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:
