Jayesh Shantilal Vira Vs ACIT (ITAT Mumbai)
Addition u/s 10(38) on alleged bogus Long Term Capital Gain (LTCG) deleted where no further verification made by AO except solely reliance on information from investigation wing.
ITAT held that the long term capital gain on the sale of shares of M/s. Blue Circle Services Ltd. is not a bogus capital gain as the AO has solely relied on the report of investigation/survey team and has not carried out any further verification on the basis of documents furnished by the assessee. Similarly, the position of long term capital gain earned on the sale of shares of M/s. Gemstone Investment Ltd. of Rs.88,41,060/- is same as the assessee has filed all the necessary evidences before the AO and AO has failed to carry out any further investigation to prove that the long term capital gain earned by the assessee is bogus and fictitious. Consequently, the appeal of the assessee succeeds on merit also.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The above titled appeals have been preferred by three different assessees against the orders dated 29.12.2019 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment years 2012-13 & 2013-14. Since the issues involved are common in all the appeals, these being disposed off by this common order for the sake of brevity and convenience. First, we would like to take ITA No.72/M/2021 A.Y. 2012-13.
2. The grounds taken by the assessee in AY 2012-13 are reproduced as under:
1. The learned CIT(A) has erred in law and in facts in not holding that the AO has erred in issuing notice u/s. 143(2) of the Act which is bad in law, illegal and null and void.
2. The learned CIT(A) has erred in law and in facts in not holding that the assessment order u/s. 143(3) r.w.s. 153A of the Act passed by the AO is bad in law, illegal and null and void.
3. The learned CIT(A) has erred in law and in facts in not holding that the AO erred in passing the assessment order in gross violation of principles of natural justice.
4. The learned CIT(A) has erred in law and in facts in confirming the addition of Rs.5,46,86,294/- as an unexplained cash credit u/s. 68 of the Act by treating the claim of LTCG on sale of shares as non-genuine.
5. The learned CIT(A) has erred in law and in facts in confirming the addition of Rs.16,40,588/- u/s. 69 of the Act on account of alleged accommodation entry charges in the form of commission paid.”
3. The issues raised in ground No.1 & 2 are against the jurisdiction of the AO to frame assessment under section 143(3) read with section 153A of the Act. The assessee has challenged by way of ground No.1 that notice issued under section 143(2) is bad in law and consequently illegal, null and void whereas vide ground No.2 the assessee has challenged that the assessment framed is bad in law.
4. The facts in brief are that the assessee filed return of income on 30.07.2012 declaring an income of Rs.18,79,100/-which was processed under section 143(1) of the Act. Thereafter, a search action under section 132 of the Act was conducted on 06.10.2017 on M/S Sunshine Group, M/s. Sabari Developer LLP and M/s. Evergreen Enterprises and various other entities covering their offices, branches and residences of the main persons. Simultaneously, survey under section 133A of the Act was also conducted on various other entities. The search was also extended to cover the directors of the group. During the course of search, the search team found evidences of accommodation entries in the form of unsecured loan, bogus purchases and bogus long term capital gain on penny stocks. The search team observed that no Sunshine Group has taken huge unsecured loans from Shell and bogus companies which were not doing any business and were being managed by Kolkata based entry providers such as Jagdish Purohit, Praveen Agarwal, Pankaj Agarwal and Rajkumar Tharad etc. In the said search Shri Jay Shantilal Veera was also covered under section 132 of the Act. Post search, notice under section 153A of the Act has been issued on 11.01.2019 which was duly served upon the assessee and complied with by filing return of income on 09.02.2019 declaring total income at Rs.18,17,100/-. Notice under section 143(2) was also issued on 12.02.2019 and duly served upon the assessee. The AO finally framed the assessment under section 143(3) read with section 153A of the Act assessing the total income at Rs.4,10,28,240/- as against the return of income of Rs.18,79,100/- by making two additions on account of unexplained cash credits under section 68 of Rs.3,80,08,867/- and unexplained cash credit under section 69C of Rs.11,40,266/-.
