ACIT, CC-XXIV, Kolkata, Kolkata V. Poonam Agarwal, Siliguri

ITA 248/KOL/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7248 (ITAT-KOLKATA)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2011
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 02-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 14-02-2011
• Court: TRIBUNAL
• Department Lawyers: M BHATTACHARYA; SHISHIR SINHA
• Assessee Lawyers: D S DAMLE
• Keywords: Capital asset; Document seized; Share purchase agreement; Principle of natural justice; Opportunity of cross examination; Additional evidence; Question of law; Cost of acquisition; Accommodation entries; Retraction; Penny stocks; Documents seized
• Section: 260A; 133(6); 131; 132; 10; 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- B , KOLKATA [ . .. . . .. . , ,, , . .. . . .. . , , , , !' ] [BEFORE SHRI B.R.MITTAL , JUDICIAL MEMBER & SRI C.D.RAO , ACCOUNTANT MEMBER] # # # # / ITA NO. 247/(KOL) OF 2011 $% &'/ ASSESSMENT YEAR 2005-06 A.C.I.T., CENTRAL CIRCLE-XXIV, KOLKATA AMITA AGARWAL KOLKATA . (PAN-AFYPA 5777 M) (*+ / APPELLANT ) - $ - VERSUS - (./*+/ RESPONDENT ) # # # # / ITA NO. 248/ (KOL) OF 2011 $% &'/ ASSESSMENT YEAR 2005-06 A.C.I.T., CENTRAL CIRCLE-XXIV, KOLKATA POONAM AGARWAL KOLKATA . (PAN-AEBPA 0596 G) (*+ / APPELLANT ) - $ - VERSUS - (./*+/ RESPONDENT ) # # # # / ITA NO. 255/(KOL) OF 2011 $% &'/ ASSESSMENT YEAR : 2005-06 A.C.I.T., CENTRAL CIRCLE-XXIV, KOLKATA RADHESHYAM AGARWAL,HUF KOLKATA (PAN-AAKHR 0416 H) (*+ / APPELLANT ) $ - VERSUS - (./*+/ RESPONDENT ) # # # # / ITA NO. 256/(KOL) OF 2011 $% &'/ ASSESSMENT YEAR 2005-06 A.C.I.T., CENTRAL CIRCLE-XXIV, KOLKATA RAKESH AGARWAL, KOLKATA. (PAN-ACGPA 7388 B) (*+ / APPELLANT ) $ - VERSUS - (./*+/ RESPONDENT ) # # # # / ITA NO. 257/(KOL) OF 2011 $% &'/ ASSESSMENT YEAR : 2006-07 A.C.I.T., CENTRAL CIRCLE-XXIV, KOLKATA RAKESH AGARWAL, HUF KOLKATA (PAN-AAJHR 2819 H) (*+ / APPELLANT ) $ - VERSUS - (./*+/ RESPONDENT ) 2 # # # # / ITA NO. 259/(KOL) OF 2011 $% &'/ ASSESSMENT YEAR : 2005-06 A.C.I.T., CENTRAL CIRCLE-XXIV, KOLKATA SMT.MANJU DEVI AGARWAL, KOLKATA (PAN-AGHPA 4212 B) (*+ / APPELLANT ) $ - VERSUS - (./*+/ RESPONDENT ) *+ 0 1 !/ FOR THE APPELLANTS: SHRI SHISHIR SINHA & M.BHATTACH ARYA ./*+ 0 1 !/ FOR THE RESPONDENT: / SHRI D.S.DAMLE 2$3 0 ' /DATE OF HEARING : 22.08.2011. 4& 0 ' /DATE OF PRONOUNCEMENT : 11.10.2011 !5 / ORDER ( (( ( . .. . . .. . , , , , !' !' !' !' ) )) ), , , , PER SHRI C.D.RAO, AM THESE SIX APPEALS FILED BY DEPARTMENT IN RESPECT OF SIX ASSESSEES MENTIONED ABOVE, ARE AGAINST SEPARATE ORDERS OF THE C.I.T.(A) , CENTRAL-III, KOLKATA, ALL DATED 29.11.2010 RELATING TO ASSESSMENT YEARS. 2005-06 AN D 2006-07 SINCE THE FACTS OF THE CASE AND GROUNDS OF APPEAL IN ALL THESE APPEALS ARE IDENTICAL AND SIMILAR IN NATURE, ALL THE SIX APPEALS ARE DISPOSED OF BY A CONSOLIDATED O RDER FOR THE SAKE OF CONVENIENCE. THEREFORE, WE DEAL WITH APPEAL FILED BY THE REVENUE IN ITA NO.256/KOL/2011 FOR ASSESSMENT YEAR 2005-06 IN THE CASE OF RAKESH AGARW AL. 2. IN ITA NO.247/KOL/2011 THE FOLLOWING GROUNDS HAV E BEEN RAISED BY THE REVENUE.: 1. THAT IN FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.67,04,678/- MADE ON ACC OUNT OF REJECTION OF ASSESSEES CLAIM OF LONG TERM CAPITAL GAIN EXEMPT FROM TAX U/S 10(38) OF THE ACT WITHOUT PROPER APPRECIATION OF THE EVIDENCES BROUGHT ON RECORD BY THE DEPARTMENT THAT IT WAS ASSESSES OWN UNACCOUNTED MONEY INTRODUCED AS LONG T ERM CAPITAL GAIN ARRANGED ACCOMMODATION ENTRIES IN THE BOOKS OF ACCOUNTS OF B ROKERS WHICH THE BROKERS HAD CONFESSED TO THE INCOME TAX AUTHORITIES IN STATEMEN T GIVEN U/S 132(4) OF THE ACT. 2. THAT THE DEPARTMENT CRAVES LEAVE TO ADD. MODIFY OR ALTER ANY OF THE GROUND(S) OF APPEAL AND/OR ADDUCE ADDITIONAL EVIDENCE AT THE TIM E OF HEARING OF THE CASE. IN RESPECT OF OTHER ITA NOS. THE FIGURES ARE VARYIN G FROM EACH OTHER. 3 3. THE BRIEF FACTS OF THIS ISSUE AS OBSERVED BY LD . CIT(A) IN THE IMPUGNED ORDER AT PARA 11 IS AS UNDER :- 11. IT IS THE AOS CASE THAT LTCG INCOME OF RS. 67,04,678/- DISCLOSED IN THE RETURN, IN REALITY REPRESENTED INTRODUCTION OF ASSESSEES U NACCOUNTED MONEY. ACCORDING TO AO THE ASSESSEES ALLEGED TRANSACTIONS OF PURCHASE & SALE OF SHARES WERE NOT REAL. THE ASSESSEE HAD ONLY ATTEMPTED TO PRESENT A FACT THAT THE AMOUNTS RECEIVED FROM THE STOCK BROKER REPRESENTED SALE PROCEEDS OF SHARES. HOWEVER IN REALITY THERE WAS NO GENUINE OR BONAFIDE PURCHASE & SALE OF SHARES. IN SUPPORT T HE AO HAD GIVEN THE FOLLOWING REASONS. A) IN THE STATEMENT U/S 132(4) RECORDED BEFORE THE ADIT (INV) ON 9 TH DECEMBER 2006 SHRI ARUN KUMAR KHEMKA HAD ADMITTED THAT HE HAD PRO VIDED ACCOMMODATION ENTRIES IN THE FORM OF PURCHASE & SALE OF SHARES AGAINST PA YMENT OF COMMISSION @2%. B) IN THE STATEMENT U/S 132(4) SHRI KHEMKA FURTHER ADMITTED THAT THE HAD RECEIVED CASH FROM THE FAMILY MEMBERS OF SHRI R.S.AGARWAL & THE SAME WAS RETURNED IN THE FORM OF SALE PROCEEDS OF SHARES AFTER PAYING STT. C) M/S. ASHISH STOCK BROKING PVT. LTD. THROUGH WHOM THE SHARES WERE SOLD ON CSE; ADMITTED BEFORE THE ADIT(INV) THAT THE SHARE SALE T RANSACTIONS WERE NOTHING BUT ACCOMMODATION ENTRIES WHEREIN CHEQUES WERE ISSUED I N LIEU OF CASH. D) THE PURCHASES OF SHARES WERE ANTEDATED SO AS TO PROVE THAT THE SHARES WERE HELD FOR MORE THAN 12 MONTHS PRIOR TO DATE OF SALE, SO THAT THE SHARES COULD BE CONSIDERED TO BE LONG TERM CAPITAL ASSET. E) THE ANTEDATING OF PURCHASES WAS APPARENT FROM TH E FACT THAT THE PAYMENTS TOWARDS PURCHASE CONSIDERATION WERE MADE AFTER LONG TIME GA PS; RANGING UPTO 45 DAYS FROM THE DATES OF PURCHASES AND THE PURCHASE CONSIDERATI ON WAS PAID IN CASH. F) THE SHARES WERE PURCHASED DURING THE PENDENCY OF AMALGAMATION PROCEEDINGS AND THE PURCHASE CONSIDERATION WAS PAID AFTER THE DATES ON WHICH CALCUTTA HIGH COURT PASSED ORDERS APPROVING AMALGAMATION OF THE COMPANI ES WHOSE SHARES WERE PURCHASED BY THE ASSESSEE. G) THE AMALGAMATING COMPANIES WHOSE SHARES WERE PUR CHASED BY THE ASSESSEE DID NOT FILE ANNUAL RETURNS WITH THE REGISTRAR OF COMPANIES AND THE AMALGAMATED DID NOT FILE RETURNS OF ALLOTMENT IN RESPECT OF SHARES ALLOTTED BY THEM CONSEQUENT TO AMALGAMATION. H) THE ASSESSEE WAS SHOWN SWORN STATEMENTS OF SHRI KHEMKA AND ASHISH STOCK BROKING PVT. LTD BUT ASSESSEE DID NOT ASK FOR COPIE S THEREOF. IN RESPONSE TO SHOW CAUSE, THE ASSESSEE MERELY FILED COPIES OF RETRACTI ON AFFIDAVITS OF SHRI KHEMKA AND DIRECTOR OF ASHISH STOCK BROKING. THE RETRACTION AF FIDAVITS COULD NOT BE ACCEPTED BECAUSE THESE WERE NEVER FILED BEFORE THE ADIT(INV) AND THERE WAS CONSIDERABLE GAP BETWEEN THE DATES OF ORIGINAL STATEMENTS AND RETRAC TION AFFIDAVITS. I) THE STATEMENT ON OATH RECORDED BEFORE THE ADIT(I NV) CARRIED GREATER EVIDENTIARY VALUE IN VIEW OF THE JUDGEMENT OF SUPREME COURT IN THE CASE OF SURJIT SINGH CHABRA (AIR 1997 SC 2560) AND THEREFORE RETRACTION AFFIDAV ITS COULD NOT BE GIVEN CREDENCE. J) AFTER 2004 FEW STOCK BROKERS HAD RESORTED TO MON EY LAUNDERING ACTIVITIES BY USING PENNY STOCKS. SHARE PRICES OF THE PENNY STOCKS WE RE ARTIFICIALLY INFLATED BY THE STOCK BROKERS SO THAT CAPITAL GAIN COULD BE INTRODUCED IN THE BOOKS BY CONVERTING BLACK MONEY INTO WHITE. THE MODUS OPERANDI GENERALLY FOLL OWED IN SUCH TRANSACTIONS WAS FOLLOWED BY THE ASSESSEES STOCK BROKER AS WELL ENA BLING THE ASSESSEE TO INTRODUCE HIS UNACCOUNTED MONEY IN HIS BOOKS IN THE FORM OF LONG TERM CAPITAL GAINS ON SALE OF SHARES & CLAIM EXEMPTION U/S 10(38). 