Anita Singhania Vs DCIT (ITAT Kolkata)
Conclusion: AO had to confront assessee with the material collected behind the back of assessee, if he chosen to use the material against assessee and that he should provide assessee an opportunity of cross-examination. Not having done so made the evidence in question bad in law.
Held: Assessee submitted that search and seizure operation u/s 132(1) was conducted on assessee on 03.02.2017 and that the same was concluded on 05.03.2017. He submitted that during the courses of search and seizure no incriminating material was found or seized. It was submitted that seized material was not incriminating material, as all the documents, information were forming part of official documents and regular books of accounts. He contended that none of this material that was found/seized during the course of search operation could be termed as incriminating material. AO had not furnished to assessee, copies of the statement recorded from various persons including Anil Kumar Khemka and hence this material could not be used against the assessee as it was a material collected behind back to assessee. He further submitted that no opportunity to cross-examine the person by Revenue was allowed and these statements of these persons were illegally used by AO against assessee. Thus, AO as well as CIT(A) had erred in holding that these papers were incriminating materials. AO relied on certain statements recorded from persons during post search operation. Material collected during post search operation could not be considered as incriminating material found or seized during the course of search. It was held that AO had to confront assessee with the material collected behind the back of assessee, if he chosen to use the material against assessee and that he should provide assessee an opportunity of cross-examination. Not having done so made the evidence in question bad in law. Thus, search assessment made by AO was not justified.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal filed by the assessee directed against the order of Commissioner of Income Tax (Appeals) -20, Kolkata dated 14.08.2019 passed u/s 250 of the Income Tax Act, 1961 ‘the Act’ for the assessment year 2012-13. The facts of the case are brought out by the Ld. CIT(A) which is extracted below:
“The appellant is an individual who mainly derives her income from salary and investment activity. The original return of income for the A. Y. 2012-13 was filed on 10.07.2012 disclosing a total income of Rs. 2,42,822/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred as the ‘Act’) on 06.02.2013 resulting in a refund of Rs. 570/-. On 03.02.2017, a search and seizure operation u/s 132(1) and a survey as well u/s 133A were conducted in the office premises of ‘Square Four Group of Companies’ at 238A, AJC Bose Road, 2nd Floor, Suit No. 2B & Flat 2D, Kolkata 700020 as well as at the residential address of the Directors and key persons connected with this group. At the time of search, voluminous incriminating documents were found and seizeed from the residential premises of Shri Ganesh Kumar Singhania, Smt. Anita Singhania and Shri Arun Kumar Singh.
1.1. Subsequently, notice u/s 153A of the Act was issued and served to the assessee on 28.08.2018. The assessee filed her return of income on 07.09.2018 u/s 153A of the Act, disclosing total income of Rs. 2,42,822/-. Thereafter, statutory notices u/s 143(2) & 142(1) of the Act along with questionnaire were issued on 14.09.2018 & 19.09.2018 respectively and served upon the assessee. During the captioned assessment year the assessee claimed a net Long Term Capital Gain (LTCG) amounting to Rs. 4.17 crores from investment in shares of Twenty First Century (India) Ltd. The AO disallowed the above claim by stating that the assessee has resorted to the scheme of booking bogus gains and by indulging in this it has converted its black money into white. The AO passed the order u/s 143(3)/153A of the Act on 31.12.2018 by making additions u/s 68 of the Act amounting to Rs. 4,17,56,650/-. Aggrieved by the order of the AO, the assessee preferred on appeal. The grounds taken in the said appeal are as under:
1. That the order passed by the Ld. AO u/s 153A read with section 143(3) is bad in law as well as on the facts and circumstances of the case.
2. That the Ld. AO erred in making addition on account of long term capital gain of Rs. 4,17,56,650/- in assessment order passed u/s 153A read with section 143(3) of the Income Tax Act, 1961 without any incriminating documents found during the course of search and seizure operation to that effect.
3. That the Ld. AO erred in facts and circumstances of the case in treating long term capital gain arising from sale of shares as bogus.
