Referred Sections:
Section 68 of the IT Act
Section 142 of the Act
Section 131
Referred Cases / Judgments:
dit Kalra Vs. ITO in ITA No.220/2019.
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `A', NEW DELHI
BEFORE SH. N. K. BILLAIYA, ACCOUNTANT MEMBER
AND
MS. SUCHITRA KAMBLE, JUDICIAL MEMBER
ITA No.1069 /DEL/2019
Assessment Year: 2014-15
Smt. Karuna Garg Income Tax Officer
343, Neelkanth Apartment Vs Ward - 39 (4)
Plot No.49, Sector-13, New Delhi
Rohini, Delhi-110085
PAN No.AALPG1948E
(APPELLANT) (RESPONDENT)
ITA No.2772/DEL/2019
Assessment Year: 2015-16
Smt. Karuna Garg Income Tax Officer
343, Neelkanth Apartment Vs Ward - 39 (4)
Plot No.49, Sector-13, New Delhi
Rohini, Delhi-110085
PAN No.AALPG1948E
(APPELLANT) (RESPONDENT)
ITA No.1168/DEL/2019
Assessment Year: 2014-15
Bindu Garg Income Tax Officer
D-47, Indraprastha Vs Ward 39 (4)
Apartments, Sector-14, New Delhi
Rohini,
New Delhi-110085
PAN No.AEFPG0635N
(APPELLANT) (RESPONDENT)
2
ITA No.1169/DEL/2019
Assessment Year: 2015-16
Bindu Garg Income Tax Officer
D-47, Indraprastha Vs Ward 39 (4)
Apartments, Sector-14, New Delhi
Rohini,
New Delhi-110085
PAN No.AEFPG0635N
(APPELLANT) (RESPONDENT)
ITA No.1070/DEL/2019
Assessment Year: 2015-16
Krishna Devi Income Tax Officer
D-47, Indraprastha Vs Ward 38 (3) New Delhi
Apartments, Sector-14,
Rohini, New Delhi-110085
PAN No.ABRPD0875E
(APPELLANT) (RESPONDENT)
ITA No.1264/DEL/2019
Assessment Year: 2015-16
Hardev Sahai Gupta (Garg), Income Tax Officer
D-47, Indraprastha Vs Ward 39 (4)
Apartment, Sector-14, New Delhi
Rohini-110085
PAN No.AAHPG1190N
(APPELLANT) (RESPONDENT)
Appellant by Sh. Kapil Goel, Advocate
Respondent by Ms. Rinku Singh, Sr. DR
Date of hearing: 31/07/2019
Date of Pronouncement: 06/08/2019
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ORDER
PER N. K. BILLAIYA, AM:
Captioned appeals are by different appellants preferred
against the separate orders of the CIT(A) for A. Y. 2014-15 and
2015-16.
2. Representatives of both the sides agreed that the under lying
facts in the dispute are identical in the case of all the
aforementioned appellants. On such concession we heard the
representatives on the facts of ITA No.1069/Del/2019 for
A. Y.2014-15.
FACTS
3. The appellant purchased shares of following companies:-
1. M/s. Esteem Bio Organic Food Processing Ltd. 6,000
shares on 11.02.2013
2. M/s. Randers Corporation Ltd. 3500 shares on
20.11.2012
4. The shares were purchased online through two brokers
namely ISF Securities and SMC Global Securities stationed at
New Delhi.
5. Shares of M/s. Esteem Bio Organic Food Processing Ltd.
which were purchased on 11.02.2013 were dematerialized on the
same date as per the de-mat statement exhibited at page 5 of the
paper book. The purchase consideration paid to ISF Securities
Limited was also paid on the same date i.e. on 11.02.2013 which
is evident from the bank statement of HDFC bank which is at
page 4 of the paper book. Shares of M/s. Rander Corporation
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Ltd. purchased on 20.11.2012 were kept in the common pool
account with SMC Global Securities Limited which is evident from
page 6 of the paper book. The purchase consideration was paid
on 23.11.2012 which is evident from the bank statement of HDFC
bank exhibited at page 3 of the paper book.
6. Shares of M/s. Esteem Bio Organic Food Processing Ltd.
were sold on different dates namely 22.02.2014 1200 shares,
28.02.2014 1200 shares, 04.03.2014 2400 shares and on
06.03.2014 1200 shares. The sale transactions were done
through the de-mat account via online trading.
7. The 3500 shares of M/s. Rander Corporation Limited were
split in the ratio of 1:10 and 3500 shares purchased by the
assessee became 35000 shares. 35000 shares were sold on
03.02.2014. The transaction was done through de-mat account
via online trading.
