 49 any intermediary(ies). SCS also did not have any role, whatsoever in the investment made by the Appellant in various shares. The said fact has also been reiterated by the Appellant in various replies filed before the Ld. DDIT (Inv) during the course of post-search investigation and before the Ld Assessing Officer in assessment proceedings.
(c) With regard to the allegation that payments were made through RTGS by BPSL to various companies alleged to be managed and controlled by SCS, it is submitted that as per the information available with the Appellant, the said payments were made through Sh. RK Kedia and not to SCS. There is no contradiction in the stand taken by the Appellant during the course of the assessment proceedings which remains that the payments were in the nature of advances for purchase of capital assets made by BPSL in the normal course of business to various companies apparently and allegedly controlled by SCS, a fact which was definitely never in the knowledge of the Appellant. To be clear and succinct as per the information available with the Appellant, the capital advances paid by BPSL were made through Sh RK Kedia to various companies which as it comes out are, perhaps, allegedly controlled by SCS with whom the Appellant does not have any dealing directly or even indirectly.
(d) Without prejudice to the above, as regards the allegation that the transactions recorded in "Kedia 2" sheet found in the search proceedings against SCS are exactly same as recorded in bank account of BPSL with Punjab National Bank and as such the transactions recorded therein are authentic, it is submitted that these transactions in Kedia 2 sheet were recorded at a separate location and the Appellant is not aware of the purpose of recording the entries therein and even as to how they came to be recorded. The payments representing advances against purchase of capital goods by BPSL were made through Sh. RK Kedia which probably could explain the reason for recording such transactions by SCS. However, the Appellant does not and cannot be expected to have details/knowledge as to the reasons why such details were kept by SCS/RK Kedia and of the internal dealings among them, if any.
(e) It may also be reiterated here, a fact also emphasized before the Ld Assessing Officer that BPSL being a separate legal entity and an independent assessee, running a separate business can only be privy to, in full control of and explain the transactions entered into by it, if any.
(f) The Ld Assessing Officer has also relied on the fact that "Kedia 2" sheet seized from the premises of Shri Shirish Chander Shah during the course of search and survey at his premises allegedly pertains to the Appellant and his family. In this regard while it is again, emphatically and vehemently, denied that any cash has been paid to anybody against the sale of shares ofPIL, it is also submitted that the said account, pertaining to shares ofPIL, has no relevance to or relationship with the Appellant or his family members and the alleged cash entries do not match with the corresponding sale of shares of PIL by the Appellant or his family members. Moreover, more pertinently and topically, the said sheet nowhere contains the name of the Appellant or any of his family members. Simply because the amount and number of share of some transactions entered therein match with the sale of shares of PIL by the Appellant and/or his family members does not and cannot motivate any thought process culminating in taking a slanted/prejudicial view of the facts. The Ld Assessing Officer's averment that the said sheet contains details of cash received by RK Kedia on behalf of the Bhushan Group is not backed by facts since the name of the Appellant / any of 50 his family members/ group company(ies) does not figure in the said sheet and Ld Assessing Officer's assertion is just an apprehension/ assumption bordering on suspicion.
(g) While the Appellant is not and cannot be expected to be aware of the purpose/need of maintaining the said record particularly with regard to the entries regarding sale of shares of PIL, which incidentally matches with the Appellant's transactions, it can only be speculated that, since as alleged, SCS was managing and controlling the affairs of PIL, he may have maintained the said record for his own purpose or analysis. It is common, normal and definitely not unusual for persons in control of and managing the affairs of listed companies to keep a track of not only the share price movement but also the volume and number of transactions therein. The data could have been obtained from Bombay Stock Exchange or the stock brokers through whom the transactions had been entered into. The name of the Appellant or any of his family members does not figure anywhere in the said documents. Without prejudice it is also submitted that certain transactions of chequefsj received which have been entered therein on various dates such as 01-11-2010, 10-11-2010, 19-11-2010 do not pertain to the Appellant or any of his family members or group companies which further proves the fact that said sheet has no relevance with the Appellant or any of his family members and any adverse inference sough to be drawn on the basis of said excel sheet is neither warranted and in any case nor sustainable.
(h) In particular, the charge in the statement ofSh. RK Media recorded on 14/06/2014 regarding "Kedia 2" sheet and delivery of unaccounted cash by Sh.
Alkesh Sharma and Sh. Suresh Gupta is vehemently denied since no credence can be given to the statements given by Sh. RK Kedia. While it is once again reiterated that no cash was paid to Sh. RK Kedia or his employees either directly or through any intermediaries, it may be submitted that the stand taken by Shri RK Kedia, in this regard, is also contradictory as is clear from the shifting stands taken by him in his statements recorded on various dates viz. 22-02-2014, 20-03-2014,13- 06-2014 and his letters fded on 20-10-2014 and 26/03/2015. Moreover, a review of the statement of Sh R K Kedia recorded on 13-06-2014 itself reveals inherent inconsistencies in as much as with regard to companies mentioned at point no 3, and 5 namely M/s Matra Kaushal Enterprises Ltd., Vishjyoti Trading Ltd. and P.S. Infrastructure and Services Ltd. he has stated that he had arranged investment in shares of these companies. However, with regard to the same companies at Q no. 29 of the said statement, he has again and contradicted himself by replying that he has never arranged any investment in the said companies. The rapidly and radically shifting stands and the contradictions inherent in the statements and letters fded by Sh R K Kedia cast serious questions as to the authenticity thereof and decisively dent the extent to which reliance can be placed thereon.
(i) Regarding the statement of Sh. Manish Arora, it is submitted that the Appellant neither knows any person by the name ofSh. Manish Arora nor has any dealing with him. While going through his statement, as provided by the Ld Assessing Officer, it has been observed that no reference regarding M/s PIL has been made therein. As such no adverse inference on the basis of his statement is warranted with regard to the transactions of the Appellant in the shares of PIL. It is also submitted that from a cursory look at the statements of Sh. Manish Arora as provided by the Ld Assessing Officer, it seems that the statements have not been given by him in a free and undisturbed mind but obviously under enormous pressure and a state of extreme mental stress. The process of recording his statement which started on 13-06-2014 continued right up to 09/07/2014 with only 51 small breaks in between. It needs to be appreciated that any human being required to make a statement before investigating authorities for a period of almost 25 days is bound to be under a lot of stress and psychological pressure whereby the possibility of errors, contradictions and inconsistencies can definitely arise casting a serious doubt on their accuracy/reliability and the extent of reliance that can be placed thereon.
(j) The action of the Ld Assessing Officer also relies to a large extent on the statement ofSh. Omprakash Anandilal Khandelwal and Shri Radhey Shyam Sharma, Manager of PIL. In this connection it is submitted as follows: -
(i) As regards, his statement that the shares of PIL, under his control, were transferred to various companies and persons off market or through the stock exchange as directed by SCS, it may be mentioned that no shares were purchased by the Appellant off market. It is also submitted that the entire purchase was through preferential allotment made by the Company, after following the due procedure as laid down by SEBI and the other applicable statutes including the Companies Act, as in force at the relevant point of time.
(ii) With regard to the inference drawn by the Ld Assessing Officer on the basis of the statement of Sh. Omprakash Anandilal Khandelwal that LTCG was generated through the shares ofPIL against payment of cash, it is submitted that the same is against facts since no cash was ever paid by the Appellant to SCS or any entities/persons against sale of shares of PIL. Moreover, there is no concrete evidence to support such an allegation and the corresponding conclusion drawn is only presumptive and conjectural.
(iii) The Appellant did not have any role to play in the movement of the share price of PIL and was neither aware nor could have been aware of any understanding nor was in any way concerned with any understanding, if any, between Sh. Om Prakash Khandelwal and Sh SCS, if any.
(iv) As regards the inferences sought to drawn by the Ld. Assessing Officer on the basis of their statement that PIL is a paper company, all the directors of the company are dummy directors, the entire turnover of the company is paper turnover, the share capital of the company is a mere accommodation entry and the effective control and management of the company was with SCS it is submitted that the investment in PIL was made considering its expansion plans and huge growth forecasts. As an investor, the Appellant was not and could not be aware that the turnover and share capital of the company was not genuine or the expansion plans of the company would not materialize. It may be submitted here, by way of a vociferous counter, that to dub a Company existing on the records of the jurisdictional Registrar of Companies, listed on the stock exchange and regularly and diligently complying with all the onerous formalities as required by various applicable statues would not only be a misrepresentation of facts but also and a travesty of justice.
(v) As regards the assertion of the Directors of the Company being dummy Directors, the Appellant as an investor had no knowledge of the same nor was he in any way concerned with the same. Similarly, the Appellant was in no way concerned with nor was aware of the person who was exercising effective control over the management of the Company. The Appellant had made investment in shares of many listed companies and was neither inclined to keep track of the internal activities of all those companies nor was required to do so, whether statutorily or even prudentially.52
(k) With regard to the statements of Sh. Kumar Rai Chand Madan and Shri Deepak Shanghani, it is submitted that the Appellant had absolutely no connection either with them or with SCS. The statements are in no way connected to the Appellant. Without prejudice to the above and after going through their contents it transpires that they have just tried to explain their nature of activities and there is no mention of PIL or that of the Appellant or any of his family member in the entire statement.
(l) With regard to the alleged statement ofSh. Damodar Atal an employee of SCS, on which the Ld Assessing Officer has laid rather under stress, that there was purchase and sale of shares of BSE listed companies through synchronized trading for jacking up the share price of listed companies managed and controlled by SCS, it is again submitted that the Appellant was not aware of the activities of SCS or his associates/employees nor was the Appellant in any way connected with the activities of SCS or his employees. As already separately submitted earlier, as an investor, the Appellant was not required to and could not in any way keep track of the internal activities of the company. Without prejudice to the above, in the statement of Shri Damodar Atal, there is no reference to PIL or the Appellant or any of his family members. The Appellant was not aware of the reasons for increase in share price of PIL. As an investor, the Appellant's objective was to just keep track of the share price movement of the script so that the same could be sold at the appropriate price, which he diligently did. The Appellant was also not concerned with the composition of Board of Directors of the companies alleged to be managed and controlled by SCS.
(m) With regard to the transactions recorded in the form of cash sheets and cheques sheets seized from the premises of SCS, it is submitted that the Appellant is neither aware of nor is he in any way concerned or connected with the transactions recorded in the seized documents.
(n) Regarding the documents seized from the premises of Sh. Parveen Kumar Jain (alias Pintu) and the Ld Assessing Officer's observation that the entries recorded in the accounts maintained by him correlate with the entries recorded in the accounts maintained by SCS, it is submitted that the Appellant does not know any person by the name of Pintu nor is he in any way concerned with the transactions between Shirish Chander Shah and Pintu, if any. Even otherwise and without prejudice to the above, on an analysis of documents seized from the premises of Pintu, it has been observed that the name of the Appellant or any of his family member's does not find mention on any of the documents. As mentioned above, even Shri RK Kedia during the course of his statements has been taking contradictory and shifting stands. Thus, drawing an adverse inference on the basis of documents of third parties and correlating them with the Appellant despite the fact that the Appellant was in no way associated/connected with any of these parties is .again neither warranted nor sustainable.
(o) With regard to the Ld Assessing Officer's allegation that amounts have been remitted through entities of Pintu into various entities of SCS on behalf of the Appellant and his family members, while the said allegation is, ab-initio vehemently denied, it is submitted that these transactions do not pertain to the Appellant or any of his family members. The Appellant is neither aware of nor in any way connected with any transactions between Pintu and Shri RK Kedia if any.
The Appellant has not paid any cash to Sh. RK Kedia, Pintu or SCS against sale of shares of PIL.
53(p) The Ld Assessing Officer has also relied on the alleged cash trail of unaccounted cash and alleged flow of unaccounted cash from the Appellant and his family and group to SCS through Sh RK Kedia and Pintu. In this regard it is again submitted that no cash has ever been paid to Sh RK Kedia or any of his employees. Without prejudice to the said averments, it is submitted that the transactions given in the cash trail relied upon by the Ld Assessing Officer pertain to the period from 28-06-2011 to 27-08-2011, whereas in the case of the Appellant and any of his family members, the last sale of shares of PIL was effected on 03- 05-2011. Accordingly, these transactions could by no stretch of imagination pertain to the Appellant or any of his family members and the Ld Assessing Officer's allegation that cash has been paid by the Appellant and his family members to SCS through Sh. RK Kedia and Pintu is without any basis and drawing any adverse inference on the basis of the same is not warranted in the facts and circumstances of the case.
(q) Regarding entries of commission alleged to be charged by Sh. RK Kedia from the Appellant and his family members and entered at page no 43 of extract E-14 (Annexure A-27) seized in the case of Sh. RK Kedia, it is submitted that the Appellant/his family members did not pay any commission / premium to Sh. RK Kedia against the sale of shares of PIL. While Shri RK Kedia might have been expecting some commission since he had advised the Appellant on making investment in the shares of PIL and the Appellant had earned a handsome amount from the same, the uncontroverted fact of the matter is that no such commission was ever agreed to or paid to him.
(r) With regard to the statements of Sh. Sanjay Kumar and Mr. Bishu fain, it is submitted that the Appellant does not know any of these persons. Moreover, while going through their statements, as provided to the Appellant by the Ld Assessing Officer, it is clear that no adverse inference is warranted from their statements as far as the transactions of the Appellant with regard to the shares of PIL is concerned.
(s) Without prejudice to the prima-facie arguments and averments listed out above, it transpires that even factually, an analysis of trade data of the shares of PIL, as provided by the Ld Assessing Officer, reveals that while there were 141 buyers against the total sale [shares of PIL by the Appellant effected through BOLT platform, only 21 buyers (who purchased 58.49 lac shares out of total 80 lac shares) are those whose name figure in the list of 212 companies alleged to have been managed and controlled by the said SCS thereby striking decisively at the root of the allegation of some kind a collusion between the Appellant and SCS.
(t) With regard to Ld Assessing Officer's observations that an analysis of the timing difference reveals that 48% of the trades were executed within one minute and more than 71% orders were executed within five minutes of placing the order, it is submitted that on a detailed analysis of such data, it has been observed that even in the case of transactions of purchase of shares of PIL, by persons/entities other than the entities alleged to be managed and controlled by SCS, a majority of the orders were executed in less than five minutes in as much as 14.92 lac shares out of 21.51 lac shares i.e. more than 69% were traded in less than 5 minutes of placing the order leading to the definite conclusion that no adverse inference is warranted on the basis of the same.
(u) It should also be noted that in an online mechanism, the matching of buyer and seller could be instant wherein the intention of the various parties (whether 54 buyer or seller) is exhibited instantly and a willing counter party can react instantly, within seconds, what to talk of minutes. Further since the entire system operates in a virtual world, with no physical interaction between the counter parties, the possibility of any collusion between the parties is completely ruled out It should be noted that with the stock markets being open only for a limited period, speed becomes essential to the execution of deals and in case of willing buyer(s) and seller(s) the deals get consummated in seconds. The stock markets operate on a real-time basis wherein the deal get transacted instantaneously given the matching of the intentions of the buyers and seller exhibited in the online market place.
(v) Without prejudice to the Appellant's stand that given the fact that the shares were sold on the online (BOLT) platform of BSE whereby he was and could not be aware of the ultimate buyer of the shares, simply because of the fact that some shares had been purchased by companies allegedly controlled/managed by SCS cannot lead to any kind of adverse conclusions let alone collusion of arrangement between SCS and the Appellant. The Appellant had sold the shares of PIL during the period from 29-11-2010 to 03-05-2011 at different prices ranging from Rs. 62.05 to Rs. 79.75 whereas the highest price of PIL, as per data downloaded from the web site of Bombay Stock Exchange, was Rs 87.10 on 03- 03-2011. Even on the dates on which the Appellant had sold shares of PIL his selling price was significantly less than the highest price of that particular date e.g. on 03-03-2011, the Appellant sold the shares at Rs. 77.20 per share whereas the highest market price on the same date was Rs. 87.10 per share. The said fact also mitigates against any collusion/arrangement between the Appellant and the management of PIL, since any arrangement would have ensured prior information to the Appellant to enable him to make the maximum profit by selling the shares at the highest price, which has not happened in the given case. (II) BLUE CIRCLE SERVICES LTD, M/S DB (INTERNATIONAL) STOCK BROKERS LTD AND UNISYS SOFTWARE AND HOLDING INDUSTRIES LTD.
With respect to the LTCG earned by the Appellant from companies other than PIL, as listed above the Ld Assessing Officer has apart from linking the share price solely with their financials an aspect that has already been dealt with separately in detail, also relied upon the statements ofSh R K Kedia/Manish Arora recorded in the course of search on 13-06-2014 and subsequent proceedings as also on the results of investigations/enquiries and statements recorded of various persons such as S/Shri Jagdish Prasad Purohit, Anand Sharma, Deepak Patwari, Praveen Agarwal, Pramod Ramdin Sharma, Umesh Singh, Pulak Bagchi, Chiranjit Mahanta, Vishal Sharma, Natwar Lai Daga, Krishan Khadaria etc. In this connection the various issues are being dealt with hereinafter with respect to all the companies involved.
(a) With regard to the reliance placed on the statements dated 19-10-2011, 12-02-2013, 17-12-2013 and 21-01-2015 of Sh. Jagdish Prasad Purohit stating that he was controlling and managing various companies through dummy directors which are used for providing accommodation entries, it is submitted that Appellant does not know any person by the name of Sh. Jagdish Prasad Purohit and is in no way connected with the affairs of the companies alleged to be controlled and managed by him and the composition of the Board of Directors of such company.
55(b) It is further observed that Sh. Jagdish Prasad Purohit has not stated that he was providing any long-term capital gain accommodation entries through the companies controlled and managed by him. Also, in none of the statements, Sh. Jagdish Prasad Purohit has he mentioned the name of the Appellant or any of his family members/group companies. Mere alleged admission on the part ofSh. Jagdish Prasad Purohit that he had allegedly provided accommodation entries to some beneficiaries cannot be prejudicially extrapolated to arrive at an inimical decision adversely affecting the Appellant.
(c) In particular with regard to the allegation/conclusion that Sh. Jagdish Prasad Purohit was controlling and managing the affairs of Blue Circle Services Ltd., it is submitted that as per the information collected online from the website of the Ministry of the Corporate Affairs. Sh. Jagdish Prasad Purohit was not even a director in Blue Circle Services Ltd. Moreover, on going through all the statements of Sh. Jagdish Prasad Purohit, it has been observed that no mention ofM/s Blue Circle Services Ltd has been made in any of these statements. Sh. Jagdish Prasad Purohit during the course of his statements has given a list of companies controlled and managed by him, but the name of Blue Circle Services Ltd is nowhere mentioned in such list nor has he made any statement with regard to composition of Directors of the said company.
(d) (e) The Appellant had merely invested in the shares of the various companies and was in no way concerned/connected with the management and day to day affairs of the same. An analysis/review of the statement ofSh. Jagdish Prasad Purohit leads, according to the humble understanding of the Appellant, to the uncontroverted conclusion that no adverse inference can be drawn on the basis thereof.
(f) The Ld Assessing Officer has also concluded and relied upon the alleged fact that the share price of various companies was artificially jacked up by using dummy entities/ individuals. While, at the outset, it is vehemently stated that the Appellant was not aware of the activities of any of the entities / individuals involved in such activity(ies), the question of him being connected/involved with the activities of such to any degree or extent even miniscule does not arise. The Appellant was not aware of the reasons for the increase in share price of Blue Circle Services Ltd. As an investor in the shares Blue Circle Services Ltd., the Appellant's sole objective was to keep a track of the share price movement with a view to maximise the gains arising therefrom and accordingly drawing any adverse inference merely on the basis of share price movement of the various companies is not warranted in the facts and circumstances of the case. It may be noted that as already discussed elsewhere, the securities market operates in a volatile environment and the shares prices and their movements are the results of an interplay of various factors, of which may not even enter public domain.
(g) The Ld Assessing Officer has also placed reliance on the fact of the apparently phenomenal rise in the prices of the shares compared to their revenues/ operating results / assets base/ business health and the apparent absence of any new development which promises bright future for the shareholders which apparently defies logic of share trading pattern of primary or secondary markets. The said argument goes against the basic grain, manner and functioning of the capital market wherein price discovery of the underlying security and its movement is the result of the complex interplay of a set of intricate and diverse set of factors, sometimes mutually exclusive, sometimes competing and sometimes even-conflicting and on almost all of whom an investor has no control and of which revenues/operating results is just one solitary 56 factor. The movement of price on the stock exchanges and the underlying indices are dependent on a host of factors including the general economic sentiment, political situation, specific sectoral growth, liquidity, future growth prospects, reputation of the promoters, industrial situation etc. all of which act in tandem and correlation to determine the movement of prices.
(h) In fact, in the modern day inter connected world wherein global linkages and factors have acquired prominence, several intricate and even notional factors come into play. The behavior of the stock exchanges is also influenced by global sentiments and cues, Cross-border movement of funds, international political developments, perception of FII's, cude prices, economic indices in various countries across the globe, domestic as well as international political developments and a host of other tangible/intangible/perceptual and even sentimental factors.
(i) An analysis of the security price movements of companies on the stock exchange would make it clear that in no case have the prices been determined solely or even majorly/predominantly by their sales/revenue/profits. In fact, even companies in the same industry/sector, with similar profiles and operating in almost identical environments can and do invariably exhibit extremely divergent stock-market behavior as would be evident from the highly divergent P/E ratios of companies listed in the securities markets. The Ld Assessing Officer has, through graphical representations and charts relied on the apparent divergent trends in the stock market prices of the impugned companies by ignoring the fact that such trends are observed in all the companies on the stock exchange at some point of time or the other.
(j) With regard to the allegation that the share price chart movements of the companies in question is typical of a listed paper company used forgiving accommodation entries of bogus LTCG while it may be noted that the Appellant was just an investor in the respective companies and had nothing to do with their share price movement, even otherwise there is no accepted trend which can reflect movement in share prices of such a nature which trend is just imaginary arising from pre-conceived notions.
(k) The Ld Assessing Officer while arising at the ultimate conclusion has sought to place reliance on the statement of Sh. Deepak Patwari wherein he has allegedly stated that he had traded in shares of listed penny stocks for helping and providing LTCG accommodation entries. In this regard it is submitted that neither does the Appellant know Sh. Deepak Patwari nor is he in any way connected/concerned with his transactions/activities nor does his any relevance with the case of the Appellant. Even so the Appellant has gone through his statements as provided by the Ld Assessing Officer wherein it transpires that the name of Blue Circle Services Limited does not find any mention in the list of shares which he has stated to have purchased nor does the name of the Appellant or any of his family members/group companies find mentioned in his above referred statements thereby severely denting the reliance that can be placed thereon.
