Case Law Details
Vasantlal Nyalchand Kikavat Vs DCIT (ITAT Mumbai)
The case was reopened pursuant to receipt of certain information from investigation wing, Kolkata wherein it was alleged that the assessee was beneficiary of bogus Long-Term Capital gains (LTCG) by dealing in a scrip namely M/s Unisys Software & Holding Industries Ltd. (in short ‘Unisys’). Accordingly, the case was reopened as per due process of law and notice u/s 148 was issued on 14/09/2016 wherein the assessee was directed to substantiate the aforesaid transactions. The assessee was also show-caused as to why the gain so earned be not treated as income from undisclosed sources and added to the income of the assessee along with estimated commission.
It is matter of record that the assessee sold 74490 shares of Unisys during March, 2012 as detailed in para-7 of the assessment order. Since the gains so earned fulfilled the conditions of Sec.10(38), these were claimed to be exempt while filing the return of income. However, the exemption was denied during assessment proceedings and the gains were ultimately added to the assessee’s income as unexplained cash credit u/s 68 of the Act. The assessee has also been saddled with addition u/s 69C for estimated commission @6% which is consequential to the main addition.
Upon perusal of all the aforesaid documents, it is quite discernible that the assessee had furnished all the requisite documentary evidences to substantiate the transactions and discharged the primary onus as required under law to establish the genuineness of the gains so earned during the year. No defect has been pointed out by the revenue in documentary evidences furnished by the assessee. Therefore, the onus had, thus, shifted on revenue to disprove assessee’s claim and establish with cogent evidences that the transactions were non-genuine transactions through which assessee’s unaccounted money has flown back to assessee in the garb of bogus capital gains. However, we find that except for general findings of investigation wing and third-party statements on the basis of which it has been alleged that the scrip of Unisys was penny stock, there is nothing in the kitty of the revenue to prove the assessee’s involvement in manipulating the prices of the scrip. No exchange of cash between the assessee and the various exit providers could be proved. Therefore, the onus as casted upon revenue to dislodge the assessee’s claim, remain un-discharged.
So far as the observations of Ld. AO as to financial and profitability of Unisys is concerned, we find that the sales transactions have taken place in online mechanism through recognized stock exchange wherein the identity of the buyer would not be known and there would be no privity of contract between the assessee and prospective buyers of shares. In online mode of trade, the prices would be guided by the buyer willing to buy the shares at certain prices and the seller willing to sell the shares at certain prices. The prices would be guided more by the market forces rather than the financials or other parameters. There would be buyers and sellers lining up on either side of a potential trade; one party willing to part with ownership and other party willing to acquire the ownership. When both the parties would agree upon a price, the trade is matched and that price would become new market quotation. Therefore, the financials of underlying entities, in such cases, would lose much relevance in so far as the price movement of scrip is concerned. Nothing adverse could be drawn against the assessee on the basis of the same. Therefore, the aforesaid observations as well as conclusion of Ld. AO would not support the case of the revenue.
Proceeding further, it could be observed that the primary reason to doubt the genuineness of assessee’s transactions is findings of investigation wing which was based on general statement of various stock-brokers / operators including statement of Shri R.K. Kedia and Shri Jagdish Prashad Purohit, wherein these persons, without naming the assessee specifically, made an admission that the scrip of Unisys was a penny stock scrip. However, despite specific request of the assessee, the adverse material which form the very basis of addition, no opportunity to cross-examine these persons was ever provided to the assessee. The failure to do so would make the additions unsustainable as per settled legal position. Further, the adverse statements made by these persons are not backed by any cogent corroborative material on record to establish the assessee’s involvement in price rigging of shares of Unisys No collusion between the assessee and alleged entry providers or operators or exit providers is shown to have existed. There is no admission or evidence-based finding that any cash got exchanged between the assessee and any of the bogus purchasers of the scrip. It is trite law that no additions could be made merely on the basis of suspicion, conjectures or surmise. The addition thus made purely on the basis of third-party statement recorded at the back of the assessee could not be sustained in the eyes of law unless the same are confronted to the assessee and the same are backed by any corroborative material. No effective investigation is shown to have been carried out by Ld. AO to dislodge the assessee’s claim by bringing on record cogent evidences as well as confronting the same. We find that except for general allegations as narrated in the investigation wing report, there is no evidence which would link assessee’s involvement in jacking up the prices of the shares with a view to earn artificial gains. The additions so made could not be sustained in the eyes of law as per the decision of Hon’ble Apex Court in Kishanchand Chellaram V/s CIT (125 ITR 713) and also in M/s Andaman Timber Industries V/s CCE (CA No.4228 of 2006 dated 02/09/2015) wherein it has been held that not allowing the assessee to cross-examine the witnesses by the adjudicating authority though the statement of those witnesses were made the basis of the impugned order, is a serious flaw which makes the order nullity in as much as it amounts to violation of principal of natural justice because of which the assessee was adversely affected. Similar is the ratio of decision of Hon’ble Bombay High Court in H.R.Mehta V/s ACIT (387 ITR 561).