8. The return of income was electronically filed which was
selected for scrutiny assessment and accordingly statutory
notices were issued and served upon the assessee. During the
course of assessment proceedings the Assessing Officer noticed
that the assessee has shown long term capital gain of
Rs.4051874/- from sale of shares and has claimed the same as
exempted u/s. 10 (38) of the Act.
ASSESSING OFFICER'S OBSERVATION
9. The Assessing Officer proceeded by heavily relying upon the
investigation report of Pr. DIT (Investigation) Calcutta unit
5
regarding list of companies engaged in providing accommodation
entries in the garb of bogus long term capital gain modus
operandi involving the penny stocks trading through recognized
stock exchanges. The Assessing Officer observed that the
assessee was one among the beneficiaries in the list by accepting
bogus long term capital gain entries through stock brokers
trading in circular, penny stocks. The Assessing Officer further
observed that the assessee has traded the script where funds
were received from Kolkata based company and operated by entry
operators.
10. To verify the aforementioned transactions reported by the
assessee, the Assessing Officer asked the assessee to furnish all
details including bank statement, share brokers note, ledger
account copies, share certificates, and all documentary evidences
in support of purchase and sale of shares and mode of payment
and receipts of proceeds.
11. The assessee furnished the required details but the
Assessing Officer rubbished the same observing that the assessee
has meticulously framed chronologically order to claim exemption
u/s.10 (38) of the Act.
12. The Assessing Officer observed that the claim of the
assessee is unverifiable and representative of introduction of
assessee's unaccounted money infused in the share transaction.
According to the Assessing Officer the alleged transactions of
purchase and sale of shares were not real but a sham
transaction. The Assessing Officer observed that the modus
operandi generally followed in such transactions was followed by
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the assessee's stock broker enabling the assessee to introduce his
unaccounted money in his books in the garb of long term capital
gains according to the Assessing Officer the input of the
investigation report of investigation wing Calcutta strengthen the
theory of sham transaction in the following manner :-
(a) The share broker involved admitted that they had received
cash from the beneficiaries including the assessee and the same
was returned in the form of sale proceeds of shares after paying
STT.
(b) The admission of the entry providers revealed that share
sale transaction were nothing but accommodation entries wherein
cheques were issued in lieu of cash.
(c ) The stock broker had resorted to money laundering activities
by using "Penny Stock". The share prices of the penny stocks
were artificially inflated by the stock brokers so that capital gain
could be introduced in the books of accounts unaccounted money
by converting black money into white in the books of accounts
and claimed exempt u/s. 10 (38) of the Act.
13. Once again drawing full support from the report of the
Investigation Wing Calcutta the Assessing Officer was of the firm
belief that provisions of section 68 of the Act squarely apply.
14. In view of his strong belief the Assessing Officer issued
summoned u/s.131 of the Act to the assessee to record his
statement on oath about the veracity of procurement of
accommodation entry. The assessee appeared whose statement
was recorded on 16.12.2016. Thereafter the Assessing Officer
issued a show cause notice to the assessee asking to explain on
7
all the points raised in the show cause to establish the
genuineness of its income shown on account of LTCG on sale of
penny stock of M/s. Esteem Bio Organic Food Processing Ltd and
M/s. Rander Corporation Limited. The show cause notice runs
into 30 pages and starts from para 8 of the Assessment Order to
para 21 of the Assessment Order. The show cause notice
incorporate all the statements recorded by the Investigation Wing,
Calcutta. The Assessing Officer further observed that the brokers
in the Calcutta Exchange dealing with the scripts have also
admitted of rigging the shares and providing accommodation
entries to the beneficiaries including the assessee in the form of
LTCG. According to the Assessing Officer the unusual
transactions of shares purchased and exempt gains create doubt
of the genuineness on the purchases of share transaction
specifically when the purchases is from the company where major
share manipulation transactions were unearthed by the Income
Tax Department.
15. Further drawing support from one of the statements
recorded by the Investigation Wing, Calcutta, the Assessing
Officer was convinced that the assessee must have paid
commission @ 7% to the broker who arranged capital gains.
16. The Assessing Officer drawing support from the report of the
Investigation Wing, Calcutta and further referring to various
judicial decisions finally came to the conclusion that the assessee
has entered into colourable device for avoidance of tax and the
receipt of Rs.44,65,717/- is the nothing but unexplained cash
credit u/s 68 of the Act to be taxed u/s. 115 BBE of the Act and
8
made addition of Rs.44,65,717/- u/s. 68 of the Act and
Rs.283631/- u/s. 69C as unexplained expenditure.
17. Assessee carried the matter before the CIT(A) but without
any success.
18. The CIT(A) was convinced with the findings of the Assessing
Officer and confirmed the assessment holding as under :-
"5.5 As can be seen from the magnitude, volume and surgical
precision of the entire operation, it was an exercise which was
targeted to introduce unaccounted money into the books ,that too
without paying taxes, by abusing the exemption provisions u/s
10(38) of the statute, to circumvent the law of the land, evade taxes
and deprive the exchequer of its rightful due. The plethora of cases
quoted by the AO all lend support to his decision, especially in such
scam ridden cases, wherein it is essential to pierce the veil of
legitimacy and innocence/ ignorance and look behind the charade
woven to evade taxes. On the other hand, after due consideration of
arguments put forth by the appellant, it is held that the Ld. AR has
not been able to controvert/ successfully distinguish the judicial
pronouncements quoted by the AO. Accordingly, the addition of Rs.
44,65,717/- u/s 68 of the IT Act r. w. s. 115 BBE made by the AO,
is confirmed.
"5.6 AO has made an addition of 7% of total long term capital gains
earned (Rs. 40,51,874/-) amounting to Rs.2,83,631/- as expenditure
incurred out of books to obtain such entry. While the appellant claims
9
it to be a genuine transaction and the addition being presumptive, it is
a well known fact, that there are no free lunches in the business
world. As has been brought out in various reports, there were multiple
operators/ parties. Statement recorded of some of the operators
categorically confirmed under statement on oath, that commission
was charged at varying rates from 1 to 7%. Accordingly, the addition
of Rs. Rs.2,83,631/- (7% of Rs. 40,51,874/-) u/s 69C of the IT Act, is
hereby confirmed."
DECISION
19. We have carefully considered the orders of the authorities
below and the relevant documentary evidences brought on record
in the form of paper book in the light of Rule 18 (6) of ITAT Rules.
Whether or not a person has discharged the burden cast upon
him by the provisions of section 68 of the IT Act is always a
question of fact. All that has to be seen by us is whether the
appellant has discharged the initial onus cast upon him by the
provisions of section 68 of the IT Act.
20. There is no dispute that the shares of the two companies
were purchased online, the payments have been made through
banking channel, and the shares were dematerialized and the
sales have been routed from de-mat account and the
consideration has been received through banking channels.
10
21. A perusal of the assessment order clearly shows that the
Assessing Officer was carried away by the report of the
Investigation Wing Kolkata. It can be seen that the entire
assessment has been framed by the Assessing Officer without
conducting any enquiry from the relevant parties or independent
source or evidence but has merely relied upon the statements
recorded by the Investigation Wing as well as information received
from the Investigation Wing. It is apparent from the Assessment
Order that the Assessing Officer has not conducted any
independent and separate enquiry in the case of the assessee.
Even, the statement recorded by the Investigation Wing has not
been got confirmed or corroborated by the person during the
assessment proceedings.
22. Section 142 of the Act contains the provisions relating to
enquiry before assessment.
23. It is provided u/s. 142 (2) of the Act that for the purpose of
obtaining full information in respect of income or loss of any
person, the Assessing Officer may make such enquiry as he
considers necessary. In our considered view the Assessing Officer
ought to have conducted a separate and independent enquiry and
any information received from the Investigation Wing is required
to be corroborated and reaffirm during the assessment by the
Assessing Officer by examining the concerned persons who can
affirm the statements already recorded by any other authority of
the department. Facts narrated above clearly show that the
Assessing Officer has not made any enquiry and the entire
11
assessment order and the order of the first Appellate Authority
are devoid of any such enquiry.
24. The report from the Directorate Income Tax Investigation
Wing, Kolkata is dated 27.04.2015 whereas the impugned sales
transactions took place in the month of March, 2014. The exparte
ad interim order of SEBI is dated 29.06.2015 wherein at page 34
under para 50 (a) M/s. Esteem Bio Organic Food Processing Ltd
was restrained from accessing the securities market and buying
selling and dealing in securities either directly or indirectly in any
manner till further directions. A list of 239 persons is also
mentioned in SEBI order which are at pages 34 to 42 of the order
the names of the appellants do not find place in the said list. At
pages 58 and 59 the names of pre IPO transferee in the scrip of
M/s. Esteem Bio Organic Food Processing Ltd is given and in the
said list also the names of the appellants do not find any place.
At page 63 of the SEBI order-trading by trading in M/s. Esteem
Bio Organic Food Processing Ltd - a further list of 25 persons is
mentioned and once again the names of the appellants do not
find place in this list also.
25. As mentioned elsewhere the brokers of the assessee namely
ISG Securities Limited and SMC Global Securities Limited are
stationed at New Delhi and their names also do not find place in
the list mentioned here in above in the SEBI order. There is
nothing on record to show that the brokers were suspended by
the SEBI nor there anything on record to show that the two
brokers of the appellants mentioned here in above were involved
in the alleged scam. The Assessing Officer has not even
12
considered examining the brokers of the appellants. It is a matter
of fact that SEBI looks into irregular movements in share prices
on range and warn investor against any such unusual increase in
shares prices. No such warnings were issued by the SEBI.