(l) With regard to the reliance on the reliance placed by the Ld Assessing Officer on the alleged statement of Sh. Praveen Aggarwal admitting that he was controlling and managing the affairs of 200 paper entities through a number of dummy directors for providing bogus LTCG accommodation entries, it is submitted that the Appellant had no connection or dealing whatsoever with Sh. Praveen Aggarwal or any of the directors of the companies alleged to be managed and controlled by him. Even otherwise on going through the contents 57 of the statement ofSh. Praveen Aggarwal and his so called dummy directors, it transpires that they have merely tried to explain some of their activities without mentioning Appellant or any of his family members what to talk of any wrong doing by him/them. Even no mention has been made by him with regard to transacting on behalf of Sh. Jagdish Prasad Purohit. Thus, no adverse inference is warranted on the basis of their statements recorded at the back of the Assessee.
(m) It should also be mentioned that in none of the statements of Sh Jagdish Prasad Purohit, the name ofSh. R.K. Kedia or the Appellant or any of his family members/group companies has been referred/mentioned. Also, no reference ofSh. Praveen Aggarwal (who has allegedly helped in providing bogus LTCG accommodation entries) has been made by Sh. Jagdish Prasad Purohit in his statements recorded on oath. The Ld Assessing Officer has sought to draw an adverse inference on the basis of statement of Sh. R.K. Kedia (which itself is unreliable for the reasons mentioned above and discussed separately) and certain documents seized during the course of search from the premises ofSh. R.K. Kedia whereas nothing adverse against the Appellant has been found. In view of the aforesaid submissions no adverse inference with regard to long term capital gain earned by him on the sale of shares of various companies is warranted in the facts and circumstances of the case.
(n) The Appellant had sold the shares of the various companies online using BOLT (Bombay Stock Exchange Online Trading) platform of a recognized Stock exchange and the delivery of shares took place through his DEMAT account. The entire sequence of transactions is based on a system of matching of bids and offers on an online trading platform when the name of the counter party (i.e seller/ purchaser of shares) is neither disclosed nor known to each other. The Appellant was not/could not be aware of the person/ entity buying the shares sold by him and he neither had nor could have any control that the shares could be sold to a particular person/entity. An analysis/review of the statements of Sh. Deepak Patwari and Praveen Aggarwal leads to the definite conclusion that no adverse inference can be drawn on the basis of the same.
(o) With regard to the reliance placed by the Ld Assessing Officer on the statements of various brokers/sub-brokers/employees/associates of various broker firms and directors of the companies alleged to be controlled and managed by Sh. Praveen Aggarwal namely Pramod Ramdin Sharma, Umesh Singh, Pulak Bagchi, Chiranjit Mahanta and Vishal Sharma, it is submitted that while the Appellant does not know any of these persons and is not in any way connected with their activities. A perusal of their statements reveals that they have merely tried to explain the nature of activities/transactions carried out by them or their clients. In their entire statements nothing has been stated regarding any wrong doing by the Appellant and even the name of the Appellant or any of his family members does not find mention in any of the said statements.
(p) The Ld Assessing Officer has also relied upon the alleged cash transactions recorded at page no. 18 to 23 and 26 of Annexure A-2 seized during the course of search from the premises of Sh R K Kedia. In this connection, it is submitted that none of the alleged cash transactions recorded on these pages pertain to the Appellant even otherwise, and without prejudice, the aforesaid seven pages pertain to the period from August, 2012 to October, 2012( i.e AY 2013-14) while in the case of the Appellant the entire sale of shares of Blue Circle Services Ltd. was effected during the F.Y 2011-12 (i.e. AY 2012-13) and accordingly, no comments is required to be made with regard to said seized material. Further, as regards 58 reliance placed on Annexure A- 6 seized from the premises ofSh R K Kedia, the same does not contain the name of the Appellant or any of his family members and accordingly cannot be commented upon.
(q) The Ld Assessing Officer has also relied heavily on the backup soft copy of the data seized from the premises of Sh R.K. Kedia. In this connection, it is submitted that the Appellant is not aware of any transactions/dealings between Sh. R. K. Kedia and Sh. jagdish Prasad Purohit. As already stated earlier the Appellant does not know any person by the name Sh. jagdish Prasad Purohit. Ongoing through the transactions in the said data, as appearing at the path "G:\Back Office[12]7.3gb\BackOfficeRadha[12]Data\ Present Data\KISHAN_FA" it is observed that it is a month wise ledger account in the name of "Purohit Ji"
maintained in excel sheet wherein crucially and critically the name of the Appellant does not appear anywhere thereby clearly signifying that the Appellant does not have anything to do with any of the transactions recorded in said ledger. Similarly, with regard to final reconciliation statement recorded in excel sheet in the name of "Purohit Ji", there is no reference to the name of the Appellant Even otherwise and without prejudice, it is submitted that the data on the above-mentioned path seized from the premises ofSh. R. K. Kedia pertains to the period from April 2012 to March 2013 (i.eAY 2013-14) and accordingly, no comments can be furnished with regard to said data on the said path.
(r) It should also be noted that the account opened in the name of "Purohit Ji" by Sh. R. K. Kedia cannot warrant drawing any adverse inference in as much as Sh.
Jagdish Prasad Purohit had no locus standi vis-a-vis with respect to Blue Circle Services Ltd. as he was neither a director in the said company nor has he made any statement with regard to managing/controlling the affairs of Blue Circle Services Ltd. Any transaction between Sh. R.K. Kedia and Jagdish Prasad Purohit, if any, cannot lead to drawing any adverse conclusion with regard to the Appellant It is once again reiterated that no cash has been paid by the Assessee to Sh. R.K. Kedia, Sh. Jagdish Prasad Purohit or anybody else against the sale of any shares. Further, even Mr. R.K. Kedia during the course of his statement recorded on 20-03-2014, has stated in reply to question no.5 that he just knew Mr. Purohit as friend, but no cash was delivered through him.
(s) With regard to the transactions recorded in excel sheet at path G:\Back Office\back office[12]7.3gb\Back Office Radha[12]Data\Present Data\Blue, about the sale of shares of M/s Blue Circle Services Ltd, G:\Back Office\back office 128mb[2]\Back Office 128[2]Data\DeIeted Data\[0000050] in respect of sale of shares of M/s Unisys Software & Holdings Ltd and G:\Back Office 128mb[12]\Back Ice 128mb[12]\data\[000107] in respect of sale of shares ofDB (International Stock Brokers Ltd it is submitted that the Appellant is neither aware of the purpose of recording details in an excel sheet nor connected/concerned with the maintenance thereof.
Simply because some transactions match with sale of these shares by the Appellant cannot lead to any adverse conclusion. Although the investment in the shares was made on the recommendation / advice ofSh. R. K. Kedia, the sale of such shares was made through a stock broker registered with Bombay Stock Exchange. The data of such sale could have been obtained from Bombay Stock Exchange or the stock broker through whom the sale of shares was made.
(t) With regard to the transactions recorded in excel sheet at path G:\Back Ofpce\back officel28mb[2]\Back Office 128mb[2]Data\Deleted Data\Blue Circle3, in respect of sale and purchase of shares of M/s Blue Circle Services Ltd. it 59 is submitted that as already mentioned above, the investment in shares of Blue Circle Services Ltd. was made on the recommendation/advice of Sh. R. K. Kedia and the Appellant had earned a handsome profit therefrom . As such Mr. Kedia might have been expecting some commission / advisory fee and prepared the excel sheet for the calculation of his fees. However, no such fees or commission was ever agreed or paid to him and the calculations are only imaginary.
(u) The conclusive allegations on the basis of said data that unaccounted funds ofRs. 123,82,66,872/- were paid through Sh. R K. Kedia for taking bogus LTCG accommodation entries of Rs. 120,88,49,203/- against the sale of share of Blue Circle Services Ltd. and unaccounted commission in the form of cash ofRs. 7,85,75,198/- was paid @ 6.5% is based merely on suspicion, surmises and conjectures and is against facts. The Appellant had never paid any cash for obtaining any accommodation entry against the sale of shares of Blue Circle Services Ltd. As already mentioned above no commission was ever paid or agreed to be paid to Sh. R K. Kedia against the sale of shares of Blue Circle Services Ltd. Whatever brokerage was paid on the sale of shares of Blue Circle Services Ltd. was paid to the stock brokers through whom such shares were sold. It is therefore requested that no adverse inference on the basis of data seized from the premises of Sh. R K. Kedia and recorded on the aforementioned path is warranted in the facts and circumstances of the case.
(v) As regards the conclusion drawn by the Ld Assessing Officer, on the basis of trade data of Blue Circle Services Ltd., that out of total sale ofRs. 170 Crores by the assessee and his family members of the shares of Blue Circle Services Ltd., Rs. 60,12,46,848/- was received as payouts from the paper entities controlled and managed by Sh. Praveen Aggarwal, as already stated above, the Appellant neither the Assessee knows any person by the name ofSh. Praveen Aggarwal nor is in no way connected or concerned with the transactions entered into by the companies alleged to be controlled and managed by Praveen Aggarwal. Moreover, as already mentioned above, the entire sale of shares of Blue Circle Services Ltd. was affected through BOLT platform of BSE and the Appellant was neither be aware of the person/ entity buying the shares sold nor had/could have any control that the shares could be sold to a particular person/entity.
(w) Without prejudice to the averments made above, it is submitted that the Ld Assessing Officer has drawn an adverse conclusion on the basis of the fact that the alleged paper companies had purchased shares worth 37% of the total value of shares sold by the Appellant meaning thereby that shares worth 63% of the value of shares sold by the Appellant were purchased by other entities/individuals. The mere fact that only shares worth 37% of the value of shares sold by the Appellant were purchased by the alleged paper companies need not work to the detriment of the Appellant as he was in no way concerned/connected with their transactions/activities,
(x) With regard to conclusion drawn by the Ld Assessing Officer, on the basis of Annual Report of the impugned companies that they were allegedly not doing any meaningful business activity, it is submitted that the investment was made on the basis of future expansion plans of the companies as available either in the public domain or through personal interactions such as the letters of offer, corporate profile, industry scenarios, future expansion plans, etc. Moreover, since the share prices of the various companies were relatively low the possibility of gains through a substantial and rapid rise in the prices was quite high. The entire 60 purchase of shares made by the Appellant was through a registered stock broker using online trading platform of BSE and the shares were subsequently, credited to his DEMAT account. The payments against the purchase of shares were made through account payee cheques/RTGS in favour of the registered stock broker through whom such shares were purchased. In this connection, copies of contract notes/sale bills evidencing the purchase of shares, allotment letters, documents evidencing conversion of share warrants etc. as applicable and copies of relevant bank statements duly highlighting the transactions regarding payment for purchase of shares of the various companies were duly filed before the Ld Assessing Office and are again being enclosed herewith which would prove the genuineness and authenticity of the said transaction beyond doubt.
(y) The Ld Assessing Officer has also sought to conclude again rather unfairly and unjustily that the shares were offloaded to the alleged beneficiaries, once the share price reached the desired level and thereafter the share price started falling. In this connection, it is submitted that in particular the shares of Unisys Software & Holdings Ltd were sold by the Appellant during the period 14-03-2012 to 08-06-2012 and delivered through his DEMAT account at prices ranging from Rs 197.80 to Rs 224.60 per share. During the said period the share price of Unisys Software & Holdings Ltd was showing a falling trend and in fact had fallen from Rs 219.80 to Rs 197.80 i.e. the Appellant sold the shares during the period when the share price was failing on a daily basis. However, after 08-06-2012, the share price of the company again started rising and went to as high as Rs. 313/- as on 13-02- 2013 i.e. almost 8 months after the sale of shares of Unisys Software & Holdings Ltd by Appellant. Even after one year of sale of shares by the Appellant i.e. on 07-06- 2013 the closing price of the shares of Unisys Software & Holdings Ltd was 252.90 i.e. an increase of almost Rs 55 per share. Similarly, the shares of DB (International) Stock Brokers Ltd were sold by the Appellant during the period 29-07-2011 to 03- 10-2011 at prices ranging from Rs. 93.95 to 100.95 per share. Subsequently, prices of the shares of DB (International) Stock Brokers Ltd also remained almost stable for the next two and a half years. Accordingly, the allegation of any kind of collusion, price-rigging/manipulation with respect to the transaction can be ruled out since the same borne by the share prices movement subsequently and considering the fact that if such an allegation were true the Appellant would have sold the shares at the highest price and not intermittently at various levels in a falling market (z) With regard to the Ld Assessing Officer's allegation and subsequent conclusion that various entry operators like Sh. Jagdish Prasad Purohit, Sh. R.K. Kedia, Sh. Praveen Aggarwal, Sh. Anand Sharma Sh. Deepak Patwari, Shri Natwar Lai Daga, Shri Kishan Khadaria and Sh S N Daga formed a syndicate for arranging bogus exempt LTCG accommodation entries in the shares of various companies, it is submitted that the Appellant is in no way connected with their transactions/ activities.
(aa) With regard to the Ld Assessing Officer's allegation that M/s DB (International) Stock Broker Ltd. is controlled and managed by known accommodation entry operators Sh. Shiv Narayan Daga and Sh. Natwar Lai Daga, it is submitted that the Appellant does not know any person by the name of Sh. Shiv Narayan Daga and Sh. Natwar Lai Daga and is in no way connected with the affairs of the companies alleged to be controlled and managed by them and with regard to the composition of the directors of such companies. Moreover, the Appellant has not been provided with any statement of Sh. Shiv 61 Narayan Daga and Sh. Natwar Lai Daga nor was any reference to any statement made by the said persons alluded to in the show cause notice issued by the Ld Assessing Officer. It is once again reiterated that without prejudice to the submissions made above, the Appellant was just an investor in the shares ofDB (International) Stock Broker Ltd. and was in no way connected with the day to day affairs of the said company.
(ab) It is once again reiterated that the Appellant was neither aware nor could be aware of the person/ entity buying the shares sold by him and there was no way he could control the sale of shares to ensure their sale to a particular person/entity. The entire sale of shares was affected through the BOLT platform of the BSE, a web-based trading system:
> in which the seller can in no way sell the shares to a particular entity/individual and vice-versa;
> where the trade is executed when the bid price offered by the buyer matches with the offer price of the seller and vice-versa; and > the entire transaction is a demand and supply game over which neither the buyer nor the seller has any control.
(ac) Although the Appellant was in no way involved/ connected with the purchasers of shares sold by him , it is submitted that even if without admitting in any manner, the allegation of some kind of collusion were to be true, the entire 100% sale of shares by the Appellant and his family members should have been purchased by the companies allegedly managed/controlled by alleged entry operators, whereas the fact is that an analysis of the trade data obtained from BSE and as provided by the Ld Assessing Officer reveals that in case ofPrraneta Industries Ltd. only 73%, in case of Blue Circle Services Ltd only 37%, in case of Unisys Software Holdings & Industries Ltd only 38% and in case of DB International Stock Brokers only 61 % of the shares were purchased by them.
(ad) The Ld Assessing Officer has on the basis of investigations carried out by the Directorate of Income -tax (Inv), Wing - Kolkata has concluded that various syndicates of alleged accommodation entry providers were operating in tandem to provide allegedly bogus LTCG by rather unfortunately ignoring the fact that the Appellant did not have any dealings with any of the cited brokers.
(ae) In so far as reliance has been placed by the Department on the statements of various persons recorded during the course of diverse proceedings at different points of time and uncommitted with the Appellant it is submitted that without prejudice to the arguments advanced separately with regard to the degree of reliance that can be placed on the statements of the said persons, it is submitted that since a conclusion of far-reaching consequence has proposed been drawn, on the basis of statements made/records seized from a third party it was and is incumbent on the Department to provide the Appellant an opportunity to cross-examine the said person(s) whose testimony forms the bedrock of its entire case. It is humbly submitted that any action done/conclusion drawn in the absence thereof would be against the principles of natural justice and accordingly bad in law.
(af) Regarding the reliance of the Ld Assessing Officer on the Investigation report of SEB1, it is submitted that on going through the report, as provided by the Ld Assessing Officer, it transpires that SEB1 has made certain allegations with regard to activities of various listed companies in which the Appellant and /or his 62 family members had done certain transactions of purchase and sale of their shares. These allegations of SEBI pertain to preferential allotment by companies, subsequent allotment of bonus shares, stock splits and high returns from the sale of said shares not in line with the fundamentals of these companies. (ag) In this regard, it is submitted that the Appellant was only an Investor in the shares of some of the companies which were investigated by the SEBI in which investment was ..made on the basis of their future expansion plans. As an investor in the said companies the Appellant was in no way concerned or connected with the activities of these companies and his sole objective was to keep track of the share price movement so that the shares could be sold at the best possible price. It is once again reiterated that the Appellant or his family members had no role to play whatsoever, in the share price movement of these companies nor any such allegation has been made by the SEBI in its Investigation report.
Accordingly, drawing any adverse inference on the basis of SEBI investigation report merely because the Appellant had earned a handsome capital gain and sale of certain shares which were investigated by SEBI is not warranted in the facts and circumstances of the case.
(ah) In this connection, it is also submitted that no adverse conclusion can be drawn merely on the basis of documents seized, evidence collected, statements made or entries found in the books of accounts of any third person over whom an individual or entity may not have any control. The entries in the books of accounts of any third person cannot be solely the basis for arriving at any conclusion with respect to the Appellant case. In this connection reliance is placed on the decision of the Hon'ble Supreme Court in the case of Central Bureau of Investigation vs V.C. Shukla & Ors [(1998) AIR 1406 (SC)[ wherein the said conclusion has been emphatically drawn (ai) The said view has also been affirmed followed by various Courts of law across the Country in a series of decisions asfollows:-
> Additional Commissioner of Income Tax, Bombay City - Ivs Miss Lata Mangeshkar [(1974) 97ITR 696 (Bom)] > SP Goyal v DCIT [(2002) 821TD 85 (Mum)];
> ITO, Mumbai vs. Synthetic Hydrocarbon, Mumbai in ITA Nos 5188/Mum/2011; > Amarjit Singh Bakshi(HUF) vs. Asstt CIT[(2003) 86ITD13 (Del)]; > Prarthana Construction (P) Ltd. vs. Dy CIT[(2001) 118 Taxman 112 (Ahd) (Mag)]; > Chuharmal vs CIT[(1988) 38 TAXMAN 190 (SC)].
(Ill) Application of the principle of preponderance of probabilities, test of human profitabilities and reliance on circumstantial evidence
(a) The Ld Assessing Officer has greatly relied on the principle of preponderance of probabilities for arriving at his ultimate conclusion which is an enabling theory of providing and accepting proof and basing the verdict on their preponderance i.e. importance/predominance. Although it is a normal rule governing civil proceedings providing that a fact can be said to have been established if proved by a preponderance of probabilities or circumstantial evidence, it should be noted that the same comes into prominence only when it is hard to unearth direct evidence or demonstrative proof with respect to a particular fact. In a case where the direct evidence is either of questionable quality or which has been effectively countered and negated since no prima -63
facie evidence is available the revert to secondary evidence on the basis of preponderance of probabilities is not warranted.
(b) The Ld. Assessing Officer has also placed strong reliance on circumstantial evidences and test of human probabilities by relying upon the decisions of the Hon'ble Supreme Court in the case of Sumati Dayal vs CIT [214 ITR 801 (1995) (SC)]. In this connection, it is humbly submitted that both these issues viz the test of human probabilities and reliance on circumstantial evidence would come into play only when the basic test of direct and factual evidence fails. In the instant case, there is no ground whatsoever to doubt the factual, basic and direct evidence furnished and accordingly the question of relying upon circumstantial evidence and probability theory does not arise.
(c) The doctrine of substance over form, through undoubtedly very much a part of tax jurisprudence, comes into application only in cases where there is any definite/ concrete/ overt/ evidence of wrong - doing/ malicious act with respect to a particular assessee which clearly is not the situation in the given situation. Investigation / studies/exercises undertaken with a broad global perspective, on a macro level cannot by themselves by telescoped, in the absence of any compelling evidences and circumstances to individual assesses specially when the name of a specific person does not find a direct mention therein.
(d) (d) In the instant case, there is, if at all, a suspicion that the amounts received are allegedly unexplained. In this connection, it is respectfully submitted that it is a settled law that suspicion, howsoever strong, cannot take place of proof and there can be no addition on the basis of mere suspicion. Reference, in this regard, may be made to the following decisions: -
> Lalchand Bhagat Ambica Ram v CIT[(1959) 37 ITR 288 (SC)]; > CIT v. Paras Cotton Co [(2007) 288 ITR 211 (Raj.)];
> Faqir Chand Chaman Lai v. ACIT [(2004) 1 SOT 914 (Asr.)] [Appeal dismissed by P&H High Court in 262 ITR 295 and SLP dismissed by SC in 268 ITR 215 (St)]; > Assam Tea Co. v. ITO [(2005) 92ITD 85 (Asr.) (SB)];
> jhantala Investments Limited v ACIT[(2000) 73 ITD 123 (Mum.)]
(e) It may also be submitted here that it has also been judicially held in no uncertain terms that the act of questioning the very basis of a transaction and to brand it as illegitimate or camouflage, has to be based on substantial, concrete and cogent evidence wherein the proof of wrong-doing has to be "clear", "succinct" and "irrefutable". In this connection reference, may be made to the observations of their Lordships of the Hon'ble Supreme Court in the case of Union of India vs Azadi Bachao Andolan [(2003) 132 Taxmann 373 (SC)] wherein their Lordships of the Hon'ble Supreme Court have made the following pertinent topical observations: -
(i) We may in this connection usefully refer to the judgement of the Madras High Court in M.V Valliappan v. CIT (1988) 170 ITR 238 which has rightly concluded that the decision in McDowell & Co Ltd's case (supra) cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the Appellant, must be looked upon with disfavour. Though the Madras High Court had occasion to refer to the judgement of the privy Council in IRC v Challenge Corpn. Ltd (1987) 2 WLR 24, and did not have the benefit of the House of Lords pronouncement in Craven's 64 case (supra), the view taken by the Madras High Court appears to be correct and we are inclined to agree with it
(ii) If the Court finds that notwithstanding a series of legal steps taken by an Appellant, the intended legal result has not been achieved, the court might be justified in overlooking the intermediate steps, but it would not be permissible for the court to treat the intervening legal steps as non-est based upon some hypothetical assessment of the 'real motive' of the Appellant In our view, the court must deal with what is tangible in an objective manner and cannot afford to chase a will-o'-the wisp.
(iii) We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non-est merely on the basis of some underlying motive supposedly resulting in some economic determent or prejudice to the national interest, as perceived by the respondents.
