Case Law Details

Case Name : Smt. Anita Singhania Vs DCIT (ITAT Kolkata)
Appeal Number : IT(SS)A No. 45/Kol/2019
Date of Judgement/Order : 07/05/2021
Related Assessment Year : 2012-13

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 ITAT JUDGEMENT

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:

Sl. No Pages Description Remarks
1 01 Purchase bill of shares of the assessee Disclosed
2 02-24 Copies of contract note issued by Brokers of the assessee Disclosed
3 25 Income Expenditure A/c and Balance Sheet for FY 2011-2012 of the assessee Disclosed
4 26-27 Demat Statement of the assessee Disclosed
5 28 Purchase bill of shares of the assessee’s husband Disclosed
6 29-40 Copies of contract note issued by Brokers Disclosed
7 41 Income Expenditure A/c and Balance Sheet for FY 2011-2012 of the assessee’s husband Disclosed

6.4. An examination of this document demonstrates that they are not incriminating material. These are official documents forming part of the official record and books of account of the assessee. The assessee has relied on these documents to prove the genuineness of the transactions. Thus the AO as well as the ld. CIT(A) have erred in holding that these papers are incriminating materials. The Assessing Officer relies on certain statements recorded from persons during post search operation. Material collected during post search operation cannot be considered as incriminating material found or seized during the course of search.

6.5. Now we consider the legal position on the issue whether an addition can be made an assessment order passed u/s 153A read with section 143(3) of the Act, in the case of unabated assessment, when no incriminating material was found or seized during the course of search. The ld. CIT(A) did not follow the binding judgement of the Jurisdictional High Court. Judicial discipline demands that the proposition of law laid down by the Hon’ble Jurisdictional High Court has to be followed by the authorities falling within Jurisdictional of the Hon’ble High Court.

6.6. The law on this issue as to whether an addition can be made in an unabated assessment u/s 153A of the Act, when there is no incriminating material found is laid down by various High Courts and Benches of ITAT as follows:

A) The Hon’ble Delhi High Court in the case of CIT vs. Meeta Gutgutia 395 ITR 526 has again analyzed this issue in para 55 to 71 as under:

“55. On the legal aspect of invocation of Section 153A in relation to AYs 2000-01 to 2003-04, the central plank of the Revenue’s submission is the decision of this Court in Smt. Dayawanti Gupta (supra). Before beginning to examine the said decision, it is necessary to revisit the legal landscape in light of the elaborate arguments advanced by the Revenue.

Section 153A of the Act is titled “Assessment in case of search or requisition”. It is connected to Section 132 which deals with ‘search and seizure’. Both these provisions, therefore, have to be read together. Section 153A is indeed an extremely potent power which enables the Revenue to re-open at least six years of assessments earlier to the year of search. It is not to be exercised lightly. It is only if during the course of search under Section 132 incriminating material justifying the re-opening of the assessments for six previous years is found that the invocation of Section 153A qua each of the AYs would be justified.

The question whether unearthing of incriminating material relating to any one of the AYs could justify the re-opening of the assessment for all the earlier AYs was considered both in Anil Kumar Bhatia (supra) and Chetan Das Lachman Das (supra). Incidentally, both these decisions were discussed threadbare in the decision of this Court in Kabul Chawla (supra). As far as Anil Kumar Bhatia (supra) was concerned, the Court in paragraph 24 of that decision noted that “we are not concerned with a case where no incriminating material was found during the search conducted under Section 132 of the Act. We therefore express no opinion as to whether Section 153A can be invoked even under such situation”. That question was, therefore, left open. As far as Chetan Das Lachman Das (supra) is concerned, in para 11 of the decision it was observed:

“11. Section 153A (1) (b) provides for the assessment or reassessment of the total income of the six assessment years immediately preceding the assessment year relevant to the previous year in which the search took place. To repeat, there is no condition in this Section that additions should be strictly made on the basis of evidence found in the course of the search or other post-search material or Information available with the Assessing Officer which can be related to the evidence found. This, however, does not mean that the assessment under Section 153A can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.”

58. In Kabul Chawla (supra), the Court discussed the decision in Filatex India Ltd. (supra) as well as the above two decisions and observed as under:

“31. What distinguishes the decisions both in CIT v. Chetan Das Lachman Das (supra), and Filatex India Ltd. v. CIT-IV (supra) in their application to the present case is that in both the said cases there was some material unearthed during the search, whereas in the present case there admittedly was none. Secondly, it is plain from a careful reading of the said two . decisions that they do not hold that additions can be validly made to income forming the subject matter of completed assessments prior to the search even if no incriminating material whatsoever was unearthed during the search.

