Laxmipat Dudheria(HUF), Bangalore V. Income-Tax Officer, Ward-5(2)(3), Bangalore

ITA 2377/BANG/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8972 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 14-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GANESH R GHALE DEPT
• Assessee Lawyers: M V PADMANABHA
• Keywords: Unexplained cash credit; Opportunity of being heard; Principle of natural justice; Accommodation entries; Penny stocks; Set aside
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC - A BENCH : BANGALORE ` BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT ITA NO. 2377 /BANG/201 8 ASSESSMENT YEAR : 2014 - 15 LAXMIPAT DUDHERIA (HUF), NO.66, NAVNIKETAN, K.R.ROAD, BASAVANAGUDI, BENGALURU-560 004. PAN: AABHL5328K VS. THE INCOME TAX OFFICER, WARD 5(2)(3), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI M.V. PADMANABHA , ADVOCATE RESPONDENT BY : SHRI GANESH R. GHALE, STANDING COUNSEL FOR DEPT. DATE OF HEARING : 0 2. 0 1 .20 20 D ATE O F PRONOUNCEMENT : 10 . 0 1 .20 20 O R D E R THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORD ER DATED 23.07.2018 OF THE CIT(APPEALS)-10, BENGALURU, RELATING TO ASSE SSMENT YEAR 2014-15. 2. THE ISSUE THAT NEEDS TO BE ADJUDICATED IN THIS APPEAL IS AS TO, WHETHER THE REVENUE AUTHORITIES WERE JUSTIFIED IN T REATING A SUM OF RS.46,16,000, WHICH WAS CLAIMED BY THE ASSESSEE TO BE SALE PROCEEDS OF SALE OF SHARES GIVING RAISE TO LONG TERM CAPITAL GA IN ON SALE OF SHARES, AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE INCOME-TAX A CT, 1961 [THE ACT] AND ADDING THE SAME AS INCOME UNDER THE HEAD INCOME FR OM OTHER SOURCES. 3. THE ASSESSEE IS A HUF. THE ASSESSEE CLAIMED TO HAVE PURCHASED 100000 SHARES OF A COMPANY BY NAME M/S. BLUE CIRCLE SERVICES LTD. FOR CONSIDERATION OF RS.15,00,000 IN THE FINANCIAL YEAR 2011-12 (AY 2012-13) ITA NO. 2377/BANG/2018 PAGE 2 OF 6 AND SOLD THOSE SHARES DURING THE AY 2014-15 FOR A S ALE VALUE OF RS.46,16,000/-. THE ASSESSEE DECLARED LONG TERM CA PITAL GAIN (LTCG) ON SALE OF THE AFORESAID SHARES AT RS.30,86,000/- A ND CLAIMED THE SAID LONG-TERM CAPITAL GAIN AS EXEMPT U/S. 10(38) OF THE ACT. 4. THE AO NOTICED THAT THERE WAS AN INVESTIGATION C ARRIED OUT BY THE DIRECTORATE OF INVESTIGATION, KOLKATA INTO 84 PENNY STOCKS OF WHICH THE COMPANY M/S.BLUE CIRCLE SERVICES LTD., WAS ONE. ACC ORDING TO THE AO, SUCH INVESTIGATION BROUGHT TO LIGHT THAT THERE WAS AN ORGANIZED RACKET OF GENERATING BOGUS ENTRIES OF LONG-TERM CAPITAL GAIN WHICH IS EXEMPT. THE MODUS OPERANDI WAS TO BUY SHARES OF COMPANIES CONTROLLED BY THE OPERATORS AT A LESS PRICE AND THEREAFTER RIG THE PR ICE OF THE STOCK TO A HIGH LEVEL AND SELL THE SHARES AND DECLARE LONG-TERM CAP ITAL GAIN. ACCORDING TO THE INVESTIGATION CARRIED OUT BY THE DEPARTMENT, TH E OPERATORS WERE DUMMY PAPER COMPANIES AND THE LONG-TERM CAPITAL GAIN DECL ARED AND CLAIMED AS EXEMPT WAS NOTHING BUT ASSESSEES OWN MONEY WHICH H AS TO BE ADDED U/S. 68 OF THE ACT. 5. BASED ON THE ABOVE SAID INVESTIGATION CARRIED OU T BY THE DIRECTORATE OF INVESTIGATION, KOLKATA, AND THE STATEMENTS OF VA RIOUS OPERATORS, ENTRY PROVIDERS AND STOCK BROKERS ADMITTING ACCOMMODATION ENTRIES OF LONG TERM CAPITAL GAIN, THE AO WAS OF THE VIEW THAT THE SALE OF SHARES RESULTING IN THE LONG-TERM CAPITAL GAIN DECLARED BY THE ASSESSEE HAS TO BE TREATED AS UNEXPLAINED CASH CREDIT AND ADDED TO THE TOTAL INCO ME OF THE ASSESSEE. ACCORDINGLY, THE AO TREATED THE SALES PROCEEDS OF S HARES AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE ACT AND ADDED THE SAME T O THE TOTAL INCOME OF ASSESSEE. THE CIT(APPEALS) CONFIRMED THE ORDER OF AO. 6. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO MY NOTICE THAT BEFORE THE AO THE ASSESSEE SOUGHT IN ITS LETTER DATED 13.12.2016 FILED BEFORE THE AO, TO PROVIDE EVIDENC E OR DATA PROVING THAT ITA NO. 2377/BANG/2018 PAGE 3 OF 6 THE TRANSACTIONS AS ENTERED BY THE ASSESSEE HAS BEE N RIGGED OR IS SO CALLED BOGUS IN NATURE AND THAT UNLESS SUCH INFORMA TION IN POSSESSION OF THE DEPARTMENT IS MADE AVAILABLE TO THE ASSESSEE, T HE ASSESSEE WILL NOT BE IN A POSITION TO SUBMIT EFFECTIVE REPLY AND ERASE A NY DOUBTS IN THE MIND OF THE AO. THE ASSESSEE ALSO SOUGHT THREE WEEKS TIME AFTER SUCH INFORMATION IS PROVIDED SO THAT THE ASSESSEE CAN GI VE PROPER REPLY. THE REQUEST OF THE ASSESSEE WAS NOT ACCEDED TO BY THE A O. 7. OUR ATTENTION WAS ALSO DRAWN TO GROUNDS NOS. 3 T O 5 FILED BEFORE THE CIT(A) WHEREIN THE ASSESSEE HAS RAISED SPECIFIC GRO UNDS REGARDING VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND THE ACTION OF THE AO IN RELYING ON THE FINDINGS OF THE INVESTIGATION WING WITHOUT F URNISHING THE MATERIAL RELATING TO THE SAME TO THE ASSESSEE AND ALSO ON RE LYING ON MATERIAL WHICH WERE IRRELEVANT. THE CIT(A) HAS GIVEN A FINDING IN PARAGRAPH-2 OF HIS ORDER THAT SUFFICIENT OPPORTUNITY WAS GIVEN TO THE ASSESS EE BY THE AO AND THAT THE AO HAS NOT MADE THE ADDITION SOLELY ON THE BASI S OF REPORT OF THE INVESTIGATION DIRECTORATE, BUT ON HIS OWN CONCLUSIO N AFTER ANALYSIS OF THE FINANCIALS OF BLUE CIRCLE SERVICES LTD. THAT THERE WAS NO REASON WHY THE PRICES OF THE SHARES SHOULD INCREASE SO MUCH AND TH AT THE INCREASE IN PRICE WAS ARTIFICIAL. 8. HE BROUGHT TO MY NOTICE THAT BEFORE THE TRIBUNAL THE ASSESSEE HAS RAISED 3 TO 5 HIGHLIGHTING VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND THE ACTION OF THE AO IN RELYING ON THE FINDINGS OF THE INVESTIGATION WING WITHOUT FURNISHING THE MATERIAL RELATING TO THE SAME TO THE ASSESSEE AND ALSO ON RELYING ON MATERIAL WHICH WERE IRRELEVANT. HE SUBM ITTED THAT THE ISSUE SHOULD BE SENT BACK TO AO WITH DIRECTION TO PROVIDE THE ASSESSEE WITH ALL RELEVANT MATERIAL BASED ON WHICH THE AO CAME TO VAR IOUS CONCLUSIONS REGARDING THE NATURE OF LTCG DECLARED BY THE ASSESS EE BEING NOT GENUINE. THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A) ON THE ISSUE OF LACK OF PROPER OPPORTUNITY OF BEING HEARD. ITA NO. 2377/BANG/2018 PAGE 4 OF 6 9. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND I AM OF THE VIEW THAT THERE HAS BEEN VIOLATION OF PRINCIPLES OF NATURAL J USTICE IN AS MUCH AS THE THE AO RELIED ON THE FINDINGS OF THE INVESTIGATION WING WITHOUT FURNISHING THE MATERIAL RELATING TO THE SAME TO THE ASSESSEE AND A LSO ON RELYING ON MATERIAL WHICH WERE IRRELEVANT. THE FINDINGS OF THE CIT(A) THAT THE ASSESSEE WAS AFFORDED PROPER OPPORTUNITY IS NOT COR RECT AS THE REQUEST OF THE ASSESSEE FOR FURNISHING OF COPIES OF RELEVANT D OCUMENTS WERE NOT ACCEDED TO BY THE AO. 10. I ALSO FIND THAT THIS TRIBUNAL ON IDENTICAL FA CTS ON IDENTICAL ISSUE OF PENNY STOCK, IN AN ORDER DATED 05.12.2018 IN THE CA SE OF SHRI RAMESH KUMAR SHAH VS. ACIT ITA NO.595/BANG/2018 REMANDED THE MATTER FOR FRESH CONSIDERATION TO THE AO WITH THE FOLLOWING OB SERVATIONS:- 3.3 PER CONTRA, THE LEARNED DR FOR REVENUE SUBMI TTED THAT ON SIMILAR FACTS AND CIRCUMSTANCES AS IN THE CASE ON H AND, ISSUE FOR CONSIDERATION IS COVERED BY THE DECISIONS OF THE BE NGALURU ITAT IN THE CASES OF ARVIND KUMAR MOOLCHAND IN ITA NO.509/BANG/2017 AND PUKHRAJ HASMUKHLAL IN ITA NO.1927/BANG/2017 WHEREIN THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF THE AO HAVING OBSERVED THAT THE ADDI TIONS WERE MADE BASED ON REPORTS OF THE INVESTIGATION DIRECTOR ATE AT KOLKATA AND STATEMENTS OF VARIOUS PERSONS WITHOUT CONFRONTI NG OR MAKING THEM AVAILABLE TO THE ASSESSEE FOR REBUTTAL. IN THOSE CASES, THE TRIBUNAL RESTORED THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO CONFRONT THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO CONFRONT THE ASSESSEE WITH THE REPORTS / DOCUMENTS / STATEMENTS PROPOSED TO BE USED AGAINST THE ASSESSEE , ALLOW REBUTTAL THEREOF AND CROSS EXAMINATION OF PARTIES O N WHOSE TESTIMONY IS PROPOSED TO BE RELIED UPON AND THE MAT TER BE ADJUDICATED AFRESH AFTER AFFORDING THE ASSESSEE ADE QUATE OPPORTUNITY OF BEING HEARD AND TO ALSO FILE DETAILS / SUBMISSIONS IN THIS REGARD. 3.4 IN REJOINDER, THE LD.AR FOR THE ASSESSEE DID NO T DISPUTE THE PROPOSITION PUT FORTH BY THE LD. DR FOR RESTORING T HIS ISSUE TO THE FILE OF THE AO FOR DE NOVO ADJUDICATION. 3.5 WE HAV E HEARD BOTH ITA NO. 2377/BANG/2018 PAGE 5 OF 6 PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MA TERIAL ON RECORD; INCLUDING THE JUDICIAL DECISIONS CITED AND THE ORDERS OF THE AUTHORITIES BELOW. TAKING INTO CONSIDERATION THE FA CTS AND CIRCUMSTANCES OF THE CASE THAT THE ASSESSEE SPECIFI CALLY REQUESTED FOR CROSS-EXAMINATION OF THE DEPONENTS WHOSE STATEM ENTS WERE THE BASIS OF ADDITION BY THE AO AND ALSO THE REPORT OF THE INVESTIGATION DIRECTORATE, KOLKATA FOR REBUTTAL; FR OM THE JUDICIAL DECISIONS CITED, WE FIND THAT THE ISSUE FOR CONSIDE RATION IS SQUARELY COVERED BY THE ORDERS OF THE BENGALURU ITA T IN THE CASES OF ARVIND KUMAR MOOLCHAND (SUPRA) AND PUKHRAJ HASMUKHLAL (SUPRA). FOLLOWING THE AFORESAID ORDERS (SUPRA), WE SET ASIDE THE ORDERS OF THE AO AND RESTORE THE MATT ER OF TREATMENT OF PROFIT DECLARED ON SALE OF SHARES, CLAIMED AS EX EMPT U/S 10(38) OF THE ACT, TO THE FILE OF THE AO TO RE-ADJUDICATE THE ISSUE AFRESH; AFTER MAKING AVAILABLE TO THE ASSESSEE FOR REBUTTAL ALL DOCUMENTS; INCLUDING STATEMENTS, INVESTIGATION REPORTS, ETC., RELIED UPON BY REVENUE FOR MAKING THE ADDITIONS/DISALLOWANCES AND PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE FOR CROSSEXAMI NATION OF PERSONS WHOSE STATEMENTS ARE BEING RELIED UPON. IT IS ACCORDINGLY ORDERED. CONSEQUENTLY, GROUND NO. 2 IS DISPOSED OFF AS ABOVE. ' 11. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MRS.CHANDRA DEVI KOTHARI VS. ITO W.P.39370/2014 (T-IT) ON IDENTICAL ISSUE OF ADDITION ON ACCOUNT OF LTCG BASED ON ACCOMMODATION/BOGUS ENTRIE S BASED ON STATEMENT OF THIRD PARTIES, TOOK THE VIEW THAT THE MATTER REQUIRES TO BE RE- CONSIDERED BY PROVIDING FAIR AND REASONABLE OPPORTU NITY OF HEARING TO THE ASSESSEE AFTER PROVIDING COPIES OF STATEMENT RELIED UPON BY THE REVENUE. 12. I AM OF THE VIEW THAT IDENTICAL ISSUE WAS CONSI DERED BY THIS TRIBUNAL IN THE CASE OF SHRI RAMESH KUMAR SHAH (SUPRA) AND THE TRIBUNAL REMANDED THE ISSUE TO THE AO FOR FRESH CONSIDERATIO N WITH A DIRECTION THAT THE ASSESSEE SHOULD BE PROVIDED WITH ALL THE RELEVA NT EVIDENCE RELIED UPON BY THE AO FOR MAKING THE ADDITION AND ALSO ALLOW OP PORTUNITY OF CROSS- EXAMINATION OF STATEMENTS OF PERSONS WHICH HAS BEEN RELIED UPON BY THE INVESTIGATION AGENCY. I ALSO FIND THAT THE HONBLE HIGH COURT OF KARNATAKA HAS GIVEN SIMILAR DIRECTIONS IN THE CASE OF MRS. CHANDRA DEVI KOTHARI ITA NO. 2377/BANG/2018 PAGE 6 OF 6 (SUPRA) WHEREIN ALSO THE ISSUE WAS WITH REGARD TO LONG TER M CAPITAL GAIN ON SALE OF SHARES BEING TREATED AS UNEXPLAINED CASH CR EDIT U/S. 68 OF THE ACT BY THE REVENUE. IN THE LIGHT OF THE AFORESAID DIRE CTIONS, I SET ASIDE THE ORDER OF THE CIT(APPEALS) AND REMAND THE QUESTION OF TREA TING THE LONG TERM CAPITAL GAIN AS UNEXPLAINED CASH CREDIT TO THE AO F OR FRESH CONSIDERATION AS DIRECTED BY THE TRIBUNAL IN THE CASE OF SHRI RAMESH KUMAR SHAH (SUPRA) . I MAKE IT CLEAR THAT ALL ISSUES RAISED BY THE ASSES SEE IN THIS APPEAL ARE ALSO LEFT OPEN FOR CONSIDERATION. 13. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF JANUARY, 2020. ( N.V. VASUDEVAN ) VICE PRESIDENT BANGALORE, DATED, THE 10 TH JANUARY, 2020. / DESAI SMURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FIL E BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.