(20) In this connection, with a view to derive judicial support to the stand of the Appellant, it may also be submitted that the attempt to disregard the provisions of sec 10(38) of the Act by treating long term capital gains as alleged income from unaccounted sources has been decisively negated by various judicial fora across the Country. In particular, Your Honour's kind attention is invited to the decision of the Lordship of the High Court of Mumbai in the case of Commissioner of Income Tax- 13 vs Shyam R Pawar [(2015) 229 Taxman 256 (Bombay)] wherein it has been held "that where DMAT account and contract note showed details of share transaction, and Assessing Officer had not proved said transaction as bogus, capital gain earned on said transaction could not be treated as unaccounted income." The above view derives unanimous support from various Benches of the Hon'ble Income Tax Appellate Tribunal, across the Country, in the following cases: -
> Chainroop Bohra and Others Vs. DCIT, Kolkata [(ITA Nos 24 to 27/Kol/2013)] > Ashok Kumar Gupta and Others Vs. DCIT, Kolkata [(ITA No. 501- 502/Kol/2013)];
> Arvind Asmal Mehta Vs. ITO, Mumbai [(ITA No. 2799/Mum/2015)]; > Vasantraj Birawat Vs. ACIT, Mumbai [(2015 61 Taxman. Com 295 (Mumbai- Trib);
> Kamal Kishore Aggarwal & Sons (HUF) vs ACIT, CC-11 [(ITA No. 504/DeI/2011)];
> Shri Kamlesh Mundra vs ITO, Ward 19(2)(3), Mumbai [(ITA No. 6248/Mum/2012)];
> Deputy Commissioner of Income Tax vs Asha V Mehta [(ITA No. 6405/Mum/2012 & 6998/Mum/2012)].
> CIT vs Udit Narain Agarwal (judgement dated 12, 2012 in the Hon'ble High Court of Allahabad in IT Appeal No. 560 of2009)];
> CIT vsSmtSumitra Devi [(2014) 49 taxmann.com 37 (Rajasthan)]; > Commissioner of Income Tax vs Smt Pushpa Malpani [(2012) 20 taxmann.com 597 (Raj)];
> ACIT vs SmtSumitra Gaur[(2012)27 taxmann.com 107 (jodhpur - Trib); > ACIT, Mathura Vs. Smt Kela Devi Agarwal [(ITA No. 75/Agr/2010)]; > DCIT, Mathura Vs Smt Meenakshi Agrwal [(ITA No. 265/Agr/2009)];
65> Sri PaduchuriJeevan vs ITO, Ananthapur [(ITA No. 452/Hyd/2015)]; > ITO, Agra vs Smt Pallavi Garg[(ITA No. 192/Agra/2009 and CO No. 34/Agra/2009)];
> Income -tax Officer, Ward -2, Nizamabad vs Smt Aarti Mittal [(2014) 41 taxmann.com 118 (Hyd-Trib)];
> ACIT, Mathura vs M/s Ram Chand Keshav Dev (HUF) [(ITA No. 233/Agra/2010)];
> Ms Farrah Market v ITO, Mumbai [(ITA No. 3801/Mum/2011)]; > ITO vs Indravadan Jain (HUF) [(ITA No. 4861,5168/Mum/2014)]; > Income Tax Officer vs Smt Neelam Chawla [(ITA No. 5335/Del/2004)]; > Income Tax Officer vs Smt Bibi Rani Bansal [(2011) 44 SOT 500 (Agra) (TM)];
(21) In view of the above scenario, the charge that the impugned long-term capital gains arising on the sales of shares of various companies are bogus is denied, both factually and legally. As already stated above the transactions, being fully compliant with the provisions of the Act and the other applicable regulatory provisions, no cause arises to treat the same as bogus by ignoring their actual and true nature. Further since the other arguments and circumstantial evidences have also been countered and dealt with above, it is earnestly prayed that the additions being based on faulty premises, suspect logic and an unsustainable interpretation/implementation of legal provisions coupled with serious procedural lacunae deserves to be deleted."
21. The assessee also submitted to the Ld. CIT(A) that the A.O. gravely erred in framing assessment by ignoring the principles of natural justice and not affording any opportunity to cross examine the person whose statement were relied, as under:
"(1) A perusal of the assessment order and history of the assessment proceedings would show that various references have been made and reliance placed on the statements of various persons recorded during search/survey/investigation by different wings of the Department (2) The conclusion drawn by the Ld Assessing Officer relies heavily on the statements of various persons such as S/Shri Shirish Chanderkant Shah, Praveen Kumar Jain, Praveen Aggarwal, Om Prakash, Anandlal Khandelwal, Jagdish Purohit R K Kedia, Manish Arora etc. which have been unilaterally and critically used to the prejudice of and to the detriment of the Appellant but by clearly denying him as an opportunity to cross-examine the said persons. In fact, the Appellant, through his authorized representative, was duly present to cross-
examine the said persons on the appointed day, as informed by the Ld Assessing Officer, wherein none of the said persons turned up. The Ld Assessing Officer has held that the insistence on cross-examination was only meant to thwart income tax proceedings which conclusion is not only unjust and decidedly, unfair but, a misinterpretation of law and exhibits an utter disregard for the principles of natural justice which form the bedrock of any legal proceedings in particular those relating toIncome tax which are unquestionably quasi-judicial in nature.
(3) The failure of the appointed persons to appear for cross-examination on the appointed date has prompted the Ld Assessing Officer to, again, rather 66 unfairly and unjustly, conjure up an imaginary "unnatural nexus" between the Appellant, and the alleged entry provider, with absolutely no evidence to back up his conclusion. The said contention is exponentially and conclusively damaging to the Appellant since no such evidence exists to even remotely suggest, let alone prove such a nexus. Apart from routine financial dealings, there are no circumstances even suggestive of such a situation and to conclude the same is again, to say the least, extremely prejudicial to the Appellant. The failure of the said persons to appear on the appointed date cannot be attributable to the Appellant and does not in any manner allow the Ld Assessing Officer to deviate from the principles of natural justice so integral to any income- tax proceedings.
(4) The positive intent and desire to comply with the laws and cooperate with the Department was evident from the presence of the Appellant (through his/her authorized representative) on the day appointed for this purpose and even at all stages of the assessment proceedings. Instead of appreciating the Appellant's action, his spirit of cooperation and the injustice caused to him by the denial of his rights, the Ld Assessing Officer has sought to conjure up an imaginary nexus to deprive him of his basic rights and in fact thwart the principles of natural justice and on these grounds, itself any degree of reliance on the same stands on a weak footing and any conclusion drawn therefrom deserves to be negated to prevent further miscarriage of justice since the entire exercise has made in gross violation of the principles of natural justice and is void ab-initio.
(5) In this connection, Your Honour's attention is invited to the following judicial pronouncements which lend support to the above contentions put forward on behalf of the Appellant: -
> Bagsu Devi Bafna v CIT [(1966) 62 ITR 506 512 (Cal)].
> Kishinchand Chellaram v/s Commissioner of Income Tax, Bombay City II [(1980) 125 ITR 713 (SC)];
> The North Wales Police v. Evans [(1982) 1 WLR1155];
> R. B. Shreeram Durga Prasad and Fatechand Nursing Das v/s Settlement Commission (IT and WT) and another [(1989) 176 ITR 169 (SC)]; > Rajesh Kumar and Others v Deputy Commissioner of Income-Tax and Others [(2006) 287 ITR 91 (SC)];
> C.B Gautam v. Union of India [(1993) 199 ITR 530 (SC)]; [(1993) 1SSC 78], > Commissioner of Income Tax v. Dharam Pal Prem Chand Ltd [(2007) 295 ITR 105 (Delhi)];
> Prakash Chand Nahta v. Commissioner of Income -Tax [(2008) 301 ITR 134 (MP)];
It is respectfully submitted that the appeal may kindly be decided in the light of the submission made above."
22. The Ld. CIT(A) after considering the submissions of the assesse summarized the facts of the case and observation of the A.O. at page no. 157 to 168 of the impugned order which we have already discussed in the former part of this order therefore the same are not reproduced herein.
6723. As regards to the issue agitated by the assessee of initiation of proceedings under section 153A of the Act in the absence of incriminating material found during the course of search the Ld. CIT(A) observed that the disclosure letter submitted by the assessee on 06/03/2014 had given specific details of disclosure made amounting to Rs. 159.61 Crores on account of sale of shares of M/s PIL which tantamount to admittance that they had taken accommodation entries from SCS. He further observed that the disclosure of the assessee group was based on the seized documents in the search of the SCS as well as Shri R.K. Kedia who were searched simultaneously with the assessee group and the surrender of income under section 132(4) of the Act was based on the documents seized therefore those documents were certainly incriminating in nature. Ld. CIT referred to the judgment of the Hon'ble Delhi High Court in the case of Smt. Daya Wanti .... Vs. CIT dt. 27/10/2016 and in the case of CIT Vs. Harjeev Aggarwal dt. 10/03/2016 respectively. Ld. CIT(A) was of the view that the evidences found during the search of SCS and Shri R.K. Kedia revealed that the undisclosed income was shown in the guise of LTCG by the assessee group and that One Time (OT) entries were taken by the group as share capital from various entry providers including SCS which was arranged through Shri R.K. Kedia and the cheques were issued to various concerns by M/s BPSL as advances for acquisition of capita assets and that the amount were routed through various concerns and brought back to the main 4 group concerns as share capital at premium.
24. Ld. CIT(A) mentioned the details of RTGS or cheques received as per seized documents in the case of SCS at page no. 169 and 170. He also mentioned the information related to cheques or RTGS received by SCS from BPSL group at page no. 171 to 173 of the assessment order, for the cost of repetition the same are not reproduced herein.
24.1 The Ld. CIT(A) observed that there were certain documents seized from the office premises of BPSL at Chandigarh during the search conducted on 68 21/02/2014 on which transactions of payments to some companies of SCS were recorded which matched with the transactions recorded by SCS and Shri R.K. Kedia. The Ld. CIT(A) pointed out that during the course of search at the premises of Shri R.K. Kedia in June 2014 one of the loose paper bundle seized mentioned the name "Deepu" who was found to be ex-employee of Shri Shirish C. Shah(SCS), on those papers details of cheques (RTGS) received / paid to Deepu from / to BPSL Group companies / entities had been mentioned and on one page i.e; 69 cash paid to SCS persons including SCS himself for the period 01/04/2011 to 30/06/2011 had been recorded. On page 68 cash paid to SCS persons for the period 01/07/2011 to 31/07/2011, and on page 67 from 01/08/2011 to 31/01/2012 had been recorded, on page 66 there was reconciliation of amount paid to Deepu. The Ld. CIT(A) mentioned that first entry shows cash paid up to 31/01/2012 at 1,536,500/- which in reality was Rs. 15,36,50,000/- as Shri R.K. Kedia himself admitted that the amount were recorded by removing two zeroes. The Ld. CIT(A) also mentioned that on page 66 & 65 seized during the course of search at the premises of Shri R.K. Kedia, the details of payment made to six companies of SCS by BPSL and money received back from Deepu respectively had been noted. The names has been mentioned by the Ld. CIT(A) at page no. 174 of the impugned order.
24.2 The Ld. CIT(A) was of the view that if the documents mentioned above were correlated, it revealed that the amount remitted from BPSL by RTGS were received by SCS and after layering, the same was received back by four holding companies of BPSL, similarly the cash received by "Deepu" was remitted back to BPSL in the form of LTCG, therefore the documents seized from SCS, Shri R.K. Kedia and BPSL were linked which sufficiently showed that the record of incriminating nature was seized from the premises of BPSL at Chandigarh which was maintained on the computers as well as in the printed form. The Ld. CIT(A) observed that the documents seized from the search on SCS was incriminating in nature as accepted by the assessee in his submissions and that the 69 documents seized from the premises of BPSL confirm the transactions recorded by SCS and Shri R.K. Kedia, as such those were also required to be considered as incriminating. Ld. CIT(A) also observed that the documents seized from the premises of SCS were his own documents and as per the prevailing provisions of the Act, the notice under section 153C of the Act could not have been issued to the assessee and even if notices under section 153C of the Act were to be issued to the assessee group by virtue of provisions of second proviso to section 153A(1) of the Act, the assessments would have abated, since the assessee and his wife were searched under section 132 of the Act subsequently and the assessment had to be completed under section 153A of the Act. He therefore held that in the case of the assessee in view of the voluntarily admission of undisclosed income from sale of shares of PIL, constitute evidence found during the course of search and apart from this incriminating material found in other searches specifically with regard to the sale of shares of PIL further strengthened it. According to the Ld. CIT(A) the issue of existence of incriminating material has to be considered in totality, and the assessee cannot hide behind seizure or non seizure of the documents, the same has to be construed with peculiar facts of the case and the expected action on part of an independent entity in normal circumstances. The Ld.CIT(A) concluded that the action of the A.O. did not go at variance with the provisions of law and the available jurisprudence in this matter in so far as invoking the rigors of section 153A was concerned in the case of assessee. Therefore, he did not find merit in the submissions of the assessee on the issue relating to the framing of assessment under section 153A of the Act, in the absence of incriminating material found during the course of search.
25. As regards to the merits of the case relating to the addition made under section 68 of the Act, the Ld. CIT(A) observed that the assessee had declared capital gain from penny stock companies and claimed deduction under section 10(38) of the Act as under:
70Name of the AY Investment in LTCG from penny
appellant penny stock stock
Shri Sanjay Singhal 2008-09 Rs. 2,98,403 Rs. 37,07,016
2010-11 Rs.4,85,500 Rs. 23,39,428
2011-12 Rs.1,75,53,405 Rs. 54,36,56,615
2012-13 Rs.2,17,59,318 Rs.60,48,79,547
2013-14 Rs.80,32,111 Rs.8,48,84,502
2014-15 Rs.1,20,00,000 Rs.58,66,99,451
Total Rs. 6,01,28,737/- Rs. 182,60,66,599
26. On the basis of above the Ld. CIT(A) observed that the return on investments was approximately 30,370% and that family of the assessee earned LTCG of Rs. 696.44 Crores during the year under consideration in four cases of investment of Rs. 21.36 Crores and none of the family members had made any significant investments in any stock other than 14 penny stock traded and also did not have any income / loss from investment in other shares. The Ld. CIT(A) also observed that the return from the shares in penny stock ranged 29620% to 45740% over a period of approximate 2 years and over all return for the family of the assessee from investment in shares amounting to Rs. 21.36 crores was 32600%. Thus every rupee invested had given a profit of Rs. 326 in two years which could not be considered as normal under any circumstances and even the human probabilities of earning such high return was NIL. The Ld. CIT(A) mentioned the sequence of events to strengthen the theory of improbable returns in the case of the assessee, his family members and business concerns in the following manner:
(i) A search and seizure operation u/s 132(1) of the Act was carried at the residential / business premises of the appellant group viz Bhushan Power and Steel Group on 03.3.2010. After the search, Shri Sanhay Singhal, director and key person of the group filed a letter dated 18.06.2010 before the investigation wing surrendered amount of Rs. 302 crores on which taxes were paid which included disclosure of:-
(a) Shri Sanjay Singhal AY 2010-11 Rs. 110 crores
(b)Smt.Aarti Singhal AY 2010-11 Rs. 240 crores
(ii) On being confronted with evidence collected consequent of search operation u/s 132 in the case of Shri Himanshu Verma conducted on 29.03.2012 by DIT(Inv) Delhi, the group concerns of the appellant made voluntarily disclosure 71 of Rs. 89.4 crores for AY 2011-12 and AY 2012-13 on account of bogus share capital/ premium and paid tax thereon.
(iii) Another survey u/s 153A conducted on 277.12 in the BPSL group resulted in voluntary adisclosure of Rs. 70.36 crores for AY 2013-14.
(iv) Finally in the search conducted on the group on 22.02.2014, when confronted with various incriminating evidences alongwith the statements of various connected persons, Shri Sanjay Singhal disclosed The assessment order in this case, the results of search/survey carried out on various entry operators, the statements of different persons recorded and hard as well as soft data found during the search supplement the clear cut manipulation in the share market and make the facts apparent that what has been claimed as LTCG by the Singhal family is structured through planning for channelizing black money to the books of the appellants. The exemption u/s 10(38) of the Act for long term capital gain earned on shares with certain conditions is applicable to a genuine share investors and not unscrupulous share market manipulators. The unusal movement in the stock market price of" penny stocks" of shares of companies with no worth as discussed in the assessment order also support the above contention.
In the submissions filed, the appellant in the case of Sanjay Singhal has tried to justify the LTCG transaction as genuine with the help of documents to support them. The appellant has referred to the surrender made during search as being done specifically to miligate litigation and purchase peace of mind and there was no admission that any accommodation entry has been received by him.
27. The Ld.CIT(A) held that the submissions of the assessee were false as the surrender was made after the assessee was confronted with all the facts and findings including complete modus operandi followed by SCS and Shri R.K. Kedia with regard to the share of PIL and the assessee declared the additional income on account of LTCG on sale of shares of PIL. He also mentioned that the different Government agencies had investigated the issue of LTCG declared from penny stock and had given adverse report on the same after investigation. Therefore the assessee could not have brushed aside the facts that the transaction in bank account of BSP, Punajb National Bank, were recorded in "Kedia 2" Sheet found in the search proceedings of Shri Shirish Chanderkant Shat (SCS) at different locations which proved the close nexus of the assessee's group with those LTCG entry operator dealing with manipulation of share trading. He therefore disproved the submissions of the assessee that the 72 investment in shares of PIL was made as an ordinary investor. Ld. CIT(A) summarised the facts as drawn from the assessment order at page no. 181 to 184 which read as under:
(i) During the year under consideration, the appellant had filed return declaring Rs. 89,93,460/- and claimed exemption u/s 10(38) of the Act amounting Rs. 62,66,38,865/-. The AO made an addition of 62,66,38,865/- reflecting the total share proceeds received during the year u/s 68 of the Act and addition of Rs. 3,93,17,170/- on account of 6.5% on net gains (LTCG) u/s 69C towards commission expenses.
(ii) The AO has discussed the evidences in possession of the department in the case of LTCG claimed to be earned through sale of shares of various penny stock companies by the appellant and his family.
(iii) Evidence regarding LTCG accommodation entries taken w.r.t shares of M/s Prraneta Industries (now known as M/s Aadhar Ventures India Ltd) herein after referred as " PIL"
(iv) During search seizure operation u/s 132 of the Act conducted by DIT (Ahmedabad) in the case of Shirish Chandarkant Shah (SCS) on 09.04.2013 it was found that BPSL group headed by the appellant has received huge amount of accommodation entries from the cartel of companies managed by Sirish Chandarkant Shah (SCS) and various other entry operators. This belief was on the basis of documentary evidence found during the search and oral evidence on basis of statements recorded as discussed in the assessment order.
(v) Modus operandi followed by Shirish Chadarkant Shah (SCS) for providing exempt LTCG has been explained in details in his various sworn statements recorded during the course of search and post search proceedings and the same has also been corroborated and collated with evidence found and seized/impounded during the course of search and survey proceedings conducted in the case of SCS at various beneficiaries in assessment order (para3)
(vi) In his statement recorded u/s 132(4) of the Act on 11.6.2013 SCS has admitted to have provided LTCG entries in the shares of M/s Pranneta Industries Ltd of around 560 crores against receipt of cash to various clients.
The appellant Shri Sanjay Singhal had surrendered Rs. 160 crores on account of the same share in the hands of Shri Sanjay Singhal Smt. Aarti Singhal and Sanjay Singhal (HUF) for AY 2011-12 &2012-13 in statement recorded u/s 132(4) of the Act on 22.02.2014.
(vii) The discrepancies found during the course of search on M/s Pranneta Industries Ltd by the Directorate of Income Tax (Inv) Ahemdabad on 09.04.2013 at PIL are discussed at para 4,5,6,7 of the assessment order. This included commission charged on LTCG provided to the clients.
73(viii) Further search and seizure action was again conducted at the office and residential premises of R.K. Kedia Group on 13.06.2014 by DIT (Inv) Delhi. All the evidences and findings of search action on SCS Group and other related groups were confronted to Shri R.K. Kedia during this seach action. Shri R.K. Kedia stated during oath on 14.06.2014 that he had arranged LTCG accommodation entries for the various individuals of the BPSL group on the request of Shri Sanjay Singhal and Shri R.P. Goyal. He also gave names of the person who used to deliver unaccounted cash of the group to Shri R.K. Kedia or his employees against which he used to arrange LTCG entry for " Bhushan Family" Group.
(ix) Evidence gathered in the case of Shri Praveen Kumar Jain (Pintu Alias Chintan) searched u/s 132 of the Act by the DIT (Inv) Mumbai is discussed at para 9. It is was held by the AO that the entries recorded in the accounts maintained by Pintu and seized in an independent search action conducted by Mumbai Directorate are independently correlated with the entries recorded in the evidence seized/ impounded during the course of search in the case of SCS. This has been backed by the details as per seized documents, wherein it has been noticed that the cheque or RTGS received by SCS Group entities paid by M/s Bhushan Power &Steel Ltd from its PNB Bank account No. 0131008700000327 and were recorded in' Kedia' 2 sheet'.
(x) Para 11.3 gives details in table showing cash trail from BPSL group through Shri R.K. Kedia, Shri Praveen Kumar Jain to SCS as recorded in their books of accounts for providing LTCG accommodation entries by using PIL Shares.
(xi) Evidences in the form of seized books of accounts from three independent searches on SCS Group, Kedia Group and Pintu Group at different point of time and having exactly the same details of accommodation entries in lieu of unaccounted cash establish beyond any doubt that various individuals of BPSL Group have taken accommodation entries with the help of the accommodation entry opertors, as discussed in the assessment order.
(xii) A search and survey action was carried out in the case of Shri R.K, Kedia and his group concerns on 21.02.2014 by DIT(Inv), Chandigarh alongwith BPSL Group, wherein it was further established that books of accounts found and seized during the search were related to the accommodation entry business. Shri R.K. Kedia in his statement recorded u/s 132(4) of the Act admitted that he is in business of providing accommodation entries after charging certain percentage of commission. He also admitted that he has arranged accommodation entries for various benificiaries like BPSL group from different entry operators(para 12).
(xiii) Evidence regarding LTCG accommodation entries taken w.r.to various listed penny stock companies other than M/s Prranta Industries Ltd was also brough managing the affairs of the company.
(xiv) The AO has also analysed the investment pattern and the evidence in the case of M/s Blue circle services ltd which prove that this company was used for providing accommodation entries to various beneficiares.
(xv) Same exercise was done for shares of other penny stock companies on which the BPSL family and group obtained the entries of exmept LTCG. The soft 74 data seized from office of Shri Kedia alongwith various incriminating loose papers found from his office established that he was in the business of providing accommodation entries.
(xvi) In 8 of the companies from whom BPSL family has taken bogus LTCG accommodation entries by trading share of these companies, SEBI in its investigation has pointed out that price discovery in these companies investigation has pointed out that price discovery in these companies was distorted and not in consonance with the fundamentals of these companies.