4 K) THE STOCK BROKER THROUGH WHOM THE ASSESSEE CONDU CTED HIS SHARE TRANSACTIONS WERE INDICATED BY SEBI ON THE CHARGES OF PRICE MANIPULAT ION. THE ORDER OF SEBI PROVED THE DUBIOUS CHARACTER OF ASSESSEES STOCK BROKERS. L) CSE HAD BANNED TRADING OF SHARES OF KHOOBSURAT L TD AND EMRALD COMMERCIAL LTD EFFECTIVE FROM 23.11.2005 WHICH ESTABLISHED THAT AS SESSEES TRANSACTIONS WERE MANIPULATED AND THERE WAS NO REAL EARNING OF CAPITA L GAIN BY THE ASSESSEE. 3.1. THE FIRST APPELLATE AUTHORITY, LD. CIT(A) HAS FORWARDED THE SUBMISSIONS OF ASSESSEE AGAINST THE OBSERVATIONS MADE BY AO AND AF TER TAKING INTO CONSIDERATION OF THE REMAND REPORT HE DELETED THE ADDITION BY OBSERV ING AS UNDER : 12. AFTER CONSIDERING THE AOS REASONING & SUBS EQUENT CONCLUSIONS DISCUSSED IN THE ASSESSMENT ORDER AND THE REMAND REPORT I HOWEVE R FIND THAT THERE ARE FEW APPARENT CONTRADICTIONS. THE AO HAS HELD THAT ASSESSEES PUR CHASE & SALE OF SHARES WERE NOT REAL. AT THE SAME TIME HOWEVER HE ALSO ALLEGED THAT THE PURCHASES WERE IN FACT MADE; BUT WERE ANTEDATED FOR THE PURPOSES OF ACCOUNTING. THE DOCUMENTS WHICH ARE PLACED ON RECORD HOWEVER SHOW THAT THERE IS MERIT IN THE A /RS ARGUMENT THAT BOTH THE ALLEGATIONS WERE NOT BACKED BY COGENT EVIDENCE OR M ATERIAL. 13. FROM THE DOCUMENTS PLACED ON RECORD I NOTE THAT THE ASSESSEE PURCHASED SHARES OF 5 PRIVATE LIMITED COMPANIES THROUGH GLOBE STOCKS & SECURITIES LTD AT AGGREGATE COST OF RS.2,07,000/-. THE CONTRACT NOTES AND OTHER SUPPORTING DOCUMENTS CONTAINED RELEVANT INFORMATION SUCH AS DISTINCTIVE NUMBER OF SHARES; SHARE CERTIFICATE NUMBERS, FOLIO NUMBERS ETC. THE ASSESSEE ALSO PLACED ON RECO RD EVIDENCES WHICH SHOWED THAT AFTER THE SHARES WERE PURCHASED THEY WERE DELIVERED TO RESPECTIVE COMPANIES FOR REGISTRATION IN ASSESSEES NAME. THE ORDER OF THE C ALCUTTA HIGH COURT APPROVING THE AMALGAMATION PROVED THAT THE SHARES PURCHASED BY AS SESSEE WERE VALIDLY ISSUED BY RESPECTIVE COMPANIES AND THE CALCUTTA HIGH COURT HA D PERMITTEDC THESE COMPANIES TO AMALGAMATE WITH KHOOBSURAT LTD & EMRALD COMMERCIAL LTD. THE AMALGAMATION WAS APPROVED BY THE CALCUTTA HIGH COURT IN CONFORMITY W ITH THE COMPANIES ACT 1956 & THEREFORE ITS BONAFIDE COULD NOT BE DOUBTED UNLESS THE AO HAD BROUGHT ON RECORD MATERIAL TO PROVE THAT THE ORDER WAS OBTAINED BY FR AUD OR BY MISREPRESENTATION. THE DOCUMENTS ALSO SHOWED THAT THE AMALGAMATED COMPANIE S RECEIVED SHARE CERTIFICATES FROM AMALGAMATING COMPANIES FOR REGISTRATION OF SHA RES IN THE ASSESSEES NAME. PURSUANT TO THE ORDER OF AMALGAMATION, APPROVED BY THE CALCUTTA HIGH COURT; THE AMALGAMATED COMPANIES ALLOTTED THEIR SHARES IN THE APPROVED RATIO IN ASSESEES FAVOUR. THE LETTERS OF ALLOTMENT ISSUED BY THE AMALGAMATED COMPANIES CONTAINED DETAILS OF SHARE CERTIFICATE NUMBERS, DISTINCTIVE NUMBERS OF S HARES, FOLIO NO. ETC. WHICH PROVED THE VALID ISSUANCE OF SHARES IN ASSESSEES NAME BY THE AMALGAMATED COMPANIES. THE SHARES RECEIVED FORM THE AMALGAMATED COMPANIES WERE LISTED ON CSE AND THE STOCK EXCHANGE HAD PERMITTED DEALING IN THESE SHARES WHIC H WAS POSSIBLE ONLY WHEN THE AMALGAMATED COMPANIES HAD COMPLIED WITH STATUTORY F ORMALITIES CONCERNING VALID ISSUANCE AND ALLOTMENT OF SHARES. THE SHARES ALLOTT ED BY THE KHOOBSURAT LTD AND EMRALD COMMERCIAL LTD IN PHYSICAL FORM WERE THEREAF TER SURRENDERED FOR HOLDING THEM IN DEMATERIALIZED FORM. FOR THIS PURPOSES THE ASSESSEE HAD SURRENDERED THE SHARE CERTIFICATES TO M/S. EUREKA STOCK & SHARE BROKING S ERVICES LTD., A A RECOGNIZED DEPOSITORY PARTICIPANT OF NATIONAL SECURITY DEPOSIT ORY LIMITED (NSDL). ON RECEIPT OF PHYSICAL SHARE SCRIPTS THE ASSESSEES DEMAT ACCOUNT WITH NSDL WAS GIVEN CREDIT FOR THE SHARES OF KHOOBSURAT LTD & EMRALD COMMERCIAL LT D. ALL THESE DOCUMENTARY EVIDENCES SUBSTANTIATED ASSESSEES PURCHASES OF SHA RES. ALTHOUGH THE AO HAS DOUBTED 5 GENUINENESS OF THE PURCHASES HE DID NOT BRING ON RE CORD ANY MATERIAL TO SHOW ANY SPECIFIC INFIRMITY OR FALSITY IN THE DOCUMENTS PROD UCED BY THE ASSESSEE IN SUPPORT OF PURCHASES. HAD THERE BEEN NO VALID ISSUANCE AND ALL OTMENT OF SHARES IN ASSESSEES FAVOUR THEN IT COULD NOT HAVE BEEN POSSIBLE FOR THE ASSESSEE TO GET CREDIT FOR THESE SHARES IN HIS DEMAT ACCOUNT MAINTAINED WITH NSDL BE CAUSE NEITHER THE DEPOSITORY PARTICIPANT NOR NSDL WERE UNDER CONTROL OR INFLUENC E OF THE ASSESSEE OR HIS BROKERS. IN THE FACE OF DOCUMENTS ISSUED BY INDEPENDENT THIR D PARTIES THE AO WAS NOT JUSTIFIED IN DOUBTING THE GENUINENESS OF PURCHASE OF SHARES. THE MATERIAL ON RECORD RATHER SUPPORTS THE ASSESSEES CONTENTION THAT HE HAD PURC HASED THE SHARES OF 5 PRIVATE LIMITED COMPANIES AND THEREAFTER HE RECEIVED THE SH ARES OF AMALGAMATED COMPANIES IN LIEU OF SHARES PURCHASED IN 5 AMALGAMATING PRIVATE LIMITED COMPANIES. 14. THE AOS 2 ND CONCLUSION THAT ASSESSEE HAD ANTEDATED THE PURCHAS ES ALSO APPEARS TO BE CONTRARY TO THE FACTS ON RECORD. THE AO MADE THIS ALLEGATION ON THE GROUND THAT THERE WAS CONSIDERABLE TIME DIFFERENCE BETWEEN THE DATES OF PURCHASE AND THE DATES OF PAYMENTS. THE DELAY IN MAKING PAYMENTS RANGED UPTO 45 DAYS. IN THE IMPUGNED ORDER THE AO TABULATED A CHART GIVING PART ICULARS OF THE DATES ON WHICH SHARES WERE PURCHASED AND DATES ON WHICH PAYMENTS W ERE MADE. PERUSAL OF THIS CHART SHOWS THE AOS ALLEGATION OF THERE BEING CONSIDERAB LE DELAY IN COMPLETING PAYMENT IS UNTENABLE E.G. THE SHARES OF JUPITER COMPUTER PVT. LTD. WERE PURCHASED BY THE ASSESSEE ON 29.08,2003 FOR RS.27,000/-. PAYMENTS OF RS.16,000/- & RS.11,000/- THERE AGAINST WERE MADE ON 12.09.2003 & 16.09.2003 RESPEC TIVELY. ACCORDING TO AO THE TIME GAP BETWEEN THE DATES OF PURCHASES AND DATES OF PAYMENTS IS FOUND TO BE 14 & 18 RESPECTIVELY AND NOT 45 DAYS AS ALLEGED. SIMILAR LY SHARES OF BOSKY MARKETING PVT LTD WERE PURCHASED BY THE ASSESSEE ON 21.08.2003 FO R RS.34,000/- WHEREAS RS.15,000/- & RS.19,000/- WERE PAID ON 25.08.2003 & 26.08.2003 RESPECTIVELY. FULL CONSIDERATION WAS THUS PAID WITHIN 5 DAYS OF PURCHA SE. YET ACCORDING TO AO THE TIME GAP BETWEEN THE PURCHASE AND PAYMENT WAS 22 & 23 DA YS RESPECTIVELY. AGAIN IN THE CASE OF BOSKY TRADECOME PVT. LTD SHARES WERE PURCHA SED ON 28.08.2003 AT THE COST OF RS.27,000/- AND RS.13,000/- RS.10,000/- & RS.4,000/ - WERE PAID ON 6.09.2003, 11.09.2003 & 12,.09.2003 RESPECTIVELY. THE ENTIRE P AYMENT WAS COMPLETED WITHIN 15 DAYS OF PURCHASE BUT ACCORDING TO AO THE TIME GAP W AS 38, 42 & 45 DAYS RESPECTIVELY. THE ABOVE EMPIRICAL DATA PROVED THAT AOS CONCLUSIO N THAT THERE WAS CONSIDERABLE TIME GAP BETWEEN THE DATE OF PURCHASE AND DATE OF P AYMENT WAS FACTUALLY UNTRUE. 15. THE SHARES IN QUESTION WERE PURCHASED FROM STOCK BROKER AND THE SALE WAS COMPLETE ONLY AFTER DELIVERY OF SHARES IN PHYSICAL FORM ALONG WITH SIGNED SHARE TRANSFER FORMS WAS MADE. IT WAS NOT A CASE WHERE SH ARES WERE TRANSACTED IN DEMAT FORM AND DELIVERY COULD BE MADE THROUGH ELECTRONIC EXCHANGE. SINCE DELIVERY OF SHARES INVOLVED COMPLIANCE WITH ELABORATE PROCEDURE ; TIME TAKEN BY THE BROKER AND THE TRANSFERORS FOR COMPELTING FORMALITIES WAS SUFF ICIENT TO EXPLAIN THE GAP BETWEEN THE DATES OF CONTRACT NOTES AND DATES OF PAYMENTS. HAVING REGARD TO THE FACT THAT THE PAYMENTS FOR PURCHASE OF SHARES WERE COMPLETED WITH IN 20 DAYS, THE ITME TAKEN COUJLD NOT BE CONSIDERED TO BE INORDINATELY LONG. FOR THIS REASON THE ASSESSEES SHARE PURCHASE COULD NOT BE HELD TO BE BOGUS OR ANTEDATED . MOREOVER EVEN WITH REFERENCE TO DATES OF PAYMENTS, PERIOD OF SHARE HOLDING EXCEEDED 12 MONTHS AND THEREFORE AOS HYPOTHESIS THAT THE BACK DATING OF PURCHASES WAS MA DE WITH AN INTENTION TO SHOW PERIOD OF HOLDING TO BE MORE THAN 12 MONTHS WAS NOT ON SOUND FOOTINGS. 