26. There is no dispute that the statements which were relied by
the Assessing Officer were not recorded by the Assessing Officer
in the assessment proceedings but they were pre-existing
statements recorded by the Investigation Wing and the same
cannot be the sole basis of assessment without conducting proper
enquiry and examination during the assessment proceedings
itself. In our humble opinion, neither the Assessing Officer
conducted any enquiry nor has brought any clinching evidences
to disprove the evidences produced by the assessee. The report of
Investigation Wing is much later than the dates of purchase /
sale of shares and the order of the SEBI is also much later than
the date of transactions transacted and nowhere SEBI has
declared the transaction transacted at earlier dates as void.
27. Our above view is fortified by the decision of the Hon'ble
Delhi High Court in the case of Fair Invest Limited reported in
357 ITR 146. The relevant findings of the Hon'ble Jurisdictional
High court of Delhi read as under :-
"6. This Court has considered the submissions of the
parties. In this case the discussion by the
CIT(/4ppeals) would reveal that the assessee has
filed documents including certified copies issued by
the Registrar of Companies in relation to the share
application, affidavits of the Directors, Form 2 filed
13
with the ROC by such applicants confirmations by
the applicant for company's shares, certificates by
auditors etc. Unfortunately, the assessing officer
chose to base himself merely on the general
inference to be drawn from the reading of the
investigation report and the statement of Mr.
Mahesh Garg. To elevate the inference which can be
drawn on the basis of reading of such material into
judicial conclusions would be improper, more so
when the assessee produced material. The least
that the assessing officer ought to have done was to
enquire into the matter by, if necessary, invoking his
powers under Section 131 summoning the share
applicants or directors. No effort was made in that
regard. In the absence of any such finding that the
material disclosed was untrustworthy or lacked
credibility the assessing officer merely concluded on
the basis of enquiry report, which collected certain
facts and the statements of Mr. Mahesh Garg that
the income sought to be added fell within the
description of Section 68."
28. The DR heavily relied upon the judgment of Hon'ble High
Court of Delhi in the case of Udit Kalra Vs. ITO in ITA
No.220/2019. We have carefully perused the order of the Hon'ble
High Court and on going through the said judgment we find that
no question of law was formulated by the Hon'ble High Court of
14
Delhi in the said case and there is only dismissal of appeal in
limine as the Hon'ble High Court found that the issue involved is
a question of fact.
29. As mentioned elsewhere the shares of M/s. Esteem Bio
Organic Food Processing Ltd were suspended from trading in the
stock exchange but that was from 29.06.2015 which is date of the
order of the SEBI. The shares of two companies were purchased
by the assessee in the month of February 2013 and November,
2012 which were sold in the month of February/ March 2014 and
these transactions took place much before the report of the
Investigation Wing and also before the order of the SEBI.
30. Considering the vortex of evidences, we are of the considered
view that the assessee has successfully discharged the onus cast
upon him by provisions of section 68 of the Act as mentioned
elsewhere, such discharge of onus is purely a question of fact and
therefore the judicial decisions relied upon by the DR would do no
good on the peculiar plethora of evidences in respect of the facts
of the case in hand and hence the judicial decisions relied upon
by both the sides, though perused, but not considered on the
facts of the case in hand.
31. We accordingly direct the Assessing Officer to accept the
long term capital gains declared as such.
32. As mentioned elsewhere the facts of all the appellants are
identical, the companies whose shares have been purchased /
sold giving rise to long term capital gain are same, though the
quantum may differ. For our detailed discussion here in above,
15
the appeals of all the appellants are allowed with the direction to
accept the long term capital gain declared as such.
33. Since we have accepted the long term capital gains we do
not find any merit in the additions on account of alleged payment
of commission to the brokers and, therefore, additions made on
this account is also directed to be deleted.
34. In the result, all the appeals filed by the different assessee's
are allowed.
Order pronounced in the open court on 06.08.2019.
Sd/- Sd/-
(SUCHITRA KAMBLE) (N. K. BILLAIYA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
*NEHA*
Date:- 06.08.2019
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
16
Date of dictation
Date on which the typed draft is placed before the
dictating Member
Date on which the typed draft is placed before the
Other member
Date on which the approved draft comes to the
Sr.PS/PS
Date on which the fair order is placed before the
Dictating Member for Pronouncement
Date on which the fair order comes back to the Sr.
PS/ PS
Date on which the final order is uploaded on the 06.08.2019
website of ITAT
Date on which the file goes to the Bench Clerk
Date on which file goes to the Head Clerk.
The date on which file goes to the Assistant Registrar
for signature on the order
Date of dispatch of the Order
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