(xvii) After decoding from the cash book found during search of Shri R.K. Kedia, it was noticed that Shri Kedia had received total amount of Rs. 245.6 crores from BPSL family and group in cash during FY 2013-14 and had provided various kind accommodation entries including OT and LTCG.
(xviii) The AO has also given list of disclosure by benifiaries of LTCG and OT entries and disclosure by beneficiaries of LTCG.
(xix) The AO has also rebutted the submission of appellant regarding PIL shares furnished in response to show cause as to why the receipts on account of sale of shares of penny stock companies should not be taxed u/s 68 of the Act.
28. The Ld. CIT(A) observed that the assessee submitted copies of all the documents to substantiate the genuineness of the transactions related to purchase and subsequent sale of shares leading to LTCG claimed by him, those documents were also placed before the A.O. who after detailed examination / discussion had gone beyond those documents and had established that those documents were mere masks to hide the real nature of transactions and that the A.O. had indicated that the share price of those penny stock companies were neither affected by the movement of Sensex nor the financials of the company to justify the such extra ordinary jump in the price of its shares. Ld. CIT(A) also observed that apart from being based on evidences gathered during the search and survey operations analysis of the materials on record and information from various sources, the finding of the A.O. was based on strong surrounding circumstances preponderance of probability and human conduct in the light of detailed analysis of modus operandi adopted by brokers and operators engaged in the business of providing entries of LTCG to the interested beneficiaries which had come to surface as a result of deep and wide investigation and that the initial investment in a company of unknown 75 credentials and subsequent jump in share price of such a company could not have been an accident or windfall but as clearly brought on record by the A.O. was possible because of manipulations in the price of share in a preplanned manner by the interested broker and entry operators for the interest of beneficiaries who claimed exemption on LTCG earned.
29. As regards to the insistence of the assessee that the transactions leading to LTCG were supported by the documents such as sale and purchase invoices, bank statements, brokers notes etc. Ld. CIT(A) observed that those could not be accepted in view of the facts and circumstances of the case brought on recod by the A.O. after proper examination of the material facts by taking into account, the findings of SEBI and corroborating evidences gathered by the Directorate of Investigation Chandigarh, Delhi, Mumbai and Ahmedabad against a network of brokers and operators engaged in manipulation of market price of shares of certain companies controlled and managed by such persons with a purpose to provide accommodation entries in the form of LTCG to those who wanted to introduce their unaccounted cash in regular books of accounts without paying tax.
30. As regards to the contention of the assessee that LTCG could not have been treated as bogus with regard to certain company and brokers. The Ld. CIT(A) observed that investigation had been carried out by Directorate of investigation which proved that the assessee wanted to take shelter under such documentary evidence which themselves had been created as masks to cover up the true nature of transaction leading to claim of LTCG were distinctly genuine, non bogus, and to contradict the findings that all the 14 companies whose scripts were capable of being traded at high price which resulted into claim of LTCG exempt under section 10(38) of the Act. The Ld. CIT(A) was of the view that once the assessee was made aware of the result of investigation which proved that trading of shares leading to LTCG was not genuine, the onus was on the assessee to prove that he and his family members had earned 76 genuine LTCG under section 101 of the Indian Evidence Act, 1972 as it was the assessee who was asserting a claim that he was engaged in genuine share transactions. The reference was made to the judgment of the Hon'ble Supreme Court in the case of Shri Charan Singh Vs. Chandra Bhan Singh AIR 1988 SC 637 wherein it has been held that the burden of proof lies on the party who substantially asserts the affirmative of the issue and not upon the party who denies it, and that the party cannot, on failure to establish the prima facie case take advantage of the weakness of his adversary's case, the party must succeed by strength of his own right and the clearness of his own proof and he cannot be heard to say that it was too difficult or virtually impossible to prove the matter in question.
31. Ld. CIT(A) held that in this case the assessee had made claim that he had earned genuine LTCG, all the facts were within his knowledge, and that the provisions of Section 102 of Indian Evidence Act makes it clear that initial onus was on person who substantially asserts a claim and if the onus is discharged by him and a case is made out then the onus shifted on to the other party. Ld. CIT(A) mentioned that during assessment proceedings or appellate proceedings the assessee failed to produce any evidence to prove that the LTCG claimed by him was genuine. The Ld. CIT(A) observed that the assessee failed to discharge his burden of proof and the A.O. on the other hand had proved that the claim of the assessee was incorrect, the enquiry conducted by investigation carried out by Directorate of Investigation which had been thoroughly analysed by the A.O. to prove that the assessee had introduced bogus LTCG in his books of account by routing his unaccounted income through a tax evasion scheme and that the self admission of assessee in the statement recorded under section 132(4) of the Act and the statement of brokers engaged in providing bogus LTCG, clearly proved that M/s PIL was one of such companies whose scripts had been manipulated to provide bogus LTCG.
7732. As regards to the contention of the assessee that he was not provided any opportunity to cross examine the persons / witnesses whose statements had been used against him. The Ld. CIT(A) observed that such right was not an absolute right and depends not only on the circumstances of the case but also on the statute concerned and that where statement and report of third parties were only the secondary and subordinate material which were used to buttress the main matter connected with the amount of addition, denial of opportunity to cross examine did not amount to violation of natural justice. The reference was made to following case laws:
• State of J&K Vs. Bakshi Gulam Mohd. AIR 1967(SC) 122 • Nath International Sales Vs. UOI AIR 1992 Del 295 • T Devasahaya Nadar Vs. CIT (1965) 51 ITR 20(Mad) • GTC Industries Ltd. Vs. ACIT (1998) 60 TTJ (Bomb-Trib) 308 • CIT vs. Durga Prasad More (1972) 82 ITR 540 • CIT Vs. Arvinda Raju (TN) (1979) 120 ITR 46 (SC)
33. The Ld. CIT(A) observed that primafacie the assessee had produced documents showing the details of transactions but he miserably failed to satisfy the test of human probability. He also observed that the case laws relied upon by the assessee were apparently in favour of the assessee but probably the role of human conduct, surrounding circumstances and preponderance of probabilities were either not brought to the notice of the authorities or were not as dominant or deciding factors as those were found to be in the present case and that the A.O. had very clearly segregated the apparent from the real by using various evidences gathered from the reliable sources of information and report. The Ld. CIT(A) was of the view that the documents submitted as evidence to prove the genuineness of the transaction were themselves found to serve as smoke screen to cover up the true nature of the transactions in the facts and circumstances of the case as it is revealed that purchase and sale of 78 shares were arranged transactions to create bogus profit in the garb of tax exempt LTCG by well organized network of entry provider with the sole motive to sell such entries to enable the beneficiary to account for the undisclosed income for a consideration or commission, reference was made to the following case laws:
• McDowell & Co. Ltd (1985) 154 ITR 148 (SC) • ACIT Vs. Som Nath Maini (2006) 100 ITJ Chd 917 • CIT Vs. P. Mohankala (15/05/2007)(SC) • Hersh Win Chadha in ITA Nos. 3088n to 3098 & 3107/Del/2005 • Sanjay Bimalchand Jain Vs. CIT-1 Nagpur in ITA No. 18/2017
34. Ld. CIT(A) was of the view that the share transactions leading to LTCG by the assessee were sham transactions entered into for the purpose of evading tax accordingly the addition made by the A.O. in the hands of the assessee was confirmed.
35. Now the assessee is in appeal.
36. The Ld. Counsel for the assessee submitted that the assessment in appeal under consideration were unabated for the purposes of Section 153A of the Act, as no incriminating material was found during the course of search and this fact has been admitted by the Ld. CIT(A)also at page no. 176 of the impugned order.
36.1 Ld Counsel for the assessee submitted that search and seizure operation under section 132(1) was originally conducted on BPSL group to which the assessee belonged on 03/03/2010 and no incriminating material / documents pertaining to any irregular availment of accommodation entries in the shape of bogus LTCG was found and the A.O. after conducting a detailed scrutiny of the entries recorded in the books of accounts and by considering the documentary evidences in support of the share transactions, found the LTCG claimed by the 79 assessee to be perfectly in order while framing the assessment under section 153A r.w.s 143(3) of the Act, reference was made to page no. 35 to 78 of the assessee's paper book which are the copies of the various assessment orders framed under section 153A r.w.s 143(3) of the Act.
36.2 It was further submitted that the return of income for the A.Y. 2012-13 was duly processed by Department under section 143(1) of the Act and found to be in order and that the period to issue the notice under section 143(2) of the Act for the said A.Y. 2012-13 had expired before the date of the subsequent search action on 21/02/2014 therefore the assessment for the A.Y. 2008-09, 2010-11 & 2012-13 stood concluded and thus the assessment in these assessment years were unabated for the purpose of assessment under section 153A pursuant to the subsequent search action on 21/02/2014. It was stated that a survey operation under section 133A was also conducted in the case of BPSL group on 27/02/2012 and once again nothing incriminating was found with respect to LTCG claimed by the assessee(s). Subsequently search action under section 132(1) of the Act was again carried out in BPSL group of cases including office/residential premises of the assessee(s) on 21/02/2014 and once again nothing incriminating was found in the course of search operation in other words the said search action did not lead to discovery of any iota of evidence indicating any irregular availment of bogus LTCG by the assessee(s).
36.3 It was emphasized that the simultaneous search operation was also conducted on the same date i.e; 21/02/2014 in the case of Shri R.K. Kedia the alleged broker on whose advise the assessee had made the impugned investments in the shares. Once again no incriminating material with respect to the LTCG claimed by the assessee was found in the course of said search action and the statement of Shri R.K Kedia was recorded under section 132(4) of the Act on 22/02/2014 wherein he categorically confirmed the genuineness of the share transactions carried out by the assessee, the reference was made to page no. 194 to 206 of the assessee's paper book which is the copy of the 80 statement of Shri R.K. Kedia wherein the references were made to certain pre- existing third party and third party documentation of alleged entry operators collected by the Investigation Wing in the course of separate search actions in their cases in the earlier years viz 2012 & 2013 but the assessee vehemently denied having any nexus with the so called entry providers and the alleged documentation seized from their premises.
36.4 It was further submitted that the search party exerted tremendous pressure on the assessee and compelled him to make an adhoc disclosure of additional income of Rs. 250/- Crores on behalf of entire group despite the fact that the search action in the assessee's case did not lead to discovery of any incriminating material whatsoever indicating the factum of any undisclosed income of the assessee who filed a letter dt. 22/02/2014 specifying the claim that the said offer of additional income was made on behalf of the entire group solely with a view to avoid litigation and to purchase peace of mind and that the break up was also given for himself, his wife Smt. Arti Singal and his HUF aggregating to Rs. 159.61 crores offered earlier without admitting of any irregular availment of bogus LTCG on the said shares and letter dt. 06/03/2014 to the said effect was furnished. It was vehemently argued that the assessment made pursuant to search action were required to be based on the incriminating materials discovered as a result of search operations in the case of assessee and no reliance could have been placed on the confession / admission of undisclosed income obtained in course of search, reference was made to the CBDT Circular No. F.No. 286/2/2003-IT(Inv.) dt. 10/03/2003 and F.No. 286/98/2013- IT dt. 18/12/2014.
36.5 It was emphasized that by following the aforesaid CBDT Circular the adhoc offer of additional income of Rs. 250 Crores which was not backed up by any incriminating material found during the course of search was subsequently withdrawn and not included in the return of income filed in response to the notice issued under section 153A of the Act. It was stated that on being asked 81 the assessee explained that all the impugned transactions in shares were perfectly genuine and evidence based, in support thereof the assessee filed cogent documentary evidence with respect to acquisition of the share, payment made via account payee cheques, copies of DMAT account, evidence pertaining to sale of shares over recognized stock exchange at prices prevailing on the stock exchange through registered stock broker / broker's notes, receipt of sale consideration via regular banking channels etc. thus conclusively establishing all the requisite ingredients of section 68 of the Act to explain the nature and sums found credited in the books of account, shifting onus to disprove the same on the A.O. 36.6 It was stated that the A.O. made references to certain seized documents and statement recorded by various officers of Investigation Wing pursuant to separate search and seizure operation carried out in the case of various alleged entry / exit operator in earlier years vis Shri Praveen Agarwal on 13/09/2012, Shri Sirish Chandrakant Shah (SCS) on 09/04/2013, Shri Praveen Kumar Jain(Pintu) on 11/10/2013, Shri Jagdish Prasad Purohit on 19/10/2011, 12/02/2013, 17/12/2013 etc. However the name of the assessee was not mentioned in any of the documents seized pursuant to the search action on the aforesaid alleged entry providers and the documents found from them apparently comprised of entries interse between them having no nexus with the assese and the statement recorded pursuant to the above search action on third parties were not directed against any of the assessee(s) herein and at that time there was no ongoing proceedings under section 153A of the Act against any of the assessee under consideration, therefore, if at all such third party documentation / statements recorded by different officers of the Investigation Wing were found to be directly incriminating against the assessee, then at that point of time the A.O. after independent application of mind was obliged to examine the same from the angle of reopening of the assessment of the assessee under section 147/148 of the Act. However, since the result of the search / survey action in the 82 case of the aforesaid third parties were not considered sufficient / conclusive enough to implicate the Assessee(s), no proceedings under section 147/148 were initiated against the assessee pursuant to the search / survey action in the case of alleged entry / exit providers and even no simultaneous search/survey action was conducted in the case of the assessee pursuant to the search operation on the alleged entry/exit operators in the years 2012-13.
36.7 It was further stated that on being confronted to the aforesaid third party statements and documentation the assessee vehemently denied any nexus with the alleged entry providers and / or alleged data seized from their premises and made categorical request for allowing him an opportunity to cross examine the persons whose statements & seized documents were intended to be used against the assessee. However no such opportunity was provided to the assessee in complete denial of principles of natural justice, thus nullifying / neutralizing the referral value of such alleged third party evidences relied upon by the A.O. and resulting in conclusion of the successful discharge of onus under section 68 of the Act in favour of the assessee.
36.8 The reliance was placed on the judgment of the Hon'ble Apex Court in the case of Andaman Timber Industries Vs. CCE (2015) 62 Taxmann.com 3/52 GST 355, (2015) 281 CTR 241(SC) wherein it has been held that when statements of witnesses were made the basis of the demand, then not allowing the assessee to cross examine the concerned witnesses was a serious flaw which shall render the order to nullity, as it amounts the violation of principles of natural justice.
36.9 It was submitted that the A.O. made the addition merely on the basis of report of Investigation Wing and statement recorded by the Investigation Wing without any corroborative evidence and examination and without allowing cross examination to the assessee so, it was not sustainable. The reliance was placed on the following case laws:
83• ITO Vs. M/s Softline Creations (P) Ltd. in ITA No. 744/Del/2012 • CIT Vs. Gangeshwari Metal Pvt. Ltd. (2014) 264 CTR 277 (Del) • M/s Devansh Exports Vs. ACIT (ITA No. 2178/Kol/2017 • Adhesive P. Ltd. Vs. ITO in ITA No. 3133/Del/2018 • CIT Vs. Fair Invest Ltd. (2013) 357 ITR 146 36.10 It was emphasized that when the search / survey conducted on the alleged third parties i.e; entry / exit operators in earlier years, the assessment under section 153A of the Act was already completed in December 2011 in the case of assessee and if any document was found to be directly claimed against the assessee the proceeding under section 153C ought to have been initiated against the assessee but no such action was taken which proved that the documents found from the alleged third party did not belong to the assessee. In this regard the reference was made to page no. 176 of the impugned order wherein the Ld. CIT(A) observed as under:
"vii) A question may arise here that on the basis of documents seized from SCS, notices u/s 153C should have been issued to the assessee from BPSL group. In this regard, it is noticed that the documents seized from the premise of SCS were his own documents and as per the prevailing provisions, notices u/s 153C of the Act could not have been issued to Shri Sanjay Singhal and Smt. Aarti Singhal.
viii) Further, even if notices u/s 153C of the Act were issued, by virtue of the provisions of 2nd proviso to 153A(1) of the Act, the assessments would have abated since Shri Sanjay Singhal and Smt. Aarti Singhal were searched u/s 132 of the Act subsequently and the assessments had to be completed u/s 153A of the Act."
36.11 It was submitted that the Ld. CIT(A) himself contradicted the stand of Department at page no. 176 of the impugned order wherein in Para (iv) he observed that the document seized from the premises of BPSL confirmed the transaction recorded by SCS and Shri R.K. Kedia and as such they were also required to be considered as incriminating and at the same time he observed in para (vii) on the same page that the documents seized from the premises of SCS were his own documents and as per the prevailing provisions notices under section 153C of the Act could not have been issued to the assessee which 84 clearly shows that there was no incriminating material found during the course of search and documents / material found during the search of third parties did not belong to the assessee.
36.12 It was reiterated that it is well settled that only if during the course of search under section 132 of the Act, incriminating material justifying the reopening of the assessment for six previous years is found then the invocation of section 153A of the Act qua each of the A.Y's would be justified and that the object of this section is to bring to tax the undisclosed income which is found during the course of or pursuant to the search or requisition, in other words the assessment should be connected with something found during the search or requisition viz., incriminating material which reveals undisclosed income but in this case no incriminating material is found, therefore, the earlier assessment would have to be reiterated, the reliance was placed on the judgment of the Hon'ble Delhi High Court in the case of Pr. CIT & Othrs Vs. Meeta Gutgutia Prop. Ferns 'N' Petals & Ors (2017) 395 ITR 526 which subsequently has been affirmed by the Hon'ble Supreme Court as reported at (2018) 96 taxmann.com 468.
36.13 It was submitted that the search action conducted in the case of the assessee on 21/02/2014 did not lead to discovery of any incriminating material whatsoever indicating any irregular availment of bogus LTCG by the assessee as alleged by the A.O. and simultaneously search action in the case of alleged broker Shri R. K. Kedia also did not lead to discovery of any incriminating material against the assessee. However having not discovered anything incriminating the Department kept inflicting immense pressure on Shri R.K. Kedia with a predetermined mindset of extracting certain illicit statements against the assessee, again examined Shri R.K Kedia on 14/03/2014 and subsequently on 20/03/2014. However having once again failed in implicating the assessee it appears that the department continued to pressurize Shri R.K. Kedia at the back of the assessee and certain documents were manipulated against the assesse to match the alleged enties in documents seized earlier from the premises of 85 other alleged entry providers such as SCS, Pintu etc and later on converted into another search operation on Shri R.K Kedia on 13/06/2014, on this time the Department on the strength of fabricated data succeeded in forcibly extracting certain predetermined adverse statements directly implicating the assessee from Shri R.K. Kedia and his employee Shri Manish Arora vide their statement and they were forced to change the stand taken by Shri R.K. Kedia earlier on 22/02/2014 and deposed that Shri R.K. Kedia had arranged bogus LTCG accommodation entries for the assessee. However, the assessee vehemently denied any linkage / connection with said persons and also challenged the veracity of such fabricated seized material and the testimony of Shri R.K. Kedia and Manish Arora by demanding an opportunity to cross examination however no such opportunity was granted to the assessee.
36.14 It was emphasized that Shri R.K. Kedia realizing the implication of false claim made by him in his statement dt. 13/06/2014 decided to file his retraction vide letter dt. 14/10/2014 reverting to his original stand. The reference was made to page no. 249 to 251 of the assessee's paper book which is the copy of the said retraction. It was stated that the Department kept pressurising Shri R.K.Kedia to withdraw his retraction and after continuous insistence & threat imposed by the Department for almost five months, Shri R.K. Kedia finally succumbed to such pressure and filed another letter dt. 26/03/2015, re-retracting the retraction filed by him on 14/10/2014. It was submitted that the similar issue having identical facts has already been decided by the ITAT Delhi Bench in the case of Shri Brij Bhushan Singal & Ors Vs. ACIT in ITA Nos. 1412-1414, 1476-1478, 1482, 1485- 1487/Del/2018 vide order dt. 31/10/2018, copy of which is placed at page nos. 1007-1179 of the assessees paper book.
36.15 Ld. Counsel for the assessee has summed up his arguments as under:
• In the case at hand, concluded assessments of unabated assessment years have been disturbed by the A.O although no incriminating material was found in the course of search action in the case of the Assessee(s) herein.86
• Exorbitant additions have been made by the A.O u/s 68 of the Act despite the fact that the Assessee(s) filed cogent documentary evidences conclusively establishing all the requisite ingredients of section 68 of the Act and the A.O failed to successfully discharge the secondary burden of disproving the same before making the addition u/s 68 of the Act.
• Uncorroborated third party statements/ documentation gathered by the Investigation Wing in course of separate search/survey actions on third parties have been circuitously used by the A.O for making additions u/s 68 & 69C of the Act in assessments framed u/s 153 A of the Act:
- by illegally treating such pre-existing third party statements & documentation already available with the Department at the time of initiation of the search action in the case of the Assessee(s) herein as 'incriminating material' discovered pursuant to the search actions in the case of the Assessee(s) and reopening the concluded assessment proceedings of the unabated assessment years u/s 153A of the Act on the said basis;
- by placing reliance on certain fabricated documents allegedly seized from premises of Sri R.K. Kedia on 13.06.2014 in search actions conducted almost four months after the search action in the case of the Assessee(s) herein on 21.02.2014 although the simultaneous search action on the same party had not yielded anything by way of incriminating materials;
- by ignoring the fact that such third party documents/statements were not corroborated by any incriminating materials found in the course of the search action in the Assessee(s)' case and thus had no referral/evidentiary value in assessments framed u/s 153A in the Assessee(s)' case;
- by invoking the presumption u/s 132(4A)/292C with respect to the correctness of the recitals/ entries made in such third party documentation against the Assessee(s) herein although the same were not seized from the possession & control of the Assessee(s) in the course of the search initiated in the case of the Assessee(s);
- by placing bland reliance on such third party documentation & third party statements without the A.O even testing the authenticity/ veracity/ reliability of such third party evidences collected by the Investigation Wing by conducting any independent enquiry by examining the said third parties in course of the assessment proceedings and allowing an opportunity of cross examination of such third parties to the Assessee(s) resulting in gross violation of principles of natural justice;
- by using the same uncorroborated third party statements & documentation which were earlier deemed insufficient to initiate proceedings against the Assessee(s) u/s 147/148, in a circuitous way for making additions in assessments framed u/s 153A pursuant to subsequent search action on the Assessee u/s 132(1) despite the fact that the search action in the Assessee(s)' case did not result in discovery of any incriminating material in corroboration/ substantiation of the alleged third party evidence. Thus, the alleged third party evidences which were earlier unsubstantiated and hence lacked evidentiary value w.r.t the Assessee(s) and remained so even after the subsequent search action in the case of the Assessee(s) herein were circuitously used against the Assessee in the guise of search assessment u/s 153 A of the Act.