5. The Ld. A.R. vehemently submitted before us that the assessment in this case has attained finality on the date of search as the assessment related to A.Y. 2012-13 whereas the search was conducted on 06.10.2017 and therefore the assessment was unabated on the date of search. The Ld. A.R. submitted that in the case of unabated assessment on the date of search, addition can only be made in the assessment framed under section 143(3) read with section 153A of the Act , if there is an incriminating material found during the course of search and not otherwise. In the present case the Ld. A.R. submitted that during the course of search, no incriminating material was found with regard to the purchase and sale of shares made by the assessee and therefore addition made under section 68 & 69C are without jurisdiction and may kindly be deleted on the jurisdictional only. The Ld. A.R. while taking us through the provisions of section 153A of the Act submitted that the provisions as regards search proceedings are contained in section 153A and it is a complete code itself as the provisions of section 153A provide that the powers of AO to frame assessment in the case of unabated assessment are very limited and any additions in the unabated assessment year can only be based upon the incriminating material found during the course of search. The Ld. A.R. submitted that in the present case the assessment had already attained finality on the date of search and therefore no addition could have been made in absence of any incriminating material. The Ld. A.R. in defence of his argument heavily relied on the decision in the case of Ms. Kalpana Ruia & ors. ITA No.6519/M/2019 & ors. in which an identical issue has been decided by the coordinate bench in favour of the assessee.
6. The Ld. D.R., on the other hand, submitted that the assessee thus found to be engaged in the purchase and sale of penny stocks and have made bogus gain on the sale and purchase of the said shares. Therefore, the arguments of the Ld. A.R. are that such addition without seized materials is without jurisdiction is wrong and against the provisions of law. The Ld. D.R. submitted that in case the powers of the AO are confined to the addition based on the incriminating material then there is no point in making search even in those assessment years which have attained finality on the date of search otherwise the provisions of section 153A will be rendered otiose. The ld DR therefore prayed that the ground no. 1 and 2 deserve to be dismissed.
7. We have heard the rival submissions of both the parties and perused the material on record. The undisputed facts are that the return of income was filed by the assessee for the instant year on 30.07.2012 declaring an income of Rs.18,79,100/- which was processed under section 143(1) of the Act. Search and seizure action was conducted on 06.10.2017 and thus on the date of search, the assessment has attained finality and is an unabated assessment on the date of search. We find merit in the arguments of the Ld. A.R. that in the case of unabated assessment year, addition can only be made on the basis of incriminating material found during the course of search and not on the otherwise. In the present case, we have noted that no incriminating material was found during the course of search in relation to the purchase and sale of penny stocks and the authorities below have relied on the general investigation that assessee has made purchase and sale in penny stocks on the basis of documents which are already on records and made huge addition of bogus long term capital gain. The AO had discussed the modus operandi of the penny stock companies and operators involved in carrying out the purchase and sale of shares. However, nowhere the AO has referred to incriminating material found during the course of search in relation to purchase and sale of shares. The case of the assessee is squarely covered by the decision of the co-ordinate bench of the Tribunal Smt. Kalpana Mukesh Ruia vs. DCIT ITA No.6519/M/2019 A.Y. 2012-13 & ors. order dated 31.12.2020 wherein an identical issue has been decided by the co-ordinate bench of the Tribunal in favour of the assessee. The operative part is reproduced as under:
“43. In our considered opinion, the honourable jurisdictional High Court has never mentioned that it is only assessment which has been completed under section 143(3) that addition under section 153(A) cannot be done without reference to incriminating seized material Honourable jurisdictional High Court has clearly mentioned that it is those assessments which are unabated, that is not pending, to which the above said ratio will apply. Assessments which are not pending are not only those which have been completed under section 143(3) but also those for which the time for issuing notice under section 143(2) have already elapsed. In other words the references is to those assessments in whose case assessment under section 143 (3) cannot now be done. It is not at all the case of the revenue that in the appeals which have been claimed as unabated here there was time for assessment under section 143(3). In this view of the matter, in our considered opinion, the submission of the learned counsel of the assessee succeeds that addition in the case of unabated assessment without reference to incriminating seized material for assessment u/s.!53(A) is not sustainable on the touchstone of above said honourable jurisdictional High Court decision. Therefore, the learned CIT appeals and the learned departmental representative plea in trying to distinguish the same by reference to Hon’ble Delhi High Court decision and honourable Supreme Court decision in the case of Rajesh Jhaveri (supra) doesn’t succeed.
44. It may not be out of place here to mention that it is specifically provided in section 153A “that assessment or reassessment if any relating to any relevant assessment year or years referred to in this subsection pending on the date of initiation of search under section 132 or making of requisition under section 132 a as the case may be shall abate.” This makes it further abundantly clear that only those assessments which are pending abate. Hence sanguine provisions of the act read with honourable jurisdictional High Court decision as above make it abundantly clear that the assessments which do not abate and assessment and addition under section 153 A without reference to incriminating seized material is not sustainable.
45. The jurisprudence regarding jurisdictional defect in assessment under section 153A / 153C without reference to incriminating seized material has also been expounded by honourable Supreme Court in the case of Commissioner of Income Tax vs. Singhad technical education Society in civil appeal No. 11080 of 2017 and others. In this regard the honourable Supreme Court in paragraph 18 of the said order observed that :-
In this behalf it was noted by the ITAT that as per provisions of section 153C of the act,, incriminating material which was seized had to pertains to assessment years in question and it is an undisputed fact that the documents which were seized did not establish any correlation, document – wise, with these for assessment years since this requirement under section 153C of the act is essential for assessment under the provision it becomes a jurisdictional defect. We find this reasoning to be logical and valid having regard to the provisions of section 153C of the Act.”
46. We also note that the co-ordinate bench of IT AT in the case of Shri Vijayrattan Balkrishan Mittal (supra) in similar situation held that, dehorse incriminating Material assessment u/s. 153A is not sustainable in the case of unabated assessment. We may gainfully refer to the said decision as under:
“44. After hearing both the parties and perusing the facts on record, we observed that undisputably the assessment in the instant year has not abated on the date of search. We further find that the evidences were gathered after issuing notice under section 133(6) that assessee has earned out synchronized trades for obtaining bogus LTCG. In our opinion, the said information/data is collected after the date of search and does not constitute incriminating material found and seized during the course of search. Keeping in view the said facts and circumstances, we are of the considered view that addition to the income of the assessee can only be made on the basis of incriminating record found during the course of search. In the present case, there is no such incriminating material and therefore, the AO has no jurisdiction to make addition in the unabated assessment. The case of the assessee is squarely covered by the decision of Hon’ble Bombay High Court decision in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra), wherein the Hon’ble Bombay High Court held as under. –
“a) Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) was justified in deleting the addition of Rs.3,91,55,000/-under section 68 of the Act in respect of share application money and addition of Rs. 11,24,964/- under section 14A made by the Assessing Officer, as it was not based on incriminating material found during the course of search.
d) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.3,91,55,000/- under section 68 of the Act in respect of share application money and addition of Rs. 11,24,964/- under section 14A made by the assessing officer without appreciating the fact that the decision of continental warehousing corporation & the decision in the case of All Cargo Global Logistics have not been accepted by the department and an SLP has been filed in the Supreme Court in both the cases decided by the High court i.e. Continental Warehousing Corporation as well as all Cargo Global Logistics vide appeal civil 8546 of 2015 and SLP civil 5254-5265 of 2016 respectively.”
45. Since, there is no incriminating material found during the course of search, we therefore respectfully following the ratio laid down by the Hon’ble Bombay High Court in the above decision, set aside the order of the CIT(A) and direct the AO to delete the addition. Resultantly, the appeal of the assessee on jurisdictional issue is allowed.
47. As regards the issue of seized material it is clear that in the appeals which have remained unabated the addition is without reference to any seized material. The materials referred are only the statement obtained of the assessee under section 132 (4). These have been duly retracted. Hence without corroborative material addition only based upon the retracted statement is not sustainable. For this proposition following case laws are germane:
