No addition of unexplained cash relying on Third-Party statements without providing opportunity for Cross-Examination

Marghoob Alam Vs DCIT (ITAT Lucknow)

Conclusion: Addition of unexplained cash based on third-party statements was not sustainable as assessee had filed all documentary evidences which had not been adversely commented by the authorities below, coupled with the fact that the authorities below had made and sustained the additions on the basis of statements of third parties which had not been made available to assessees for cross examination.

Held: Assessees claimed to have earned Long Term Capital Gain on the scrip Twenty First Century Private Limited. AO reopened the cases of assessee on the basis of an information of Dy. Director of Income Tax (Inv.), wherein it was stated that assessee were beneficiaries of accommodation entries in the form of Long Term Capital Gain on the scrip Twenty First Century Private Limited. AO during assessment proceedings show caused assessees as to why the claim of their exempt income be not rejected. AO had relied on the statements of certain parties to dislodge the claim of assessees. Assessee submitted that exemption u/s 10(38) could not be denied on the investment made by assessees when the purchase and sale transactions were verifiable along with availability of other evidences and claims were being denied only on the basis of information from DDIT, Kolkata and without any cash trail of unaccounted money belonging to the assessee. Assessees also submitted to AO that before making additions, the Department had to establish the involvement of the assessee and collusion with the people involved in the accommodation entries. It was also submitted that the statements recorded of third parties, recorded at the back of assessees, could not be used against the assessees unless these persons, whose statements were relied, were made available to assessee for cross examination.  It was held that where assessee had filed all documentary evidences which had not been adversely commented by the authorities below, coupled with the fact that the authorities below had made and sustained the additions on the basis of statements of third parties which had not been made available to assessees for cross examination despite the assessees’ specific request for the same, the addition sustained was not justified. Above all, similar additions on the same scrip, which were made in the hands of Smt. Anita Singhania, on the basis of statements of certain persons, have been deleted by Kolkata Tribunal. Therefore, assessees were eligible for exemption of Long Term Capital Gain u/s 10(38) and AO was directed to allow the same and also directed AO to delete the assumed commission, the addition of which had been made on presumptions only.

FULL TEXT OF THE ORDER OF ITAT LUCKNOW

These appeals have been filed by different assessees against separate orders of learned CIT(A) all dated 01/07/2021. The assessees have taken similar grounds of appeal in these appeals and all the appeals were heard together therefore, for the sake of convenience, a common and consolidated order is being passed. For the sake of completeness, the grounds of appeal in I.T.A. No.61/Lkw/2019 are reproduced below:

“1. That the ld. Assessing Officer has erred in reopening assessment u/s 147 of the IT Act, 1961.

2. That the ld. Assessing Officer has erred in reopening assessment on the basis of borrowed information without independent application of mind.

3. That the ld. Assessing Officer has erred in passing reassessment order without lawful jurisdiction u/s 148 of the IT Act, 1961.

4. That the ld. Assessing Officer has passed order u/s 147 without providing reason to believe making the order and its proceeding void ab initio.

5. That the ld. CIT(A) has erred in confirming addition made by the Assessing Officer on account of alleged bogus long term capital gain u/s 69A of the IT Act, 1961 of Rs.89,31,724/-.

6. That the appellant has rightly claimed the gain from sale o f securities as long term capital gain under the relevant section 10(38) of the IT Act, 1961.

7. That the alleged bogus share transaction cannot be taxed u/s 69A as the appellant has given the documentary evidence o f sale and purchase at prevailing market rate on stock exchange.

8. That there has been no evidence as to the why the gain from the sale of securities be treated as unexplained u/s 69A of the Act when the transaction has been explained by complete documentary evidence and accordingly shown u/s 10(38) of the Act being gain from sale of securities transaction and primary onus casted upon the appellant has been discharged.

9. That the ld. CIT(A) and ld. Assessing Officer has failed to establish any nexus or material evidence to establish the alleged involvement of appellant other than being merely an investor.

10. That the transaction cannot be doubted and burdened upon the appellant when the purchase and sale of the shares which has been traded on exchange at prevailing market rate and duly disclosed by the document and not barred by the SEBI. Moreover, when no collusion has been established by the Assessing Officer between the alleged broker/entry operator/director and appellant.

11. That the learned CIT(A) and ld. Assessing Officer have come to conclusion with predetermined and preconceived mind o f making addition on the basis of investigation report without bringing on record any evidence to establish that the appellant had prearranged transaction or any documents or statement o f directors and promoters apart from the allegations on the basis of statement.

12. That the ld. CIT(A) has erred in confirming the addition made by Assessing Officer on account of estimated commission at 5% on ad hoc basis of Rs.4,46,586/- without any basis.

13. That the ld. CIT(A) and ld. Assessing Officer have erred in making addition without cross examination of the person on whose statement the benefit of exemption has been denied leading to violation of principles of natural justice.

14. That the assessment completed by ld. Assessing Officer and confirmed by the ld. CIT(A) is arbitrary, prejudicial and unlawful. ”