32. Recently by its order dated 6th July 2015 in ITA No. 369 of 2015 (Pr. Commissioner of Income Tax v. Kurele Paper Mills P. Ltd.), this Court declined to frame a question of law in a case where, in the absence of any incriminating material being found during the search under Section 132 of the Act, the Revenue sought to justify initiation of proceedings under Section 153A of the Act and make an addition under Section 68 of the Act on bogus share capital gain. The order of the CIT (A), affirmed by the ITAT, deleting the addition, was not interfered with.”

59. In Kabul Chawla (supra), the Court referred to the decision of the Rajasthan High Court in Jai Steel (India) v. Asstt. CIT [2013] 36 com 523/219 Taxman 223. The said part of the decision in Kabul Chawla (supra) in paras 33 and 34 reads as under:

’33. The decision of the Rajasthan High Court in Jai Steel (India), Jodhpur v. ACIT (supra) involved a case where certain books of accounts and other documents that had not been produced in the course of original assessment were found in the course of search. It was held where undisclosed income or undisclosed property has been found as a consequence of the search, the same would also be taken into consideration while computing the total income under Section 153A of the Act. The Court then explained as under:

“22. In the firm opinion of this Court from a plain reading of the provision along with the purpose and purport of the said provision, which is intricately linked with search and requisition under Sections 132 and 132A of the Act, it is apparent that:

(a) the assessments or reassessments, which stand abated in terms of II proviso to Section 153A of the Act, the AO acts under his original jurisdiction, for which, assessments have to be made;

(b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material; and

(c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made.”

34. The argument of the Revenue that the AO was free to disturb income de hors the incriminating material while making assessment under Section 153A of the Act was specifically rejected by the Court on the ground that it was “not borne out from the scheme of the said provision” which was in the context of search and/or requisition. The Court also explained the purport of the words “assess” and “reassess”, which have been found at more than one place in Section 153A of the Act as under:

“26. The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words ‘assess’ or ‘reassess’-have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word assess has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents.”‘

60. In Kabul Chawla (supra), the Court also took note of the decision of the Bombay High Court in CIT v. Continental Warehousing Corpn (Nhava Sheva) Ltd. [2015] 58 taxmann.com 78/232 Taxman 270/374 ITR 645 (Bom.) which accepted the plea that if no incriminating material was found during the course of search in respect of an issue, then no additions in respect of any issue can be made to the assessment under Section 153A and 153C of the Act. The legal position was thereafter summarized in Kabul Chawla (supra) as under:

“37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:

i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.

iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the. aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.

iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.”

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings.

vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.”

61. It appears that a number of High Courts have concurred with the decision of this Court in Kabul Chawla (supra) beginning with the Gujarat High Court in Saumya Construction (P.) Ltd. (supra). There, a search and seizure operation was carried out on 7th October, 2009 and an assessment came to be framed under Section 143(3) read with Section 153A(1)(b) in determining the total income of the Assessee of Rs. 14.5 crores against declared income of Rs. 3.44 crores. The ITAT deleted the additions on the ground that it was not based on any incriminating material found during the course of the search in respect of AYs under consideration i.e., AY 2006-07. The Gujarat High Court referred to the decision in Kabul Chawla (supra), of the Rajasthan High Court in Jai Steel (India) (supra) and one earlier decision of the Gujarat High Court itself. It explained in para 15 and 16 as under:

’15. On a plain reading of section 153A of the Act, it is evident that the trigger point for exercise of powers thereunder is a search under section 132 or a requisition under section 132A of the Act. Once a search or requisition is made, a mandate is cast upon the Assessing Officer to issue notice under section 153A of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Since the assessment under section 153A of the Act is linked with search and requisition under sections 132 and 132A of the Act, it is evident that the object of the section is to bring to tax the undisclosed income which is found during the course of or pursuant to the search or requisition. However, instead of the earlier regime of block assessment whereby, it was only the undisclosed income of the block period that was assessed, section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. The second proviso makes the intention of the Legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub-section pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abate. Sub-section (2) of section 153A of the Act provides that if any proceeding or any order of assessment or reassessment made under sub­section (1) is annulled in appeal or any other legal provision, then the assessment or reassessment relating to any assessment year which had abated under the second proviso would stand revived. The proviso thereto says that such revival shall cease to have effect if such order of annulment is set aside. Thus, any proceeding of assessment or reassessment falling within the six assessment years prior to the search or requisition stands abated and the total income of the assessee is required to be determined under section 153A of the Act. Similarly, sub-section (2) provides for revival of any assessment or reassessment which stood abated, if any proceeding or any order of assessment or reassessment made under section 153A of the Act is annulled in appeal or any other proceeding.

16. Section 153A bears the heading “Assessment in case of search or requisition”. It is “well settled as held by the Supreme Court in a catena of decisions that the heading or the Section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of section 153. the intention of the Legislature is clear, viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment In case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition, in other words, the assessment should connected With something round during the search or requisition viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition’ or disallowance can be made only on the basis of material collected during the search or requisition, in case no incriminating material is found, as held by the Rajasthan High Court in the case of Jai Steel (India) v. Asst. CIT (supra), the earlier assessment would have to be reiterated, in case where pending assessments have abated, the Assessing Officer can pass assessment orders for each of the six years determining the total income of the assessee which would include income declared in the returns, if any, furnished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act.

** ** **

19. On behalf of the appellant, it has been contended that if any incriminating material is found, notwithstanding that in relation to the year under consideration, no incriminating material is found, it would be permissible to make additions and disallowance in respect of an the six assessment years. In the opinion of this court, the said contention does not merit acceptance, inasmuch as. the assessment in respect of each of the six assessment years is a separate and distinct assessment. Under section 153A of the Act, assessment has to be made in relation to the search or requisition, namely, in relation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated. In this regard, this court is in complete agreement with the view adopted by the Rajasthan High Court in the case of Jai Steel (India) v. Asst. CIT (supra). Besides, as rightly pointed out by the learned counsel for the respondent, the controversy involved in the present case stands concluded by the decision of this court In the case of CIT v. Jayaben Ratilal Sorathia (supra) wherein it has been held that while it cannot be disputed that considering section 153A of the Act, the Assessing Officer can reopen and/or assess the return with respect to six preceding years ; however, there must be some incriminating material available with the Assessing Officer with respect to the sale transactions in the particular assessment year.’

62. Subsequently, in Devangi alias Rupa (supra), another Bench of the Gujarat High Court reiterated the above legal position following its earlier decision in Saumya Construction (P.) Ltd. (supra) and of this Court in Kabul Chawla (supra). As far as Karnataka High Court is concerned, it has in IBC Knowledge Park (P.) Ltd. (supra) followed the decision of this Court in Kabul Chawla (supra) and held that there had to be incriminating material qua each of the AYs in which additions were sought to be made pursuant to search and seizure operation. The Calcutta High Court in Salasar Stock Broking Ltd. (supra), too, followed the decision of this Court in Kabul Chawla (supra). In Gurinder Singh Bawa (supra), the Bombay High Court held that:

“6. . . . . . once an assessment has attained finality for a particular year, i.e., it is not pending then the same cannot be subject to tax in proceedings under section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during proceedings under section 153A of the Act which are contrary to and/or not disclosed during the regular assessment proceedings.”

63. Even this Court has in Mahesh Kumar Gupta (supra) and Ram Avtar Verma (supra) followed the decision in Kabul Chawla (supra). The decision of this Court in Kurele Paper Mills (P.) Ltd. (supra) which was referred to in Kabul Chawla (supra) has been affirmed by the Supreme Court by the dismissal of the Revenue’s SLP on 7th December, 2015.

The decision in Dayawanti Gupta

64. That brings us to the decision in Smt. Dayawanti Gupta (supra). As rightly pointed out by Mr. Kaushik, learned counsel appearing for the Respondent, that there are several distinguishing features in that case which makes its ratio inapplicable to the facts of the present case. In the first place, the Assessees there were engaged in the business of Pan Masala and Gutkha etc. The answers given to questions posed to the Assessee in the course of search and survey proceedings in that case bring out the points of distinction. In the first place, it was stated that the statement recorded was under Section 132(4) and not under Section 133A. It was a statement by the Assessee himself. In response to question no. 7 whether all the purchases made by the family firms, were entered in the regular books of account, the answer was:

“We and our family firms namely M/s. Assam Supari Traders and M/s. Balaji Perfumes generally try to record the transactions made in respect of purchase, manufacturing and sales in our regular books of accounts but it is also fact that some time due to some factors like inability of accountant, our busy schedule and some family problems, various purchases and sales of Supari, Gutka and other items dealt by our firms is not entered and shown in the regular books of accounts maintained by our firms.”

65. Therefore, there was a clear admission by the Assessees in Smt. Dayawanti Gupta (supra) there that they were not maintaining regular books of accounts and the transactions were not recorded therein.

66. Further, in answer to Question No. 11, the Assessee in Smt. Dayawanti Gupta (supra) was confronted with certain documents seized during the search. The answer was categorical and reads thus:

“Ans:- I hereby admit that these papers also contend details of various transactions include purchase/sales/manufacturing trading of Gutkha, Supari made in cash outside Books of accounts and these are actually unaccounted transactions made by our two firms namely M/s. Asom Trading and M/s. Balaji Perfumes.”

67. By contrast, there is no such statement in the present case which can be said to constitute an admission by the Assessee of a failure to record any transaction in the accounts of the Assessee for the AYs in question. On the contrary, the Assessee herein stated that, he is regularly maintaining the books of accounts. The disclosure made in the sum of Rs. 1.10 crores was only for the year of search and not for the earlier years. As already noticed, the books of accounts maintained by the Assessee in the present case have been accepted by the AO. In response to question No. 16 posed to Mr. Pawan Gadia, he stated that there was no possibility of manipulation of the accounts. In Smt. Dayawanti Gupta (supra), by contrast, there was a chart prepared confirming that there had been a year-wise non-recording of transactions. In Smt. Dayawanti Gupta (supra), on the basis of material recovered during search, the additions which were made for all the years whereas additions in the present case were made by the AO only for AY 2004-05 and not any of the other years. Even the additions made for AYs 2004-05 were subsequently deleted by the CIT (A), which order was affirmed by the ITAT. Even the Revenue has challenged only two of such deletions in ITA No. 306/2017.

68. In para 23 of the decision in Smt. Dayawanti Gupta (supra), it was observed as under:

“23. This court is of opinion that the ITAT’s findings do not reveal any fundamental error, calling for correction. The inferences drawn in respect of undeclared income were premised on the materials found as well as the statements recorded by the assessees. These additions therefore were not baseless. Given that the assessing authorities in such cases have to draw inferences, because of the nature of the materials – since they could be scanty (as one habitually concealing income or indulging in clandestine operations can hardly be expected to maintain meticulous books or records for long and in all probability be anxious to do away with such evidence at the shortest possibility) the element of guess work is to have some reasonable nexus with the statements recorded and documents seized. In tills case, the differences of opinion between the CIT (A) on the one hand and the AO and ITAT on the other cannot be the sole basis for disagreeing with what is essentially a factual surmise that is logical and plausible. These findings do not call for interference. The second question of law is answered again in favour of the revenue and against the assessee.”

69. What weighed with the Court in the above decision was the “habitual concealing of income and indulging in clandestine operations” and that a person indulging in such activities “can hardly be accepted to maintain meticulous books or records for long.” These factors are absent in the present case. There was no justification at all for the AO to proceed on surmises and estimates without there being any incriminating material qua the AY for which he sought to make additions of franchisee commission.

70. The above distinguishing factors in Smt. Dayawanti Gupta (supra), therefore, do not detract from the settled legal position in Kabul Chawla (supra) which has been followed not only by this Court in its subsequent decisions but also by several other High Courts.

71. For all of the aforementioned reasons, the Court is of the view that the ITAT was justified in holding that the invocation of Section 153A by the Revenue for the AYs 2000-01 to 2003-04 was without any legal basis as there was no incriminating material qua each of those AYs.”

By an order dated 2nd July 2018 passed by the Supreme Court dismissing the Revenue’s Special Leave Petition against the aforementioned judgment in Pr. CIT v. Meeta Gutgutia Proprietor Ferns ‘N’ Petals (supra) on merits. The said order is reported as Pr. CIT v. Meeta Gutgutia (2018) 257 Taxman 441 (SC).

B) The Hon’ble Calcutta High Court in the case of CIT, Kolkata-III vs. Veerparabhu Marketing Limited [2016] 73 com 149 (Calcutta) similar view was upheld:

“8. We are in agreement with the views expressed by the Karnataka High Court that incriminating material is a pre-requisite before power could have been exercised under section 153C read with section 153A.

9. In the case before us, the assessing officer has made disallowances of the expenditure, which were already disclosed, for one reason or the other. But such disallowances were not contemplated by the provisions contained under section 153C read with section 153A. The disallowances made by the assessing officer were upheld by the CIT(A) but the learned Tribunal deleted those disallowances.”

C) The Hon’ble Calcutta High Court in the case of PCIT-2, Kolkata vs. M/s. Salasar Stock Broking Limited (ITAT No. 264 of 2016) dated 24.08.2016 similar view was upheld.

In this case, the Hon’ble High Court observed that the Ld. ITAT, Kolkata was of the opinion that the assessing officer had no jurisdiction u/s 153A of the I.T. Act to reopen the concluded cases when the search & seizure did not disclose any incriminating material. In taking the aforesaid view, the Ld. ITAT relied upon the judgments of Delhi High Court in the case of CIT(A) Vs. Kabul Chawla in ITA No. 707/2014 dated 28.08.2014. The Court also observed that more or less an identical view has been taken by this Bench in ITA No. 661/2008 in the case of CIT Vs. Veerprabhu Marketing Limited. Considering the above facts, the Hon’ble High Court did not admit the appeal filed by the Department.

6.7. Even otherwise the Assessing Officer was duly bound to furnish the copies of all the statements recorded by him in post search investigation, to the assessee and to 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 of 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 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 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 of 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 material 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 of 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 of 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 of 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 of fact and on the given facts, it cannot be said that the finding of 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 Industrial 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 of 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 of Income Tax(Appeals) were those that out of the four blocks of 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 of 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 of 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.

9. In the result, the appeal of the assessee is allowed.

Order Pronounced in the Open Court on 7th May, 2021.

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