4. That the Ld. AO erred in facts and circumstances in making addition of Rs. 4,17,56,650/- u/s 68 of the Income Tax Act, 1961 on account of long term capital gain on sale of shares.
5. That the appellant craves leave to add, and / or further amend grounds of appeal on or before hearing.
1.2. Vide the above grounds of appeal; the appellant has challenged the assessment order passed by the AO u/s 153A of the Act, both on Jurisdictional as well as on merits of the addition made in the said order. Further, as stated above, vide the additional ground of appeal filed during the course of this appellate proceeding, the appellant had taken a new ground and challenged the validity of proceeding qua the non-receipt of notice issued by the AO u/s 143(2) of the Act. This additional ground filed by the appellant is purely legal in nature and goes into the root of the entire assessment proceeding. This additional ground is hereby accepted and also same will be adjudicated prior to the regular grounds taken by the appellant in grounds of appeal.”
2. The Ld. Commissioner of Income Tax (Appeals) for the various reasons given in his order rejected the various contentions of the assessee and confirmed the order of assessment.
2.1. Further aggrieved the assessee is in appeal before us on the following grounds:
“a. That the Ld. CIT(A) erred in upholding the order u/s 143(3) read with section 153A of the Income Tax Act, 1961 passed by Ld. AO which is bad in law as well as on the facts and circumstances of the case.
b. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the addition by the Ld. AO, on account of long term capital gain of Rs. 4,17,56,650/- in the assessment order passed u/s 143(3) read with section 153A of the Income Tax Act, 1961 without any incriminating documents found during the course of search and seizure operation to that effect.
c. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the treatment of Long Term Capital Gain arising from sale of shares as bogus, by the Ld. AO.
d. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in upholding the addition of Rs. 4,17,56,650/- u/s 68 of the Income Tax Act, 1961 on account of long term capital gain arising from sale of shares, by the Ld. AO.
e. That the Ld. CIT(A) erred in upholding the assessment proceedings conducted by the Ld. AO without the issue of notice u/s 143(2) of the Income Tax Act, 1961.”
3. The learned counsel for the assessee submitted that search and seizure operation u/s 132(1) of the Act was conducted on the assessee on 03.02.2017 and that the same was concluded on 05.03.2017, as is evident from the copy of the Panchanama which is placed at page 17 of the Paper Book. He submitted that during the courses of search and seizure no incriminating material was found or seized. It was submitted that seized material ID Mark SFGO/9 (Page 01 to 41) is not incriminating material, as all the documents, information are forming part of official documents and regular books of accounts. He contended that none of this material that was found/seized during the course of search operation can be termed as incriminating material.
3.1. He referred to the statement recorded by the Assessing Officer from Shri Anil Kumar Khemka dated 14.04.2017 and submitted that the statement was recorded after the closure of search and seizure operation on 05.03.2017 and that such post search action cannot form material found during search.
3.2. He further submitted that the Assessing Officer has not furnished to the assessee, copies of the statement recorded from various persons including Anil Kumar Khemka and hence this material cannot be used against the assessee as it is a material collected behind back to the assessee. He further submitted that no opportunity to cross-examine the person cited as witness by the Revenue was allowed and these statements of these persons were illegally used by the AO against the assessee.
3.3. The learned counsel submitted that the Assessing Officer has not made any independent enquiries or conducted any investigations, either with the seller of the shares or with the stock exchange. He submitted that the conclusions of the Assessing Officer are based on borrowed investigation report of the investigation wing of the Department which was not confronted to the assessee. He submitted that the most important function of the AO of enquiry and investigation cannot be outsourced and that the report given by the Investigation Wing to them, at best is information and material based on which the AO has to made necessary and reasonable enquiries and collect evidence to support his conclusions.
3.4. For this proposition, he relied on the following case laws:
Anirudhsinhji Karansinhji Jadeja & Anr. Vs. State of Gujara – (1995) 5 SCC 302.
3.5. For this proposition that no addition can be made in a search an assessment u/s 153A of the Act when no incriminating material is found during the course of search, he relied on the following case laws:
i. CIT vs. Kabul Chawla 380 ITR 573
ii. Principal CIT vs. Kurele Paper Mills 380 ITR 571 (Del)
iii. Principal CIT vs. Meeta Gutgutia 395 ITR 526 (Del)
iv. CIT vs. Veerprabhu Marketing Ltd. (2016) 73 com 149 (Calcutta)
v. PCIT-2, Kolkata vs. Salasar Stock Broking Ltd. (ITAT No. 264 of 2016) dated 24.08.2016 and other case laws.
3.6. He relied on the following case laws for the proposition, no addition can be made based on evidences which are not confronted to the assessee and cases where cross-examination has not been granted to the assessee.
i) Andaman Timber Industries in Civil Appeal No. 4228 of 2006 (2015) (324) E.L.T. 641 (SC);
ii) CIT vs. Eastern Commercial Enterprises (1994) 210 ITR 103 (Cal).
3.7. On merits, he submitted that the assessee has furnished all evidences in support of the claim of the assessee that the long term capital gain earned by him and transaction of its investment in shares are genuine. He argued that the Assessing Officer accepted the genuineness of the purchase of the shares in the year of acquisition. He pointed out that all the transactions are routed through the bank account and that the assessee has paid through account payee cheques only and that these are reflected in the books of accounts. He submitted that where the purchase and sale of shares through the recognised brokers on the platform of a recognized stock Exchange and which transactions are reflected in the Demat account and where the assessee has paid security transactions the genuineness cannot be doubted.
3.8. He relied on the number of decisions including the judgement of the Jurisdictional High Court for this proposition. These are:
i) CIT vs M/s. Blb Cables & Conductors, ITAT No. 78 of 2017, GA No. 747 of 2017, dtd. 19th June, 2018;
ii) M/s. Classic Growers Ltd. vs CIT (ITA No. 129 of 2012) (Cal HC);
iii) CIT vs Lakshmangarh Estate & Trading Co. Limited (2013) 40 com 439 (Cal);
iv) CIT vs Bhagwati Prasad Agarwal [2009 – TMI-34738 (Cal HC) in ITA No. 22 of 2009 29.04.2009] etc.
3.9. He submitted that once the assessee had furnished all the evidences in support of the genuineness of the transactions, the onus to disprove the same shifts to the Revenue and the Revenue has failed to discharge the onus.
4. The learned departmental representative Mr. John Vincent Donkuper Langstieh, on the other hand opposed the contentions of the assessee. He submitted that the Assessing Officer at para 4.2 of the assessment order has referred to the seized documents Id Mark SFGO/9 (page 01 to 41) and argued that these are incriminating material. He submitted that even otherwise there is no requirement for the Assessing Officer to have incriminating material found and seized during the course of search, to enable him to make additions in an assessment which is not abated u/s 153A of the Act. For this argument he relied on the order of the ld. CIT(A) para-3.5 onwards and case law mentioned therein.
4.1. He distinguished the decision relied upon by the assessee and supported the following finding of the ld. CIT(A) which is extracted below:
“3.30 In view of the above discussion and analysis I am of the view that addition or disallowance can be made by the AO in unabated assessment years also without any incriminating material.
However since the jurisdictional High court has decided this issue in favour of the assessee in case of Salasar Stock Broking Pvt. Ltd. (Supra) therefore, Hon court can only again readjudicate on this issue.
Whether addition made is based on any incriminating material or not?