2. Learned counsel for the assessee, at the outset, submitted that he will not be pressing the grounds of appeal on legal issues as contained in the ground number 1 to 4 but will be arguing only the grounds number 5 to 13 which are on merits of the cases and which are already covered in favour of the assessee by the orders of I.T.A.T. Kolkata Benches in I.T.(SS)A. No.45/Kol/2019 in the case of Anita Singhania and I.T.A. No.256/Kol/2019 in the case of Soumitra Chaudhary. Explaining the facts of the cases, Learned counsel for the assessees submitted that the cases of the assessees were reopened u/s 147 of the Act on the basis of some information received from the Dy. Director of Income Tax (Inv.), Kolkata wherein it was mentioned that assessees were beneficiaries of the accommodation entries of Long Term Capital Gain on the scrip Twenty First Century (India) Ltd. The assessees had claimed in their returns of income Long Term Capital Gain on the scrip Twenty First Century (India) Ltd. as exempt u/s 10(38) of the Act. It was submitted that the Assessing Officer, on the basis of such report from the Directorate of Investigation, held that the claim of the assessee on account of Long Term Capital Gain was arranged with the help of brokers and certain entry operators and which was not a genuine one and therefore, held the same to be taxable u/s 69A of the Act. It was submitted that Assessing Officer in the assessment order has relied on the statements of few persons including that of Shri Anil Kumar Khemka wherein he has admitted that Long Term Capital Gain entries were provided to one Smt. Anita Singhania in the same scrip of Twenty First Century (India) Ltd. Learned counsel for the assessee submitted that in that case also the Assessing Officer had disallowed the claim of capital gain but which has been deleted by the Kolkata Bench of the Tribunal vide order dated 07/05/2021 in I.T.A. No.45/Kol/2019. It was submitted that I.T.A.T., Kolkata Bench has deleted such additions even though Shri Anil Kumar Khemka had admitted of having provided such entries to her but in the cases of assessees, even such admission is missing and therefore, the cases of present assessees stand on a more sound footing. It was further submitted that the I.T.A.T., Kolkata Bench in I.T.A. No.256/Kol/2019 in the case of Soumitra Chaudhary has also deleted similar addition on the same scrip Twenty First Century Private Limited vide order dated 15/03/2019. Learned counsel for the assessee further placed reliance on the following orders of the Lucknow Bench of the Tribunal where under similar facts and circumstances, the exemption u/s 10(38), was allowed.

1. I.T.A. No.234 & 235/Lkw/2020, dated 11/08/2021 in the case of Meenakshi Agarwal & Others

2. I.T.A. No.298/Lkw/2019, dated 20/07/2021 in the case of Smt. Sabreen.

3. I.T.A. No.475 & 681/Lkw/2019, dated 16/02/2021 in the case of Uma Shankar Dhandhania.

4. I.T.A. No.503/Lkw/2019, dated 18/01/2021 in the case of Sarita Gupta

5. I.T.A. No.501, 502, 505/Lkw/2019, dated 16/12/2020 in the case of Achal Gupta & Others

6. IT(SS)A. No.410/Lkw/2019 and 411/Lkw/2019 in the case of Mridula Agarwal & Manoj Kumar Agarwal

2.1 It was submitted that in all these cases, the Lucknow Bench of the Tribunal has placed reliance on the order of Smt. Krishna Devi & Ors. in I.T.A. No.125 wherein the Hon’ble Delhi High Court has dismissed the theory of presumptions for making additions and has relied on the evidences filed by the assessees and has allowed relief to the assessees under similar facts and circumstances.

2.2 Further reliance was placed on an order of Hon’ble Allahabad High Court which is a jurisdictional High Court in the case of CIT vs. Sudeep Goenka [2013] 29 Taxmann.com 402 where, under similar facts and circumstances, Hon’ble High Court had dismissed the appeal of the Revenue.

2.3 Learned counsel for the assessee further submitted that coupled with the fact, that the assessee had filed all the documents, evidencing purchase and sale of shares, the authorities below have relied on the statement of certain persons. It was submitted that in the statements recorded, nowhere the persons examined have taken the names of assessees. It was submitted that statement recorded of some persons, alleged to be providing accommodation entry to some other person, cannot be used against the assessees for making additions. It was submitted that in the case of Anita Singhania where name was taken by the persons examined, the Hon’ble Calcutta Bench of the Tribunal has already deleted the additions. Above all it was submitted that such statements, recorded at the back of the assessees, were never confronted to the assessees and therefore, the principles of natural justice have also been violated. Learned counsel for the assessee in this respect heavily placed reliance on the order of Hon’ble Supreme Court in the case of Andaman Timber Industries 281 CTR 241. Further reliance was placed on the following decisions of Hon’ble Supreme Court and jurisdictional High Court of Allahabad for the proposition that before using material against the assessee, the income tax authorities are bound to provide an opportunity to the assessee to cross examine such persons:

1) Kishin Chand Chelaram vs. CIT 125 ITR 713, 4 Taxman 29 (SC)

2) Meneka Gandhi vs. UOI 1978 AIR 597d (SC)

3) NDTV Ltd. vs. DCIT [2020] 116 com 151 (SC)

4) Motilal Padampat Udyog Ltd. vs. CIT 293 ITR 656 (All)

2.4 As regards the documentary evidences, filed by the assessee before the Assessing Officer, our attention was invited to various pages of the paper books where the documents, evidencing the purchase, sale of shares, evidence of DEMAT account and evidence of bank account from where the purchase and sale of shares were made, were placed. It was submitted that these evidences demonstrate that such purchased shares were credited to the DEMAT account of assessees and also demonstrate that when shares were sold through stock broker on the electronic exchange, the shares moved from the DEMAT account of assessees to the account of broker. It was submitted that these evidences demonstrate that broker credited the sale proceeds into the bank accounts of assessees and the contact notes issued by broker also demonstrate that necessary taxes in the form of STT and service tax was also deducted from such sale proceeds and only net proceeds were credited to the bank accounts of the assessees.

2.5 As regards the reliance placed by learned CIT(A) on various case laws to sustain the additions, Learned counsel for the assessee invited our attention to the judgment of Lucknow Bench of the Tribunal in the case of Meenakshi Agarwal & Others, placed at pages 1 to 27 of the paper book, wherein the Tribunal had taken into account all these adverse decisions against the assessees and after discussing the same and after distinguishing the same, had allowed relief to the assessees. It was further submitted that the reliance placed by learned CIT(A), while confirming the addition on the case law of NDR Promotors Ltd. (Delhi High Court) and NRA Steel (P) Ltd. (SC), is also not justified as the facts and circumstances of these case laws are distinguishable from the facts and circumstances of the present cases. It was submitted that in the case of NRA Iron & Steel, the issue involved was regarding onus u/s 68 to be proved by the assessee. In that case, the assessee had received share capital and share premium from certain paper companies. In response to the notice, issued by Assessing Officer, the investor companies did not appear and also, the income levels of such companies was quite low. Similarly, in the case of NDR Promoters (P) Ltd., the Hon’ble court had held the investor companies to be paper companies and there was material found regarding bogus transactions during a search. It was submitted that in the present cases the assessees have discharged their onus of proving credits u/s 68 of the Act where credits were supported by sales of shares and there is ample evidence of sale of shares through electronic stock exchange and on which necessary taxes were paid. It was submitted that Assessing Officer has not controverted such evidences and neither has made any adverse comments. In view of these facts and circumstances, it was prayed that the appeals filed by assessee may be allowed.