The last aspect of the matter is that the additions have been made by Ld. AO invoking the provisions of Section 68. The addition u/s 68, in our considered opinion, is not sustainable in view of the fact that credit in assessee’s bank account represents sale proceeds of shares sold in recognized stock exchange through registered stock broker. The sale transactions have taken place through recognized stock exchange and the money was received in settlement through banking channels. The assessee had delivered the shares from his demat account to the broker, who, in turn, paid sale consideration to the assessee. In such a case, there could be no doubt as to fulfillment of primary ingredients of Sec.68 viz. identity of the payer, their creditworthiness and the genuineness of the transactions. The source of credit received in the bank account could not be held to be unexplained unless it was established that assessee’s own money was routed in his bank account in the garb of Capital gains.
Finally, keeping in the facts and circumstances of the case, we are inclined to hold that impugned additions are not sustainable in the eyes of law. The assessee had discharged the primary onus of establishing the genuineness of the transactions whereas the onus as casted upon revenue to corroborate the impugned additions by controverting the documentary evidences furnished by the assessee and by bringing on record, any cogent material to sustain those additions, could not be discharged by the revenue. The whole basis of making additions is third-party statement and no opportunity of cross-examination has been provided to the assessee to confront these parties. As against this, the assessee’s position that that the transactions were genuine and duly supported by various documentary evidences, could not be disturbed by the revenue. Hence, going by the factual matrix and respectfully following the binding judicial precedents as enumerated in the order, the additions made by Ld. AO and confirmed by Ld. CIT(A), are not sustainable in the eyes of law. Therefore, we are inclined to delete the same. We order so. Consequentially, the addition of estimated commission also stands deleted. Resultantly, the appeal, on merits, stand allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1.1 The grievance of the assessee in these appeals for Assessment Years (AY) 2012-13 & 2013-14 is common. It is admitted position that adjudication in any one year shall equally apply to the other year also. For the purpose of adjudication, AY 2012-13 is taken as the lead year. The appeal for AY 2012-13 arises out of the order of learned Commissioner of Income-Tax (Appeals)-51, Mumbai [CIT(A)], dated 20/08/2019 in the matter of assessment framed by learned Assessing Officer (AO) u/s 143(3) r.w.s. 147 of the Act, on 30/11/2017. The grounds raised by the assessee read as under: –
I. Reopening of assessment
1. The Ld. CIT(A) erred in upholding the validity of reopening of assessment in the instant case;
2. The Ld. CIT(A) failed to appreciate that detailed enquiries on the issue of transactions in shares entered into by the Appellant were made by the Ld. AO during the course of original assessment proceedings under S. 143(3) read with S. 153A of the Income-tax Act, 1961, and as such the reopening of assessment was based merely on a change of opinion;
3. The Ld. CIT(A) failed to appreciate that the reopening of assessment was not initiated on the basis of any fresh, tangible material inasmuch as the report of the Kolkata Investigation Wing was dated April 27, 2015, whereas the original assessment under S. 143(3) read with S.153A of the Income-tax Act, 1961 was completed on March 30, 2016. Therefore, the reopening notice dated September 14,2016 was without jurisdiction and bad in law.
II. Additions under section 68 and 69C
1. The Ld. CIT(A) erred in sustaining the additions made by the Ld. AO under Sections 68 and 69C of the Income-tax Act, 1961;
2. The Ld. CIT(A) failed to appreciate that detailed evidence and documents in support of the Appellant’s claim of long-term capital gains on sale of shares namely, including (a) contract notes; (b) bank statements; (c) DEMAT account statements, and (d) balance sheets, were submitted, together with the fact that both the transactions of purchase and sale of securities took place through a recognized Stock Exchange. It is also pertinent to note that the Appellant did not receive the shares in question through any preferential allotment and neither is it the contention of the Department that the transactions were offline or off-market transactions;
3. In view of the foregoing, the Appellant had proved the genuineness of the transactions and in any event the Appellant had discharged the onus of proving the genuineness pursuant to which the onus of proving to the contrary shifted to the Department. The Ld. CIT(A) grossly erred in upholding the additions made despite the fact that the evidence submitted by the Appellant was unrebutted and that the Department had failed to discharge its onus;
4. The Ld. CIT(A) failed to appreciate that the Appellant was not even a party named by any of the persons subject to search/scrutiny by the Kolkata Investigation Wing, and the department could not prove any nexus with the Appellant and such persons. Similarly, no unaccounted cash was found leading to any adverse inference as to the claim of long-term capital gains being a bogus/ an accommodation entry;
5. The Ld. CIT(A) as well as the Ld AO erred in refusing cross examination of the persons whose statements have been relied upon against the Appellant while making the additions. As such, and without prejudice to the other contentions, the order passed by the Ld. CIT(A) is liable to be set aside solely on this ground of failure of natural justice;
6. The Ld. CIT(A) ought to have appreciated that the additions on merits were liable to be deleted since the same were made by the Ld. AO merely on the basis of conjectures and surmises.
III. The order passed by the Ld. CIT(A) is vitiated by non-application of mind inter alia on account of the Ld.ClT(A),’s failure to consider various judicial pronouncements, including those of the Hon’ble Jurisdictional High Court and of this Hon’ble Tribunal which were cited during the course of appellate proceedings.
As evident, the assessee is aggrieved by confirmation of certain additions u/s 68 & 69C in the impugned order. The assessee has also challenged the validity of assessment proceedings.
1.2 The registry has noted a delay of 22 days in the appeals, the condonation of which has been sought by legal heir of the assessee on the strength of sworn affidavit. It has been submitted that delay occurred due to the fact that the case records were voluminous. Keeping in view the period of delay, the bench formed an opinion that the delay was to be condoned. Accordingly, we proceed for adjudication of the appeals on merits.
1.3 The Ld. AR, drawing our attention to the documents as placed in the paper-book, assailed the additions on the ground that the additions are arbitrary and made on mere suspicion & conjectures. It was submitted that there is no corroborative material on record to disprove the genuineness of the transactions as carried out by the assessee during the year. Reliance has been placed on various judicial pronouncements, the copies of which have been placed on record. The Ld. DR, on the other hand, supported the conclusion of lower authorities by submitting that the assessee dealt in penny-stock scrip which was evident from the statements made by various entry operators before investigation wing.
1.4 We have carefully heard the rival submissions and perused relevant material on record including documents as placed in the paper book. The judicial precedents as relied upon during the course of hearing have duly been deliberated upon. Post hearing, various clarifications were sought in the matter which was duly responded to by both the sides. After due consideration, our adjudication to the subject matter of appeal would be as given in succeeding paragraphs.
Assessment Proceedings
2.1 The assessee being resident individual was assessed u/s 143(3) r.w.s. 147 on 30/11/2017. Previously, an assessment was already framed u/s 143(3) r.w.s. 153A on 30/03/2016 since a search action was carried out by the department on Mahavir Group on 21/11/2013. The case of the assessee was also covered in the search action. In the said assessment order u/s 143(3) r.w.s. 153A, the returned income of Rs.107.21 Lacs as filed by the assessee was accepted at Rs.111.21 Lacs.
2.2 The case was reopened pursuant to receipt of certain information from investigation wing, Kolkata wherein it was alleged that the assessee was beneficiary of bogus Long-Term Capital gains (LTCG) by dealing in a scrip namely M/s Unisys Software & Holding Industries Ltd. (in short ‘Unisys’). Accordingly, the case was reopened as per due process of law and notice u/s 148 was issued on 14/09/2016 wherein the assessee was directed to substantiate the aforesaid transactions. The assessee was also show-caused as to why the gain so earned be not treated as income from undisclosed sources and added to the income of the assessee along with estimated commission.
2.3 It is matter of record that the assessee sold 74490 shares of Unisys during March, 2012 as detailed in para-7 of the assessment order. Since the gains so earned fulfilled the conditions of Sec.10(38), these were claimed to be exempt while filing the return of income. However, the exemption was denied during assessment proceedings and the gains were ultimately added to the assessee’s income as unexplained cash credit u/s 68 of the Act. The assessee has also been saddled with addition u/s 69C for estimated commission @6% which is consequential to the main addition.
2.4 In defense of the genuineness of claim, the assessee submitted that transactions of sale and purchase of shares were carried out at recognized Stock Exchange through registered stock brokers. The investments were made for the purpose of capital appreciation since the assessee was a regular investor in shares. The investments so made were duly reflected in the books of account. It was further submitted that during earlier assessment proceedings u/s 153A, the assessee was called upon to produce the details of long-term capital gains. The complete details of the gains were submitted along with copy of broker notes and ledger copy of the assessee in the books of the broker. The gains so earned by the assessee were accepted by Ld. AO during those proceedings. Therefore, reopening was nothing but mere change of opinion.
2.5 On merits, the assessee submitted that the transactions were carried out through recognized stock exchange. The price of the shares on stock exchange would depend on demand and supply and determined by market forces on which the assessee would have no control. The assessee submitted that adverse statements given by brokers, director of companies and promoters of penny stock companies were not provided and no opportunity to cross-examine them was ever given to the assessee. Therefore, the said material could not be used against the assessee to consider LTCG as income from undisclosed sources. In support of various submissions, reliance was placed on various judicial pronouncements which have already been enumerated in the assessment order. Prominent amongst the same was the decision of Hon’ble Bombay High Court in the case of CIT V/s Shayam R. Pawar (54 Taxmann.com 108).
2.6 In support of transactions, the assessee had furnished copy of broker contract note for purchase as well as sale of share of Unisys along with bank statement evidencing inflow & outflow of funds through banking channels. The assessee also furnished demat account statement showing movement of shares in and from the demat account. The copy of Balance Sheet as on 31/03/2012 evidencing investment in the share of Unisys was also furnished. The attention was drawn to the fact that transactions took place at stock exchange in online mode of transaction. On the basis of these documentary evidences, the assessee claimed to have substantiated the stated transactions.
2.7 However, Ld. AO opined that as per the investigation carried out by Kolkata Wing, the assessee was beneficiary of bogus LTCG in scrip of Unisys whose share prices were found to be manipulated by the operators. As per findings of investigation, the price of the shares of the penny stock companies were rigged and raised through circular trading which was managed by the operator of the scrip. The operator would manage the overall affairs of the scheme and contact the entities wishing to take bogus gains in their books. The shares, though listed, would be closely held and controlled by the promoter of penny stock company as well as the operator. The same prompted market regulator SEBI to pass orders on the issue of manipulation of share market for providing accommodation entry of bogus LTCG.
2.8 The Ld. AO also observed that net-worth of Unisys was negligible but the share prices were artificially rigged by the operator to accommodate beneficiaries seeking LTCG etc. There was huge increase in the price of the shares during the period of 24 months. Similar gains were shown to be earned by other family members also. Finally, applying the test of human probabilities and in the light of investigation wing findings, Ld. AO concluded that the gains were not genuine. Justifying the action in terms of various judicial pronouncements, Ld. AO treated the sale consideration as undisclosed income u/s 68. The assessee must have paid certain commission to obtain the same which was estimated @6% and further added to the income of the assessee u/s 69C.
Appellate Proceedings
3.1 During appellate proceedings, the assessee challenged the validity of assessment proceedings on the ground that reopening was based merely on change of opinion. However, the same could not convince Ld. CIT(A) who opined that subsequent to completion of assessment proceedings, certain information was received by Ld. AO through departmental channels and the information was credible and actionable. The said material was sufficient to invoke the provisions of Sec.147 and no infirmity could be found in the action of Ld. AO to reopen the case of the assessee. The legal grounds, thus raised by the assessee, were dismissed.