3.31 Now, I will examine as to whether addition in the present case has been made by the AO on the basis of the incriminating material or not. In other words, it needs to be decided as to whether in the appellant case there was any incriminating material present or not. On perusal of the assessment order, it is evident that the basis of addition is the material seized from during the search marked as SFGO/9 (Pg (01 to 41). The appellant in its written submission has submitted that these documents were nothing but regular books of accounts and challan etc. of the appellant. The appellant also submitted that these documents cannot be said to be Incriminating material. Prima facie, the contention of the appellant seems to be convincing but deeper scrutiny will make lit totally shallow. The ‘incriminating material’ can be in any form such as evidence in the nature of i) a document, content of any document; i) an entry in books of account; iii) an asset; iv) a statement given on oath; v) absence of any fact claimed earlier but coming to notice during search; vi) absence of books being found during search; or vii) absence of the office/business premises as claimed during returns filed or any other documents, etc. In short, any fact/ evidence which could suggest that the documents/ transactions claimed or submitted In any earlier proceedings were not genuine, being only a device/ make belief based on non-existent facts or suppressed/ misrepresented facts, would constitute an Incriminating material sufficient to make assessment for the purposes of the Act.
3.32 The provisions of section 153A/153C are not the normal assessment provisions like143(3); rather they are curative provisions to plug the mischief of evasion of taxable income based on evidences found in pursuance to search. Hence, if on account of search, the facts and circumstances suggest that any entry already appearing in books or accepted in earlier assessments based on documents submitted at that point of time, are camouflaged or manipulated or reflected to be in the nature or from a source which is different from the real nature or source as appearing from the evidences found during a subsequent search, then such material/ facts coming to fore now will definitely constitute an incriminating material. In consequence of the same the earlier recorded entries/earlier admitted documents and evidence shall have no force as genuine evidence. If it were held not to be so, then the purpose of 153A would be defeated as it would fail to prevent the mischief, which if sought fo prevent just because the entries were already recoded in the books or some documents had already been accepted. Hence applying the Hayden’s rule of mischief, the mere fact that such entries are recorded in the books of accounts or some fabricated or colourful documents have already been accepted as correct, will not prevent such material or entry from being incriminating, if the circumstances suggest otherwise.
3.33 Assistance or reference may also be drawn from the definition of the term “undisclosed income'” as given in the clause (ii) of 271AAB (c) which defines it as “any income based on entry in books of accounts wholly or partly false and would not have been found to be so, had the search not been conducted”. This clearly implies that any entry even recorded in the books, which is found to be wholly or partly false along with having a bearing on determination of income based on evidence gathered during search, would also be in the nature of incriminating material. This also supports the contention that mere recording of an entry in the books of accounts does not take away its incriminating character, if such entry was without evidence or had been falsely recorded in the books of accounts.
3.34 In the appellant case, assessment was framed u/s 143(1) i.e. summary assessment. In other words, at no occasion the alleged capital gain computation came before the revenue authority for scrutiny. It is only during the post search investigation, some material in the form of statement of entry operator came into the light. In the statement, the operator had categorically named the appellant and confirmed that the appellant had taken entry from the said entry operator. Thereafter, AO linked those statement with the documents seized and during that process it revealed that the appellant had connived with the entry operator to convert its black money into white money. The AO undertaken detailed investigation and gathered evidences by writing to the Stock Exchange and other stakeholders. If has also deputed the inspector at all the exit provider entities and conclusion in all the visits was invariable same i.e. these companies did not exist. These documents seized, statement of the entry operator and evidences gathered by the AO from exchanges and report of inspector is nothing but incriminating material which clearly indicates that appellant had used this bogus capital gain route to convert its black money into white. I would like emphasized here that both before the AO as well during this proceeding the appellant neither through its submission nor through her AR, any time, explained or gave any submission on merits or genuineness of the transaction and merely harped on legal rhetoric. It has cited numerous case laws and legal literature. In this regard, I would like to state that facts of the case are important and onus is on the assessee to come clean on the facts. During the entire proceeding, the Ld. AR not able to cite one single fact which can support the appellant case on facts.
3.35 Therefore, in my view, there was sufficient incriminating material was there which is eventually used by the AO in making the addition u/s 68 of the Act.