8736.16 Ld. Counsel for the assessee also furnished the written submissions stating therein that the facts of the present case were similar to the fact of the case of Shri Brijbhushan Singal & Ors Vs. ACIT(supra) in the following words:
(i) Addition u/s 153A can only be made on the basis of incriminating material found during the course of search - in the present case no incriminating material was found during the course of search at the premises of the Assessee
- hence no addition was called for - see para 107 of the order for unabated years (at page 1152 ofPB-5C)
(ii) Opportunity of cross examination of the persons whose statements were relied upon by the AO was required to be given to the Assessee - on the date fixed by the AO, the Assessee presented himself through his AR but the concerned persons did not turn up, so it cannot be said that opportunity of cross-
examination was provided to the Assessee - see para 113 of the order for unabated years (at page 1158 ofPB-5C)
(iii) No reliance could be placed on testimony dt. 13.06.2014 of RK Kedia who had been proved to have indulged in double speaking and taking contradictory stands (first retracted from his statement on 14.10.2014 & thereafter withdrew his retraction on 31.03.2015) - see para 113 of order for unabated years (at page 1158 ofPB-5C)
(iv) Assessments u/s 153A pursuant to search operation are required to be based on incriminating materials discovered as a result of search operation in the case of the Assessee and not on the recorded statements
- it cannot be said that the statements on the basis of which impugned additions were made by the AO were incriminating material found during the course of search - in the instant case no incriminating material was found during the course of search and additions made by the AO while framing assessments u/s 153A need to be restricted to incriminating material found during the course of search - see para 117 of the order for unabated years (at page 1160 of PB-SC)
(v)Presumption u/s 132(4A)/292C of the Act is available only in the case of the person in who^e possession and control the documents are found but it is not available in respect of the third parties - in the present case there was no independent evidence to link the seized documents found in premises of third parties with any incriminating materials found in course of search operation at the premises of the Assessee - therefore entries in the documents seized from third party's premises would not be sufficient to prove that the Assessee was indulged in such transactions - in the absence of incriminating material found during the course of search u/s 132(1) in respect of unabated A.Ys, additions made by the AO were not justified -see para 121 of the order for unabated years (at pages 1172-1173 ofPB 5C)
(vi) Violation of principles of natural justice by not granting an of opportunity of cross examination of Departmental witnesses whose statements are used against the Assessee(s) in assessments framed against him/them constitutes an illegality warranting the deletion of the addition made on such basis and annulment of the assessment order itself - see para26 of order for abated years (at pagesl330-1331 ofPB-5C)
(vii) Data seized from the premises of R.K. Kedia cannot be used against the Assessee unless the Assessee is given an opportunity of cross -examination of men with 88 respect to documents found relating to the Assessee or where the names of the Assessees are mentioned - see para 27 of order for abated years (at page 1332 ofPB-5C)
(viii) Documents seized from third parties cannot be used for making addition in the hands of the Assessee without the Assessee beingallowed an opportunity of cross- examination of those parties - see para 29 of order for abated years (at page 1334 of PB- 5C)
(ix) Additions cannot be sustained merely by placing reliance on theory of preponderance of probabilities - statements of several persons recorded by the Revenue were not allowed to be cross-examined by the Assessee- Assessee had shown purchase consideration paid by cheque and recorded in its books of account which were accepted by the Revenue in earlier years - shares were sold at prices prevailing at the stock exchange- the regulatory bodies viz. SEBI & Stock exchange had not questioned the conduct of the Assessee and the broker selling the shares - Assessee had paid STT and the sale consideration was received from SEBI registered stock broker - Assessee had produced overwhelming evidences which were not proved to be false - AO reliance on preponderance of probabilities to tax the LTCG in the hands of the Assessee held not to be in order - see para 34 of the order for abated years (at pages 1343-1344 ofPB-5C)
(x) Even on merit, the LTCG earned by the Assessee could not be charged to tax u/s 68 - see para 44 of the order for abated years (at page 1351 ofPB-5C) The holdings of the Hon'ble ITAT, Delhi Bench in the case of Brij Bhushan Singal & Ors Vs. ACIT (supra) are equally applicable to the strikingly similar facts of the present case. Thus the present case is fully covered by the judgment rendered by the Hon'ble ITAT in the said case. Kindly note that in the present case, in making the impugned additions in the hands of the Assessees herein, the AO has primarily relied upon the statement of Sri RK Kedia & Manish Arora and the documents seized from his premises in course of search action in his case on 13.06.2014. With categorical reference to the said Sri R.K. Kedia, the hard/soft data seized from his premises and the statements of Sri R.K. Kedia & his employee Sri Manish Arora recorded in course of his search on 13.06.2014 and his subsequent retraction and re-retraction, the Hon'ble ITAT has given a specific finding that no reliance can be placed on the statement of Sri R.K. Kedia and the documents seized from his premises unless the Assessee is granted an opportunity of cross examination of the said person - further not allowing an opportunity of cross examination of the said person despite specific request by the Assessee is fatal to the Assessment warranting deletion of addition made on the said basis.
The reliance was placed on the following case laws:
• All Cargo Logistics Ltd. Vs. DCIT (2012) 18 ITR 106 (SB), (2012) 137 ITD 287 (SB) • CIT Vs. (1) Continental Warehousing Corporation (Nhava Sheva) Ltd., (2) All Cargo Global Logistics Ltd. reported in (2015) 374 ITR 645 (Bom) • CIT (C)-III Vs. Kabul Chawla (Delhi) [2015] 61 taxmann.com 412 (Delhi), 234 Taxman 300 • Rajasthan High Court in Jai Steel (India), Jodhpur v. ACIT (2013) 259 CTR 281, 219 Taxman 223 (Raj) 89 • PrCIT & Ors Vs. Meeta Gutgutia Prop. Ferns 'N' Petals & Ors (2017) 395 ITR 526 (Delhi HC) • Pr.CITVs. Meeta Gugutia (2018) 96 taxmann.com 468 (SLP Civil Diary Nos. 18121of 2018)(SC) • Pr. CIT v. Kurele Paper Mills P. Ltd, ITA No. 369 of 2015 Pel HC) • CIT vs. Sinhgad Technical Education Society (2017) 397 ITR 344 (SC) • Pr. CIT v. Saumya Construction P. Ltd. [2016] 387 ITR 529(Guj) • Principal CIT v. Devangi alias Rupa [2017] 98 CCH 51(Guj) • Pr. CIT Vs Ram Avtar Verma (2017) 395 ITR 252 • M/s. Kota Dall Mill Vs. The DCIT (ITA No. 997 to 1002/JP/2018 • Principal CIT, Delhi 2 Vs. Best Infrastructure (India) Pvt. Ltd. & Others in ITA Nos.11/2017 to 22/2017
• Dharampal Satyapal Ltd. Vs. DCIT (ITA Nos. 3877 to 3881/Del/2016) • Pr. CIT Vs. Dharampal Premchand Ltd. (2017) 99 CCH 202 • CIT Vs. S. Khader Khan Son (2008) 300 ITR 157 (Mad) • CIT Vs. Sri P. Balasubramanium (2013) 354 ITR 116 (Mad) • CIT & Ors, Vs. Meeta Gutgutia Prop. Ferns 'N' Petals & Ors (supra) • Sri Krishna Vs. Kurukshetra University, AIR 1976 SC 376 • K.T.M.M. Mohd. Vs. UOI: 197 ITR 196 (SC):
• Vinod Solanki Vs. UOI Civil Appeal No. 7407 of 2008 • Francis Stanly @ Stalin v. Intelligence Officer, Narcotic Control Bureau Thiruvanthapuram (2006) 13 SCC 210 • S. Khadar Khan (2008) 300 ITR 157 • Ratan Corporation 196 CTR 536 (Guj) • Ashok Manilal Thakkar Vs. ACIT: 97 ITD 361/ 279 ITR 143 (AT)(Ahd I • Govind Ram Chhugani: 77 TTJ 339 (Jodh)
37. As regards to the issue relating to the addition under section 68 of the Act, the Ld. Counsel for the assessee stated that the A.O. while making the additions under section 68 and 69C of the Act on account of sale proceeds of shares & alleged unaccounted commission expenses and submitted as under:
• In making the impugned addition, the AO has essentially placed reliance on:
- third party statements, third party documentation viz. alleged statements & documentation gathered pursuant to search/survey actions in the cases of alleged entry/exit operators,
- documents seized from BPSL forming part of regular disclosed records
- adhoc offer of additional income by SS (subsequently withdrawn)
- investigation report of SEBI
- disclosures made by few share brokers &third parties
- application of preponderance of probabilities etc. 37.1 It was submitted that the shares were originally allotted to the assessee by preferential allotment after getting approval of SEBI and the payments were made through regular banking channels, shares were listed & traded on stock 90 exchange, the sales were through registered stock brokers on BOLT platform at prices prevailing on stock exchange, the sale proceeds were received through regular banking channel and all the documentary evidences were furnished before the A.O. the authenticity of which was not disproved.
37.2 It was further submitted that one of the ground taken by the A.O. in doubting the transaction carried out by the assessee and alleging personal connection between the assessee and the promoters of the said companies / entry provider was that the share of the said companies were allotted by way of preferential allotment. It was stated that in terms of applicable provisions of Companies Act a preferential allottee of shares is not required to attend any Board meetings, there being a complete divergence between the management and ownership and a company being a body corporate is having a separate legal entity. It was further stated that the various statutory /regulatory bodies such as SEBI, the stock exchange etc. are involved in the process of preferential allotment of shares and the entire process involves a multi stage rigorous, coordinated and time bound process involving comprehensive due diligence, vetting of documents, background check of promoters, compliance with well laid out guidelines and parameters and the SEBI also approves the list of persons / entities to whom shares are to be allotted on preferential basis, also incorporating therein the terms and conditions including, lock in, if any subject to which the share are to be issued. Therefore the assessee cannot be faulted for relying on a commercial proposition which was duly compliant with law. It was further submitted that the share in question were of listed companies and were sold at prevailing market rates through the Bombay Stock Exchange Online Trading (BOLT) and all the payments were received through account payee cheques. It was reiterated that all the relevant documentary evidences in the form of shares purchase documents, DMAT account, share certificates, contract notes and bank statements evidencing the relevant entries regarding receipt against sale of shares etc were duly filed 91 before the A.O. Therefore the impugned addition made by the A.O. and sustained by the Ld. CIT(A) was not justified. It was further submitted that in making the impugned addition the A.O. predominantly relied upon the statements of third parties without allowing cross examination which is a serious flaw and makes assessment nullitiy. It was stated that a general confession by a person that all his transactions were bogus or that he had indulged only in bogus transactions could not be the basis for the assessment of an assessee who had the transactions with that persons. It was further stated that most of the third party statements relied upon by the A.O. were generic in nature which could not form the basis of assessment under section 153A of the Act in the case of the assessee. It was submitted that the admission made by the person under section 132(4) of the Act can only be used as an evidence against the person who makes it and not against any other person implicated by it, particularly when the opportunity to cross examine was not afforded to the assessee. It was further submitted that Shri R.K. Kedia in his various statements had been taking shifting stands therefore no reliance could have been placed on his testimony, his double speaking and contradictory stand.
37.3 It was emphasized that the documents seized from the premises of third parties did not belong to the assessee and this fact was categorically admitted by the Ld. CIT(A) at page no. 176 of the assessment order. It was also stated that the disclosure made by the alleged entry providers and share broker did not constitute evidence against the assessee. Therefore the A.O. was not justified in rejecting the assessee's claim on the basis of preponderance and probability without bringing on record any legal evidence against the assessee to controvert the documentary evidences filed. It was also stated that the LTCG offered by the assessee was accepted in the past under identical circumstances. Therefore the additions made for the years under consideration were merely on the basis of change of opinion. It was also submitted that an identical issue has already been decided by ITAT Delhi Bench in the case of Shri 92 Brij Bhusan Singal & Ors Vs. ACIT(supra) wherein the facts are similar to the facts of the assesee's case.
37.4 It was emphasized that in the said case it has been held that the statement of third parties and documents seized from the premises of third parties (viz alleged entry / exit operators) cannot be used for making addition in the hands of the assessee without being granted an opportunity of cross examination to those parties and that the presumption under section 132(4A) / 292C of the Act is available only in the case of the person in whose possession and control the documents were found and not in the case of third parties. It was accordingly submitted that the addition made by the A.O. and sustained by the Ld. CIT(A) was not justified. Reliance was placed on the following case laws:
• Andaman Timber Industries Vs. Commissioner of Central Excise (2015) 281 CTR 241 (SC) • Kishinchand Chellaram (AIR 1980 SC 2117) • State of M.P. v. Chintaman Sadashiva Waishampayan AIR 1961 SC 1623 • Lakshman Exports Ltd. v. Collector of Central Excise (2005) 10 SCC 634 • Rajiv Arora v. Union of India and Ors. AIR 2009 SC 1100 • CIT Vs. SMC Share Brokers Ltd., (2007) 288 ITR 345 (Del) • Eastern Commercial Enterprise, (1994) (Cal) [210 ITR 103] • Prakash Chand Nahta Vs. CIT, (2008) 301 ITR 134 (MP) • Bangodaya Cotton Mills Ltd. vs. CIT [2009] 21 DTR 200 (Cal) • CIT Vs. Sanjeev Kumar Jain (2009) 310 ITR 178 (P&H) • CIT & Anr. Vs. Land Development Corporation (2009) 316 ITR 328 (Kar) • CIT Vs. Rajesh Kumar (2008) 306 ITR 27 (Del) • Heirs & LRs of Late Laxmanbhai S. Patel Vs. CIT (2009) 222 CTR (Guj) 138 • CIT Vs. Pradeep Kumar Gupta (2008) 303 ITR 95 (Del) • CIT Vs. Dharam Pal Prem Chand Ltd. (2007) 295 ITR 105 (Del) • CIT Vs. A.N. Dyaneswaran (2008) 297 ITR 135 (Mad) • P. S. Abdul Majeed, (Kerala) (1994) [209 ITR 821] • Prarthana Construction (P) Ltd. [2001] 70 TTJ 122(Ahd Trib) • CIT Vs. S.M Aggarwal 292 ITR 43 • Straptex India (P) Ltd. Vs. DCIT [2003] 84 ITD 320 (Mum) • R.W. Promotions (P.) Ltd. v. Asstt. CIT [2015] 61 taxmann.com 54 (Bom.) • Obulapuram Mining Co. (P.) Ltd. v. Dy. CIT 160 ITD 224 (Bang. - Trib.) • CIT v. Indrajit Singh Suri [2013] 33 taxmann.com 281/215 Taxman 581 (Guj.) • Smt. Sunita Dhadda v. Dy. CIT [2013] 33 taxmann.com 639 (JP.-Trib.) • Cannon Industries (P.) Ltd. v. Dy. CIT [2015] 59 taxmann.com 65 (Mum.-
Trib.)
• Ramprasad Agarwal v. ITO 2(3)(2), Mumbai [2018] 100 taxmann.com 172
(Mumbai ITAT)
• ITO Vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC)
93
• CIT v. Priyanka Ship Breaking Co. (P.) Ltd. [2012] 26 taxmann.com 321/21
Taxman 20 (Delhi HC)(Mag.)
• Sanjay Mehta v. ACIT, ITA No. 1089/Kol/2018, judgment dt.28.09.18
• Gautam Kumar Pincha v. ITO, I.T.A. No. 569/Kol/2017, judgment
dt.15.11.2017 (ITAT Kolkata)
• ITO Vs. M/s. Softline Creations (P) Ltd. (in ITA No. 744/Del/2012)
• CIT Vs. Gangeshwari Metal Pvt. Ltd. (2014) 264 CTR 277 (Del HC)
• M/s. Khatri Projects Pvt. Ltd. Vs. ITO (I.T.A. no. 4353/Del/2016)
• M/s. Devansh Exports Vs. ACIT (I.T.A. No. 2178/KoI/2017)
• Moti Adhesive P. Ltd. Vs. ITO (ITA No. 3133/Del/2018)
• CIT Vs. Oasis Hospitalities Pvt. Ltd. (2011) 333 ITR 119 (Del HC)
• CIT Vs. Fair Invest Ltd. (2013) 357 ITR 146 (Del HC)
• ITO Vs Arora Alloys Ltd. (2012) [12 ITR (trib)263 (ITAT Chandigarh)
• CIT vs. M.K. Brothers 163 ITR 249 (Guj -High Court
• Jagdamba Trading Company vs. ITO 107 TTJ 398 (Jd)
• Sarthak Securities Co. Ltd. Vs. ITO 329 ITR 110 (Delhi HC)
• Deeparaj Hospital (P) Ltd. Vs. ITO, 41/Agra/2017 dt. 01.06.2018 (Agra Trib)
• ITO Vs. Reliance Corporation (2017) 55 ITR 69 (SN) (Mum) (Trib)
• PCIT Vs. RMG Polyvinyl (I) Ltd. (2017) 83 taxmann.com 348 (Delhi HC)
• PCIT Vs. Meenakshi Overseas (P) Ltd. (2017) 82 taxmann.com 300 (Delhi
HC)
• Gee Cee Cycle Balls Pvt. Ltd. Vs. ITO, ITA No. 867/Del/2013 dt. 30.10.2015
• CIT Vs. Goel Songs Golden Estate Pvt. Ltd. ITA No. 212/2012 dt. 11.04.2012
• CIT Vs. Vrindavan Farms (P) Ltd. ITA No. 71, 72, 85/Del/2015 dt. 12.08.2015
• Dwarka Gems Ltd. ITA No. 71/Jp/2017 (ITAT Jaipur)
• Nirmala Agarwal Vs. ACIT (ITA No. 995 & 996/Jp/2016) (ITAT Jaipur)
• DCIT Vs. Rohini Builders (2002) 256 ITR 360 (Guj HC) - upholding the order of
the Hon'ble ITAT in Rohini Builders Vs. DCIT (2002) 76 TTJ 521 - SLP also dismissed by the Hon'ble Supreme Court • CIT Vs. Rakam Money Matters Pvt. Ltd. dt. 13.10.2015 in ITA No. 778/2015 (Del HC) • CIT Vs. Victor Electrodes 329 ITR 271 (Del HC) • CIT Vs. UK Shah (1973) 90 ITR 396 (Bom HC) • DCIT Vs. GS Control ITA No. 1560 Del/2010 order dt. 13.03.2015 (Del ITAT) • Sri Brij Bhushan Singall & Ors Vs. ACIT(ITA Nos. 1412-141,1476,147,1482, 1485-
1487/Del/2018) • CIT Vs. Eastern Commercial Enterprises (1994) 201 ITR 103 • DCIT Vs. Bholsa Nath Radha Krishna (ITA No. 5149/Del/2012) • Smt. Smita P. Patil Vs. ACIT, (2014) 159 TTJ 182 • CIT Vs. Sunita Dhadda dt. 28.03.2018 (SC) • Vinit Ranawat v. ACIT, [2017] 88 taxmann.com 428 (Pune - Trib.) • Ganeshmull Bijay Sing Baid (HUF) & Ors Vs. DCIT & Ors (2015) 45 CCH 306 (Kol Trib) • CIT Vs. Anil Khandelwal, (2015) 93 CCH 42 (Del HC): MANU/DE/1326/2015) • Straptex India (P) Ltd. v.DCIT, [2003] 84 ITD 320 (Mum) • Pradeep Amrut Lai Runwal v. Tax Recovery Officer, [2014] 47 taxmann.com 293 (Pune - Trib) • ACIT v. Amit D Irshid [IT Appeal No.988 (PN) of 2911, dated 22-4-2013) • Prarthana Construction (P.) Ltd., Vs. DCIT [2001] 118 TAXMAN 112 (AHD.) (MAG.) • Rama Traders Vs. First ITO (1998) 25 ITO 599 (Pat.) (TM) 94 • ACIT Vs. Kishore Lai Balwani Rai (2007) 17 SOT 380 (Chd.) • ACIT Vs. Prabhat Oil Mills (1995) 52 TTJ 533 (Ahd.) • Sheth Akshay Pushpavadan Vs. DCIT (2010) 130 TTJ 42 (Ahd. UO) • Jai Kumar Jain Vs. ACIT (2006) 99 TTJ 744 (Jaipur) • Amarjit Singh Bakshi (HUF) Vs. ACIT (2003) 86 ITD 13 (Del) • Sri Suresh Nanda Vs. ACIT, New Delhi (2012) 31 CCH 494 (Del Trib)
38. In his rival submissions the Ld. Special Standing Counsel appearing on behalf of the Department submitted that there is no precondition as per the provisions of Section 153A of the Act that the additions to the returned income could be made only on the basis of incriminating records/documents seized during the search, this is so because the assessments completed under section 153A of the Act assess total income unlike earlier assessment proceedings under Chapter XIV-B of the Act which envisage the assessment or normal income as well as on undisclosed income for the same A.Y. However the provisions of Chapter XIV-B were abolished by the Finance Act 2003 and the new provisions were introduced by inserting Sections 153Ato 153D of the Act to overcome the short comings and to avoid dispute mainly in respect of undisclosed and regular income.
38.1 It was submitted that certain brokers and intermediaries set up shops for providing amounts representing LTCG exempt under section 10(38) of the Act, to people who want to convert their unaccounted income by charging a hefty commission of 5-6% of the amount of gains. This fraudulent activity of such unscrupulous entry operators came to the notice of SEBI which being a regulatory authority of the capital market, conducted detailed examination of the price rigging of shares of such companies and collected data of the beneficiaries, counter party buyers, brokers, movement of prices, and other relevant details. It was further stated that the SEBI issued notices to various parties in this regard and passed on the information to the Income Tax Department, thereafter the Directorate of Investigation conducted search at various places as per following details:
95i) Sh. Shirish Chandra Shah (SCS), entry operator along with his affiliates at Mumbai on 09.04.2013
ii) Pranneta Industries Ltd., the shares of which were used to provide accommodation entries- 09.04.2013 iii. Sh. Om Prakash Anandilal Khandelwal (OAK), Managing Director of Pranneta Industries on 09.04.2013 iv. Praveen Kumar Jain (Pintu/ Chintan), associate of SCS responsible for handling cash on 11.10.2013 v. Sh. Sanjay Singal and others, the appellants on 21.02.2014.
vi. Sh. R.K. Kedia (RKK), share broker cum entry operator on 21.02.2014. vii. Sh. R.K Kedia and his accountant, Manish Arora on 13.06.2014. viii. Sh. Jagdish Prasad Purohit (JPP), entry operator at Mumbai and Kolkata on 19.10.2011 and 12.02.2013 ix. Sh. Praveen Kumar Agarwal (PKA), entry operator at Kolkata on 13.09.2012 38.2 Ld. Standing Counsel stated that the transactions recorded / reflected in the books of account of BPSL did not mean that those were explained. It was also stated that the incriminating material would include the following items :
a. Documents found at the premises of BPSL which corelate with the transactions recorded in the documents found at the premises of Shri. Shirish Chandra Shah (SCS), Sh. R.K.Kedia and other connected entities b. Statement of Shri. Sanjay Singal u/s 132(4) c. Documents found at the premises of the entities involved in the transaction d. Statements of Stock brokers, entry operators and other connected persons throwing light on the real nature of the transactions.
38.3 It was submitted that the transactions recorded in the documents found from BPSL matched with the transactions recorded by the SCS and Shri R.K. Kedia and as per the evidences seized during the search action on SCS group, various entities of SCS group had received cheques or RTGS payments and that the information related to cheques or RTGS received by the SCS from BPSL, was analysed by the A.O. vis a vis " Kedia -2 Sheet" and bank account with PNB in the name of BPSL.
38.4 It was further submitted that during the course of search at the premises of Shri R.K.Kedia in June 2014, on loose paper bundle seized was Annexure E-14, pages 64-70 of said Annexure contained the details pertaining to the assessee, therefore those documents seized were incriminating in nature because the 96 documents seized fromt the premises of BPSL confirmed the transactions recorded by SCS & Mr. R.K. Kedia.
38.5 It was stated that during the course of assessment proceedings some of the cash transactions were found to be entered date wise in "Kedia-2" Sheet and that the SCS ledger in the books of Pintu had been analyzed and compared. It was mentioned that Pintu in his books of accounts recorded figures in codes wherein two zeros in the figure were suppressed.
39. Ld. Standing Counsel for the Department furnished written submissions stating therein that the preposition of the assessee were not tenable which go against basic provisions of the Law for the following reasons :
i. There is no requirement of law as enacted under the provisions of Section 153 A that the assessment or re-assessment has to be based on the incriminating material found during the course of search. This concept has evolved through judicial precedents. The expression "incriminating material" has not been defined under any statutory provision.
ii. The words and expressions coined by Courts and Tribunals cannot be interpreted like the words and expressions appearing in a statute. Such words and expressions have to be understood in their normal contextual and common-sense connotations.
iii. The incriminating material would, include any tangible or intangible asset or property, any information having a bearing on the income, any document which has an impact on such income and would also include any other material which Revenue gathers in a search or post-search investigation having relevance to the determination of chargeable income. iv. The provisions of Section 153 A contemplate only initiation of search as a pre-condition for assumption of jurisdiction and empower the AO to assess or re- assess the total income of six assessment years preceding the year of search. v. What constitutes "search" is not circumscribed by any definition u/s 153A. The search in the case of a person may be initiated at his place or at the places of certain other persons. In the process of investigation, a situation may also arise where certain persons are searched at one point of time while others are searched at an earlier or later point of time. The material found from the premises of one may be relevant for making assessment in the case of the other and therefore, the expression used by the Courts or Tribunals "incriminating material"
would include all materials recovered from the assesse in whose case search is conducted, or from the premises of other persons who are connected to that search if the material is relevant for determining the income of the assessee.
vi. There may arise situations, as in the present case, where a few unconnected persons may join together to derive some illegal or impermissible benefits. They all become accomplice to a certain act. The evidence found at the place of one may be relevant in the case of the other.97
vii. The expression "incriminating material" would also include the material which may on the face of it, may or may not be incriminating but when examined along with other material found at one place or the other assumes the nature of being incriminating. The expression cannot be restricted to mean only such material where undisclosed income is recorded with a clear description that it is undisclosed.
viii. It may also happen that the same material which was not incriminating at one point of time becomes an incriminating material at a later point of time when examined in the light of fresh information or facts gathered from other connected searches or enquiries made.
ix. The contention that the incriminating material has to be recovered from the premises of the assessee alone is wholly misconceived. The requirement of Section 153 A is that the material forms or provides the necessary justification for addition to the total income returned or assessed, as the case may be and the place from where it is seized is not material. It is the relevance of the material to the determination of income which is necessary and not the situs or the person from whom the material is seized. Reference is made to the decision of Goyal Industries Limited {[2014] 49 taxmann.com 203 (Gujarat)} at Page 81-89 of Revenue's CLC, where the Hon'ble High Court of Gujarat held that there was no illegality in initiating the block assessment proceedings in the case of the company on the basis of material found during search at the premises of the one of the directors of the company, even though these were different legal entities. The High Court also found justification of the initiation of proceedings on the basis of statement recorded of the employee of the assessee company. Similarly, in the case of Ganpati Fincap Services {[2017] 82 taxmann.com 408 (Delhi)} at Pages 89-102 of Revenue's CLC, it was held that the documents found from the premises of third parties were also relevant if they incriminate the assessee. In the aforesaid case, the premises of several other companies were also searched. In the case of Rajesh Sunderdas Vaswani {[2016] 76 taxmann.com 311 (Gujarat)} at Pages 128- 134 of Revenue's CLC. the Hon'ble High Court of Gujarat held that the document seized from the premises of a person "K", which carried a title to which the assessee is related was a relevant material to proceed with the assessment u/s 153C of the Act.
x. The material found from the premises of SCS or RKK or Pintu or Pranneta Industries did categorically indicate that the claim of the assessee of a Long-Term Capital Gain (LTCG) at the time of the original assessment proceedings was bogus and the exemption needed to be withdrawn for the correct determination of income. The material had a live nexus with the claim of the assessee and it completely demolished the averments made by the appellants at the time of original assessment.
xi. It is incorrect to say that the provisions of Section 153C can be invoked only if the material "belongs" to the appellant. In the scheme of search assessments, action to reassess certain income in relation to abated or unabated years is done either u/s 153 A or 153C. The provisions of Section 153C stipulate the consideration of documents "belonging to" or "pertaining to" or "information contained therein" relating to the assessee. The assessments in these cases were made after the necessary amendment made to Section 153C. The amendments came into operation w.e.f. 01.06.2015 and notices u/s 142(1) and 143(2) were served on 20.10.2015/19.11.2015 and 10.08.2015 respectively. Even otherwise, it cannot be said that prior to the amendment, if the information was flowing from any documents seized from a third party about the evasion of income in the case of an assessee, it was neither assessable u/s 153 A nor under 153C. This would be a ridiculous proposition to make. If the material was good enough for reopening 98 the assessment, which it was even if recovered from a third party, it was certainly a valid material for Section 153 A. The non-obstante clause of 153A barred the reopening of assessment after the search operations and the only course of action contemplated by the statute for the AO is to initiate action u/s 153 A. It is wholly untenable for the appellants to argue that since the documents found from the brokers do not belong to them, these cannot be used u/s 153A on the ground that the recovery is from third parties and not from their own premises. It is submitted with utmost respect that such a proposition seeks to demolish the mandate of Section 153 A and is nothing but a desperate bid to escape the incidence of tax.
xii. A statement recorded u / s 1 3 2(4) is a material and would be equally incriminating material if it incriminates the assessee or any other person with regard to his income.It would be relevant to refer to the provisions of Section 132(41 which gives the power to the Authorized Officer to examine the person concerned in the same manners as the Authorized Officer gets power to search and seize any valuable articles or things under sub-section (1) of Section 132. The explanation to Section 132(4) further gives power to the Authorized Officer to examine him not only in respect of assets or documents found as a result of search, but also in respect of all other matters relevant for the purpose of any investigation under the Act. Thus, the scope of 132(4) itself is wide enough to cover examination of the person in respect of material recovered in search or any other matter for the purpose of investigation. Hence, the information flowing from a statement which is recorded as a necessary process of search operation would necessarily constitute incriminating material emanating from the search. xiii. In this particular case, the confessional statement came from Sh. Sanjay Singal not under pressure but after he was confronted with the entire material which was recovered by the Investigation Wing from the premises of SCS and other connected entities. The categorical statements given by the entry operator was not only read out, but Mr. Singal was given an opportunity to see the copy of statement and he adequately pondered over it. It was only after full consideration of the implications of the incriminating material found at different places that the statement u/s 132(4) was made offering an additional income represented by false claim of exempt LTCG. This statement was further backed up by subsequent letters and filing of the breakup of the LTCG from Pranneta. All these statements and disclosures cannot be ignored on the basis of unsubstantiated allegation of undue pressure, as contended by the Appellant. xiv. In the light of the above, it is evident that adequate incriminating material seized from different premises of entry operators, brokers which had a live nexus with the documents found from the premises of BPSL and the recovery of these documents led to damning statements from entry operators and other entities involved in the transaction, including the company whose shares were purchased and sold. These statements were confronted to Sh. Sanjay Singal, which led him to disclose an additional income of 250 crores. In the backdrop of such a strong material, it is really strange that the appellant is still seeking to urge that there was no incriminating ^ material in his case and that the proceedings u/s 153 A are not valid.
xv Revenue would like to place strong reliance on the following:
a. Declaration of entire amount of LTCG as income in the statement recorded u/s 132(4) which was claimed as exempt in the original assessment or in the return u/s 153A.99
b. Incriminating material found in the connected searches in the form of excel sheets, pen drives, and a host of other documents including a list of companies used by the entry operators for providing accommodation entries to the appellants.
c. Statements of entry operators, brokers, their associates, Directors of companies which completely exposed the modus operandi of the transactions. d. A live linkage of such documents with the documents found at the premises of BPSL which was adequate to show the appellant's link with entry operators and unscrupulous brokers and the mode and manner in which such entries were obtained. This established the falsity of the explanation offered by the appellants u/s 68 of the Act.
e. Absence of any satisfactory explanation from the appellants even after they were confronted and supplied with copies of all seized documents and sworn statements of every such person.
xvi. Thus, the assessments for unabated years are based on incriminating material found during the course of search at the premises of the appellant and his accomplices who were all parties to a systematic fraud played upon the capital market with the sole object of defrauding the Revenue. xvii. Instead of offering any valid or satisfactory explanation as required under the law, the appellants are trying to hide behind wholly untenable technical grounds like the power to make additions for unabated years, AO not providing opportunity of cross examination, material found from third party not capable of being used against them, Statement given u/s 132(4) to be treated as retracted and going as far as to suggest that Revenue has fabricated evidence against him and planted the same at the premises of third parties. Having been thoroughly exposed of their fraud, these are lame excuses which will be dealt with hereinafter for the sake of completeness.
xviii. Thus, the assessments for unabated years are based on incriminating material found during the course of search operations and there is absolutely no basis to suggest that the assessments have been framed in the absence of any incriminating material during search operations. This proposition of the appellant is highly fallacious in as much as they are seeking to read something which is not in the statute, nor intended in various judicial pronouncements and further, the proposition is wholly against not only the spirit of the provision but also the language employed in the statute. No decision has been rendered to suggest that even if incriminating material is found in connected searches, the AO cannot make any additions merely on the basis that such material has not been recovered from the premises of the assessee. In a peculiar situation where certain persons act in a concerted manner as a co-conspirator in a scheme of fraud, the material seized from one would always be a material relevant for the assessment of the other. A comprehensive search of connected persons or premises is sought to be dissected into different entities and in an attempt to destroy the whole scheme and object of Section 132 and the follow up provisions. Such a proposition is not only wholly untenable but carries the argument to absurd levels. xix. Thus, the assessments made by the AO are based on very sound incriminating material which establishes in a clinching manner the fact that these Capital Gains were obtained against payment of equivalent amount to the entry operators and thus constituted unexplained credits liable for addition u/s 68 of the Act in the absence of y satisfactory explanation coming from the appellants.100
39.1 It was further submitted that the addition to the income of the assessee had been made under section 68 and 69 C of the Act on account of unexplained sale proceeds of shares and unaccounted commission expenses and that the provisions of Section 68 of the Act mandate in explicit terms that the onus to be placed on the assessee offering the satisfactory explanation with regard to the credit appearing in his books and to establish the identity of the creditors, their credit worthiness and the genuineness of the transactions and where the onus is discharged by the assessee, the A.O. has to carry out further enquiry to demonstrate the explanation, so offered by the assesse was not satisfactory in his opinion and once he does so and the Revenue confront the assessee with such material, the assessee has to establish the satisfactory nature of his explanation and his primary onus would not stand discharged till then. The reliance was placed on the following case laws:
• Shamim M. Bharwani reported in (2015) 170 TTK 238 • NRA Iron and Steel (P) Ltd. reported in (2019) 103 taxmann.com 48 (SC) 39.2 It was also submitted that the decisions referred by the Ld. Counsel for the assessee do not affect the legal principles with regard to the question of onus under section 68 of the Act. As an alternative, Ld. Standing Counsel submitted that there are no fetters on the power of the A.O. to make additions to the assessed income under section 153A of the Act, if he has material in his possession to justify the addition irrespective whether or not such material has been recovered during the search operation and gave in writing as under:
a. "Sections 153A, 153B and 153C were inserted by the Finance Act, 2003 to replace Section 158BC and the earlier scheme of assessment of search and seizure cases.
b. The provision starts with a non-obstante clause overriding Sections 139, 147, 148, 149, 151 and 153 in the case of a person who has been subjected to search operations u/s 132/132A. The scheme postulates separate assessments for each of the six years covered in the period. While for the years the assessments of which are pending would be "assessed", of those which stand completed would be "re-assessed".101
c. A person who has been searched would be assessed u/s 153 A but a person who has not been searched, but some material flows from the search of the other person would also be assessed u/s 153C but in accordance with the provision of Section 153 A. The assessment proceedings reopened u/s 148 shall also abate and the Assessment or Reassessment shall be made only u/s 153A or 153C r.w.s.l53A.
d. The statute does not refer to any "incriminating material" as forming the basis of proceeding u/s 153A or 153C. This concept evolves from judicial precedents.
e. An assessment u/s 153A can be made even in respect of completed assessments whether or not any material was found during the search."
The reference was made to the following case laws :
• Raj Kumar Arora reported in 367 ITR 517 (All) • E.N. Gopakumar reported in 390 ITR 131(Ker) • ST. Francis Clay Décor Tiles reported in 385 ITR 624(Ker) 39.3 It was submitted that the decision in the case of Kabul Chawla reported in (2015) 61 taxmann.com 412(Delhi) relied upon by the assessee is from the High Court of Delhi and no decision on this aspect appears to have been rendered by the jurisdictional High Court. It was further submitted that the decision of the Hon'ble Supreme Court in the case of Sinhgad Educational Society reported in (2017) 84 taxmann.com 290(SC) relied by the Ld. Counsel for the Assessee deals with a different situation and referred to the case where the person is not searched but some valuable articles or things are found at the premises of a third person, which are found to belong to other person who has not been searched and the jurisdiction to invoke section 153C and the satisfaction referred to therein has to be with reference to the valuable articles or things found and belonging to such other person. However the coverage of Section 153C is totally different from that under section 153A of the Act and the said decision will not affect the validity of the decisions rendered by Hon'ble Allahabad High Court in the case of Shri Raj Kumar Arora (supra) and of the Hon'ble Kerala High Court in the case of E.N. Gopakumar and ST. Francis Clay 102 Décor Tiles (supra) particularly in the context of Section 153A of the Act. It was stated that there is nothing in law which prohibits an assessment or reassessment under the provisions of Section 153A of the Act with or without any recovery of so called incriminating material from such process alone. It was submitted that the decision of the ITAT Delhi Bench in the case of Shri Brijbhushan Singal & Ors Vs. ACIT (supra) relied by the Ld. Counsel for the assessee the facts are different from the facts of the assessee's case because in the present case there was a clear admission of the assessee, the LTCG was chargeable to tax under section 68 of the Act and accordingly the income was offered under section 132(4) of the Act, but in the case relied by the Ld. Counsel for the assesse there was no evidence to link the seized documents found in the premises of third parties with any incriminating material found at the premises of the assessee. However in the present case such a live nexus existed and there was a direct link of the material at the assessee's place with that found at the premises of SCS which has elaborately been discussed by the A.O. at page no. 43 to 58 of the Assessment Order.
39.4 It was emphasized that each and every bit of material with the Department was made available to the assessee even before the voluntary surrender of income was made. It was stated that presumption under section 132(4) of the Act, in the caseof SCS and Shri R.K. Kedia based on material found and their statement that they had acted as entry operator itself was enough to justify the addition made in the assessee's case.
40. Ld. Standing Counsel justified the making of addition in the years under consideration and submitted as under:
"a. The Assessment Years for which assessments stood completed at the time of search were A.Y. 2008-09, 2010-11 and 2012-13.
b. As submitted earlier, there are no fetters on the power of the Assessing Officer (AO)to make additions to the assessed income u/s 153 A if the AO has material in his possession to justify the addition irrespective of whether or not such material has been recovered during search operations.103
c. Alternatively, in the present case, the search has yielded incriminating material in the form of:
i. Declaration of entire amount of LTCG as income in the statement recorded u/s 132(4) which was claimed as exempt in the original assessment or in the return u/s 153A.
ii. Incriminating material found in the connected searches in the form of excel sheets, pen drives, and a host of other documents including a list of companies used by the entry operators for providing accommodation entries to the appellants.
iii. Statements of entry operators, brokers, their associates, Directors of companies which completely exposed the modus operandi of the transactions. iv. A live linkage of such documents with the documents found at the premises of BPSL which was adequate to show the appellant's link with entry operators and unscrupulous brokers and the mode and manner in which such entries were obtained. This established the falsity of the explanation offered by the appellants u/s 68 of the Act.
v. Absence of any satisfactory explanation from the appellants even after they were confronted and supplied with copies of all seized documents and sworn statements of every such person.
d. Thus, the assessments for unabated years are based on incriminating material found during the course of search at the premises of the appellant and his accomplices who were all parties to a systematic fraud played upon the capital market with the sole object of defrauding Revenue. e. Instead of offering any valid or satisfactory explanation as required under the law, the appellants are trying to hide behind wholly untenable technical grounds like the power to make additions for unabated years, AO not providing opportunity of cross examination, material found from third party not capable of being used against them, Statement given u/s 132(4) to be treated as retracted and going as far as to suggest that Revenue has fabricated evidence against him and planted the same at the premises of third parties. Having been thoroughly exposed of their fraud, these are lame excuses which will be dealt with hereinafter for the sake of completeness.
f. Thus, the assessments for unabated years are based on incriminating material found during the course of search operations and there is absolutely no basis to suggest that the assessments have been framed in the absence of incriminating material was found during the search operations. This proposition of the appellant is highly fallacious in as much as they are seeking to read something which is not in the statute, nor intended in various judicial pronouncements and further, the proposition is wholly against not only the spirit of the provision but also the language employed in the statute. No decision has been rendered to suggest that even if incriminating material is found in connected searches, the AO cannot make any additions merely on the basis that such material has not been recovered from the premises of the assessee. In a peculiar situation where certain persons act in a concerted manner as a co- conspirator in a scheme of fraud, the material seized from one would always be a material relevant for the assessment of the other. A comprehensive search of connected persons or premises is sought to be dissected into different entities and in an attempt to destroy the whole scheme and object of Section 132 and the follow up provisions. Such a proposition is not only wholly untenable but carries the argument to absurd levels.
g. Thus, the assessments made by the AO are based on very sound incriminating material which establishes in a clinching manner the fact that these Capital Gains 104 were obtained against payment of equivalent amount to the entry operators and thus constituted unexplained credits liable for addition u/s 68 of the Act in the absence of any satisfactory explanation coming from the appellants.
41. On merits of the case it was submitted that the transactions under consideration was abnormal and the companies whose shares were claimed to have been brought to sale were paper companies having no sufficient business operations. The share prices of those companies were artificially jacked up by the entry operators and the financials of those companies did not indicate any justification for the abnormal increase in prices from Rs. 1 to Rs. 75-80 in a span of few months and that the transactions in themselves were highly unusual which do not meet the test of human probabilities, therefore the A.O. was fully justified in making the addition under section 68 of the Act. The reference was made to the following case laws:
• Smt. M.K. Rajeshwari reported in (2018) 99 taxmann.com 339(Bang) • Sh. Sanjay Bimalchand Jain in ITA No. 61/Nagpur/2013(Nag) • Harish Kumar (HUF) reported in 2019-TIOL-1200-ITAT-MAD(Mad) • Udit Kalra in ITA No. 220/2019(Del)
42. It was reiterated that the assessee offered the entire amount of undisclosed income in his statement recorded under section 132(4) of the Act which had not been returned by way of an affidavit or any letter addressed to the A.O. or to the Investigation Wing before whom, such declaration was made and that the mere fact that the return under section 153A of the Act did not incorporate this admitted undisclosed income could not be recorded as retraction of a sworn statement given under section 132(4) of the Act and that the assessee had not given any reason for not declaring the undisclosed income in his return except a general argument that the statement was given under duress or coercion. It was stated that the surrender of income was not merely by way of statement, it was further followed by the letter filed before the 105 Department after considerable lapse of time. Therefore, there cannot be any occasion of any duress or coercion.
43. It was contended that the statement given by the assessee was by itself a ground adequate enough for the A.O. to make the addition even if no other documents or statements were to be taken into consideration.
44. The Ld. Standing Counsel justified the addition made by the A.O. by giving in writing as under:
"i. In the facts and background of the case, it has been amply demonstrated that the appellant obtained accommodation entry from the entry operators with the active help and connivance of Sh. R.K.Kedia, a broker who admittedly helped Singals in these transactions.
ii. The records have been meticulously maintained as detailed by the AO to show the receipt of cash by the appellants and the receipt of the corresponding amount of capital gains eceipt from entry providers by cheque.
iii. The documents maintained at the premises of SCS fully match with those seized from R.K.Kedia and his associates. These transactions also match with the documents found at the premises of BPSL to satisfactory extent.
iv. The appellant or the company BPSL has not given any explanation as to how and why huge amounts were transferred through RTGS to the companies of SCS as an advance for purchase of capital goods when these companies were bogus entities managed by SCS for providing accommodation entries and were neither in the business of nor were capable of supplying capital goods to BPSL.
v. These documents are very explicit and speak volumes about the genuineness of the transaction.
vi. The copies of these documents have been provided to the appellant's and no valid explanation is coming forth to prove the genuineness of the credits in the light of these glaring facts.
vii. The onus u/s 68 remains undischarged and therefore, the addition would be fully justified."
44.1 It was further submitted that the addition made by the A.O. and sustained by the Ld. CIT(A) was also justified on the basis of sworn statement of entry operator, broker and their associates for the following reasons:
"i. Sh. Shirish Chandra Shah has given an unequivocal statement u/s 132(4) that he is an entry operator, that he manages and controls 212 bogus companies for this 106 purpose, that he maintained a meticulous record of receipt of cash against giving accommodation entries, that he charged commission of 5-6% for this purpose. ii. The status of SCS as an entry provider stands confirmed in his order of assessment, which is not in dispute.
iii. RKK also accepts that he maintained compete records through his associates of the cash received and transmitted to SCS and the receipt of the corresponding amount from him which was paid over to the appellants by way of an accommodation entry.
iv. The directors of the company also record the fact that their companies were used as a vehicle for providing long term capital gains or such other accommodation entries.
v. In the light of these statements, which have not been retracted at any stage, the addition made by the AO is fully justified.
vi. Once it is established from the co-conspirators that they were entry operators, the explanation offered by the appellants u/s 68 gets fully exposed. The assessee then cannot be regarded as having discharged the onus cast on him under the law. vii. The mere fact that the amount was received through banking channels is of no consequence.
viii. The appellants have not even been able to provide the dates of dematerialization of shares and the relevant documents in this regard apart from the dubious nature of the private placements of such shares and the mode of payment for acquiring such shares.
ix. The onus is not on Revenue to establish that unaccounted money was introduced in the accounts. Rather, the onus is on the assessee to establish that the credits were genuine.
x. A host of pleas raised by the assessee proceed on the premise that the burden is on the Revenue to establish conclusively that the unaccounted money has been introduced by way of accommodation entries. That is not the legal position.
xi. The addition is, therefore, fully justified"
45. As regards to the opportunity of cross examination not provided to the assessee by the A.O., Ld. Standing Counsel submitted as under:
"The most significant material fact in this case is that the entire material by way of seized documents and sworn statements were made available to the appellants at the first available opportunity by the Investigation Wing itself and the Assessing Officer did also provide copies thereof with the Show-cause notice. ii. The disclosure u/s 132(4) was made by the appellant after perusal of all such documents and statements in detail.
iii. No request for cross-examination was made when the appellant was confronted with these statements. The plea of cross-examination was raised after a considerable lapse of time and maybe after ensuring that these persons do not respond to the summons issued by the Department in this regard. iv. It has to be appreciated that these people are co-conspirators in the fraud, and it was always possible for the appellants to ensure their non- compliance of the summons issued by the Department.
v. In any case, the AO having made available copies of all such statements has complied with the principles of natural justice. He has also made necessary efforts to ensure that the appellants get an opportunity to cross-examine them. vi. The fact is that these persons are not independent parties.107
vii. The statements of these persons are based on documents, the copies of which have already been made available. The addition has not been made merely on the basis of testimony of these persons.
viii. The addition would be justified, even if their statements are to be kept aside, on the basis of the documentary evidence available with the AO. ix. The statements of these persons can be divided into two parts: - one, the nature of their activities and their position as entry operators and two, their testimony implicating the appellants.
x. The nature of their business operation would not depend on the cross- examination by the appellants and once they are established as entry operators, this fact alone demolishes the explanation offered by the appellant. xi. Thus, the plea of the appellants that in the absence of opportunity of cross examination being provided to them, it was not open to the AO to rely on the sworn statements or the material gathered from such entities is wholly untenable."
xii. The appellants have not led any material whatsoever to discharge the onus cast on them u/s 68 and hence, the additions are fully justified.
The reliance was placed on the following case laws:
• Smt. Kusumlatha Thakral Vs. CIT (2010) 327 ITR 424(P&H) • Techno Shares and Stocks Ltd. Vs. CIT reported at (2010) 327 ITR 323(SC) • CIT vs. Nova Promoters and Finlease (P) Ltd. reported at (2012) 342 ITR 169 (Del) • ITO Vs. Shamim M. Bharwani reported at (2016) 69 taxamnn.com65(Mum) • PCITk Vs. NRA Iron and Steel reported at (2019) 412 ITR 161 (SC) • CIT Vs. Raj Kumar Arora reported at (2014) 367 ITR 517 (All) • E.N. Gopakumar Vs. CIT reported at (2017) 390 ITR 131 (Ker) • CIT Vs. St. Francis Clay Décor Tiles reported at (2016) 385 ITR 624 (Ker) • CIT Vs. Kabul Chawla reported at (2016) 380 ITR 573(Del) • CIT Vs. Anil Kumar Bhatia reported at (2013) 352 ITR 493 (Del) • CIT Vs. Sinhgad Educational Society(SC) • Goyal Industries Ltd. Vs. ACIT reported at (2015) 372 ITR 514 (Guj) • Ganpati Fincap Service (P.) Ltd. Vs. CIT reported at (2017) 395 ITR 692(Del) • V3S Infratech Ltd. Vs. ACIT (2019) 104 Taxmann.com 403(Del) • Rakesh Gupta Vs. CIT (2018) 405 ITR 213 (P&H) • Rajesh Sunderdas Vaswani Vs. ACIT (2016) 76 taxmann.com 311(Guj) • Smt. M.K. Rajeshwari Vs. ITO (2018) 99 Taxmann.com 339 • Sanjay Bimalchand Jain Vs. PCIT (2018) 89 taxmann.com 196(Bom) • Udit Kalra Vs. ITO in ITA No. 220/19 order dt. 08/03/2019 (Del) • Rajnish Jain Vs. CIT (2018) reported at 402 ITR 12 (All) • Kantilal C. Shah Vs. ACIT reported at (2011) 133 ITR 57 (Ahd) • Hukum Chand Jain Vs. ACIT reported at (2011) 337 ITR 238(Chattisgarh HC) • Ms. Priyanka Chopra Vs. DCIT reported at (2018) 169 ITR 144(Mum Trib) • Bhagirath Agarwal Vs. CIT reported at (2013) 351 ITR 143(Del) 108 • Smt. Kusum Lata Thakral Vs. CIT reported at (2010) 327 ITR 424 (P&H) • CIT Vs. Nova Promoters & Finlease (P.) Ltd. (2012) 342 ITR 169(Del) • Sumati Dayal Vs. CIT reported at (1995) 214 ITR 801 (SC) • CIT Vs. Durga Prasad More reported at (1971) 82 ITR 540 (SC) • CIT Vs. Krishnaveni Ammal reported at (1986) 158 ITR 826 (Mad) • Hersh W. Chadha Vs. DDIT reported at (2011) 43 SOT 544 (Del) • CIT vs. P. Mohankala reported at (2007) 291 ITR 278(SC) • Filatex India Vs. CIT reported at (2015) 229 Taxmann.com 555(Del) • CIT vs. Reliance International Corp.(P.) Ltd. reported at (2011) 196 Taxmann.com 387 (Del)
46. Ld. Counsel for the Assessee in his rejoinder submitted that there was no merit in this contention of the Ld. Standing Counsel that there is no precondition under section 153A of the Act for additions to be made only on the basis of seized incriminating documents in view of the judgment of the Hon'ble Apex Court in the case of Meeta Gutgutia (supra). As regards to the submissions of the Ld. Standing Counsel that the statement of SCS, Shri R.K Kedia & his employees, Stock Brokers, Entry Providers and other connected persons etc were in the nature of incriminating material, ld. Counsel for the assessee submitted that the assessee was not named in most of the documents found from all the third parties, therefore their statements cannot be construed to be incriminating material and the presumption under section 292C of the Act was not applicable. The reliance was placed on the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Harjeev Agarwal 290 CTR 263.
46.1 Ld. Counsel for the assessee further submitted that the contention of the Ld. Standing Counsel that the documents seized from the premises of BPSL allegedly confirmed the transaction recorded by SCS and Shri R.K. Kedia was not tenable, since the documents seized from BPSL were not connected with the issue of LTCG and was part of the regular disclosed record of BPSL and even if at all it was to be treated as unexplained then it was relevant only to the case of BPSL and not of the assessee's.
10946.2 It was emphasized that the documents seized from SCS or Pintu, nowhere contained the name of the assessee and those documents contained entries interse between the alleged entry operator. It was stated that no addition can be made, based on third party statement or third party documents unless those were subjected to the cross examination by the assessee particularly when the name of the assessee was not appearing in the said seized documents and the assessee did not know those persons.
47. As regards to the submissions of the Ld. Standing Counsel that the documents seized from SCS had shown that Shri R.K.Kedia acted on behalf of the BPSL group to get bogus accommodation entries of LTCG, it was stated that no incriminating material was found in the case of simultaneously search on Shri R.K. Kedia on 21/02/2014 and that in the statement recorded under section 132(4) of the Act Shri R.K. Kedia categorically admitted that transactions undertaken by the assessee were perfectly genuine.
47.1 It was submitted that the assessee's case is fully covered by the decision of the ITAT Delhi Bench in the case of Shri Brijbhushan Singal & Others(supra) therefore the addition made by the A.O. and sustained by the Ld. CIT(A) in the absence of incriminating material found during the course of search was not justified and deserved to be deleted.
47.2 Ld. Counsel for the assessee also distinguished the case laws relied by the Ld. Standing Counsel for the Department in his written submissions page nos. 28 to 43 (which is placed on record) and submitted that the concluded assessment cannot be disturbed by passing the assessment under section 153A of the Act in the absence of incriminating material particularly when the A.O. earlier made the regular assessment under section 143(3) of the Act by conducting enquiry and examining the material available on the record. It was also stated that no incriminating material was pointed out in the statement of the assessee wherein nothing was mentioned that the transactions was bogus. It was also stated that 110 no corresponding assets to suggest the undisclosed income, was found and the transactions were accepted as genuine in the regular assessment framed under section 143(3) of the Act therefore the addition made by the A.O. and sustained by the Ld. CIT(A) was not justified.
48. We have considered the submissions of both the parties and perused the material available on the record. In the present case it is an admitted fact that the appeals under consideration relates to the years prior to the search and the assessment framed were unabated. In other words regular assessment framed were prior to the search and seizure operation under section 132(1) of the Act on 21/02/2014 and the issuance of notice dt. 29/01/2015 under section 153A of the Act. In the present case no incriminating material was found during the course of aforesaid search and even earlier when the search took place on 03/03/2010 and survey took place on 27/12/2012 no incriminating material was found from the business / residential premises of the assessee. The present assessment was framed under section 153A of the Act. It is well settled that the addition under section 153A of the Act can be made only on the basis of the incriminating material found during the course of search. In the present case the A.O. made the addition under section 68 of the Act on the basis of material found in the search which took place in the case of SCS, Shri R.K. Kedia and Pintu however name of the assessee was not mentioned on the documents found during the course of aforesaid search. The A.O. considered the statement of third parties as incriminating material for the purposes of making the addition in the assessment made under section 153A of the Act. In the instant case the A.O. proceeded to utilize the statements of the third parties for making the addition while framing the assessment under section 153A of the Act, however no opportunity to cross examine those parties was provided to the assessee. In the present case the Ld. CIT(A) himself admitted at page no. 176 of the impugned order that no incriminating material was found from the possession of the assessee during the course of search.
11148.1 During the course of hearing the Ld. Standing Counsel for the Department heavily relied on the judgment of the Hon'ble Delhi High Court in the case of M/s Ganpati Fincap Services (supra) wherein it has been held that documents found from the premises of third parties were also relevant if they incriminate the assessee. However, in the present case nothing is brought on record to substantiate that the name of the assessee was mentioned in any of the documents / material found from the premises of the third parties i.e; SCS or Shri R.K. Kedia or Pintu or PIL.
48.2 In the instant case the Ld. Standing Counsel stated that the decision of the Hon'ble Delhi High Court relied by the Ld. Counsel for the assessee in the case of CIT Vs. Kabul Chawla(supra) was not rendered by the Jurisdictional High Court and the decisions of the Hon'ble Kerala High Court in the cases of E.N. Gopakumar Vs. CIT reported at (2017) 390 ITR 131, CIT Vs. St. Francis Clay Décor Tiles reported at (2016) 385 ITR 624 and also of the Hon'ble Allahabad High Court in the case of CIT vs. Raj Kumar Arora reported at (2014) 367 ITR 517(All) supports the view of the Department that the assessment under section 153A of the Act can be made even in respect of completed assessment i.e; unababted assessment whether or not any material was found during the course of search. He also stated that no decision on this issue had been rendered by the Hon'ble Jurisdictional High Court. We do not see any merit in the aforesaid contention of the Ld. Standing Counsel in view of the ratio laid down by the Hon'ble Apex Court in the case of Mysore Minerals Ltd Vs. CIT reported at 239 ITR 775 wherein it has been held that " it is also well settled that where there are two interpretation of taxing provisions the one which is favourable to the assessee should be preferred".
48.3 Similarly in the case of Union of India and Others Vs. Omkar S. Kanwar and Others reported at (2002) 258 ITR 761 Hon'ble Apex Court held that " it is settled law that if two views are possible then the one which is in favour of the assessee must be adopted".
11248.4 A similar view has been taken in the case of CIT, West Bengal I Vs. Vegetable Products Ltd reported at 88 ITR 192 wherein it has been held by the Hon'ble Apex Court that " if the Court find that the language of the taxing provision is ambiguous or capable and more mean than one, then the Court has to adopted that interpretation which favours the assessee".
48.5 We therefore do not see merit in these submissions of the Ld. Standing Counsel that the judgment in the case of Kabul Chawla(supra) reported in (2015) 61 Taxmann.com 412 (Delhi) is not of the Jurisdictional High Court so preference is to be given to the Judgment given by the Hon'ble Kerala and Allahabad High Court.
49. After considering the totality of the facts as discussed in the former part of this order and that no incriminating material was found during the course of search, we, are of the view that the facts of the present case are identical to the facts involved in the case of Shri Brij Bhushan Singal & Others (supra) wherein the similar issue has been decided vide order dt. 31/10/2018 and the relevant findings have been given in para 104 to 121 which read as under:
"104. We have considered the submissions of both the parties and perused the material available on the record. In the present case, the assessee had raised the legal issue in the additional ground as well as the main ground no. 1 by challenging the jurisdiction of the AO and the ld. CIT(A) in making the additions/enhancement u/s 153A of the Act in the absence of incriminating material pertaining to the years under consideration found during the course of search.
105. In the instant case, it is an admitted fact that the search and seizure operation u/s 132(1) of the Act was conducted at the premises of the assessee on 13.06.2014 and thereafter notice u/s 153A of the Act dated 08.09.2014 was issued to the assessee for furnishing the return of income. In response to the said notice, the assessee filed its return of income on 12.07.2016 declaring the same income which was furnished in the original return of income filed on 31.07.2010. The provision contained in Section 153A of the Act read as under:
"153A--Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall--113
(a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;
(b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made :
Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years:
Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. "Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made."
(2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the [Principal Commissioner or] Commissioner:
Provided that such revival shall cease to have effect, if such order of annulment is set aside.
Explanation.--For the removal of doubts, it is hereby declared that,--
(i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section;
(ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year."
106. From the second proviso to the aforesaid Section, it is clear that the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in Sub-Section (1) of Section 153A of the Act, is pending on the date of initiation of search u/s 132 of the Act or making of requisition u/s 132A of the Act as the case may be shall abate. In other words, the only assessment which are pending shall abate but those assessments which had already been completed before the search proceedings cannot be reassessed under this Section. In the 114 present case, the search took place on 13.06.2014 and the assessment for the assessment years 2010-11 and 2011-12 were completed prior to the said date i.e. 13.06.2014 u/s 143(3) of the Act, therefore, those were not abated. The assessee filed the return of income for the assessment years 2010-11, 2011-12 and 2012-13 on 31.07.2010, 30.07.2011 and 31.07.2012 respectively while the search took place on 13.06.2014 and the assessments u/s 143(3) of the Act were framed on 27.02.2011 and 14.02.2014 for the assessment years 2010-11 and 2011-12 respectively (copies of which are place at page nos. 66 to 92 of the assessee's compilation). The return of income for the assessment year 2012-13 was filed by the assessee on 31.07.2012 and the time to issue the notice u/s 143(2) of the Act had already expired before the date of search. Therefore, the scope of assessment u/s 153A of the Act in respect of the assessment years under consideration i.e. assessment years 2010- 11 to 2012-13 is limited to the incriminating material found during the course of search. As regards to the issue relating to the original return of income processed u/s 143(1) of the Act and for which time to issue notice u/s 143(2) of the Act had already expired before the search took place. The ITAT Delhi Bench 'I-1', New Delhi in the case of Granite Gate Properties Pvt. Ltd. Vs ACIT, CC-6, New Delhi in ITA Nos. 7022 to 7024/Del/2017 for the assessment years 2009-10 to 2011-12 vide order dated 29.05.2018 (where in one of us i.e. Accountant Member is the author) held in paras 18 to 20 as under:
"18. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is an admitted fact that the assessee filed the original return of income for the year under consideration on 30.09.2009 which was processed u/s 143(1) of the Act on 05.09.2010 and the time period to issue the notice u/s 143(2) of the Act had already expired before the search took place on 29.10.2013. During the course of search, no incriminating material was found relating to the FCCDs which were already shown by the assessee in its regular books of accounts. The AO/TPO made the addition on account of differential interest on FCCDs undertaken with the AE, in our opinion, no such adjustment could have been made to the income which was already assessed prior to the date of search.
19. On a similar issue, the Hon'ble Karnataka High Court in the case of CIT & Anr. Vs IBC Knowledge Park P. Ltd. (2016) 385 ITR 346 (supra) held as under:
"A search was conducted on Y, Z and IBC on June 17, 2008. One of the offices of the assessee was in the same premises where the search took place. Certain documents belonging to the assessee were seized and the Assessing Officer of the persons in whose cases search was conducted transferred the documents to the Assessing Officer of the assessee under section 153C of the Act. Assessment orders under section 143(3) read with section 153C were passed for the assessment years 2004-05 to 2008-09. In respect of the assessment year 2004-05, the Tribunal noted that as on the date the search was conducted i.e., on June 17, 2008, no assessment proceeding was pending and as no undisclosed income was detected, the assessment made under section 153A read with section 153C of the Act the Tribunal quashed the assessment. For the assessment year 2005-06, though no order under section 143(3) had been passed, an intimation under section 143(1) had been issued. The Tribunal held that for the purpose of section 153A read with section 153C of the Act, an intimation under section 143(1) was also an order of assessment. It upheld the validity of the assessment for the assessment year 2005-06."115
It has further been held as under:
"That one of the conditions precedent for invoking a block assessment pursuant to a search in respect of a third party under section 158BD of the Act, i.e., recording satisfaction that undisclosed income belongs to the third party, which was detected pursuant to a search had not been complied with. Though documents belonging to the assessee were seized at the time of search operation, there was no incriminating material found leading to undisclosed income. Therefore, assessment of income of the assessee was unwarranted."
20. In the present case also, although the assessment was not framed u/s 143(3) of the Act but an intimation was issued u/s 143(1) of the Act, however, the time to issue the notice u/s 143(2) of the Act has already expired before the search. Therefore, for the purposes of Section 153A r.w.s. 153C of the Act, an intimation u/s 143(1) of the Act was also an order of assessment. In the present case, since no incriminating material was found during the course of search. The addition made by the AO u/s 153A of the Act on account of interest on FCCDs was not justified."
107. We, therefore, by respectfully following the aforesaid referred to order of the Co-ordinate Bench are of the confirmed view that the assessment for the assessment year 2012-13 although was not framed u/s 143(3) of the Act, however, the time to issue the notice u/s 143(2) of the Act had already expired before the search took place on 13.06.2014. Therefore, for the purpose of Section 153A of the Act, processing of the return of income u/s 143(1) of the Act was also an assessment. As such the assessment for the assessment year 2012-13 was also unabated. It is well settled that the addition u/s 153A of the Act can only be made on the basis of incriminating material found during the course of search. In the present case, no incriminating material/document was found during the course of search. The AO made the additions on the basis of the statement of the third parties recorded u/s 132(4) of the Act on the basis of alleged entry in hard/soft data seized from premises of third parties in the course of search action in their cases. In the present case, copies of the Panchanama are placed at page nos. 1 to 58 of the assessee's compilation. From a bare perusal of the Panchanama of the assessee, it may be seen that nothing incriminating was found in the course of search. It is also apparent from the search document that no incriminating material in the form of undisclosed, document, unaccounted money, bullion, jewellery etc. indicating the factum of undisclosed income were found or seized in the course of search operation u/s 132(1) of the Act for any of the assessment years under consideration. In the instant case, the AO relied upon the statement of Sh. Raj Kumar Kedia his employee Sh. Manish Arora, Sh. Ankur Agarwal, an employee of BSL and Sh. Chandrakant Mahadev Jadhav. However, Sh. Raj Kumar Kedia retracted his statement on 14.10.2014 (copy of which is placed at page nos. 446 to 451 of the assessee's compilation). Thereafter, he filed letter dated 31.03.3015 withdrawing his retraction, copy of which is placed at page nos. 452 to 455 of the assessee's compilation. Therefore, he was changing his stand as such his statement cannot be considered to be reliable. Similarly, Sh. Ankur Agarwal also retracted his statement vide letter dated 20.12.2016 which is placed at page no. 190 of the assessee's compilation. Similar was the position with regard to the statement of Sh. Chandrakant Mahadev Jadhav recorded on 13.06.2014, the said statement was also retracted vide letter dated 24.11.2016. Now question arises as to whether the addition can be made u/s 153A of the Act in the absence of any incriminating material emanating from search u/s 132(1) of 116 the Act, only on the basis of the statement recorded u/s 132(4) of the Act, particularly, when the opportunity to cross-examination of the witness whose statement were relied, was not given to the assessee.
108. On a similar issue, the Hon'ble Jurisdictional High Court in the case of Pr. CIT Vs Best Infrastructure (India) Pvt. Ltd. in ITA No. 11/2017 and Others (supra) vide order dated 01.08.2017 (copy of which is placed at page nos. 151 to 171 of the assessee's compilation) held in paras 35 to 39 as under:
"35. As noted in Principal Commissioner of Income Tax Central-2, New Delhi v. Meeta Gutgutia (supra), several other High Courts have also come to a similar conclusion either by following Commissioner of Income Tax (Central-Ill) v. Kabul Chawla (supra) or otherwise. This includes the decisions of the Gujarat High Court in Principal Commissioner of Income Tax v. Saumya Construction Pvt. Ltd. (2016) 387 ITR 529 (Guj); Principal Commissioner of Income Tax-i v. Devangi alias Rupa 2017-TIOL-319- HC-AHM-IT; the Karnataka High Court in CIT v. IBC Knowledge Park Pvt. Ltd. (2016) 385 ITR 346 (Kar); the Kolkata High Court in Pr. CIT-2 v. Salasar Stock Broking Ltd. 2016-TIOL-2O99-HC-KOL-IT and the Bombay High Court in CIT v. Gurinder Singh Bawa (2016) 386 ITR 483 (Bom). Inr Principal Commissioner of Income Tax Central-2, New Delhi v. Meeta Gutgutia (supra) the entire gamut of the case law had been analysed and the legal position was reiterated that unless there is incriminating material qua each of the AYs in which additions are sought to be made, pursuant to search and seizure operation, the assumption of jurisdiction under Section 153A of the Act would be vitiated in law. This is one more occasion for the Court to reiterate that legal position.
36. Turning to the facts of the present case, it requires to be noted that the statements of Mr. Ami Aggarwal, portions of which have been extracted hereinbefore, make it plain that the surrender of the sum of Rs. 8 crores was only for the AY in question and not for each of the six AYs preceding the year of search. Secondly, when Mr. Anu Aggarwal was confronted with A-1, A-4 and A-n he explained that these documents did not pertain to any undisclosed income and had, in fact been accounted for. Even these, therefore, could not be said to be incriminating material qua each of the preceding AYs,
37. Fourthly, a copy of the statement of Mr. Tarun Goyal, recorded under Section 132 (4) of the Act, was not provided to the Assessees. Mr. Tarun Goyal was also not offered for the cross-examination. The remand report of the AO before the CIT(A) unmistakably showed that the attempts by the AO, in ensuring the presence of Mr. Tarun Goyal for cross-examination by the Assessees, did not succeed. The onus of ensuring the presence of Mr. Tarun Goyal, whom the Assessees clearly stated that they did not know, could not have been shifted to the Assessees. The onus was on the Revenue to ensure his presence. Apart from the fact that Mr. Tarun Goyal has retracted his statement, the fact that he was not produced for crossexamination is sufficient to discard his statement.
38. Fifthly, statements recorded under Section 132 (4) of the Act of the Act do not by themselves constitute incriminating material as has been explained by this Court in Commissioner of Income Tax v. Harjeev Aggarwal (supra). Lastly, as already pointed out hereinbefore, the facts in the present case are different from the facts in Smt. Dayawanti Gupta v. CIT (supra) where the admission by the Assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, is nonexistent in the present case. In the said case, there 117 was a factual finding to the effect that the Assessees were habitual offenders, indulging in clandestine operations whereas there is nothing in the present case, whatsoever, to suggest that any statement made by Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission.
39. For all the aforementioned reasons, the Court is of the view that the ITAT was fully justified in concluding that the assumption of jurisdiction under Section 153A of the Act qua the assessees herein was not justified in law."
109. Similarly, the Hon'ble Apex Court in the case of Andaman Timber Industries Vs Commissioner of Central Excise (2015) 281 CTR 241 (supra) held as under:
"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 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."118
110. A similar view has been taken by the Hon'ble Apex Court in the case of Kishinchand Chellaram Vs CIT 1980 AIR 2117 (supra) wherein it has been held as under:
"(2) It is true that the proceedings under the Income Tax law are not governed by the strict rules of evidence and therefore it might be said that even without calling the Manager of the Bank in evidence to prove this letter, it could be taken into account as evidence. But before the Income-Tax Authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-
examine the Manager of the Bank with reference to the statements made by him. Moreover, this letter was said to have been addressed by the Manager of the Bank to the Income Tax Officer on 18th February, 1955 in relation to a remittance alleged to have been sent on 16th October, 1946 and it is impossible to believe in the absence of any evidence to that effect, that the Manager who wrote this letter on 18th February, 1955 must have been incharge of the Madras Office on 16th October, 1946 so as to have personal knowledge as to who remitted the amount of Rs. 1,07,350, The Revenue authorities ought to have called upon the Manager of the Bank to produce the documents and papers on the basis of which he made the statements contained in his letter and confronted the assessee with those documents and papers but instead of doing so, the Revenue authorities chose to rely merely on the statements contained in the letter and that too, without showing the Letter to the assessee."
111. A similar view has been expressed by the Hon'ble Jurisdictional High Court in the case of CIT Vs SMC Share Brokers Ltd. (supra) wherein it has been held as under:
"6. We are of the opinion that the Tribunal was right in its view that in the absence of Manoj Aggarwal being made available for cross-examination, despite repeated requests by the assessee, his statement could not be relied upon to his detriment."
112. Similarly, the ITAT Mumbai 'B' Bench in the case of Straptex (India) (P) Ltd. Vs DCIT 84 ITD 320 (supra) held as under:
"Presumption under Section 132(4A) is not limited only to the proceedings under Section 132(5); presumption under Section 132(4A) is applicable only against the person from whose possession books of account or other documents were found and not against any other person."
113. In the present case, the opportunity to the assessee to cross-examine the person whose statements were relied upon by the AO was required to be given, on the date fixed by the AO, the assessee presented himself through his Authorized Representative but the concerned person did not turn up, so it cannot be said that the opportunity to cross-examination was provided to the assessee, although the statements of third parties were used against the assessee. In the instant case, it is an admitted fact that the persons whose statements were recorded at the time of search, later on retracted from their statements and one person, namely, Sh. Raj Kumar Kedia first retracted on 14.10.2014 and thereafter withdrew the retraction vide letter dated 31.03.2015. Therefore, no reliance can be placed on the testimony of the said person who was indulging in double speaking and taking contrary stands.
119114. On a similar issue, the Hon'ble Calcutta High Court in the case of CIT Vs Eastern Commercial Enterprises (1994) 210 ITR 103 (supra) held as under:
"4. We have considered the contesting contentions of the parties. It is true that Shri Sukla has proved to be a shifty person as to witness. At the earlier stages, he claimed all his sales to be genuine but before the Assessing Officer in the case of the assessee, he disowned the sales specifically made to the assessee. This statement can at the worst show that Shri Sukla is not a trustworthy witness and little value can be attached to what he stated either in his affidavits or in his examination by the Assessing Officer. His conduct neutralizes his value as to witness. A man indulging in double-speaking cannot be said by any means a truthful man at any stage and no Court can decided on which occasion he was truthful."
115. On a similar issue the CBDT also issued the Circular No. 286/2/2003- IT(Inv.), dated 10.03.2003 stating therein as under:
"Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, such confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads information on what has not been disclosed or is not likely to be disclosed before the Income-tax Department. Similarly, while recording statement during the course of search & seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely. Further, in respect of pending assessment proceedings also, Assessing Officers should rely upon the evidences/materials gathered during the course, of search/survey operations or thereafter while framing the relevant assessment orders."
116. The aforesaid directions were once again reiterated by the CBDT vide Circular No. 286/98/2013-IT dated 18.12.2014 which read as under:
"Instances/complaints of undue influence/coercion have come to notice of the CBDT that some assessees were coerced to admit undisclosed income during Searches/Surveys conducted by the Department. It is also seen that many such admissions are retracted in the subsequent proceedings since the same are not backed by credible evidence. Such actions defeat the very purpose of Search/Survey operations as they fail to bring the undisclosed income to tax in a sustainable manner leave alone levy of penalty or launching of prosecution. Further, such actions show the Department as a whole and officers concerned in poor light.
2. I am further directed to invite your attention to the Instructions/Guidelines issued by CBDT from time to time, as referred above, through which the Board has emphasized upon the need to focus on gathering evidences during Search/Survey and to strictly avoid obtaining admission of undisclosed income under coercion/undue influence.120
3. In view of the above, while reiterating the aforesaid guidelines of the Board, I am directed to convey that any instance of undue influence/coercion in the recording of the statement during Search/Survey/Other proceeding under the I.T. Act, 1961 and/or recording a disclosure of undisclosed income under undue pressure/ coercion .''
117. From the aforesaid Circulars, it is clear that the assessments made pursuant to search operation are required to be based on incriminating materials discovered as a result of search operation in the case of the assessee and not on the recorded statement. In the instant case, the persons who gave the statements, retracted the same and even the opportunity to cross-examine was not afforded to the assessee. In our opinion, it cannot be said that those statements on the basis of which impugned additions were made by the AO, were incriminating material found during the course of search. As we have already noted that no incriminating material was found during the course of search and the additions were made by the AO while framing the assessments u/s 153A of the Act, the said additions need to be restricted or limited only to incriminating material found during the course of search. However, in the present case, no such incriminating material was found during the course of search from the possession of the assessee.
118. A similar issue has been adjudicated by the ITAT Delhi Bench 'I-1', New Delhi in the case of Granite Gate Properties Pvt. Ltd. Vs ACIT, Central Circle-6, New Delhi in ITA Nos. 7022 to 7024/Del/2017 for the assessment years 2009-10 to 2011-12 vide order dated 29.05.2018 (supra) wherein one of us (Accountant Member) is the author and it has been held vide paras 23 to 26 as under:
"23. On an identical issue, the Hon'ble Jurisdictional High Court in the case of CIT Vs Kabul Chawla (2016) 380 ITR 573 (supra) held as under:
"The legal position that emerges on a perusal of section 153A and section 132 of the Income-tax Act, 1961, is as under : (i) Once a search takes place under section 132 of the Act, notice under section 153A will have to be mandatorily issued to the person in respect of whom search was conducted requiring him to file returns for six assessment years immediately preceding the previous year relevant to the assessment year in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise, (iii) The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the "total income" of the six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six assessment years in which both the disclosed and the undisclosed income would be brought to tax. (iv) Although section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this section only on the basis of the seized material, (v) In the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word "assess" in section 153A is relatable to abated proceedings (i.e., those pending on 121 the date of search) and the word "reassess" to completed assessment proceedings, (vi) In so far as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer, (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A 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."
24. A similar view has been taken by the Hon'ble Jurisdictional High Court in the case of Pr. CIT Vs Meeta Gutgutia Prop. M/s Ferns "N" Petals (2017) 395 ITR 526 (supra) wherein it has been held as under:
"Any and every document cannot be and is not an incriminating document. No addition can be made for a particular assessment year without there being an incriminating material qua that assessment year which would justify such an addition."
25. Similarly, their Lordships of the Hon'ble Jurisdictional High Court in the case of Pr. CIT Vs Ram Avtar Verma (2017) 395 ITR 252 (supra) observed as under:
"The Commissioner of Income-tax (Appeals), after considering the record, was of the opinion that the additions could not be justified, and accordingly granted relief, holding that no incriminating material was recovered during the search. The Revenue's appeal was rejected.
The Income-tax Appellate Tribunal held as follows:
"10. As per the paper book filed by the learned authorized representative showing the Panchnama from where learned Departmental representative could not point out any material found during the course of search which could give even remote possibilities of altering the income of the assessee based on any incriminating documents. Admittedly both the assessment years in these appeals are completed assessments in case of the assessee. The reliance placed upon by the learned authorized representative on the decision of the Hon'ble Delhi High Court in the case of C/T v. Kabul Chawla [2016] 380 ITR 573 (Delhi) where original assessment have been made under section 143(1) of the Act is apt and squarely covers issue in favour of the assessee. The Hon'ble High Court in paragraph No. 37 of that decision has held that no addition can be made in the hands of the assessee in the absence of any incriminating material unearthed during the course of search or requisition of documents. On reading of the order of the Assessing Officer we could not find that there is any incriminating material referred to by the Assessing Officer which is found during the course of search for making these additions. Therefore, respectfully following the decision of the Hon'ble Delhi High Court in the case of CIT v. Kabul Chawla (supra) we confirm the order of the learned Commissioner of Income-tax (Appeals) and dismiss the appeal of the Revenue."
The Revenue urges that the non obstante clause in section 153A together with section 158BD removes the barrier vis-a-vis restriction upon search assessments being confined to "undisclosed income". In other words, it is stated that none of 122 the provisions confine the enquiry of the Assessing Officer to evaluating incriminating materials. This aspect, in the opinion of the court, was extensively dealt with in CIT v. Kabul Chawla [2016] 380 ITR 573 (Delhi) which has, by now, been followed consistently in several appeals. The non obstante clause, in the opinion of the court, was necessary, given that there is a departure from the preexisting provisions, which applied for the previous years and had a different structure where two sets of assessment orders were made by the Assessing Officer during block periods. With the unification of assessment years for the block period, i.e. only one assessment order for each year in the block period, it was necessary for an overriding provision of the kind actually adopted in section 153A. But for such a non obstante clause, the Revenue could possibly have faced hurdles in regard to unadopted/current assessment years as well as reassessment proceedings pending at the time of the search in respect of which proceedings were to be completed under section 153A/ 153C. Having regard to the above directions, we are of the opinion that the Income-tax Appellate Tribunal's decision does not call for interference. Both the appeals are accordingly dismissed."
26. We, therefore, by keeping in view the ratio laid down in the aforesaid referred to judicial pronouncements, are of the confirmed view that the impugned addition made by the AO u/s 153A of the Act in the absence of any incriminating material found during the course of search was not justified."
119. A similar view has also been taken by the ITAT Delhi Bench "C", New Delhi in ITA Nos. 4256 to 4259/Del/2014 in the case of ACIT, Central Circle5, New Delhi Vs M/s Gee Ispat Pvt. Ltd. (supra) (wherein one of us i.e. Accountant Member is the Author) vide order dated 31.05.2018 wherein the relevant findings have been given in paras 23 to 27 as under:
"23. On a similar issue, the Hon'ble Gujarat High Court in the case of Pr. CIT Vs Dipak Jashvantlal Panchal (2017) 397 ITR 153 (supra) held as under:
"Section 153A of the Income-tax Act, 1961, bears the heading "assessment in case of search or requisition". The heading of the section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of the section, the intention of the Legislature is clear, viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. In other words, the assessment should be connected with something found during the search or requisition, viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of subsection (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition."
24. In the present case, since no incriminating material was found, therefore, the addition made by the AO u/s 153A of the Act was not justified.
12325. On an identical issue, the Hon'ble Jurisdictional High Court in the case of CIT Vs Kabul Chawla (2016) 380 ITR 573 (supra) held as under:
"The legal position that emerges on a perusal of section 153A and section 132 of the Income-tax Act, 1961, is as under : (i) Once a search takes place under section 132 of the Act, notice under section 153A(ll will have to be mandatorily issued to the person in respect of whom search was conducted requiring him to file returns for six assessment years immediately preceding the previous year relevant to the assessment year in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise, (iii) The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the "total income" of the six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six assessment years in which both the disclosed and the undisclosed income would be brought to tax. (iv) Although section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this section only on the basis of the seized material, (v) In the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word "assess" in section 153A is relatable to abated proceedings (i.e., those pending on the date of search) and the word "reassess" to completed assessment proceedings, (vi) In so far as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer, (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A 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."
26. A similar view has been taken by the Hon'ble Jurisdictional High Court in the case of Pr. CIT Vs Meeta Gutgutia Prop. M/s Ferns "N" Petals (2017) 395 ITR 526 (supra) wherein it has been held as under:
"Any and every document cannot be and is not an incriminating document. No addition can be made for a particular assessment year without there being an incriminating material qua that assessment year which would justify such an addition."
27. Similarly, their Lordships of the Hon'ble Jurisdictional High Court in the case of Pr. CIT Vs Ram Avtar Verma (2017) 395 ITR 252 (supra) observed as under:
"The Commissioner of Income-tax (Appeals), after considering the record, was of the opinion that the additions could not be justified, and accordingly granted 124 relief, holding that no incriminating material was recovered during the search. The Revenue's appeal was rejected.
The Income-tax Appellate Tribunal held as follows: "10. As per the paper book filed by the learned authorized representative showing the Panchnama from where learned Departmental representative could not point out any material found during the course of search which could give even remote possibilities of altering the income of the assessee based on any incriminating documents. Admittedly both the assessment years in these appeals are completed assessments in case of the assessee. The reliance placed upon by the learned authorized representative on the decision of the Hon'ble Delhi High Court in the case of C/T v. Kabul Chawla [2016] 380 ITR 573 (Delhi) where original assessment have been made under section 143(1) of the Act is apt and squarely covers issue in favour of the assessee. The Hon'ble High Court in paragraph No. 37 of that decision has held that no addition can be made in the hands of the assessee in the absence of any incriminating material unearthed during the course of search or requisition of documents. On reading of the order of the Assessing Officer we could not find that there is any incriminating material referred to by the Assessing Officer which is found during the course of search for making these additions. Therefore, respectfully following the decision of the Hon'ble Delhi High Court in the case of CIT v. Kabul Chawla (supra) we confirm the order of the learned Commissioner of Income-tax (Appeals) and dismiss the appeal of the Revenue."
The Revenue urges that the non obstante clause in section 153A together with section 158BD removes the barrier visa-vis restriction upon search assessments being confined to "undisclosed income". In other words, it is stated that none of the provisions confine the enquiry of the Assessing Officer to evaluating incriminating materials. This aspect, in the opinion of the court, was extensively dealt with in CIT v. Kabul Chawla [2016] 380 ITR 573 (Delhi) which has, by now, been followed consistently in several appeals. The non obstante clause, in the opinion of the court, was necessary, given that there is a departure from the preexisting provisions, which applied for the previous years and had a different structure where two sets of assessment orders were made by the Assessing Officer during block periods. With the unification of assessment years for the block period, i.e. only one assessment order for each year in the block period, it was necessary for an overriding provision of the kind actually adopted in section 153A. But for such a non obstante clause, the Revenue could possibly have faced hurdles in regard to unadopted/current assessment years as well as reassessment proceedings pending at the time of the search in respect of which proceedings were to be completed under section 153A/ 153C. Having regard to the above directions, we are of the opinion that the Income-tax Appellate Tribunal's decision does not call for interference. Both the appeals are accordingly dismissed."
120. Similarly, the ITAT Delhi Bench 'E', New Delhi in the case of ACIT, Central Circle-8, New Delhi Vs Meroform India Pvt. Ltd. in ITA Nos. 4630 to 4635/Del/2014 for the assessment years 2006-07 to 2011-12 (supra) vide order dated 31.07.2018 held in paras 14 & 15 as under:
"14. We have heard the rival submissions and also perused the relevant material referred to before us and the decisions relied upon by the parties. As discussed above, it is an undisputed fact that for the assessment years 2006-07, 2007-08 and 2008-09 the return of income was filed u/s 139(1) and order u/s 143(3) was passed much before the date of search, except for the assessment year 2007-08, wherein 125 no notice u/s 143(2) was issued within the stipulated time period. Accordingly, on the date of search, i.e., 19.10.2010 the assessments for these assessment years have attained finality and hence has to be reckoned as unabated assessment in terms of second proviso to section 153A. Now under the jurisdiction of Hon'ble Delhi High Court it is a well settled principle that in the case of assessments which have attained finality and are nonabated assessment, then no additions can be made over and above the original assessed income unless some incriminating material has been found during the course of search qua that assessment year. This proposition has been well discussed in the judgment of CIT vs. Kabul Chawla, wherein their Lordships have also discussed the judgment of Shri Anil Kumar Bhatia (supra). After considering the various judgments the Hon'ble High Court have summarised the decisions in the following manner: -
"37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under :-
i. Once a search takes place under section 132 of the Act, notice under Section 153A (1) will have to be mandatory issued to the person searched requiring him to file returns for ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.
iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".
iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this Section only on the basis of seized material."
v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.
vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.
vii. 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 126 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."
15. The ratio laid down in the aforesaid judgment has been further reiterated on the Hon'ble Delhi High Court in the case of Pr.CIT vs. (supra) vs Meeta Gutgutia and catena of other cases as referred above. In so far as judgments relied upon by the Ld. CIT DR, same may not have binding precedence for the reason that; firstly, most of the judgments are distinguishable; secondly, majority of the High Court judgments are in favour; and lastly, jurisdictional High Court in series of judgment has reiterated the same principle. Thus, in view of the settled proposition laid down by the Hon'ble Jurisdictional High Court which is applicable on the facts of the present case also, we hold that all the additions made by the AO in the assessment years 2006-07, 2007-08 and 2008-09 are beyond the scope of assessment u/s 153A, because assessments for these assessment years had attained finality before the date of search and no incriminating material or seized documents were found qua these additions. Accordingly, additions made by the AO are quashed on this ground."
121. In the present case also, the AO made the additions on the basis of the statements of third parties recorded u/s 132(4)/133A of the Act and third parties evidences/documentation. However, no live nexus with the incriminating material found in the course of search in the case of the assessee was established. The statements of the third parties were recorded behind the back of the assessee but the opportunity of cross-examination of such parties was not allowed to the assessee, even the statements were retracted later on. It is well settled that the presumption u/s 132(4A)/292C of the Act, is available only in the case of the person in whose possession and control, the documents are found but it is not available in respect of the third parties. In the present case, there was no independent evidence to link the seized documents found in the premises of the third party with any incriminating material found in the course of search operation at the premises of the assessee. Therefore, the entries in the documents seized from third party's premises would not be sufficient to prove that the assessee was indulged in such transactions. In the present case, the pen drive of Sh. Ankur Agarwal corroborated/substantiated, the share transactions carried out by the assessee which were duly found recorded in the regular books of the assessee and the said pen drive did not contain anything incriminating against the assessee. Therefore, merely on the basis of the statement of Sh. Ankur Agarwal, the addition made u/s 153A of the Act was also not justified, particularly when Sh. Ankur Agarwal retracted his statement later on. In the instant case, the AO also failed to establish any link/nexus of the alleged cash trail. We, therefore, by considering the totality of the facts and the various judicial pronouncement discussed in the former part of this order are of the view that the additions made by the AO and sustained by the ld. CIT(A) u/s 153A of the Act in the absence of any incriminating material found during the course of search u/s 132(1) of the Act in respect of unabated assessment years i.e. the assessment years 2010-11 to 2012-13 were not justified. Accordingly, the same are deleted."
So respectfully following the aforesaid referred to order dt. 31/10/2018 in the case of Shri Brij Bhushan Singal & Others Vs. ACIT in ITA Nos. 1412 to 1414/Del/2018 & Others for the A.Y. 2010-11 to 2012-13, the additions made by the A.O. under section 153A r.w.s 143(3) of the Act and sustained by the Ld. 127 CIT(A) in the absence of any incriminating material found during the course of search under section 132(1) of the Act in respect of unabated assessment year i.e; the A.Y. 2008-09, 2010-11 and 2012-13 were not justified. Accordingly the same are deleted.
50. Since we have deleted the addition while deciding the legal issue raised in Ground No. 1, no findings are being given on the issue raised on merits in Ground Nos. 2 to 4. The facts for the other years in assessee's case and also in the appeals relating to the another assessees are similar to the facts involved in the case of the present assessee i.e; Sanjay Singal, therefore our findings given in respect to the appeal in ITA No. 706/Chd/2018 shall apply mutatis mutandis to the other appeals under consideration.
51. In the result appeals of the assessees are allowed.
(Order pronounced in the open Court on 07/02/2020)
Sd/- Sd/-
संजय गग$ एन.के.सैनी,
(SANJAY GARG ) ( N.K. SAINI)
या%यक सद'य/ Judicial Member उपा य / VICE PRESIDENT
AG
Date: 07/02/2020
आदे श क! त,ल-प अ.े-षत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आय/
ु त/ CIT
4. आयकर आय/
ु त (अपील)/ The CIT(A)
5. -वभागीय त न4ध, आयकर अपील&य आ4धकरण, च7डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानस ु ार/ By order, सहायक पंजीकार/ Assistant Registrar