3. Learned D. R., on the other hand, submitted that the additions in these cases have been made on account of denial of Long Term Capital Gain, which was arranged by the assessees with the help of certain stock brokers and certain entry providers. It was submitted that the sudden huge increase in share prices in the scrip of very little known companies, cannot happen without the connivance of brokers and entry providers. It was submitted that the Assessing Officer and learned CIT(A) has elaborately discussed the modes operandi of these brokers and have rightly made and sustained the additions. The learned D.R. heavily placed reliance on the orders of authorities below and argued that in view of the statements recorded, the assessees had got accommodation entries in the garb of Long Term Capital Gain. In view of these facts and circumstances, it was prayed that the order passed by learned CIT(A) may be upheld and the appeals of the assessee may be dismissed.

4. We have heard the rival parties and have gone through the material placed on record. We find that facts in all these appeals are similar wherein the assessees claimed to have earned Long Term Capital Gain on the scrip Twenty First Century Private Limited. The Assessing Officer reopened the cases of the assessees on the basis of an information of Dy. Director of Income Tax (Inv.), wherein it was stated that the assessees were beneficiaries of accommodation entries in the form of Long Term Capital Gain on the scrip Twenty First Century Private Limited. The Assessing Officer during assessment proceedings show caused the assessees as to why the claim of their exempt income be not rejected. The Assessing Officer has relied on the statements of Shri Pradeep Kumar Garg, Anil Kumar Khemka, Abhiset Basu, Sajendra Mookim, Deepak Kumar Choudhary etc. to dislodge the claim of assessees. The assessees, in reply to the notices, submitted that exemption u/s 10(38) cannot be denied on the investment made by the assessees when the purchase and sale transactions are verifiable along with availability of other evidences and claims are being denied only on the basis of information from DDIT, Kolkata and without any cash trail of unaccounted money belonging to the assessee. The assessees also submitted to the Assessing Officer that before making additions, the Department has to establish the involvement of the assessee and collusion with the people involved in the accommodation entries. It was also submitted that the statements recorded of third parties, recorded at the back of assessees, cannot be used against the assessees unless these persons, whose statements are relied, are made available to assessee for cross examination. The assessees filed various evidences in support of purchase and sale of shares and in support of payments made for purchase of shares and also copies of bank account wherein the payments for sale of shares were credited, were submitted and copy of DEMAT account evidencing the purchase and sale of shares through DEMAT account was also submitted. For the sake of completeness, the nature of such evidences along with paper book pages, where copies of such evidences (submitted to Assessing Officer), are placed has been reproduced herein under in the form of a table:

4.1 These evidences clearly demonstrate that assessee in I.T.A. No.61 did purchase shares of Sarathi Dealers (P) Ltd. and assessees in I.T.A. No. 62 to 65 did purchase shares of Highland Dealcom (P) Ltd. from brokers through offline transactions and made payments for these shares through their bank accounts. The copies of purchase bills and copies of bank accounts are placed in the respective paper books as mentioned in the above chart. The said shares were converted into shares of Twenty First Century India Ltd. on the basis of a scheme of amalgamation approved by Hon’ble Calcutta High Court, a copy of order of Hon’ble Court is placed in paper book pages 196 to 223. As per the scheme of amalgamation, the assessees were allotted equity shares of Twenty First Century India Ltd. in lieu of shares of other companies held by them and which were credited into the DEMAT accounts of the assessees, a copy of DEMAT accounts is placed in paper books mentioned in the above chart. Then such shares were sold electronically through a common broker H. M. Fetepuria, Member Calcutta Stock Exchange. The copies of contact notes, issued by broker evidencing the sale, are placed in respective paper book as mentioned in the chart. Further we find that against the sale of shares, the brokers had made payments into the bank accounts of the assessees and copies of bank accounts where payments were credited, are placed in paper book pages as mentioned in the chart.

4.2 We find that in the present cases, on the one hand evidences filed by assessees in support of their claims has neither been rejected nor has been adversely commented and on the other hand the persons on whose statements the Department had relied, were not made available to assessees for cross examination. The Assessing Officer just rejected the claim of assessees on the basis of report of DDIT and statements of certain persons. As regards the request of the assessees to provide opportunity to cross examination of such persons to the assessees, the Assessing Officer held that besides the statements, other substantial evidences also proved that the transactions undertaken by the assessees were not genuine and therefore, he held that the ratio in the case of Andaman Timber Industries was not applicable to the assessees and rejecting all the evidences, the Assessing Officer disallowed the claim of the assessees.

4.3 Before learned CIT(A), the same averments were made and learned CIT(A) also rejected the claim of the assessees. Regarding the grievances of assessees for not providing opportunity to cross examination of the witnesses of Department, the learned CIT(A) held that all the documents have been shown to the assessees and the assessees had not challenged the contents of such documents and therefore, there is no violation of principles of natural justice.

4.4 We find that similar additions, relating to the same scrip of Twenty First Century (India) Ltd., were deleted in the case of Anita Singhania by I.T.A.T., Kolkata in IT(SS)A. No.45/Kol/2019 vide order dated 07/05/2021 and in the case of Saumitra Chaudhary in I.T.A. No.256/Kol/2019 vide order dated 15/03/2019. For the sake of completeness, the relevant findings, as contained in the Tribunal order dated 07/05/2021 in IT(SS)A. No.45/Kol/2019, are reproduced below:

“6.7. Even otherwise the Assessing Officer was duty bound to furnish the copies of all the statements recorded by him in post search investigation, to the assessee and provide an opportunity to the assessee to cross examine the persons who have made the statements, before using these statements to make additions in the case of the assessee. In this case, the statement and reports o f investigation wing of the Department used by the Revenue for making the additions in the assessment was never confronted to the assessee. The law on this issue has been laid down by the Hon’ble Supreme Court in the case of Kishinchand Chellaram vs. CIT 125 ITR 713 (SC) where it has held that an opportunity of cross examination must be provided to the assessee.

6.8. The Jurisdictional High Court in the case of CIT vs. Eastern Commercial Enterprises (1994) 210 ITR 103 (Kol HC) held as follows:

“As a matter of fact, the right to cross-examination a witness adverse to the assessee is an indispensable right and the opportunity of such cross-examination is one of the cornerstones of natural justice”.

6.9. The Hon’ble Supreme Court in the case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006 (2015 (324) E.LT. 641 (SC) held:

“6. The plea of no cross examination granted to the various dealers would not help the appellant case since the examination of the dealers would not bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex factory prices remain static. Since we are not upholding and applying the ex factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb the Commissioners orders.”

15. The Hon’ble Apex Court held as under:- “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 o f 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 Tribuna l is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply Staled 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.

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 o f 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.

In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no materia l 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 We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal.

6.10. Thus it is well settled that the Assessing Officer has to confront the assessee with the material collected behind the back of the assessee, if he chooses to use the material against the assessee and that he should provide the assessee an opportunity of cross examination. Not having done so makes the evidence in question bad in law.

6.11. In this case, the assessee has furnished all the bills evidencing the purchase of shares, copies of contract notes of the brokers, copies of the bank accounts disclosing the transaction etc. The transactions that they have taken place through banking channels. Demat statements demonstrate that the transactions had taken place on the platform of NSE. STT has been paid on these transactions. This proves the genuineness of its transactions. The Assessing Officer has no evidence or adverse material to disprove these transactions. Additions cannot be made based on inferences. This bench of the Tribunal has considered similar cases in the following orders:

(i) Meena Devi Gupta & Others vs ACIT – ITA Nos. 4512 & 4513/Ahd/2007 (Ahmedabad ITAT).

(ii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT).

(iii) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT).

This Bench of the Tribunal came to a conclusion that in such circumstances the additions are not maintainable.

6.12. The Hon’ble Calcutta High Court has in cases having similar facts upheld the contentions of the assessee that no addition can be made.

A) In the case of CIT vs. Dhawan Investment and Trading Company Ltd. (1999) 238 ITR 486(Cal.) it was held as follows:

“7. In appeal the Commissioner of Income-tax (Appeals) has also agreed with the action adopted by the Income-tax Officer. According to the Commissioner of Income-tax (Appeals) it appears that dealings in shares are bogus. He pointed out that the assessee has deliberately sold, 7,000 shares at a lower rate to incur the loss.

8. In appeal before the Tribunal, the Tribunal on examination o f the facts found that the findings arrived at by the Income-tax Officer and the Commissioner of Income-tax (Appeals) do not appear to be correct. The transactions effected are doubtless and it is apparent that a lot of evidence requires to be considered. The transactions were made through registered share brokers. The rates quoted of the said shares were found to be correct from pages 48 to 82 of the paper book. The transactions are also found place in the said quotations.

9. When the share transaction was made through the registered broker of stock exchange, the quotations of shares were found correct as per the record of the stock exchange. Whether the assessee sold 7,000 or 70,000 shares does not make any difference. It is the assessee’s concern how to run the business. The claim of loss should not be disallowed on conjectures and surmises such as that there is a practice in Calcutta to claim bogus loss in share dealings. The Tribunal being the final fact-finding body had found the fact on the basis of the materials on record that the assessee has suffered the loss in share dealing to the tune of Rs. 49,210. These findings cannot be said to be perverse on the basis of the materials considered and discussed in the order of the Tribunal.

10. In the result so far as the question relates as to whether the finding of the Tribunal is based on materials on record we answer it in the affirmative, that is, in favour of the assessee and against the Revenue. So far as the question raised as to whether the finding is perverse, we answer it in the negative, that is in favour of the assessee and against the Revenue. Similarly, we answer question No. 2 relating to share loss of Rs. 49,210 in the affirmative, that is, in favour of the assessee and against the Revenue.”

B) The Calcutta High Court in the case of CIT vs. Currency Investment Ltd. (2000) 241 ITR 494 (Cal.) it was held as under:

“The learned Tribunal has concluded that in view of the facts o f this case, the assessee has made out a case of a genuine loss in share transactions. Whether the shares were sold or not and for how much the shares were purchased and for how much the shares were sold, is basically a question of fact. The identity of the parties through whom the shares were purchased and to whom the shares were sold is disclosed. Even the broker through whom the shares were purchased was produced. The payment was received by an account payee cheque and the payment was also made by the account payee cheque when the shares were purchased. The identity of the share brokers and the person through whom the shares were purchased and shares were sold is not disputed. Merely because the assessee could not produce a broker through whom the shares were sold or the person to whom the shares were sold, it does not affect the genuineness of shares in case when the assessee came with a fact and disclosed the identity of the persons from whom the shares were purchased and sold. If the assessee failed to produce those persons, that alone does not affect the genuineness of transactions.

Summons can be issued under section 131 to compel them to appear before the ITO or the Assessing Officer. But that has not been done. One more factor has been highlighted by the Assessing Officer that the delivery of shares is on 9-11-1982, when the sale was on 22-10-1982. Merely because of the fact that all shares were delivered after 10/15 days from the date of sale also does not affect the claim of the assessee regarding the genuineness o f sale of shares by the assessee and when there is no evidence on record that the shares are not purchased by the assessee, there is no justification to disallow the loss only on the ground that delivery of shares has been taken on the same date, when the shares are delivered to purchaser.

Whether the assessee suffered loss on account of the share transactions in question is basically an issue based on finding o f fact and on the given facts, it cannot be said that the finding o f the Tribunal is perverse. Even when two opinions are possible and if one view possible is taken by the Tribunal, that cannot be said as perverse.”

C) The Calcutta High Court in the case of CIT vs. Carbon Industria l Holdings Ltd. (2000) 244 ITR 422 (Cal.) the Court held as follows:

“Therefore, seeing these details, it cannot be said that the purchase and sale are on the same date. It is true that the transactions are with some brokers, but in the share transactions, the purchase and sale are normally through some broker. Payment by account payee cheque has not been disputed. Payment on purchase and sale and payment received by account payee cheque was on two different dates. If the share broker, even after issue o f summons, does not appear, for that reason, the claim of the assessee should not be denied, specially in cases when the existence of the broker is not in dispute nor the payment is in dispute. Merely because some broker failed to appear, the assessee should not be punished for the default of a broker and we are in full agreement with the Tribunal that on mere suspicion the claim of the assessee should not be denied.”

D) The Calcutta High Court in the case of Commissioner of Income Tax Versus Emerald Commercial Ltd. and Another 250 ITR 539 the Court held:

“The admitted facts in this case are that the details of purchase and sale of shares are furnished. The payment and receipt arc by account payee cheque. The identity of seller and purchaser is not in dispute. The disallowance is basically made on the ground that the assessee failed to produce the brokers for verification of the transaction. Following our view in the earlier case referred to non-production of the share broker by the assessee does not disentitle the assessee for claim of loss in a genuine transaction of shares. Considering the aforesaid facts and our view expressed in the case of CIT v. Carbo Industrial Holdings Ltd. [2000] 244 ITR 422 (Cal), we answer question No. 1 whether the finding of the Tribunal is based on material, in the affirmative and whether this finding of the Tribunal is perverse, we answer it in the negative, i.e., in favour of the assessee and against the Revenue.”

E) The Calcutta High Court in the case of CIT vs. Kundan Investment Ltd. 263 ITR 626 the Court held:

“We may deal with the loss in share transaction first. The grounds disallowing share loss by the AO affirmed by the Commissioner o f Income Tax(Appeals) were those that out of the four blocks o f shares delivery of three blocks were received after five months and the price was also paid after five months, but were immediately sold at a loss. The other grounds were that the share broker only in respect of one group was produced but the other share brokers did not appear despite notice. The books of accounts of the share broker, who appeared, also show some discrepancies in the entries made. On these grounds this transaction was held to be ingenuine. Whereas the Tribunal had found that all relevant documents relating to contract notes, bills, the quoted price and other materials were produced. The transactions were made through cheques. All the shares related to the reputed companies and were quoted shares in the stock exchanges and were purchased and sold at the prevalent quoted market rates, which was verified from the statement of the stock exchanges. On these basis, the learned Tribunal found that the Commissioner of Income Tax(Appeals) had proceeded on the basis of suspicion that there might be some ingenuinity in the transactions. On the basis of the materials produced, the learned Tribunal came to a finding of fact, which in our view does not seem to be perverse. Whether the share could be sold immediately on the date of purchase or not was a question of business expedience. Whether the decision was correct or wrong cannot be a question, which can be a subject-matter o f decision in such a case. In order to find out whether the transaction is genuine or ingenuine, it is neither the expedience or correctness of the decision nor the business expertise of the person to be considered. It is to be considered on the basis of the materials that there was no such transaction and that these share transactions were paper transactions. The suffering of loss could not be a factor for such purpose.

Mr. Khaitan had relied on the decisions in CIT v. Emerald Commercial Ltd. and Anr. where a Division Bench of this Court has held that non-production of share broker by the assessee did not disentitle the assessee from claiming loss in genuine transaction o f shares. In this case the learned Tribunal having come to a finding on the basis of the materials that the transaction was genuine, sitting in reference, unless it is found perverse, this Court cannot intervene. In the said decision, it was further found that the findings of the ITO and the CIT(A) were based on presumption and not warranted by facts of the case as in the present case. Mr. Khaitan then relied on the decision in CIT v. Dhawan Investment & Trading Co. Ltd. . In the said case the shares were transacted through noted share brokers at the rates quoted in the stock exchange. The claim of the assessee was accepted. Such, an acceptance was found favour by this Court in the said decision. Mr. Khaitan had then relied on the decision in CIT v. Currency Investment Co. Ltd. In this case, it was held that merely because the assessee could not produce the broker through whom the shares were sold, the same did not affect the genuineness of the transaction when the assessee disclosed the identity of persons from whom the shares were purchased and to whom sold. Even when two views are possible, if the view taken by the learned Tribunal is possible, it cannot be said to be perverse.

Having regard to the proposition of law as discussed above and the facts and circumstances of the case, we find that in the present case, the view taken by the learned Tribunal cannot be said to be erroneous or perverse. Therefore, we answer the question No. 3 in the negative in favour of the assessee.”

7. Applying the proposition of law laid down in all the case law referred above to the facts of the case, we find that the addition in question is bad in law. 8. In view of the above discussion, we allow the grounds of the assessee and delete the additions made.

8. In view of the above discussion, we allow the grounds of the assessee and delete the additions made. ”

4.5 Similar additions were deleted by Kolkata Bench of the Tribunal in the case of Soumitra Chowdhary in I.T.A. No.256/Kol/2019 and in the case of Purshotam Dass Aggarwal in I.T.A. No.2421/Kol/2018 vide a common order dated 15/03/2019.

4.6 Besides the above case laws, relied on by the assessees, the Learned counsel for the assessees has also relied on a number of case laws where Lucknow Bench of the Tribunal, in a number of cases in various appeals relating to various assessees and various scrips, has allowed relief to the assessees taking into account the decision of Hon’ble Delhi High Court in the case of Smt. Krishna Devi & Ors. in I.T.A. No.125 vide order dated 15/01/2021 wherein Hon’ble Delhi High Court has dismissed the theory of presumptions and has placed reliance on the evidences. The Hon’ble Delhi High Court in the case of Smt. Krishna Devi and Ors. has also discussed the case law of Hon’ble Supreme Court in the case of Smt. Sumity Dayal. For the sake of completeness, the decision of Hon’ble Delhi High Court in the case of Smt. Krishna Devi & Ors. in I.T.A. No.125 vide order dated 15/01/2021 is reproduced below:

“3. The present appeals under Section 260A of the Income Tax Act, 1961 [hereinafter referred to as the ‘Act’] are directed against the common order dated 6th August, 2019 [hereinafter referred to as the ‘Impugned Order’] passed in ITA No. 1069/DEL/2019 (for AY 2014-15), 2772/DEL/2019 (for AY 2015-16) and other appeals for the same AYs, by the Income Tax Appellate Tribunal [hereinafter referred to as the ‘ITAT]’. However, the Impugned Order records the factual position only in respect of ITA No. 1069/DEL/2019.

4. The Revenue urges identical questions of law in all the afore-noted appeals with the only difference being the figures relating to the additions made under Section 68 read with Section 115BBE of the Act. Accordingly, the same are being decided by way of this common order.

5. It is not in dispute, as noted in the Impugned Order, that the factual background in all the three appeals is quite similar. However, for the sake of convenience, the facts in respect of ITA 125/2020 are being noted and discussed elaborately. Briefly stated, the Respondent-Assessee is an individual who has derived income from interest on loan, FDR, NSC and bank interest under the head of ‘income from other sources’ in respect of A.Y. 2015-16. She filed her return of income, declaring total income of Rs. 13,96,116/-. After claiming deduction of Rs. 1,60,000/-under Chapter VI-A, the total taxable income o f Respondent was declared to be Rs. 12,36,120/-. The return was processed under Section 143(1) of the Act and thereafter the case was selected for scrutiny. During the scrutiny proceedings, the AO noticed that for the relevant year under consideration, the Respondent had claimed exempted income of Rs. 96,75,939/- as receipts from Long Term Capital Gain [hereinafter referred to as ‘LTCG’] under Section 10(38) of the Act. He inter alia concluded that the assessee had adopted a colorable device of LTCG to avoid tax and accordingly framed the assessment order under Section 143(3) of the Act at the total income of Rs. 1,09,12,060/-, making an addition of Rs. 96,75,939/-under Section 68 read with 115BBE of the Act on account of bogus LTCG on sale of penny stocks of a company named M/s Gold Line International Finvest Limited. The appeal before the CIT(A) was dismissed and additions were confirmed with the observation that the Respondent had introduced unaccounted money into the books without paying taxes. Further appeal filed by the Respondent before the learned ITAT was allowed in her favour, and the additions were deleted vide the Impugned Order, relevan t portion whereof reads as under:

“21. A perusal of the assessment order clearly shows tha t 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. xx xx xx

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 affirm 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 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 o f 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 o f the order the names of the appellants do not find any 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 Qrganic 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 considered examining the brokers of the appellants. It is a matter o f the 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 o f Investigation Wing is much later than the dates o f 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.

xx xx xx

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 o f onus is purely a question of fact and therefore the judicia l 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.”

6. Aggrieved by the aforesaid findings, the Revenue has filed the instant appeals contending that, notwithstanding the tax effect in the appeals falling below the threshold prescribed under Circular No. 23 dated 6^th September, 2019, the appeals are maintainable in view of the Office Memorandum dated 16th September, 2019 issued by the CBDT, which clarifies that the monetary limits prescribed in the aforementioned circular shall not apply where an assessee is claiming bogus LTCG through penny stocks, and the appeals be heard on merits.

7. Mr. Zoheb Hossain, learned senior standing counsel for the revenue (Appellant herein), contends that the learned ITAT has completely erred in law in deleting the addition, and thus the Impugned Order suffers from perversity. He submits that there are certain germane factual errors, inasmuch as the learned ITAT has wrongly recorded that there was no independent enquiry conducted by the AO, when in fact the AO had issued notices to the companies in question under Section 133(6) of the Act. He points out that the observations recorded in para 25 of the Impugned Order are factually incorrect, and in conflict with para 4 o f the order of the CIT(A) dated 24th December, 2018 which reads as follows: “4. Even the broker through whom the shares were dematerialized and sold i.e. SMC Global Securities Ltd. was also a part of the scam. This is a Delhi based broker whose regional office was also surveyed. The sub brokers were also surveyed and also statements recorded which confirmed the payment of cash commission by the beneficiaries for being part of the syndicate.”

8. Hossain argues that in cases relating to LTCG in penny stocks, there may not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility o f these companies, he argues that it can be safely concluded that the investments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the veracity o f the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumity Dayal v. CIT, (1995) Supp. (2) SCC 453.

9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips.

10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter.

11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did no t show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a preplanned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent’s unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “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.” The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit o f LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained.

12. Mr. Hossain’s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory o f human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim tha t observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness o f share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumity Dayal v. CIT (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue.

13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order.

14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration.

15. Accordingly, the present appeals are dismissed. ”

4.7 In the above noted judgment, the Hon’ble court has held that startling spike in the share prices and other factors may be enough to show circumstances that might create suspicion but the Court has to decide an issue on the basis of evidence and proof, and not on mere suspicion. The Hon’ble court further distinguished the judgment in the case of Suman Podar which was in favour of Revenue. The Hon’ble court further held that case of Sumity Dayal u/s CIT was also not applicable to the assessee. The Hon’ble court further held that reliance placed by the Assessing Officer on the investigation report of Investigation Wing without further corroboration on the basis of cogent material does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries.

4.8 The Lucknow Bench of the Tribunal has allowed relief to following assessees following this judgment of Hon’ble Delhi High Court:

1. Mridula Agarwal, ITSSA No. 410 & 412/Lkw/2019 dated 05.04.2022

2. Meenakshi Agarwal & Others, ITA 234-235/Lkw/2020 dated 11/08/2021

3. Sabreen, ITA 298/Lkw/2019 dated 20/07/2021

4. Uma Shanker Dhandhania, ITA 475 & 681/ Lkw/2019 dated 16/02/2021

5. Sarita Gupta, ITA 503/Lkw/2019 dated 18/01/2021

6. Achal Gupta & Others, ITA 501, 502, 505/Lkw/2019 dated 16/12/2020

4.9 We further find that Hon’ble Gujarat High Court in the case of Principal Commissioner of Income Tax vs. Parasben Kasturichand Kochar (Supra) dated 17.09.2020 in ITA No.204 has dismissed an appeal filed by the Revenue wherein under similar facts and circumstances the Assessing Officer and ld. CIT(A) had made the additions for scrip Mohan Poly Fiber Ltd. and which was deleted by the Tribunal and such deletion was confirmed by the Hon’ble High Court of Gujarat. The findings of Hon’ble Gujarat High Court are reproduced below:

“This appeal under section 260A of the Income-tax Act, 1961 (for short ‘the Act 1961″) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench dated 20-2- 2020 in the ITA No. 549/Ahd/2018 for the A.Y. 2014-15. The Revenue has proposed the following question of law for the consideration of this Court:—

“Whether the Appellate Tribunal was right in law and on facts in deleting the addition of Rs. 9,70,468/- made on account of LTCG claimed as exempt u/s. 10(38) of the Act without appreciating the fact that the transaction was pre-arranged as well as sham and was carried out through penny scripts companies/paper companies? “

2. We take notice of the fact that the issue in the present appeal is whether the assessee earned long term capital gain through transactions with bogus companies. In this regard, the finding of fact recorded by the Tribunal in paras 9, 10 and 11 reads thus:—

“9. In our considered opinion, in such case assessee cannot be held that he earned Long Term Capital gain through bogus company when he has discharged his onus by placing all the relevant details and some of the shares also remained in the account of the appellant after earning of the long term capital gain.

10. Learned A.R. contention is that no statement of the Investigation Wing was given to the assessee which has any reference against the assessee.

11. In support of its contention, learned A.R. also cited an order of Coordinate Bench in ITA No. 62/Ahd/2018 in the matter of Mohan Polyfab (P.) Ltd. v. ITO wherein ITAT has held that A.O. should have granted an opportunity to cross examine the person on whose statement notice was issued to the assessee for bogus long term capital gain. But in this case, neither statement was supplying to the assessee nor cross examination was allowed by the learned A.O. Therefore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands o f the assessee. “

3. Thus, the Tribunal has recorded the finding of fact that the assessee discharged his onus of establishing that the transactions were fair and transparent and further, all the relevant details with regard to such transactions were furnished before the Income-tax authorities and the Tribunal also took notice of the fact that some o f the shares also remained in the account of the appellant.

4. We take notice of the fact that the assessee has a Demat Account maintained with the ICICI Securities Ltd. and has also furnished the details of such bank transactions with regard to the purchase of the shares. In the last, the Tribunal took notice of the fact that the statements recorded by the investigation wing of the Revenue with regard to the Tax entry provided were informed to the assessee despite giving him opportunity to meet such an allegation. In the overall view of the matter, we believe that the proposed question cannot be termed as a substantial question of law for the purpose o f maintaining the appeal under section 260- A of the Act, 1961.

5. In the result, this appeal fails and is hereby dismissed. ”

4.10 We further find that the SLP filed by the Revenue has also been dismissed by Hon’ble Supreme Court vide order dated 02.08.2021.

4.11 In the present cases, on the one hand the evidences filed by the assessees have not been rejected nor any adverse comments have been made, and rather the Assessing Officer, ignoring these evidences, relied on the statements of third party which has not been made available to the assessees for cross examination despite of the fact that assessees made specific requests to the Assessing Officer and learned CIT(A). The right to cross examination of the witnesses is an important right available to a party, the importance of which can never be underestimated specifically in cases where one of the party has relied on the evidence and the other party has not adversely commented on such evidences. The Hon’ble Supreme Court in the case of Andaman Timber Industries has clearly laid down the importance of cross examination. If the statements of the persons recorded at the back of the assessees and not confronted to the assessees for cross examination are ignored the evidences filed by assessees, definitely prove that the assessees had earned Long Term Capital Gain on the sale of equity shares.

4.12 The findings of Hon’ble Supreme Court in the case of Andaman Timber Industries are reproduced below:

“5. According to us, not allowing the Assessee to cross-examine the witnesses by the Adjudicating Authority though the statements o f 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 o f 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 far what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. ”

4.13 Similar views has been held by Hon’ble Supreme Court in other cases relied on by assessee. The Hon’ble Allahabad High Court, which is the jurisdictional High Court, has also held in the case of Motilal Padampat Udyog Ltd. vs. CIT 293 ITR 656 that no material can be used against the assessee for making addition without confronting the same to assessee and providing cross examination to the assessee. In view of the above facts and circumstances, the denial of Long Term Capital Gain in the hands of assessee is not justified.

4.14 The reliance placed by learned CIT(A) on certain case laws is also of no help to the Revenue as the case law of NDR Promoters (P) Ltd. and the NRA Iron & Steel Pvt. Ltd., the issue was the addition u/s 68 of the Act where the Hon’ble courts have held that assessees had not discharged their onus u/s 68 whereas in the present cases the credits were on account of sale of shares which were credited to the bank account of assessees by a SEBI registered stock broker who had sold the shares on behalf of the assessees on electronic stock exchange which is supported by contact notes.

4.15 As regards the reliance placed by Learned CIT(A) on the case of Sanjay Bimalchand Jain decided by Hon’ble Bombay High Court is concerned, we find that the above said case law has been distinguished by Hon’ble I.T.A.T. Kolkata Bench in ITA No. 2243/Kol/2017 where the Hon’ble Tribunal vide para 31 held as under:

“31. We note that the Id. D.R. had heavily relied upon the decision of the Hon’ble Bombay High Court in the case o f Sanjay Bimalchand Jain in Tax Appeal No. 18 of 2017. We note that in the case relied upon by the Id. D.R, we find that the facts are different from the facts of the case in hand. Firstly, in that case, the purchases were made by the assessee in cash for acquisition of shares of companies and the purchase of shares of the companies was done through the broker and the address of the broker was incidentally the address of the company. The profit earned by the assessee was shown as capital gains which was not accepted by the A.O. and the gains were treated as business profit of the assessee by treating the sales of the shares within the ambit of adventure in nature of trade. Thus, it can be seen that in the decision relied upon by the Id. DR, the dispute was whether the profit earned on sale of shares was capital gains or business profit. ”

4.16 The above case law of Hon’ble Bombay High Court has further been distinguished by Mumbai Bench of the Tribunal in the case of Geeta Khare in ITA No. 4267/Mum/2018 where the Hon’ble Tribunal has held as under:

“7.8 It would be pertinent to address the case law relied upon by the ld DR before us on the decision of Hon’ble Bombay High Court (Nagpur Bench) in the case of Sanjay Bimalchand Jain vs Pr. CIT (Nagpur) reported in (2018) 89 taxmann.com 196 (Bombay) dated 10.4.2017 on the impugned issue. From the facts of Sanjay Bimalchand Jain supra, we find that (i) in that case, the broker company through which the shares were sold did not respond to AO’s letter regarding the names and address and bank account o f the person who purchased the shares sold by the assessee; (ii) Moreover, at the time of acquisition of shares of both the companies by the assessee, the payments were made in cash; (iii) The address of both the companies were interestingly the same; (iv) The authorized signatory of both the companies were also the same person; (v) The purchase of shares of both the companies was done by that assessee through broker, GSSL and the address of the said broker was incidentally the address of the two companies. Based on these crucial facts, the Hon’ble Bombay High Court rendered the decision in favour of the revenue. None o f these factors were present in the facts of the assessee before us. Hence it could be safely concluded that the decision of Hon’ble Bombay High Court supra is factually distinguishable.”

4.17 Similarly, as regards the reliance placed by learned CIT(A) on the order of Udit Kalra, we find that the above case law has been held to be distinguishable by Delhi Tribunal in the case of Karuna Garg in I.T.A. No.1069/Del/2019 vide order dated 06/08/2019 and further in the case of Swati Luthra vs. Income Tax Officer in I.T.A. No.6480/Del/2019 vide order dated 28/06/2019. The findings of the Tribunal in the case of Karuna Garg and Swati Luthra has been discussed by the Lucknow Bench of the Tribunal in the case of Meenakshi Agarwal & Others in I.T.A. No.234 & 235/Lkw/2020 and for the sake of completeness, such findings are reproduced below:

“7.2 As regards the reliance placed by Learned CIT(A) on the order of Udit Kalra (supra), we find that the above case law has been held to be distinguishable by Hon’ble Delhi Tribunal in the case of Karuna Garg in I.T.A. No.1069/Lkw/2019 vide order dated 06/08/2019 and further in the case of Swati Luthra vs. Income Tax Officer in I.T.A. No.6480/Lkw/2019 vide order dated 28/06/2019. In these two cases the Hon’ble Tribunal has again allowed relief to the assessee though from a different scrip but in the decisions they have held that the judgment of Hon’ble Delhi High Court in Udit Kalra was distinguishable as in that case the Hon’ble High Court has only dismissed the appeal as the Hon’ble High Court found that the issue involved was only a question of fact. In this respect, para 28 of the Tribunal order in the case of Karuna Garg is relevant which is reproduced below:

“28. The DR heavily relied upon the judgment o f 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 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. ”

7.3    Similarly in the case of Swati Luthra (supra), the Hon’ble Tribunal while dealing with the case law of Udit Kalra vide para 14 has held as under:

“14. That the ld DR during the course of hearing placed heavy reliance on judgment of Hon’ble High Court o f Delhi in the case of Udit Kalra vs ITO in ITA No. 220/2019. Relevant extracts of said judgment are extracted as below:

“The assessee is aggrieved by the concurrent findings o f the tax authorities – including the lower appellate authorities rejecting its claim for a long term capital gain reported by it, to the tune of Rs.13,33,956/- and Rs.14,34,501/- in respect of 4,000 shares of M/s Kappac Pharma Ltd. The assessee held those shares for approximately 19 months; the acquisition price was Rs.12/- per share whereas the market price of the shares at the time of their sale, was Rs.720/-. It is contended that the assessee was not granted fair opportunity.

Mr. Rajesh Mahna, learned counsel appearing for the assessee relied upon the orders of the co-ordinate Bench of the tribunal, in respect of the same company i.e. M/s Kappac Pharma Ltd., and pointed out that the tax authority’s approach in this case was entirely erroneous and inconsistent.

The main thrust of the assessee’s argument is that he was denied the right to cross-examination of the two individuals whose statements led to the inquiry and ultimate disallowance of the long term capital gain claim in the returns which are the subject matter of the present appeal.

This court has considered the submissions of the parties. Aside from the fact that the findings in this case are entirely concurrent – A.O., CIT(A) and the ITAT have al l consistently rendered adverse findings – what is intriguing is that the company (M/s Kappac Pharma Ltd.) had meager resources and in fact reported consistent losses. In these circumstances, the astronomical growth of the value of company’s shares naturally excited the suspicions of the Revenue. The company was even directed to be delisted from the stock exchange. Having regard to these circumstances and principally on the ground that the findings are entirely of fact, this court is of the opinion that no substantial question of law arises in the present appeal.

This appeal is accordingly dismissed.”

4.18 Thus the judgments relied on by learned CIT(A) are distinguishable on facts and rather the cases of the assessees are directly covered by the decision of Hon’ble Delhi High Court in the case of Smt. Krishna Devi & Ors. in I.T.A. No.125 vide order dated 15/01/2021 which has been followed by Lucknow Bench of the Tribunal in a number of cases, as enumerated in the earlier part of this order. In view of the above facts and circumstances, where the assessees have filed all documentary evidences which have not been adversely commented by the authorities below, coupled with the fact that the authorities below have made and sustained the additions on the basis of statements of third parties which has not been made available to the assessees for cross examination despite the assessees’ specific request for the same, the addition sustained is not justified. Above all, similar additions on the same scrip, which were made in the hands of Smt. Anita Singhania, on the basis of statements of certain persons, have been deleted by Kolkata Tribunal. Therefore, in view of the above, we hold that assessees are eligible for exemption of Long Term Capital Gain u/s 10(38) of the Act and we direct the Assessing Officer to allow the same and also direct Assessing Officer to delete the assumed commission, the addition of which has been made on presumptions only and therefore, ground No. 5-13 are allowed. Ground No. 1 to 4 were not argued therefore, same are dismissed as not pressed.

5. In the result, all the appeals of the assessees are partly allowed.

(Order pronounced in the open court on 06/07/2022)