3.2 On merits, the assessee reiterated its submissions that the transactions were well substantiated with documentary evidences and the view taken by Ld. AO was arbitrary and contrary to settled legal position. The assessee, drawing attention to the documentary evidences, reiterated that copies of adverse statements given by brokers, director of companies and promoters of penny stock companies were not provided and no opportunity to cross-examine them was ever given to the assessee. Therefore, the said material could not be used against the assessee to consider LTCG as income from undisclosed sources. Reliance was placed, inter-alia, on the favorable decision of Hon’ble Delhi Tribunal in Meenu Goel V/s ITO (94 Taxmann.com 158) which was rendered in the case of same scrip i.e., Unisys. Similar was stated to be the decision of Mumbai Tribunal in Ramprasad Agarwal V/s ITO (100 Taxmann.com 172) which held that in the absence of relevant material, the additions could not be sustained. Reliance was also placed on the decision of Ahmedabad Tribunal in Pratik Suryakant Shah V/s ITO (77 Taxmann.com 260) which held that the claim could not be denied on the basis of presumption and surmises by disregarding direct evidence relating to sale /purchase of shares supported by broker’s contract notes, confirmation of receipt of sales proceeds through regular banking channels and the demat account statement.
3.3 However, Ld.CIT(A), going by the findings of investigation wing, observed that the scrip of Unisys was penny-stock scrip which was controlled by entry operators. The same was evident from the statement of Shri R.K. Kedia recorded u/s 132(4) wherein it was admitted that this entity was controlled by Shri Jagdish Prashad Purohit, another entry operator functioning from Kolkata and Mumbai. The relevant portion of statement has already been extracted in the impugned order. Similar confessional admission was stated to have been made by Shri Jagdish Prashad Purohit in recorded statement wherein he admitted to have operated various entities for the purpose of providing bogus accommodation entries to various beneficiaries.
3.4 The entities which bought the shares of the assessee were tabulated in para 6.20 of the impugned order. Few of these entities were found to be operated by entry providers whose statement was also recorded by investigation wing wherein admission of their being engaged in providing accommodation entries were made by those persons.
3.5 In the above background, Ld. CIT(A), in para 6.30, noted that the assessee purchased the shares when the scrip prices were at bottom and sold when the scrip prices were at its peak. All the exit provider were dummy entities of various entry providers. The assessee knowingly participated in the bogus LTCG scam.
3.6 The assessee’ documentation was to be rejected in terms of the decision of Hon’ble Supreme Court in the case of Durgaprasad More (82 ITR 540) and Sumati Dayal (214 ITR 801) wherein it was held that the evidences were to be adjudged by applying the test of human probabilities and if something unusual was being claimed, the same was to be rejected. The other contentions of the assessee were also rejected. Finally, it was held that the assessee was not able to justify the investment decision and could not explain the spike in the prices of the scrip. Therefore, in the light of various judicial pronouncements, the action of Ld.AO in making additions u/s 68 & 69C was upheld. Aggrieved, the assessee is in further appeal before us.
Our findings and Adjudication
4.1 So far as the material facts are concerned, we find the assessee has sold certain shares of a scrip namely Unisys during the year. These shares were purchased during March, 2010. The shares were purchased in online mechanism at recognized stock exchange through registered share broker and the shares were duly credited in assessee’s demat account (page 79 of the paper-book). The payment has been settled through banking channels. Similarly, the shares have ultimately been sold in online mechanism at recognized stock exchange through registered share broker namely M/s Pragya Securities Limited (page nos. 76-77 of the paper-book). The purchase / sale transactions are duly evidenced by contract notes, broker’s ledger, demat account statement and bank statements etc. The sale proceeds have been received through banking channels and the shares have been delivered by the assessee from demat account. These transactions have been subjected to applicable Securities Transaction Tax (STT). Prima-facie the assessee has fulfilled all the requisite conditions to claim exemption u/s 10(38).
4.2 The perusal of assessee’s Balance Sheet, as placed in the paper-book, would reveal that the assessee hold investment in various scrips. On the basis of the same, it could be said that the assessee was a regular investor of share. The same is also evident from the fact that the assessee has earned short-term capital gain on various scrips during the year which has been offered to tax in its computation of income.
4.3 We find that all the aforesaid documents were furnished by the assessee before lower authorities and the same has also been placed before us in the paper-book. The perusal of all these documents would show that the shares have been purchased and sold through registered stock brokers in online mechanism wherein the identity of the seller & buyer would not be known. The findings of Ld. CIT(A) regarding exit providers do not show that the assessee was, in any way, known to these exit providers and connived with them to procure bogus LTCG. Therefore, the general statements given by the exit providers without specifically naming the assessee, on stand alone basis, was not quite sufficient to hold that the gains earned by the assessee were fictitious.
4.4 Upon perusal of all the aforesaid documents, it is quite discernible that the assessee had furnished all the requisite documentary evidences to substantiate the transactions and discharged the primary onus as required under law to establish the genuineness of the gains so earned during the year. No defect has been pointed out by the revenue in documentary evidences furnished by the assessee. Therefore, the onus had, thus, shifted on revenue to disprove assessee’s claim and establish with cogent evidences that the transactions were non-genuine transactions through which assessee’s unaccounted money has flown back to assessee in the garb of bogus capital gains. However, we find that except for general findings of investigation wing and third-party statements on the basis of which it has been alleged that the scrip of Unisys was penny stock, there is nothing in the kitty of the revenue to prove the assessee’s involvement in manipulating the prices of the scrip. No exchange of cash between the assessee and the various exit providers could be proved. Therefore, the onus as casted upon revenue to dislodge the assessee’s claim, remain un-discharged.
4.5 So far as the observations of Ld. AO as to financial and profitability of Unisys is concerned, we find that the sales transactions have taken place in online mechanism through recognized stock exchange wherein the identity of the buyer would not be known and there would be no privity of contract between the assessee and prospective buyers of shares. In online mode of trade, the prices would be guided by the buyer willing to buy the shares at certain prices and the seller willing to sell the shares at certain prices. The prices would be guided more by the market forces rather than the financials or other parameters. There would be buyers and sellers lining up on either side of a potential trade; one party willing to part with ownership and other party willing to acquire the ownership. When both the parties would agree upon a price, the trade is matched and that price would become new market quotation. Therefore, the financials of underlying entities, in such cases, would lose much relevance in so far as the price movement of scrip is concerned. Nothing adverse could be drawn against the assessee on the basis of the same. Therefore, the aforesaid observations as well as conclusion of Ld. AO would not support the case of the revenue.
4.6 Proceeding further, it could be observed that the primary reason to doubt the genuineness of assessee’s transactions is findings of investigation wing which was based on general statement of various stock-brokers / operators including statement of Shri R.K. Kedia and Shri Jagdish Prashad Purohit, wherein these persons, without naming the assessee specifically, made an admission that the scrip of Unisys was a penny stock scrip. However, despite specific request of the assessee, the adverse material which form the very basis of addition, no opportunity to cross-examine these persons was ever provided to the assessee. The failure to do so would make the additions unsustainable as per settled legal position. Further, the adverse statements made by these persons are not backed by any cogent corroborative material on record to establish the assessee’s involvement in price rigging of shares of Unisys No collusion between the assessee and alleged entry providers or operators or exit providers is shown to have existed. There is no admission or evidence-based finding that any cash got exchanged between the assessee and any of the bogus purchasers of the scrip. It is trite law that no additions could be made merely on the basis of suspicion, conjectures or surmise. The addition thus made purely on the basis of third-party statement recorded at the back of the assessee could not be sustained in the eyes of law unless the same are confronted to the assessee and the same are backed by any corroborative material. No effective investigation is shown to have been carried out by Ld. AO to dislodge the assessee’s claim by bringing on record cogent evidences as well as confronting the same. We find that except for general allegations as narrated in the investigation wing report, there is no evidence which would link assessee’s involvement in jacking up the prices of the shares with a view to earn artificial gains. The additions so made could not be sustained in the eyes of law as per the decision of Hon’ble Apex Court in Kishanchand Chellaram V/s CIT (125 ITR 713) and also in M/s Andaman Timber Industries V/s CCE (CA No.4228 of 2006 dated 02/09/2015) wherein it has been held that not allowing the assessee to cross-examine the witnesses by the adjudicating authority though the statement of those witnesses were made the basis of the impugned order, is a serious flaw which makes the order nullity in as much as it amounts to violation of principal of natural justice because of which the assessee was adversely affected. Similar is the ratio of decision of Hon’ble Bombay High Court in H.R.Mehta V/s ACIT (387 ITR 561).
4.7 The proposition that additions made purely on the basis of suspicious, conjectures or surmises could not be sustained in the eyes of law stem from the decision of Hon’ble Supreme Court in Omar Salay Mohamed Sait V/s CIT (1959 37 ITR 151) wherein it was held that the suspicion however strong could not partake the character of legal evidence as held by Hon’ble Supreme Court in Umacharan Shaw & Bros. V/s CIT (1959 37 ITR 271). The additions made on mere presumptions could not be sustained and there must be something more than mere suspicion to support the assessment as per the decision of Hon’ble Apex Court in Dhakeshwari Cotton Mills Ltd. V/s CIT (26 ITR 775). The assessment should not be based merely on suspicion or guess work but on legitimate material from which reasonable inference of income could have been drawn.
4.8 The last aspect of the matter is that the additions have been made by Ld. AO invoking the provisions of Section 68. The addition u/s 68, in our considered opinion, is not sustainable in view of the fact that credit in assessee’s bank account represents sale proceeds of shares sold in recognized stock exchange through registered stock broker. The sale transactions have taken place through recognized stock exchange and the money was received in settlement through banking channels. The assessee had delivered the shares from his demat account to the broker, who, in turn, paid sale consideration to the assessee. In such a case, there could be no doubt as to fulfillment of primary ingredients of Sec.68 viz. identity of the payer, their creditworthiness and the genuineness of the transactions. The source of credit received in the bank account could not be held to be unexplained unless it was established that assessee’s own money was routed in his bank account in the garb of Capital gains.
4.9 Besides the case laws cited by the assessee during appellate proceedings, the other case laws also support our view, some of which could be tabulated as under: –
(i) Hon’ble Bombay High Court in CIT V/s Mukesh Ratilal Marolia (ITA No.456 of 2007; 07/09/2011)
(ii) Hon’ble Gujarat High Court in CIT V/s Maheshchandra G.Vakil (40 com 326; 25/09/2012)
(iii) Hon’ble Rajasthan High Court in CIT V/s Smt. Sumitra Devi (49 com 37; 24/02/2014)
(iv) Hon’ble Rajasthan High Court in CIT V/s Pooja Agarwal (ITA No.385/2011 dated 11/09/2017)
(v) Hon’ble Delhi High Court in CIT V/s Smt. Krishna Devi & Ors.(ITA No.125/2020 & ors. Dated 15/01/2021)
We find that the ratio of aforesaid decisions is equally applicable to the fact of the present case before us.
4.10 Finally, keeping in the facts and circumstances of the case, we are inclined to hold that impugned additions are not sustainable in the eyes of law. The assessee had discharged the primary onus of establishing the genuineness of the transactions whereas the onus as casted upon revenue to corroborate the impugned additions by controverting the documentary evidences furnished by the assessee and by bringing on record, any cogent material to sustain those additions, could not be discharged by the revenue. The whole basis of making additions is third-party statement and no opportunity of cross-examination has been provided to the assessee to confront these parties. As against this, the assessee’s position that that the transactions were genuine and duly supported by various documentary evidences, could not be disturbed by the revenue. Hence, going by the factual matrix and respectfully following the binding judicial precedents as enumerated in the order, the additions made by Ld. AO and confirmed by Ld. CIT(A), are not sustainable in the eyes of law. Therefore, we are inclined to delete the same. We order so. Consequentially, the addition of estimated commission also stands deleted. Resultantly, the appeal, on merits, stand allowed.
4.11 So far as the legal grounds are concerned, we find that subsequent to framing of assessment u/s 143(3) r.w.s. 153A, Ld. AO came into possession of tangible material in the shape of investigation wing report which indicated possible escapement of income in the hands of the assessee. In our opinion, at this stage, nothing more was required to reopen the case of the assessee. Therefore, we concur with the findings of Ld.CIT(A) as given in the impugned order, in this regard. The legal ground, thus raised, stand dismissed.
5. The appeal stands partly allowed in terms of our above order.
ITA No.7922/Mum/2019, Assessment Year 2013-14
6.1 Facts are pari-materia the same in this year. An assessment was framed u/s 143(3) r.w.s. 147 on 30/11/2017 wherein the exemption of LTCG earned by the assessee on sale of certain shares of Unisys was denied and the sale proceeds was added to the income of the assessee along with estimated commission. The order of Ld. AO, upon confirmation by Ld. CIT(A), is in further challenge before us.
6.2 Since the facts as well as issues are similar as in AY 2012-13, our findings & adjudication as in AY 2012-13 shall mutatis-mutandis apply to this year also. Resultantly, the appeal stands partly allowed, in similar manner.
Conclusion
7. Both the appeals stand partly allowed Order pronounced on 17/12/2021