3.36 One of the contention raised by the assessee was that in absence of any opportunity provided to the appellant to cross examine the statement of entry operator i.e. Anil Kumar Khemka, no addition can be made by the AO as the same amounts to violation of natural justice.
A perusal of assessment record shows that the Assessee has never asked for cross examination of Shri Anil Kumar Khemka. I would also like to mention that, addition in the present case had been made by the AO not solely on the basis of the statement of entry operator. In the present case the AO has made a detailed investigation and did a pain staking factual analysis. It is only on the basis of these analysis and investigation, the AO has recorded multiple adverse findings against the alleged capital gain transaction.
In case of GTC Industries Limited, 65 ITD 380 of Mumbai bench of Tribunal has held that where statements of witnesses were only secondary and of subordinate material used to buttress main matter connected with amount of additions, it had to be held that there was no denial of principle of natural justice if witnesses were not allowed to be cross examine by the assessee.
In case of Soman Sun Citi vs. JCIT (ITAT Mumbai) S. 69C Bogus Purchases (100% disallowance confirmed): It was held that The right of cross-examination is not absolute. No prejudice is caused to the assessee by non granting of cross examination if the assessee has not discharged the primary onus. The fact that purchase bills are produced and payment is made through banking channels is not sufficient if the other evidence is lacking.
No prejudice is caused to the assessee by non granting of opportunity of cross examination by the authorities below as right of cross examination is not absolute as in the instant case even primary onus that fell on the assessee did not stood discharged. Had assessee discharged its primary onus, but still the authorities proceed to prejudice assessee based solely on the incriminating statements/affidavits of third parties recorded at the back of the assessee, the right of the assessee to cross examine these third parties will become absolute. It is not a Case that the authorities below have merely/solely relied on the statement/affidavit of third parties namely hawala dealers recorded at the back of the assessee to cause prejudice to the assessee rather primary onus that lay on the assessee was not discharged by the assessee.
In view of the above discussion, this contention of the appellant is also rejected.
In view of the aforesaid, all the above grounds are hereby rejected and decided against the appellant.”
4.2. The ld. CIT(D/R) relied on the above finding from para 3.31 to 3.36 of the ld. CIT(A)’s order and submitted that sufficient incriminating material was available in this case for the Assessing Officer to make an addition in the assessment order. Thereafter, he relied para 4 to para 4.18 of the ld. CIT(A)’s order and submitted that the purchase and sale of shares were bogus transaction and the Assessing Officer as well as the ld. CIT(A) have brought on record the modus operandi of the entire transactions. He relied on the case was referred to by the ld. CIT(A) in his order including the ITAT Delhi Bench order in the case of Udit Kalra vs ITO [ITA No. 6717/Del/2017] which was approved by the Hon’ble Delhi High judgement dated 08.02.2019. He submitted that the order of the ld. CIT(A) be upheld and the appeal of the assessee dismissed.
5. We have heard rival contentions. On a careful consideration of the facts and circumstances of the case, a perusal of the papers on record, the orders of the authorities below, the case law cited we hold as follows.
6. A search and seizure operation was conducted on the assessee on 03.02.2017 and was concluded on 05.03.2017 as is evident from the Panchanama. The assessee had filed his return of income for AY 2012-13 on 10.07.2012. This return of income was processed u/s 143(1) of the Act. No statutory notice u/s 143(1) of the Act was issued to the assessee. Thus the assessment for the including A.Y. 2012-13 has not abated.
6.1. We shall not consider the argument of the assessee that no incriminating material was found or seized during the course of search and seizure operation.
6.2. The Assessing Officer as well as the ld. CIT(A) relied on the seized material ID Mark SFGO/9 (Page 01 to 41). The case of the Revenue is that these papers are incriminating material. The assessee argues that this is not incriminating material as she has all of them disclosed to the Revenue and as these documents are official document which form part of the original books of account.
6.3. We have perused the copies of this seized material ID Mark SFGO/9 (Page 01 to 41) which is placed at page 31 of the Paper Book. This is listed for ready reference:
