Kalpana Mukesh Ruia Vs DCIT (ITAT Mumbai)
As regards the issue of additions on merits for the bogus long-term capital gain (LTCG), we note that the same is based upon the modus operandi of earning bogus long-term capital gain in general mentioned by the assessing officer. It is further more based upon the statements obtained upon survey. Furthermore it is based upon Assessing Officer’s analysis of the impugned companies financials wherein the assessing officer is of the opinion that the increase in value is unjustified. Furthermore assessing officer has referred to general SEBI action in case of bogus long-term entry operators. However none of the brokers or the persons or the companies dealt in these appeals have been referred in the above said SEBI enquiry noted by the AO in his order. As regards the merits of additions based upon the statement obtained from Survey from 3rd parties the same is not at all sustainable without any corroborative material. This position was expounded by the honourable Supreme Court in the case of S. Kader Khan (supra). That there is no material incrementing available in this regard is clearly evident from the observation of the assessing officer in the order itself. The assessing officer mentions that what is real was not recorded in the books of accounts at any place. He mentions in the assessment order that no book entries to the real transactions either in the books of assessee or in the books of this entry operators are there. This clearly signifies that assessing officer is not referring to any incriminating material seized. As regards the observation of the assessing officer that the share broker has accepted that he was acting on the advice of Shri Prakash Modi on behalf of the assessee, again there is no incriminating seized record in this regard. The same remains solely statement upon survey which is not a conclusive evidence of addition of undisclosed income without corroborative material.
It is noted that assessee’s claim that all necessary documentary evidences are in place have remained undisputed. The assessee has provided all the contract notes of the brokers in relation to sales and purchase of the shares which are system generated and prescribed by the Stock Exchange, copies of share certificates, copy of the Demat account statement of the assessee, copies of bank statements of the assessee highlighting the payments for purchase of shares and receipts against the sale of shares. Pursuant to sale of shares the broker issued contract notes for sale of impugned shares vide various bills. There is no evidence of any privy of contract between the assessee and the buyer of the shares as the assessee does not know to whom the shares have been sold and hence the long term capital gain on sale of shares cannot be treated as non-genuine. The assessee has received entire sales proceeds through regular banking channels from the stock broker registered with SEBI which establishes the identity of the payer, sources of funds on sale of the same shares and the genuineness of the transaction. The AO has not pointed out any deficiency in the documents or inherent weakness in the explanation or doubted genuineness of the transactions for want of any evidence.
From the above, it is evident that all the documentary evidence in support of the income has been maintained and furnished. No defect in the same has been refereed by the Revenue.
Further, it is undisputed that the assessee has asked for cross examination doing assessment proceeding itself. However, the same remained unresponded by the A.O. as well as ld. CIT(A). These information collected on the back of the assessee without opportunity to cross examine, cannot be a basis for addition. They have been held to be vitiating the assessment itself and rendering it a nullify. Here, the Hon’ble Supreme Court’s decision in the case Andaman Timber Industries (supra) is germane and supports this proposition.
In the background of aforesaid discussion and precedents it is clear that the addition of long term capital gain as bogus is not sustainable.
FULL TEXT OF THE ITAT JUDGEMENT
These are appeals by the various assessees belonging to the same group and one appeal by the revenue against respective orders of learned Commissioner of Income Tax (Appeals) [in short learned CIT(A)] for the concerned assessment years.
2. There are four issues arising in assessees appeals. They relate to challenge to the validity of assessment under section 153A, addition u/s 68 of long term capital gains as undisclosed income by treating the same as bogus, addition of commission on capital gain, addition under section 68 of loans, addition of interest on loans. The grounds raised by the assessee are similarly worded except for the amounts. For the sake of reference we are reproducing hereunder the grounds of appeal raised in the case of Kalpana Mukesh Ruia for assessment year 2013-14 where all the grounds raised are referred and emanating.
1. The learned Commissioner of Income Tax (Appeals) erred in holding that even though the assessment for this year was not abated and no incriminating material was found during search, additions can be made in respect of long term capital gain on sale of alleged penny stock declared by the appellant in the previous year relevant to this assessment year-NIL.
2. The learned Commissioner of Income Tax (Appeals) further erred in not following the judgement of Hon’ble Bombay High Court in the case of CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd., 374 ITR 645, to hold that in the absence of any incriminating material found during search in unabated assessment, no addition can be made while passing order under section 153A read with section 143(3)- NIL
3. The learned Commissioner of Income Tax (Appeals) further erred in holding that there is no category of non-abated assessments as per the statue and thereby concluding that if the assessment is completed u/s. 143(1), the category of non-abated assessments is not applicable. – NIL
4. The learned Commissioner of Income Tax (Appeals) further erred in giving a new interpretation to the word ‘incriminating material’ and thereby rejecting the argument of the appellant that no additions can be made in absence of incriminating material found during the course of search.- NIL
5. The learned Commissioner of Income Tax (Appeals) erred in confirming the additions under section 68 in respect of capital gain on sale of shares of M/s Finalysis Credit and Guarantee Ltd of Rs. 1,63,76,3217- and M/s Essar India Ltd of Rs. 4,06,13,865/- totaling Rs. 5,69,90,186/- which is declared as long term capital gain exempt under section 10(38) of the Income Tax Act – Rs.1,76,66,958/-
6. The learned Commissioner of Income Tax (Appeals) further erred in not considering the various documents including bank statements, share application form, copy of Demat account, bills, contract notes etc., in respect of purchase and sale of shares of M/s Finalysis Credit and Guarantee Ltd and M/s Essar India Ltd and based his findings merely on the basis of general report of the Kolkata Directorate of Income Tax Department.- NIL
7. The learned Commissioner of Income Tax (Appeals) further erred in confirming the disallowance of appellant’s claim of exemption under section 10(38) in respect of long term capital gain earned on sale of shares of M/s. Finalysis Credit and Guarantee Ltd and M/s Essar India Ltd by relying on the various information mentioned in the assessment order which are not relevant in the transactions carried out through well managed and approved stock exchange wherein the prices are driven by various economic conditions, volume of transactions and financial health of the company.- NIL
8. The learned Commissioner of Income Tax (Appeals) further erred in confirming the additions u/s 68 on account of long term capital gain by relying on statement of brokers viz. Anuj Agarwal, Rajesh Khetan and Shri Amit Dalmia which are not relevant to the facts of the case of the assessee and without providing copy of statement recorded and not allowing opportunity to cross examine the parties.- NIL
9. The learned Commissioner of Income Tax (Appeals) further erred in confirming the additions under section 68 on account of long term capital gain by relying on statement of appellant’s husband Mr. Mukesh Ruia recorded u/s 132(4) and not accepting the retraction made by him and not holding that in absence of incriminating material found during search proceedings, making additions under section 68 is not justified particularly when circular of CBDT in its INSTRUCTION F. NO. 286/2/2003-IT (INV. II), DATED 10-3-2003 and LETTER [F.NO.286/98/2013-IT (INV.II)], DATED 18-12-2014 prohibits taking of confessional statements during search proceedings.- NIL
10. The learned Commissioner of Income Tax (Appeals) further erred in rejecting the ground of appellant for not allowing cross examination of parties on whose statements assessing officer is relying and not following the judgement of Hon’ble Supreme Court in case of Kishinchand Chellaram (125 ITR 713) and Andaman Timber Industries v. Commissioner of Central Excise (281 CTR 241) wherein it has been clearly held by Apex court that relying on statement recorded on the back of the assessee without allowing cross examination is invalid.- NIL
11. The learned Commissioner of Income Tax (Appeals) further erred in not examining and giving any finding on various latest case laws of ITAT and High Court relied on which are on similar facts and wherein additions on account of long term capital gain on sale of alleged penny stocks are deleted.- NIL
12. The learned Commissioner of Income Tax (Appeals) further erred in confirming the action of the learned Assessing Officer in making additions of long term capital gain under section 68 without bringing on record any material or evidence to prove that the long term capital gain claimed by the Appellant is an accommodation entry against which appellant paid cash.- NIL
13. The learned Commissioner of Income Tax (Appeals) further erred in relying of the decision of Hon’ble Supreme Court in the case of CIT v/s Durga Prasad More, 82 ITR 540 and Sumati Dayal v/s CIT, 2U ITR 801 on the general principles laid down to hold that tax authorities are entitled to look into the surrounding circumstances to find out the realty and apply the test of human probability by ignoring the direct decision of the Hon’ble jurisdictional High Court, other High Courts and Hon’ble tribunal on the similar issue of additions on account of long term capital gain under section 68.- NIL
14. The learned Commissioner of Income Tax (Appeals) further erred in confirming the disallowance made by assessing office under section 69C of Rs. 28,49,509/- being 5% of commission paid for alleged bogus long term capital gain – Rs. 8,83,348/-
15. The learned Commissioner of Income Tax (Appeals) further erred in confirming the additions of Rs.20,00,000/- under section 68 on account of loan taken from M/s Saraf Nivesh Pvt. Ltd. by holding that it is one of the several other companies of Kolkata which have been held as bogus by the assessing officer. – Rs. 6,20,000/-
16. The learned Commissioner of Income Tax (Appeals) further erred in confirming the additions of Rs. 20,00,000/- under section 68 even though appellant has supplied all the documents i.e. confirmation letter, copy of bank statement of the party, copy of return of income, PAN and Balance sheet to prove the identity, creditworthiness and genuineness of loan creditors. – NIL
17. The learned Commissioner of Income Tax (Appeals) further erred in not accepting and giving any finding on judgement of Hon’ble Bombay High Court in the case of Pr.CIT Central-2 Vs. Skylark Build in ITA No. 616 of 2016 dated 24.10.2018, 2018-TIOL-2323-High Court-Mum-IT wherein it has been held that when the amounts borrowed by the assessee which are alleged as unexplained cash credit to make additions by invoking section 68, no addition can be made when such borrowings are repaid – NIL
18. The learned Commissioner of Income Tax (Appeals) further erred in confirming the disallowance under section 69C of Rs. 22,47,3217- on account of interest paid on alleged bogus loans taken in last year and loan taken from Saraf Nivesh Pvt. Ltd. during this year.- Rs. 6,96,670/-.
19. The Appellant craves leave to add to, alter or amend any ground before or at the time of hearing.- NIL
3. In the revenues appeal following grounds are raised:-
1. Whether learned CIT(A) is justified in deleting the addition amounting to Rs. 1,93,60,000/- made u/s. 69 of the I.T. Act on account of variation in purchase value of the property purchased by assessee and market value of the property. Tax effect Rs. 63,88,800/-
2. The appellant craves leave to add, to amend and/or alter any of the grounds of the appeal, if need be.
3. The appellant therefore prays that on the grounds stated above, the order of learned CIT(A)-48, Mumbai may be set aside and that of the Assessing Officer restored.
4. At the outset it may also be gainful to refer to a chart of the issues under challenge on the various appeals as under. They are to be read along with the grounds of appeal referred hereinabove :-