16. THE PURCHASE OF SHARES BY THE ASSESSEE WAS BACK ED BY COGENT EVIDENCES SUCH AS CONTRACT NOTES, SHARE TRANSFER FORMS ETC. THE PU RCHASE OF SHARES HAS BEEN DOUBTED BY THE AO BUT HIS SUSPICION IS NOT SUPPORTED BY ANY COGENT MATERIAL. HE HAS NOT ESTABLISHED THAT CONTRACT NOTES ETC WERE BOGUS OR F ABRICATED OR THAT NO PAYMENT WERE IN 6 FACT MADE. ON THE OTHER HAND IT IS OBSERVED FROM TH E IMPUGNED ORDER THAT THE AO HIMSELF STATED THAT IN THE COURSE OF SEARCH U/S 132 OF THE ACT; COPIES OF CONTRACT NOTES, SHARE TRANSFER FORMS ETC. WERE FOUND AND SEIZED. WI TH REFERENCE TO SEIZURE OF THESE DOCUMENTS THE AO INITIATED PROCEEDING U/S 153C. IT IS WITH REFERENCE TO THESE DOCUMENTS I HAVE UPHELD THE ASSUMPTION OF JURISDICT ION BY THE AO U/S 153C. SINCE THE DOCUMENTS EVIDENCING PURCHASE & SALE OF SHARES WERE FOUND AND SEIZED IN THE COURSE OF SEARCH, THE PRESUMPTION U/S 132 WAS THAT THE DOC UMENTS N THE FORM AS EXISTED; REFLECTED THE TRUE NATURE OF TRANSACTION RECORDED T HEREIN. IT WAS FOR THE AO TO DISPROVE ITS GENUINENESS BY COGENT MATERIAL WHICH THE AO FAI LED TO DO. ANOTHER ASPECT IN THE MATTER IS THAT THE AO HAS NEVER DISPUTED THE CORREC TNESS OF COST OF ACQUISITION OF SHARES WHICH THE ASSESSEE INCURRED. BY AOS OWN ADM ISSION THE AMOUNTS WHICH THE ASSESSEE RECEIVED DURING THE RELEVANT YEAR FROM THE SHARE BROKER WAS RS.69,11,678/-. DEDUCTING COST OF ACQUISITION OF SHARES I.E. RS.2,0 7,000/- THE NET GAIN WAS RS.67,04,678/- WHICH WAS ASSESSED AS INCOME OF THE APPELLANT FOR A.Y. 2005-06, THESE FACTS THEREFORE SHOW THAT WHAT WAS ASSESSED I N THE IMPUGNED ORDER WAS THE EXCESS OF SALE PRICE OVER THE COST OF ACQUISITION. I THEREFORE FIND THAT THE AO DID NOT DISBELIEVE NOR DISPUTE COST OF ACQUISITION INCURRED BY THE ASSESSEE HIMSELF AND ALLOWED DEDUCTION FOR THE COST AND ARRIVED AT TAXABLE INCOM E OF RS.67,04,678/-. IN THE CIRCUMSTANCES, WHEN THE AO NEITHER DISPROVED THE PU RCHASE OF SHARES NOR DISPUTED OR DISBELIEVED INCURRING OF THE COST OF ACQUISITION TH EN THE AO COULD NOT HOLD THAT PURCHASE OF SHARES WAS BOGUS OR NON EXISTENT. 17. IN THE IMPUGNED ORDER THE AO JUSTIFIED THE ADDI TION OF RS.67,04,678/- RELYING ON THE STATEMENTS OF SHRI KHEMKA AND SHRI SUNIL KED IA WHEREIN THESE PERSONS ALLEGEDLY ADMITTED THAT THEY HAD PROVIDED ACCOMMODA TION ENTRIES TO THE FAMILY MEMBERS OF SHRI R.S.AGARWAL. THE ALLEGED MODUS OPER ANDI ADOPTED BY THEM IN PROVIDING ACCOMMODATION ENTRIES WAS EXPLAINED IN TH EIR STATEMENTS. THE STATEMENTS OF SHRI KHEMKA; SHRI SUNIL KEDIA AND THE STOCK BROKER WERE HOWEVER RECORDED IN ASSESSEES ABSENCE. NO OPPORTUNITY OF CROSS EXAMINA TION WAS PROVIDED TO THE ASSESSEE EITHER BY ADIT(INV) WHO RECORDED THE STATEMENTS OR BY THE AO WHO USED THE STATEMENTS IN EVIDENCE AGAINST THE ASSESSEE. IN FAC T I FIND THAT EVEN THOUGH SERIOUS ALLEGATION OF MONEY LAUNDERING WERE MADE AGAINST TH E ASSESSEE, THE ASSESSEE WAS NEVER CONFRONTED WITH THESE STATEMENTS BY THE INVES TIGATING AUTHORITY NOR ASSESSEES STATEMENT WAS RECORDED WITH REFERENCE TO THE STATEM ENTS OF SHRI KHEMKA AND OTHERS BY ANY OF THE AUTHORITIES. IT WAS ALSO VERY SURPRIS ING TO NOTE THAT EVEN THOUGH THE STATEMENTS FROM SHRI KHEMKA AND THE STOCK BROKER WE RE RECORDED AS FAR BACK IN DECEMBER 2006 & JANUARY 2007, THE ASSESSEE WAS MADE AWARE OF THESE STATEMENTS FOR THE FIRST TIME ONLY IN NOVEMBER 2008 WHEN THE ASSES SMENT WAS GETTING BARRED BY LIMITATION IN DECEMBER 2008. DURING THE LONG INTERV ENING PERIOD NEITHER THE INVESTIGATING AUTHORITY NOR THE AO CONFRONTED THE A SSESSEE WITH RECORDED STATEMENTS OF SHRI KHEMKA OR SHR DEDIA. THE LONG SILENCE ON TH E PART OF THE AO IN THIS REGARD WAS QUITE INEXPLICABLE. 18. CONSIDERING THESE OMISSIONS AND THE FACT THAT N O ATTEMPT WAS MADE BY THE AO TO TRACE AND ESTABLISH TRAIL OF CASH WHICH ALLEGEDL Y ORIGINATED FROM ASSESSEE, THE AO THROUGH MY LETTER DATED 20.04.2009 WAS DIRECTED TO CONDUCT ENQUIRIES TO PROVE THE CHAIN OF TRANSACTION LEADING TO THE ULTIMATE DESTIN ATION OF THE CASH. IN SPITE OF SUCH SPECIFIC DIRECTION AND FOR THAT PURPOSE EXAMINE THE PARTIES, THE AO NEITHER BROUGHT ANY MATERIAL WHICH PROVED THE ULTIMATE DESTINATION OF CASH NOR CONDUCTED ENQUIRIES IN THE CHAIN OF TRANSACTIONS OR EXAMINED ANY OF THE CO NCERNED PARTIES TO PROVE THAT THE ALLEGED RECEIPT OF CASH WAS RETURNED BY THE BROKER IN THE FORM OF CHEQUES. IN ABSENCE OF AN ENQUIRY ON THE AOS PART WHICH PROVED ULTIMAT E DESTINATION OF CASH OR IN 7 ABSENCE OF ANY INVESTIGATION IN THE CHAIN OF TRANSA CTION; THE ONLY CONCLUSION THAT IS POSSIBLE TO BE DRAWN IS THAT THE AO DID NOT HAVE IN HIS POSSESSION ANY COGENT MATERIAL OR DOCUMENTARY EVIDENCE WHICH SUBSTANTIATED HIS CON CLUSIONS THAT UNACCOUNTED MONEY OF THE ASSESSEE WAS REFUNDED TO HIM BY THE BR OKER IN FORM OF CHEQUES ON ACCOUNT OF SALE OF SHARES. 19. HAVING REGARD TO THE FACTS AND MATERIAL ON RECO RD I THEREFORE FIND THAT THE IMPUGNED ADDITION OF RS.67,004,678/- SUBSTANTIALLY BASED ON THE STATEMENTS OF SHRI KHEMKA AND THE STOCK BROKER. THESE STATEMENTS WERE HOWEVER NOT RECORDED IN THE ASSESSEES PRESENCE. COPIES OF THE STATEMENT HAVE A LSO NOT BEEN MADE AVAILABLE TO THE ASSESSEE. EVEN BY AOS OWN ADMISSION THESE STATEMEN TS WERE SHOWN TO ASSESEES A/R IN NOVEMBER 2008. ON BEING CONFRONTED WITH THESE ST TEMENTS THE ASSESSEE CONFRONTED THESE PERSON WHEN THE ASSESSEE RECEIVED FROM THE CO NCERNED PARTIES COPIES OF THE AFFIDAVITS MADE IN FEBRUARY 2007 WHEREIN THEY HAD R ETRACTED THE STATEMENTS EARLIER MADE. DESPITE THE FACT THAT THE AFFIDAVITS MADE IN FEBRUARY 2007 WERE CONTRARY TO THE STATEMENTS ORIGINALLY RECORDED THE AO FOR THE REASO NS KNOWN ONLY TO HIM DID NOT FIND IT RELEVANT TO EXAMINE THE CONCERNED PARTIES AND AL LOW THE ASSESSEE OPPORTUNITY OF CROSS EXAMINATION. THE PRINCIPLES OF NATURAL JUSTIC E DEMANDED THAT THE ASSESSEE WAS GIVEN REASONABLE OPPORTUNITY OF REBUTTING THE STATE MENTS OF THE DEPARTMENTAL WITNESSES PARTICULARLY WHEN THE STATEMENTS ORIGINAL LY RECORDED AT THE ASSESSEES BACK WERE RETRACTED BY THE PARTIES. IN THE REMAND REPORT THE AO HAS STATED THAT HE WAS UNABLE TO EXAMINE THE WITNESSES U/S 131 BECAUSE NO PROCEEDINGS WERE PENDING. IN MY OPINION THIS WAS A LAME EXCUSE WHICH CANNOT BE ACC EPTED AT ITS FACE VALUE BECAUSE REMAND PROCEEDINGS ENABLE AN APPELLATE AUTHORITY TO GET THE ENQUIRY CONDUCTED THROUGH THE AO. MOREOVER, THE AOS SUGGESTION IN TH E REMAND REPORT THAT THE APPELLATE AUTHORITY MAY EXAMINE THE WITNESS U/S 131 WAS NOT JUDICIALLY OR ADMINISTRATIVELY PROPER. THE APPELLATE AUTHORITY CA NNOT CONDUCT THE PRIMARY INVESTIGATION AND FILL IN THE VOID CAUSED BY THE AO S ACTS OF OMISSION. SINCE THE AO HAD OMITTED TO PERSONALLY EXAMINE THE DEPARTMENTAL WITNESS, WHO HAD RETRACTED THEIR EARLIER STATEMENTS; OPPORTUNITY WAS GIVEN TO AO, TO MAKE GOOD THE OMISSION. PRINCIPLES OF NATURAL JUSTICE ALSO DEMANDED THAT TH E ASSESSEE BE ALLOWED OPPORTUNITY OF CROSS EXAMINATION OF THE PERSONS WHOSE STATEMENTS W ERE USED IN EVIDENCE. DESPITE GIVING THE OPPORTUNITY TO OVERCOME THE OMISSIONS TH E AO CHOSE NOT TO CONDUCT ANY ENQUIRY AS SUGGESTED. IN MY OPINION THE COURSE ADOP TED BY THE AO IN THE ASSESSMENT AS ALSO IN THE REMAND PROCEEDINGS WAS COMPLETELY CO NTRARY TO THE PRINCIPLES OF NATURAL JUSTICE BECAUSE THE ASSESSEE WAS NOT GIVEN EFFECTIV E AND PROPER OPPORTUNITY OF TESTING THE VERACITY OF THE STATEMENTS ORIGINALLY RECORDED BY THE ADIT (INV). 20. THE AOS RELIANCE ON THE DECISION OF THE SUPREM E COURT IN THE CASE OF SURJIT SINGH CHABRA (SUPRA) APPEARED TO BE NOT JUSTIFIED O N THE FACTS OF THE ASSESSEES CASE. IN THE CASE DECIDED BY THE SUPREME COURT THE ACCUSE D HIMSELF HAD MADE CONFESSIONAL OF HIS WRONG DOING BEFORE THE CUSTOM AUTHORITIES. C ONTRABAND GOODS WERE FOUND ON THE PERSON OF THE ACCUSED AND THEREFORE THE COURT D ID NOT FIND MERIT IN THE RETRACTION MADE BY THE ACCUSED AT A LATER DATE. IN THE PRESENT CASE HOWEVER THE ASSESSEE WAS NOT EVEN CONFRONTED BY THE INVESTIGATING AUTHORITY WITH THE STATEMENTS OF SHRI KHEMKA OR STOCK BROKER. MOREOVER THE STATEMENT OF ASSESSEE WA S NOT RECORDED EITHER BY THE INVESTIGATION AUTHORITY OR THE AO. THE ASSESSEE HIM SELF HAD NEVER ADMITTED OF AVAILING ACCOMMODATION ENTRIES NOR THE ASSESSEE EVE R ADMITTED THAT HIS PURCHASE & SALE OF SHARES WERE BOGUS. THE STATEMENT SRECORDED IN THE ASSESSEES ABSENCE FROM THE 3 RD PARTY ARE BEING USED IN EVIDENCE AGAINST THE ASSES SEE. THE STATEMENTS OBTAINED BEHIND ASSESSEES BACK WERE NEVER SHOWN TO THE ASSE SSEE TILL FAG END OF ASSESSMENT PROCEEDING. THESE STATEMENTS WERE NOT ONLY RETRACTE D BY THE PARTIES BUT ASSESSEE ALSO 8 PRODUCED BEFORE THE AO NUMBER OF DOCUMENTS WHICH SU BSTANTIATED HIS TRANSACTIONS AND THESE DOCUMENTS WERE INDEPENDENTLY VERIFIABLE. IN THE REMAND PROCEEDING THE AO WAS ASKED TO FURNISH DOCUMENTARY EVIDENCE IN HIS PO SSESSION OTHER THAN THE STATEMENT OF SHRI KHEMKA WHICH SUBSTANTIATED THE ULTIMATE DES TINATION OF CASH OR INVESTIGATE THE CHAIN OF TRANSACTION. THE AO WAS NOT ABLE TO BRING TO MY ATTENTION ANY SUCH MATERIAL NOR DID THE AO EVEN EXAMINE THE CONCERNED PARTY WHO SE STATEMENT WAS USED IN EVIDENCE. ON THESE FACTS THEREFORE I AM IN AGREEME NT WITH THE A/R THAT THE DECISION OF THE SUPREME COURT WAS NOT APPLICABLE TO ASSESSEE S CASE. 21. THE AO DISBELIEVED THE GENUINENESS OF SALE OF S HARES ON THE GROUND THAT THE STOCK BROKER THROUGH WHOM ASSESSEE SOLD SHARES HAD INDULGED IN PRICE MANIPULATION ACTIVITIES. IN SUPPORT OF THE FINDING THE AO RELIED ON THE SEBIS ORDER U/S 11(1) 11(4) & 11 (B) OF SEBI ACT 1992 DATED 30.11.2005 WHERE UN DER ASHISH STOCK BROKING PVT. LTD. & SHRI SUNIL KEDIA WERE DEBARRED FORM OPERATIN G ON ANY STOCK EXCHANGE ON THE CHARGE OF SHARE MANIPULATION ACTIVITIES. FROM PERUS AL OF SAID ORDER IT APPEARED THAT SEBI HAD CONDUCTED DETAILED INVESTIGATION OF THE SH ARE TRANSACTIONS CONDUCTED BY FEW STOCK BROKERS WHO WERE ALL MEMBERS OF CSE. FROM INV ESTIGATION OF THE TRANSACTIONS CONDUCTED BY SOME OF THESE CSE MEMBERS, SEBI AND ST OCK EXCHANGE FOUND THAT THE BROKERS HAD INDULGED IN CIRCULAR TRADING BECAUSE OF WHICH PRICES OF SHARES OF FEW COMPANIES, HAVING LOW MARKET CAPITALIZATION GOT ART IFICIALLY INFLATED WITHIN SHORT TIME. AFTER AN IN DEPTH INVESTIGATION, SEBI FOUND EVIDENC E AGAINST ASHISH STOCK BROKING PVT. LTD AND SHRI SUNIL KEDIA ONLY IN RESPECT OF TH EIR TRANSACTIONS IN THE SHARES OF ONLY ONE COMPANY I.E. GOENKA BUSINESS & FINANCE LTD. THE ORDER OF THE SEBI SHOWED THAT INVESTIGATION WAS CONDUCTED BY REGULATORY AUTHORITY IN RESPECT OF ALL THE TRANSACTIONS OF THE ASSESSEES BROKER BUT FOUND EVIDENCE OF PRIC E MANIPULATION ONLY IN RESPECT OF SHARES OF ONE COMPANY. NO EVIDENCE WAS HOWEVER FOUN D WHICH SHOWED THAT SHARE PRICES OF KHOOBSURAT LTD & EMRALD COMMERCIAL LTD WE RE ALSO ARTIFICIALLY INFLATED BY ASHISH STOCK BROKING PVT. LTD OR SHRI SUNIL KEDIA. HAD ANY EVIDENCE BEEN FOUND BY SEBI WHICH SHOWED THAT ASHISH STOCK BROKING PVT. LT D. MANIPULATED SHARES PRICES OF KHOOBSURAT LTD & EMRALD COMMERCIAL LTD, THEN SEBI W OULD HAVE CERTAINLY INDICTED THE BROKERS FOR THAT DEFAULT AS WELL. THE ORDER OF SEBI HOWEVER SHOWS THAT IT HAD FOUND EVIDENCE OF PRICE MANIPULATION BY CSE BROKER S IN RESPECT TO SHARE PRICES OF 5 COMPANIES AND NAMES OF KHOOBSURAT LTD & EMRALD COMM ERCIAL LTD DID NOT FIND MENTION IN THE ORDER OF SEBI. 22. IF THE BROKER THROUGH WHOM THE ASSESSEE CONDUC TED HIS SHARE TRANSACTIONS WAS FOUND GUILTY OF PRICE MANIPULATION OF SOME OTHER CO MPANY THEN FOR SUCH REASON; ASSESSEES TRANSACTIONS THROUGH THE BROKER COULD NO T HELD TO BE BOGUS OR NOT GENUINE PARTICULARLY WHEN SEBI HAD NOT FOUND ANY EVIDENCE WHICH PROVED THAT ALL TRANSACTIONS WHENEVER CARRIED ON BY THE SAID BROKER WERE BOGUS AND NOT GENUINE. IT IS NOT IN DISPUTE THAT AT THE TIME WHEN THE ASSESSEE C ONDUCTED SALE OF HIS SHARES.; ASHISH STOCK BROKING PVT. LTD WAS MEMBER OF STOCK EXCHANGE AND WAS AUTHORIZED BY THE EXCHANGE TO CONDUCT TRADING ON BEHALF OF INVESTING PUBLIC. IN THE CIRCUMSTANCES IF THE ASSESSEE CONDUCTED SALE OF SHARES THROUGH RECOGNIZE D STOCK BROKER THEN NO ADVERSE INFERENCE COULD BE DRAWN AGAINST THE ASSESSEE ONLY BECAUSE AT A LATER DATE THE BROKER WAS INDICTED ON THE CHARGE OF PRICE MANIPULATION OF SHARES OF SOME OTHER COMPANY. 23. THE A/R FOR THE ASSESSEE FURNISHED QUOTATIONS P UBLISHED BY CSE ON THE DATES ON WHICH THE ASSESSEE HAD CONDUCTED SALE OF HIS SHA RES. THE PUBLISHED QUOTATIONS CONTAINED INFORMATION WITH REGARD TO NUMBER OF SHAR ES TRADED, NUMBER OF TRADES CONDUCTED, HIGHEST AND LOWEST PRICE OF SHARES ON TH E DATE AND TOTAL VALUE OF SHARES TRADED ON THE STOCK EXCHANGE ON THE GIVEN DATE. FRO M THE CSE QUOTATIONS IT APPEARED THAT AT THE RELEVANT TIME; THERE WERE REGULAR TRANS ACTIONS IN SHARES OF KHOOBSURAT LTD 9 & EMRALD COMMERCIAL LTD THE NUMBER OF TRADES IN THE SHAES OF THE 2 COMPANIES WERE SUBSTANTIAL ON EACH DAY. THE TOTAL VOLUME IN TERMS OF NUMBER OF SHARES, NUMBER OF TRADES AND TOTAL VALUE TRANSACTED WAS MUCH MORE THA N THE VALUE OF ASSESSEES TRANSACTIONS. THE CSES PUBLISHED DATA ESTABLISHED THAT APART FROM THE ASSESSEE, SEVERAL OTHER PERSONS ALSO TRADED IN SHARES OF KHOO BSURAT LTD & EMRALD COMMERCIAL LTD AT THE SIMILAR PRICES. THE AO PLACED MUCH EMPHA SIS ON THE FACT THAT PRICES AT WHICH THE ASSESSEE SOLD SHARES OF THESE 2 COMPANIES WERE MUCH HIGHER THAN THE BREAK UP VALUE OF THE SHARES AND THIS FACT INDICATED THE MARKET PRICE OF THE SHARES WAS ARTIFICIALLY INFLATED. I HOWEVER FIND THAT APART FR OM THE ASSESSEE SEVERAL OTHER PERSONS ALSO CONDUCTED PURCHASE & SALE OF SHARES OF THE 2 C OMPANIES AT THE SAME PRICE AT WHICH THE ASSESSEE CONDUCTED HIS SALE. IT WAS THERE FORE NOT A CASE THAT THE ASSESSEE ALONE REALIZED VERY HIGH PRICE FOR HIS SHARES AND O THER PERSONS TRANSACTED THE SAME SHARES AT MUCH LOWER VALUES. THE A/R FOR THE ASSESS EE ALSO PLACED ON RECORD PUBLISHED QUOTATION OF CSE DATED 19.02.2009 I.E. AL MOST THREE AND HALF YEARS AFTER THE DATE OF SALE; FROM WHICH IT APPEARED THAT IN FEBRUA RY 2009 ALSO THE PREVAILING MARKET PRICE OF EMRALD COMMERCIAL LTDS SHARE WAS RS.464.5 0 AND THAT OF KHOOBSURAT LTD WAS RS.477.20 PER SHARE. THE PUBLISHED CSE QUOTATIO N THEREFORE ESTABLISHED THAT EVEN AFTER 4 YEARS AFTER SALE BY THE ASSESSEE, SHARES OF BOTH THE COMPANIES WERE ACTIVELY TRADED ON CSE AND THEIR SHARE PRICES HAD NOT RECORD ED ANY DECREASE. ALTHOUGH THIS INFORMATION WAS BROUGHT TO THE AOS ATTENTION HE DI D NOT POINT OUT ANY INFIRMITY OR ESTABLISHED THAT TRANSACTIONS IN SHARES OF THESE CO MPANIES CONDUCTED BY OTHER INVESTORS WERE ALSO FALSE OR BOGUS OR FABRICATED. I F THE AO DID NOT HAVE ANY MATERIAL WHICH PROVED TRANSACTIONS IN SHARES OF THESE 2 COMP ANIES CARRIED OUT BY OTHER PERSON WERE ALSO MANIPULATED OR WERE BOGUS THEN ONLY IN TH E ASSESSEES CASE IT CANNOT BE HELD THAT HIS TRANSACTIONS WERE BOGUS OR MANIPULATED. 24. THE ASSESSEE SOLD THE SHARES ON THE CSE THROUGH HIS STOCK BROKER ASHISH STOCK BROKING PVT. LTD. IN SUPPORT OF THE SALE OF S HARES CONTRACT NOTE IN THE PRESCRIBED FORM WAS ISSUED BY THE BROKER. THE CONTRACT NOTE IN CLUDED RELEVANT INFORMATION SUCH AS DATE AND TIME OF TRANSACTION, CONTRACT NOTE NUMB ER, SETTLEMENT NUMBER, DETAILS OF SERVICE TAX PAID, DETAILS OF BROKERAGE AND DETAILS OF STT PAID. NO MATERIAL WAS BROUGHT ON RECORD BY THE AO WHICH SHOED THAT THE IN FORMATION CONTAINED IN CONTRACT NOTE WAS FALSE OR THAT THE SALE OF SHARES ACTUALLY NEVER HAPPENED ON THE OTHER HAND INFORMATION SHOWS THAT NOT ONLY THE ASSESSEE CARRIE D OUT SALE OF SHARES THROUGH CSE BUT THE SALE CONSIDERATION WAS ALSO RECEIVED BY HIM THROUGH CSE CHANNEL AND THIS FACT HAS NOT BEEN DISPROVED. ON SALE OF SHARES, DELIVERY OF SHARES WAS MADE THOROUGH ASSESSEES DEMAT ACCOUNT WITH EUREKHA STOCK & SHARE BROKING SERVICES LTD. THE ENTRIES IN THE DEMAT ACCOUNT SHOWED THAT DELIVERY O F SHARES WAS RECORDED IN THE NSDLS RECORD AND THE SHARES WERE DELIVERED TO THE DEMAT ACCOUNT OF ASHISH STOCK BROKING PVT. LTD. HAD THERE BEEN NO GENUINE SALE OF SHARES THERE COULD NOT HAVE BEEN DELIVERY OF SHARES THROUGH DEMAT ACCOUNT OF THE ASS ESSEE. THE SALE CONSIDERATION WAS RECEIVED THROUGH CSE CHANNEL. THE DOCUMENTS AND OTH ER EVIDENCES BROUGHT ON RECORD THEREFORE CUMULATIVELY SHOW THAT THE ASSESSEE SUBST ANTIATED BOTH PURCHASE & SALE OF SHARES BY PRODUCING DOCUMENTS WHICH WERE VERIFIABLE ; INDEPENDENT OF STATEMENTS OF SHRI KHEMKA OR THE STOCK BROKER. THE EVIDENCE ALSO ESTABLISH THAT APART FROM THE ASSESSEE THERE WERE SEVERAL OTHER PERSONS WHO TRADE D IN SHARES OF BOTH KHOOBSURAT LTD & EMRALD COMMERCIAL LTD AT THE SAME TIME AND AT SIMILAR PRICES AT WHICH THE ASSESSEE SOLD HIS SHARES. HAVING REGARD TO ALL THES E FACTS AND EVIDENCE I HAVE NO HESITATION IN HOLDING THAT THE ASSESSEE DISCHARGED THE ONUS CASTE ON HIM AND ESTABLISHED GENUINENESS OF PURCHASE & SALE OF SHARE S. 10 25. ON THE CONTRARY DESPITE SPECIFIC DIRECTIONS OF MY LETTER DATED 20.04.2009 THE AO DID NOT CONDUCT ANY ENQUIRY DURING THE ASSESSMEN T NOR IN THE REMAND PROCEEDINGS IN RELATION TO ALLEGED CHAIN OF TRANSACTIONS LEADIN G TO ULTIMATE DESTINATION OF THE CASH WHICH PROVED HIS CONCLUSIONS NOR THE AO EXAMINED EI THER SHRI KHEMKA OR STOCKBROKER, NOR ALLOWED THE ASSESSEE OPPORTUNITY O F CROSS EXAMINATION. IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES THE ONLY CONCLUSION T HAT CAN POSSIBLY BE DRAWN IS THAT THE AO DID NOT HAVE IN HIS POSSESSION ANY MATERIAL EXCEPT THE SO CALLED SWORN STATEMENT U/S 132(4) TO CORROBORATE OR SUBSTANTIATE HIS FINDING THAT THE ASSESSEE HAD AVAILED ACCOMMODATION ENTRIES AND THAT PURCHASE & S ALE OF SHARE WAS BOGUS. 26. THE ASSESSEES RELIANCE ON THE DECISIONS OF THE KOLKATA BENCHES OF ITAT IS FOUND RELEVANT BECAUSE FACTS IN THE DECIDED CASES W ERE MORE OR LESS SIMILAR WITH ASSESSEES CASDE E.G. IN THE CASE OF RAJKUMAR AGARW AL (ITA 1330/KOL/2007 DATED 10.08.2007) THE ASSESSEE HAD PURCHASED 8500 SHARES OF NAGESHWAR INVESTMENTS LTD FROM BUBNA STOCK BROKINGS SERVICES PVT. LTD. ON CSE AT COST OF RS.17,170. PURCHASE CONSIDERATION WAS PAID AFTER A GAP OF 1 MONTH 3 DAY . DELIVERY OF SHARES WAS TAKEN IN ASSESSEES DEMAT ACCOUNT AND THE PURCHASE WAS SUPPO RTED BY CONTRACT NOTES IN THE FORM PRESCRIBED BY CSE. 4000 SHARES WERE SOLD ON 17 .09.2003 @ RS.87.06 PER SHARE AND 4500 SHARES WERE SOLD ON 19.09.2003 @ RS.85.36 PER SHARE. TRANSACTIONS WERE CONDUCTED THROUGH THE SAME STOCK BROKER. THE DELIVE RY OF SHARES WAS GIVEN THROUGH ASSESSEES DEMAT ACCOUNT AND TAKEN IN BROKERS DEMA T ACCOUNT. SALE PROCEEDS WERE RECEIVED BY ACCOUNT PAYEE CHEQUE ISSUED BY THE STOC K BROKER. THE AO HOWEVER, ASSESSED GROSS SALE PROCEEDS AS UNDISCLOSED INCOME OF THE ASSESSEE BECAUSE U/S 133(6) CSE REPORTED THAT THE STOCK BROKER HAD NOT EXECUTED ANY TRADE ON 10.07.2002, 17.09.2003 & 19,.09.2003 IN THE SCRIPS OF NAGESHWAR INVESTMENTS LTD THROUGH ONLINE TRADING SYSTEM OF CSE. ON THE CONTRARY THE BROKER I N RESPONSE TO NOTICE US 133(6) PRODUCED BEFORE THE AO HIS BOOKS OF ACCOUNT, PURCHA SE AND SALE BILLS, CONTRACT NOTE. DELIVERIES OF SHARES PURSUANT TO PURCHASE & SALE OF SHARES WERE MADE THROUGH DEMAT ACCOUNT. THE BROKER ALSO ESTABLISHED THAT PURCHASE & SALE OF SHARES WERE MADE THROUGH DEMAT ACCOUNT. THE BROKER ALSO ESTABLISHED THAT PURCHASE AND SALE OF SHARES WAS CONDUCTED AT MARKET PRICES PREVAILING AT THE RE LEVANT TIME AND THIS FACT WAS BACKED BY CSE MARKET QUOTATION. THE AO MADE THE ADD ITION HOLDING THAT CONTRACT NOTES ISSUED BY THE BROKERS WERE FALSE AND IN REALI TY THE STOCK BROKER IN COLLUSION WITH THE ASSESSEE INTRODUCED ASSESSEES UNDISCLOSED MONE Y IN THE GUISE OF LTCG. THE ADDITION WAS DELETED BY CIT(A). ON 2 ND APPEAL IT WAS ARGUED BEFORE THE TRIBUNAL BY THE D/R THAT NAGESHWAR INVESTMENT PVT. LTD. WAS A PENNY STOCK AND THE AO HAD ACTED ON THE INFORMATION RECEIVED FROM CSE WHICH IS A REGULATORY AUTHORITY. CSE DENIED THAT ANY TRADE IN NAGESHWAR INVESTMENT PVT. LTD. SHARES WAS EXECUTED BY THE BROKER ON REPORTED DATES AND THEREFORE AO WAS JUSTI FIED IN TAKING THE VIEW THAT THE ASSESSEE IN COLLUSION WITH THE BROKER BROUGHT INTO ACCOUNT HIS UNDISCLOSED INCOME. ON FACTS THE TRIBUNAL HELD THAT THE PURCHASE & SALE OF SHARES WAS BACKED BY PROPER CONTRACT NOTES. DELIVERIES OF SHARES WERE RECEIVED AND GIVEN THROUGH DEMAT ACCOUNT MAINTAINED WITH AUTHORIZED AGENCY. THE SHARES WERE PURCHASED AND SOLD THROUGH THE RECOGNIZED BROKER AND THE SALE CONSIDERATION WAS RE CEIVED BY ACCOUNT PAYEE CHEQUE. THE SHARE BROKER HAD ADMITTED THE TRANSACTION WHEN CALLED UPON U/S SEC 133(6). THE AO FAILED TO BRING ON RECORD ANY EVIDENCE WHICH EST ABLISHED THAT DOCUMENTS FILED EITHER BY ASSESSEE OR STOCK BROKER WERE FABRICATED OR FALSE. THE BROKERS WAS REGISTERED WITH CSE AND HAD CONFIRMED TRANSACTION BY QUOTING R EGISTRATION NUMBER, CONTRACT NUMBER, SETTLEMENT NUMBER ETC. IT WAS NOT THE REVEN UES CASE THAT THE BROKER DID NOT EXIT OR THAT THE RELEVANT SHARES OF NAGESHWAR INVES TMENT PVT. LTD DID NOT EXIT OR THAT THE PURCHASE & SALES OF SHARES RECORDED AND ROUTED THROUGH THE BANK ACCOUNT AND 11 DEMAT ACCOUNT WERE FICTITIOUS. THE TRIBUNAL THEREFO RE UPHELD THE ORDER OF THE CIT(A) AND HELD THAT INCOME DISCLOSED BY THE ASSESSEE WAS ASSESSABLE AS LTCG. 27. THE DECISIONS OF THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS CARGO INDUSTRIAL HOLDING LTD (244 ITR 422) AND CIT VS EMR ALD COMMERCIAL LTD (250 ITR 549) ARE RELEVANT IN THIS CASE WHEREIN THE HIGH COU RT HAD HELD AS UNDER : .PAYMENT BY ACCOUNT PAYEE CHEQUE HAD NOT BEEN D ISPUTED. PAYMENT ON PURCHASE AND SALE AND PAYMENT RECEIVED BY ACCOUNT P AYEE CHEQUE WAS ON TWO DIFFERENT DATES. IF THE SHARE BROKER, EVEN AFTER IS SUE OF SUMMONS, DOES NOT APPEAR, FOR THAT REASONS, THE CLAIM OF THE ASSESSEE SHOULD NOT BE DENIED SPECIALLY IN CASE WHEN THE EXISTENCE OF THE BROKER IS NOT IN DISPUTE NOR THE PAYMENT IS IN DISPUTE. MERELY BECAUSE SOME BROKER F AILED 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. 28. DECISION OF THE CALCUTTA HIGH COURT IN THE CAS E OF CIT VS ALPINE INVESTMENT DATED 26.08,2008 RELIED BY THE A/R IS ALSO RELEVANT BECAUSE FACTS IN THAT CASE WERE SIMILAR TO THE ASSESSEES CASE. IN THE COURSE OF SE ARCH A STATEMENT WAS RECORDED FORM SHRI ROOPANI; AN EMPLOYEE AT THE ASSESSEE FIRM IN W HICH HE HAD ADMITTED THAT SHARE TRADING LOSS WAS NOT GENUINE. LATER ON DURING THE C OURSE OF CROSS EXAMINATION CONDUCTED ON 25.10.2002 SHRI ROOPANI RETRACTED HIS EARLIER STATEMENT RECORDED ON 25.08.2000 ON THE GROUND THAT IT WAS GIVEN BY HIM U NDER DURESS AND COERCION. HE ALSO SUBMITTED DURING THE CROSS EXAMINATION THAT HE HAD PRODUCED CONTRACT NOTES, BILLS ETC. IN SUPPORT OF SHARE TRADING TRANSACTIONS WHICH WERE NOT CONSIDERED BY THE SEARCH OFFICIALS. BASED ON THE STATEMENT OF SHRI ROOPANI; ASSESSMENT U/S 158BD/ 158BC WAS MADE IN WHICH SHARE TRADING LOSS WAS DISALLOWED. DU RING THE ASSESSMENT THE ASSESSEE PRODUCED BEFORE THE AO BOOKS OF ACCOUNT, BILLS, CON TRACT NOTES ETC IN SUPPORT OF SHARE TRADING TRANSACTIONS WHICH SHOWED THAT THE SHARES W ERE TRANSACTED THROUGH RECOGNIZED STOCK BROKERS AND THROUGH REGULAR BANK CHANNEL AND SUPPORTED BY CONTRACT NOTES AND BILLS. THE STOCK BROKER ALSO APPEARED AND ACCEPTED THE TRANSACTIONS TO BE GENUINE. THE AO HOWEVER RELIED SOLELY ON THE STATEMENT OF SHRI R OOPANI AT THE TIME OF SEARCH WITHOUT TAKING COGNIZANCE OF CROSS EXAMINATION AND DOCUMENTS PRODUCED AND DISALLOWED THE LOSS TREATING IT TO BE BOGUS. THE CI T(A) UPHELD THE DISALLOWANCE WHICH WAS DELETED BY THE TRIBUNAL. WHILE DISMISSING THE R EVENUES APPEAL U/S 260A THE CALCUTTA HIGH COURT OBSERVED AS FOLLOWS : IT APPEARS THAT THE SHARE LOSS AND THE WHOLE TRANS ACTIONS WERE SUPPORTED BY CONTRACT NOTES, BILLS AND WERE CARRIED THROUGH RECO GNIZED STOCK BROKER OF THE CALCUTTA STOCK EXCHANGE AND ALL THE PAYMENTS MADE T O THE STOCK BROKER AND ALL THE PAYMENTS RECEIVED FROM STOCK BROKER THROUGH ACC OUNT PAYEE INSTRUMENTS, WHICH WERE ALSO FILED IN ACCORDANCE WITH THE ASSESS MENT. IT APPEARS FROM THE FACTS AND MATERIALS PLACED BEFO RE THE TRIBUNAL AND AFTER EXAMINING THE SAME THE TRIBUNAL CAME TO THE CONCLUS ION AND ALLOWED THE APPEAL FILED BY THE ASSESSEE. IN DOING SO, THE TRIBUNAL HE LD THAT THE TRANSACTION FULLY SUPPORTED BY THE DOCUMENTARY EVIDENCES COULD NOT BE BRUSHED ASIDE ON SUSPICION AND SURMISES. HOWEVER, IT WAS HELD THAT T HE TRANSACTION OF SHARE ARE GENUINE. THEREFORE WE DO NOT FIND THAT THERE IS ANY REASON TO HOLD THAT THERE IS ANY SUBSTANTIAL QUESTION OF LAW INVOLVED IN THIS MA TTER. HENCE, THE APPEAL BEING ITA NO.6F30 OF 2008 IS DISMISSED. 12 29. THE ABOVE DECISIONS SQUARELY SUPPORT THE APPELL ANTS CASE. IN THE CASE OF RAJKUMAR AGARWAL THE ASSESSEE HAD PURCHASED AND SOL D SHARES OF NAGESHWAR INVESTMENTS PVT. LTD. THIS COMPANY IS ONE OF THE 5 COMPANIES, IN WHOSE CASE SEBI FOUND EVIDENCE OF PRICE MANIPULATION BY SOME OF THE CSE BROKERS THOUGH BUBNA STOCK BROKERING SERVICES PVT. LTD. WAS NOT ONE OF T HEM. THE TRIBUNAL HAVING FOUND THAT PURCHASE AND SALE TRANSACTIONS WERE CONDUCTED THROUGH RECOGNIZED STOCK BROKER AND THE TRANSACTION WAS PROPERLY SUPPORTED BY PROPE R DOCUMENTARY EVIDENCES IT DID NOT AGREE WITH AOS CONCLUSION THAT THE ASSESSEE IN COLLUSION WITH HIS TOCK BROKER INTRODUCED HIS UNACCOUNTED MONEY IN THE FORM OF LTC G. IN THE ASSESSEES CASE ALSO HIS TRANSACTIONS IN PURCHASE AND SALE OF SHARES ARE SUPPORTED BY PROPER DOCUMENTARY EVIDENCES. THE SHARES RECEIVED FROM THE AMALGAMATED COMPANIES WERE CONVERTED IN DEMATERIALIZED FORM FOR WHICH THE CREDIT WAS GIVEN TO ASSESSEES DEMAT ACCOUNT BY NSDL OVER WHOM NEITHER THE ASSESSEE NOR HIS BROKER HAD ANY CONTROL. THE AO DID NOT DOUBT THE GENUINENESS OF COST OF ACQUISITION BECAUS E THE AO HIMSELF ALLOWED DEDUCTION FOR THE COST AND ASSESSED THE NET GAINS A S INCOME. SALE OF SHARES WAS SUPPORTED BY CONTRACT NOTE, ISSUED IN THE PRESCRIBE D FORM CONTAINING INFORMATION PRESCRIBED BY RULES. SALE OF SHARES SUFFERED PAYMEN T OF STT AS ALSO SERVICE TAX. SALE CONSIDERATION WAS RECEIVED BY ACCOUNT PAYEE CHEQUE THROUGH CSE CHANNEL. DELIVERY OF SHARES WAS GIVEN FROM ASSESSEES DEMAT ACCOUNT T O BROKERS DEMAT ACCOUNT MAINTAINED WITH NSDL. THE AO DID NOT ESTABLISH INFI RMITY IN ANY OF THESE DOCUMENTS OR PROVED THESE DOCUMENTS TO BE FALSE OR FABRICATED . HAVING REGARD TO TOTALITY OF THE FACTS AND CIRCUMSTANCES AND THE EVIDENCES ON RECORD I THEREFORE HOLD THE AO WAS NOT JUSTIFIED IN ASSESSING RS.67,04,678 AS ASSESSEES I NCOME. THE AO IS ACCORDINGLY DIRECTED TO ASSESS RS.67,04,678/- AS LTCG REALIZED ON SALE OF SHARES. SINCE THE SHARES IN QUESTION WERE HELD FOR PERIOD MORE THAN 12 MONTH S AND THE SHARES WERE SOLD ON RECOGNIZED STOCK EXCHANGE AFTER PAYMENT OF STT, THE AO IS DIRECTED TO ALLOW EXEMPTION U/S 10(38) OF THE ACT IN RESPECT OF THE LONG TERM CAPITAL GAINS. 3.2. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEF ORE US. 4. AT THE TIME OF HEARING THE LD. DR APPEARING ON B EHALF OF REVENUE CARRIED US THROUGH THE ORDER OF THE ASSESSING OFFICER IN WHICH FACTS CONCERNING THE ADDITION OF RS.67,04,678/- U/S 68 OF THE INCOME TAX ACT WERE DI SCUSSED AT LENGTH AND SUBMITTED THAT ALL THE ASSESSEES WHO ARE RESPONDENTS IN THIS BATCH OF APPEALS ARE FAMILY MEMBER OF SRI R. S. AGARWAL. SRI R. S. AGARWAL; HIS FAMIL Y MEMBERS AND THE COMPANIES BELONGING TO THE FAMILY WERE SUBJECTED TO SEARCH & SEIZURE OPERATION U/S 132 OF THE INCOME TAX ACT AT CALCUTTA & SILIGURI ON 8 TH DECEMBER 2006. DURING THE COURSE OF SEARCH CERTAIN PAPERS WERE FOUND AND SEIZED WHICH I NTER-ALIA INCLUDED COPIES OF THE CONTRACT NOTES, DEMAT STATEMENTS AND OTHER DOCUMENT S WHICH INDICATED THAT 6 MEMBERS OF R.S. AGARWAL FAMILY HAD EARNED SUBSTANTI AL CAPITAL GAINS ON SALE OF SHARES OF M/S. KHOOBSURAT LTD & M/S. EMRALD COMMERC IAL LTD. THESE SHARES WERE 13 ALLEGEDLY SOLD ON CALCUTTA STOCK EXCHANGE ON PAYMEN T OF SECURITY TRANSACTION TAX; AFTER ALLEGEDLY HOLDING THE SAME FOR MORE THAN 12 M ONTHS. ACCORDINGLY, ALL THE 6 ASSESSEES CLAIMED CAPITAL GAINS TO BE EXEMPT U/S 10 (38) OF THE ACT. 4.1. SIMULTANEOUSLY WITH THE SEARCH CONDUCTED IN TH E CASE OF R. S. AGARWAL GROUP, SEARCH & SEIZURE PROCEEDINGS WERE ALSO CONDUCTED AT THE OFFICE PREMISES OF SRI ARUN KUMAR KHEMKA AT 8, GANESH CHANDRA AVENUE, KOLKATA, DURING WHICH, STATEMENT U/S 132(4) WAS RECORDED BY THE ADIT (INV.). IN HIS STA TEMENT, SRI KHEMKA CONFESSED THAT HE HAD ARRANGED ACCOMMODATION ENTRIES FOR THE FAMIL Y MEMBERS OF SRI R. S. AGARWAL; WHEREBY CASH PAID WAS RETURNED IN THE FORM OF CHEQU ES AGAINST OSTENSIBLE SALE OF SHARES OF KHOOBSURAT LTD & EMARALD COMMERCIAL LTD B OTH OF WHICH WERE HIS CONTROLLED ENTITIES. SHRI KHEMKA ADMITTED THAT IN FACT NO SHARES WERE ACTUALLY PURCHASED AND SOLD BY THE ASSESSEES AND HE ONLY ARR ANGED ENTRIES IN SUPPORT OF PURCHASE AND SALE OF SHARES. THE CASH RECEIVED FRO M THE INDIVIDUAL MEMBERS OF R. S. AGARWAL FAMILY WERE LATER ON RETURNED AFTER DEDUCTI NG HIS 2% COMMISSION FOR PROVIDING ACCOMMODATION ENTRIES. SRI KHEMKA FURTHE R SUBMITTED THAT HE HAD INCURRED EXPENSES SUCH AS BROKERAGE, TRANSACTION CHARGES, ST T, ETC. AND AFTER DEDUCTING THESE EXPENSES HIS NET EARNING FROM PROVIDING ACCOMMODATI ON ENTRIES WAS ONLY 1%. 4.2. SUBSEQUENT TO RECORDING OF STATEMENT U/S 132(4 ) ON 9 TH DECEMBER 2006, M/S. ASHIS STOCK BROKING PVT. LTD AND SRI SUNIL KUMAR KE DIA STOCK BROKERS THROUGH WHOM ASSESSEE HAD SOLD SHARES; FILED LETTERS BEFORE THE ADIT (INV.) DATED 15.01.2007 IN WHICH THEY ADMITTED THAT SHARE SALE TRANSACTIONS WERE NOTHING BUT ACCOMMODATION ENTRIES. THE STOCK BROKERS ADMITTED THAT THEY HAD IN FACT ISSUED CHEQUES IN LIEU OF CASH RECEIVED. THE LD. DR SUBMITTED THAT IN THE ST ATEMENTS RECORDED U/S 132(4) THERE WAS CLEAR ADMISSION ON THE PART OF SRI KHEMKA AS AL SO STOCK BROKERS THAT TRANSACTIONS OF THE ASSESSEES WERE NOT GENUINE AND IN FACT THEY WERE SHAM AND BOGUS. IN THE LIGHT OF THE CLEAR AND UNAMBIGUOUS CONFESSIONAL STATEMENT S, THE CIT (A) WAS NOT JUSTIFIED IN ALLOWING RELIEF TO THE ASSESSEE. 14 4.3. RELYING ON THE JUDGMENT OF THE SUPREME COURT I N THE CASE OF SURJIT SINGH CHHABRA VS UNION OF INDIA (AIR 1997 SC 2560); THE L D. DR SUBMITTED THAT AN ADMISSION MADE BY AN ACCUSED PERSON; BEFORE THE REV ENUE AUTHORITIES; IS AN ADMISSIBLE EVIDENCE EVEN IF SUCH CONFESSION IS LATT ER ON RETRACTED. HE ARGUED THAT BEFORE THE AO THE ASSESSEE FILED COPIES OF THE RETR ACTION STATEMENTS OF THE BROKERS. HOWEVER, THE RETRACTION AFFIDAVITS WERE MADE IN FEB RUARY 2007 WHEREAS THE STATEMENTS WERE GIVEN BY SRI KHEMKA AND THE STOCK BROKERS DURI NG THE COURSE OF SEARCH & THESE WERE ON OATH. THE STATEMENTS RECORDED U/S 132(4) O F THE ACT CARRIED MORE EVIDENTIARY VALUE. HE FURTHER SUBMITTED THAT THE COPIES OF THE RETRACTION AFFIDAVITS WERE NEVER FURNISHED TO THE ADIT (INV.). EVEN THOUGH IN THE R ETRACTION AFFIDAVITS THE STOCK BROKERS HAD ALLEGED THAT THE STATEMENTS BEFORE THE ADIT (INV.) WERE OBTAINED BY COERCION AND UNDUE INFLUENCE BUT BEFORE THE AO NO E VIDENCE WAS PRODUCED BY THE ASSESSEE TO PROVE AS TO HOW UNDUE INFLUENCE OR COER CION WAS EXERCISED FOR GIVING THE CONFESSIONAL STATEMENT. HE FURTHER SUBMITTED THAT THE STATEMENT OF THE BROKERS COULD BE USED AS EVIDENCE BY THE AO; AGAINST THE ASSESSEE BECAUSE IN THE STATEMENT RECORDED U/S 132(4) THERE WAS CLEAR ADMISSION ON THE PART OF THE BROKERS AS ALSO BY SRI ARUN KUMAR KHEMKA THAT THEY HAD MERELY PROVIDED ACCOMMOD ATION ENTRIES AND SHARE PURCHASE/SALE TRANSACTIONS WERE SHAM AND NOT GENUIN E. 4.4. THE LD. DR FURTHER SUBMITTED THAT IN THE ASSES SMENT ORDER; BESIDES RELYING ON THE CONFESSIONAL STATEMENTS OF SRI KHEMKA AND THE S TOCK BROKERS THE AO ALSO BROUGHT ON RECORD COGENT; RELEVANT AND CIRCUMSTANTIAL EVIDE NCES & FACTS WHICH CLEARLY PROVED THAT IN REALITY THERE WAS IN FACT NO PURCHASE & SAL E OF SHARES OF KHOOBSURAT LTD & EMARALD COMMERCIAL LTD. REFERRING TO THE ASSESSMEN T ORDER, HE SUBMITTED THAT THE ASSESSEE HAD ALLEGEDLY PURCHASED SHARES OF 5 COMPAN IES THROUGH M/S. GLOBE SECURITIES & SERVICES LTD. THE PURCHASE CONSIDERAT ION WAS HOWEVER NOT PAID BY ACCOUNT PAYEE CHEQUE BUT IT WAS ALLEGEDLY PAID IN C ASH. SINCE IT WAS A CASH TRANSACTION THE SAME WAS NOT AMENABLE FOR VERIFICAT ION FROM INDEPENDENT SOURCE. THIS FACT RAISED SERIOUS QUESTION ON ACTUAL PURCHASE OF SHARES. FURTHER THERE WAS CONSIDERABLE TIME GAP BETWEEN THE ALLEGED DATE OF P URCHASES AND THE ALLEGED DATES OF PAYMENTS. THE CONSIDERABLE TIME DIFFERENCE BETWEEN THE 2 DATES CLEARLY GAVE AN 15 IMPRESSION THAT THE PURCHASES WERE ANTI-DATED TO EN ABLE THE ASSESSEE TO CLAIM HOLDING PERIOD TO BE MORE THAN 12 MONTHS. REFERRING TO CHA RT OF SHARE PURCHASE AND PAYMENTS THEREFORE IN THE ASSESSMENT ORDER, HE STATED THAT T HE TIME GAP BETWEEN THE DATES OF CONTRACT AND DATES OF PAYMENTS RANGED UP TO 45 DAYS WHICH CLEARLY PROVED THE INORDINATE DELAY IN MAKING PAYMENTS AND THIS FACT R AISED SERIOUS QUESTION ABOUT GENUINENESS OF THE SHARES PURCHASE. THE LD.DR FURT HER ARGUED THAT THE SHARES OF 5 COMPANIES WERE ALLEGEDLY PURCHASED DURING THE PENDE NCY OF AMALGAMATION PROCEEDINGS & THIS FACT ALSO RAISED SERIOUS DOUBTS ABOUT THE GENUINENESS OF THE SHARES PURCHASE OF THE AMALGAMATING COMPANIES. DRAWING ATT ENTION TO THE ASSESSMENT ORDER, HE SUBMITTED THAT HE HAD CONDUCTED ENQUIRIES FROM T HE OFFICE OF THE REGISTRAR OF COMPANIES FROM WHICH HE ASCERTAINED THAT THE AMALGA MATING COMPANIES DID NOT FILE ANNUAL RETURNS FOR THE FINANCIAL YEAR 2003-04 AND T HEREFORE IT COULD NOT BE ASCERTAINED AS TO WHETHER THE ASSESSEES WERE THE SHAREHOLDERS O F THE AMALGAMATING COMPANIES. THE AO ALSO ASCERTAINED FROM ROC THAT THE AMALGAMAT ED COMPANIES DID NOT FILE RETURNS OF ALLOTMENT CONSEQUENT TO ISSUE OF SHARES TO THE SHAREHOLDERS OF THE AMALGAMATING COMPANIES AND THEREFORE THE AO COULD N OT VERIFY THE ALLOTMENT OF SHARES BY KHOOBSURAT LTD & EMARALD COMMERCIAL LTD TO THE ASSESSEES. IN ABSENCE OF THESE CRUCIAL EVIDENCES WHICH SHOULD HAVE BEEN AVAI LABLE WITH THE AUTHORITIES; ACTUAL PURCHASE OF SHARES BY THE ASSESSEE REMAINED UNVERIF IED. THE LD.DR THEREFORE SUBMITTED THAT THE ASSESSEES PURCHASE OF SHARES WA S NOT SUBSTANTIATED FROM INDEPENDENT VERIFIABLE SOURCES AND THEREFORE THE AO RIGHTLY HELD THAT THERE WAS NO ACTUAL PURCHASE AND SALE OF SHARES. THESE FACTS FU RTHER SUPPORTED THE CONFESSIONAL STATEMENT OF SHRI KHEMKA & THE STOCK BROKERS. 4.5. THE LD.DR THEN BROUGHT TO OUR ATTENTION AN ORD ER PASSED BY SEBI IN WHICH THE 2 STOCK BROKERS VIZ. SUNIL KUMAR KEDIA & ASHIS STOC K BROKING PVT. LTD WERE HELD GUILTY OF MANIPULATING PRICES OF SHARES OF COMPANIE S LISTED ON CALCUTTA STOCK EXCHANGE. REFERRING TO THE SEBIS ORDER, THE LD.DR POINTED OUT THAT SEBI HAD FOUND CLEAR EVIDENCE TO ESTABLISH THAT M/S. ASHIS STOCK B ROKING PVT. LTD & SUNIL KEDIA WERE ENGAGED IN CIRCULAR TRADING OF SHARES OF COMPANIES WHEREBY PRICES OF SHARES WERE ARTIFICIALLY INFLATED. AS SEBI FOUND THE TWO BROKE RS WERE INVOLVED IN PRICE 16 MANIPULATION ACTIVITIES, THEY WERE BANNED BY SEBI F ROM TRANSACTING ANY BUSINESS ON THE FLOOR OF THE EXCHANGE. THE LD.DR ARGUED THAT T HE ORDER OF SEBI CLEARLY PROVED THAT THE BROKERS THROUGH WHOM THE ASSESSEE CARRIED OUT HIS SALE OF SHARES WERE GUILTY OF PRICE MANIPULATION OF SHARES AND HAVING REGARD T O THEIR TAINTED CHARACTER THE AO WAS WELL JUSTIFIED IN HOLDING THE ASSESSEES SHARE SALE TRANSACTIONS THROUGH THESE BROKERS TO BE SHAM. 4.6. THE LD.DR FURTHER SUBMITTED THAT BOTH M/S. KHO OBSURAT LTD & EMARALD COMMERCIAL LTD WERE COMPANIES HAVING NO ESTABLISHED TRACK RECORD AND DID NOT CONDUCT ANY SUBSTANTIAL BUSINESS SO AS TO JUSTIFY H IGH MARKET PRICE FOR THEIR SHARES. REFERRING TO THE ASSESSMENT ORDER, HE SUBMITTED THA T THE BREAK-UP VALUE OF SHARES OF KHOOBSURAT LTD WAS RS.52.45 PER SHARE AND THAT OF E MARALD COMMERCIAL LTD WAS RS.37.87; ONLY. IN VIEW OF SUCH LOW BREAK-UP VALUE OF SHARES THERE WAS APPARENTLY NO JUSTIFICATION FOR THESE COMPANIES TO HAVE SHARE PRI CE EXCEEDING RS.450/- I.E. THE PRICE AT WHICH THE SHARES WERE SOLD BY THE ASSESSEE. ACC ORDING TO HIM, SHARES OF BOTH THE COMPANIES WERE PENNY STOCK WHOSE PRICES WERE ARTI FICIALLY INFLATED BY FEW BROKERS TO ENABLE SOME PERSONS TO LAUNDER THEIR BLACK MONEY THROUGH DUBIOUS MODUS OPERANDI. CONSIDERING THE DUBIOUS NATURE OF TRADIN G AND ARTIFICIALLY HIGH SHARE PRICES OF THESE 2 COMPANIES, TRADING IN SHARES OF THESE CO MPANIES WAS BANNED BY CALCUTTA STOCK EXCHANGE EFFECTIVE FROM 23 RD NOVEMBER 2005. THE LD.DR SUBMITTED THAT ALL THE FACTS AND EVIDENCES CONSIDERED CUMULATIVELY NOT ONL Y SUPPORTED THE CONFESSIONAL STATEMENT OF SRI KHEMKA MADE BEFORE THE ADIT (INV.) U/S 132 BUT ALSO PROVED THAT THE AMOUNT RECEIVED BY THE ASSESSEE IN THE GARB OF SALE OF SHARES WAS NOTHING BUT UNDISCLOSED INCOME OF THE ASSESSEE WHICH WAS TAXABL E U/S 68 OF THE INCOME TAX ACT. HE THEREFORE STRONGLY URGED FOR VACATING THE ORDER OF THE CIT (A) AND RESTORING THE AOS ORDER. 5. ON THE OTHER HAND THE LD. AR APPEARING ON BEHALF OF ASSESSEE STRONGLY RELIED ON THE ORDER OF THE CIT (A). AT THE OUTSET, HE SUB MITTED THAT EACH AND EVERY ALLEGATION CONTAINED IN THE ASSESSMENT ORDER & THE AVERMENTS M ADE BEFORE US BY THE LD.DR WERE DELIBERATED IN DETAIL BY THE CIT (A) IN HIS WELL RE ASONED ORDER. BESIDES, RELYING ON THE 17 CIT(A)S FINDING; THE A/R ARGUED THAT THE ADDITION IN THE IMPUGNED ORDER WAS MADE SOLELY ON THE BASIS OF STATEMENT OF SRI ARUN KUMAR KHEMKA AND THE STOCK BROKERS. HE SUBMITTED THAT THE STATEMENTS OF THE BROKERS AS ALSO OF SRI KHEMKA WERE RECORDED IN THE ASSESSEES ABSENCE. SIMILARLY, THE RETRACTI ON STATEMENTS OF THE STOCK BROKERS WERE ALSO MADE AT THE BACK OF THE ASSESSEE. THE AS SESSEES WERE NOT PARTIES TO EITHER OF THE STATEMENT OR RETRACTION AFFIDAVITS. HE SUBMITT ED THAT EVEN THOUGH SERIOUS CHARGES WERE LEVELED AGAINST THE ASSESSEES IN THE STATEMENT S RECORDED U/S 132(4) OF THE ACT, THE ASSESSEES WERE NEVER PERSONALLY EXAMINED BY THE ADI T (INV.) WITH REFERENCE TO THE ALLEGED CONFESSIONAL STATEMENTS OF SRI KHEMKA OR TH E STOCK BROKERS. IN FACT THE ASSESSEE WAS NEVER GIVEN COPY OF THESE STATEMENTS E ITHER BY THE ADIT OR BY THE AO. ONLY IN NOVEMBER 2008 THE A/R OF THE ASSESSEE WAS M ERELY SHOWN COPY OF THE ALLEGED CONFESSIONAL STATEMENTS OF SRI KHEMKA AND T HE STOCK BROKERS AND THE ASSESSEE WAS DIRECTED TO SHOW-CAUSE WHY NO ADDITION SHOULD B E MADE. THE A/R THEREFORE SUBMITTED THAT TILL NOVEMBER 2008 THE ASSESSEE WAS NOT EVEN MADE AWARE ABOUT THE SERIOUS CHARGES CONTAINED IN THE ALLEGED CONFESSION AL STATEMENT OF SRI KHEMKA OR THE STOCK BROKERS. ONLY ON GETTING INFORMATION ABOUT T HE ALLEGED CONFESSION IN NOVEMBER 2008; THE ASSESSEE ASCERTAINED THE FACTS F ROM THE STOCK BROKERS. AT THAT STAGE THE ASSESSEE WAS PRESENTED WITH THE RETRACTIO N AFFIDAVITS BY THE STOCK BROKERS WHICH WERE IMMEDIATELY FURNISHED BEFORE THE AO. TH E A/R FURTHER SUBMITTED THAT THE ASSESSEE NOT ONLY SUBMITTED THE RETRACTION AFFIDAVI TS OF THE BROKERS BUT ALSO FURNISHED BEFORE THE AO ALL THE COGENT AND RELEVANT DOCUMENTA RY EVIDENCES WHICH SUBSTANTIATED BOTH PURCHASE & SALE OF SHARES. EVEN THOUGH THESE DOCUMENTARY EVIDENCES WERE FURNISHED; THE AO DID NOT BRING ON RECORD ANY MATER IAL OR EVIDENCE TO PROVE ANY INFIRMITY OR FALSITY IN THE DOCUMENTS. IN FACT THE AO DID NOT DEAL WITH ANY OF THE DOCUMENTS ON MERITS BUT SIMPLY BY MAKING GENERAL OB SERVATIONS AND ALLEGATIONS MADE THE ADDITION OF CAPITAL GAINS. 5.1. THE A/R FURTHER SUBMITTED THAT THE DECISION OF THE SUPREME COURT IN THE CASE OF SURJEET SINGH CHHABRA (SUPRA) WAS NOT APPLICABLE IN AS MUCH AS IN THE ASSESSEES CASE STATEMENT OF THE THIRD PARTY WAS USED BY THE AO AS SOLE EVIDENCE FOR JUSTIFYING THE ADDITION. THE A/R SUBMITTED THAT PRINCIPLES OF NAT URAL JUSTICE DEMANDED THAT BEFORE 18 STATEMENT OF SRI KHEMKA WAS USED IN OR AS EVIDENCE, THE ASSESSEE WAS GIVEN OPPORTUNITY OF CROSS EXAMINING THE WITNESS ON WHOSE STATEMENT ADDITION WAS SOUGHT TO BE JUSTIFIED. NO SUCH OPPORTUNITY WAS ALLOWED EITH ER IN THE COURSE OF ASSESSMENT OR IN REMAND PROCEEDINGS EVEN THOUGH THE CIT (A) HAD EXPR ESSLY DIRECTED AO TO EXAMINE THE STOCK BROKERS AND TO INVESTIGATE THE ALLEGED TR AIL OF CASH. 5.2. RELYING ON THE DECISION OF THE SUPREME COURT I N THE CASE OF VINOD KUMAR SOLANKI VS UNION OF INDIA, HE SUBMITTED THAT IN THE LATER DECISION THE SUPREME COURT HAD HELD THAT THE ALLEGED CONFESSIONAL STATEMENT OF THE ACCUSED BEFORE FERA AUTHORITIES COULD NOT BE USED AS SOLE EVIDENCE UNLE SS THE SAID CONFESSIONAL STATEMENT WAS CORROBORATED WITH SOME OTHER INDEPENDENT VERIFI ABLE EVIDENCE. THE SUPREME COURT HELD THAT WHERE THE ACCUSED CLAIMS THAT THE C ONFESSION WAS OBTAINED BY COERCION OR FORCE THEN IT IS THE DUTY OF THE COURT TO SEE WH ETHER SUCH CONFESSION WAS VOLUNTARY. THE COURT FURTHER HELD IT IS NOT FOR THE ACCUSED TO PROVE BEYOND DOUBT THE USE OF COERCION. THE DECISION OF THE SUPREME COURT WAS FO LLOWED BY THE BOMBAY HIGH COURT IN THE CASE OF CIT VS UTTAMCHAND JAIN WHEREIN ADDITION U/S 68 WAS DELETED BY THE HIGH COURT. IN THAT CASE THE ADDITION U/S.68 W AS MADE BY THE AO ON THE BASIS OF ALLEGED CONFESSIONAL STATEMENT OF THE JEWELLER, WHO HAD PURCHASED JEWELLERY FROM THE ASSESSEE. THE SAID CONFESSION WAS RETRACTED BY THE JEWELER; WHILE DEPOSING BEFORE THE AO OF THE ASSESSEE AND THEREFORE THE ADDITION WAS D ELETED BY ITAT AND BY THE HIGH COURT. THE A/R FOR THE ASSESSEE THEREFORE SUBMITTE D THAT NO ADDITION COULD BE MADE BY THE AO IN THE ASSESSEES CASE SOLELY ON THE BASI S OF STATEMENT OF SRI KHEMKA AND THE STOCK BROKERS BECAUSE THESE STATEMENTS WERE RET RACTED BY THEM IN THE SWORN AFFIDAVITS. 5.3. HE FURTHER SUBMITTED THAT THE CONFESSIONAL STA TEMENTS WERE NOT BACKED BY ANY INDEPENDENT VERIFIABLE EVIDENCE BUT CONTAINED BALD STATEMENT ACCUSING THE ASSESSEE OF AVAILING ACCOMMODATION ENTRIES. ON THE OTHER HAND, THE RETRACTION STATEMENTS OF THE STOCK BROKERS WERE SUPPORTED BY LARGE NUMBER OF DOC UMENTARY EVIDENCES WHICH WERE VERIFIABLE FROM INDEPENDENT SOURCES. HE STATED THA T THE SHARES IN QUESTION WERE TRANSACTED THROUGH ASSESSEES DEMAT ACCOUNT MAINTAI NED WITH DEPOSITORY PARTICIPANT OF 19 NSDL. THE DELIVERY OF SHARES WAS GIVEN FROM THE DE MAT ACCOUNT OF THE ASSESSEE TO THE DEMAT ACCOUNT OF THE BROKER. NO INFIRMITY IN T HESE EVIDENCES WAS PROVED. THE PAYMENT FOR SALE OF SHARES WAS RECEIVED BY ACCOUNT PAYEE CHEQUE. DESPITE OPPORTUNITIES GIVEN THE AO WAS NOT ABLE TO PROVE TH E ALLEGATION OF CHEQUES BEING ISSUED IN LIEU OF CASH RECEIVED. REFERRING TO THE ASSESSMENT ORDER HE STATED THAT EVEN THE AO HAD ADMITTED THAT THE PAYMENT FOR SALE OF SH ARES WAS RECEIVED BY THE ASSESSEE THROUGH CALCUTTA STOCK EXCHANGE. THIS FACT PROVED THAT THE PAYMENT FOR SALE OF SHARES WAS MADE FROM INDEPENDENT SOURCE AND THE TRANSACTIO N WAS FULLY VERIFIABLE FROM THE EXCHANGE. REFERRING TO ORDER OF SEBI, THE A/R POIN TED OUT THAT AFTER CONDUCTING IN DEPTH INVESTIGATION, SEBI HAD FOUND NO EVIDENCE TO SUGGEST THAT THE ASSESSEES BROKERS WERE GUILTY OF MANIPULATING SHARES PRICES OF KHOOBS URAT LTD OR EMARALD COMMERCIAL LTD. SINCE NO EVIDENCE WAS FOUND BY SEBI TO ESTABL ISH THAT PRICES OF KHOOBSURAT LTD & EMARALD COMMERCIAL LTD WERE ALSO MANIPULATED, NO ADVERSE INFERENCE COULD BE DRAWN AGAINST THE ASSESSEE MERELY BECAUSE THE ASSES SEES BROKERS WERE FOUND GUILTY OF PRICE MANIPULATION OF SHARES OF SOME OTHER COMPANIE S. THE A/R SUBMITTED THAT AT THE RELEVANT TIME WHEN THE SHARES WERE SOLD; BROKERS WE RE ACTIVE MEMBERS OF CSE AND TILL THEN WERE NOT BARRED BY SEBI FROM OPERATING ON CSE ON THE CHARGES OF PRICE MANIPULATION OF SHARES. 5.4. REFERRING TO THE PRICE QUOTATIONS PUBLISHED BY CALCUTTA STOCK EXCHANGE; THE A/R SUBMITTED THAT THE DATES ON WHICH THE ASSESSEE HAD SOLD SHARES OF KHOOBSURAT LTD & EMARALD COMMERCIAL LTD, THERE WERE SEVERAL OTHER TRANSACTIONS IN SHARES OF THESE 2 COMPANIES. THE TRANSACTION IN SHARES OF THESE 2 CO MPANIES WERE ALSO CARRIED OUT BY SEVERAL OTHER PERSONS AT THE SIMILAR PRICES AT WHIC H THE ASSESSEE HAD SOLD HIS SHARES. IT WAS NOT A CASE WHERE ONLY THE ASSESSEE TRADED IN SH ARES OF THE 2 COMPANIES. REFERRING TO CSE PUBLICATIONS FOR THE YEAR 2009 & 2011 THE A/ R SUBMITTED THAT EQUITY SHARES OF BOTH THE COMPANIES WERE ACTIVELY TRADED ON CSE 6 YE ARS AFTER THE DATE ON WHICH ASSESSEE HAD SOLD HIS SHARES. HE THEREFORE SUBMITT ED THAT IT WAS AN INCORRECT FACT THAT TRADING IN SHARES OF THE 2 COMPANIES WAS BANNED BY CSE AFTER 29 TH NOVEMBER 2005. THE A/R THEREFORE SUBMITTED THAT THE AO WAS NOT JUS TIFIED IN MAKING ADDITION U/S 68 OF THE INCOME TAX ACT AND URGED US TO UPHOLD THE OR DER OF THE CIT (A). 20 6. AFTER HEARING THE RIVAL SUBMISSIONS AND ON PERUS AL OF MATERIALS AVAILABLE ON RECORD THE FACTS OF THE CASE HAVE BEEN ELABORATELY DISCUSSED BY THE AO AS WELL AS BY THE CIT(A) IN THEIR RESPECTIVE ORDERS. THE SHORT QU ESTION, TO BE ADJUDICATED IN THE PRESENT APPEAL IS WHETHER THE INCOME BY WAY OF CAP ITAL GAINS DISCLOSED BY THE ASSESSEE IN HER RETURN FOR A.Y. 2005-06 WAS ENTITLE D FOR EXEMPTION U/S 10(38) OF THE I.T ACT OR IT WAS LIABLE TO BE ASSESSED AS UNEXPLA INED CASH CREDIT U/S 68 OF THE ACT. 6.1. FROM THE ORDERS OF THE LOWER AUTHORITIES WE FI ND THAT A SEARCH WAS CONDUCTED IN THE CASE OF SHRI R S AGARWAL GROUP ON 08.2.2006 AT KOLKATA AND SILIGURI DURING WHICH DOCUMENTS CONCERNING ASSESSEES SHARE TRANSA CTIONS SUCH AS CONTRACT NOTES, DEMAT STATEMENT, SHARE TRANSFER FORMS ETC WERE FOUN D AND SEIZED. THE DOCUMENTS PERTAINED TO THE ASSESSEES TRANSACTIONS IN SHARES RESULTING IN EARNING OF CAPITAL GAINS ON SALE OF LISTED SHARES. SINCE THE DOCUMENTS WERE FOUND IN THE COURSE OF SEARCH U/S 132 OF I T ACT THERE WAS PRESUMPTION THAT THE DOCUM ENTS FOUND REPRESENTED THE STATE OF AFFAIRS AS APPEARING FROM THE SAME. THE SEIZED DOCUMENTS INDICATED THAT DURING F Y 2003-04 THE ASSESSEE HAD PURCHASED SHARES OF 5 PR IVATE LIMITED COMPANIES THROUGH STOCK BROKER AT A COST OF RS.2,07,000/-. THE PURCHA SE COST OF SHARES WAS ACCOUNTED IN THE APPELLANTS BOOKS OF F.Y. 2003-04. NO ADVERSE I NFERENCE WITH REGARD TO PURCHASE COST OF SHARES WAS DRAWN BY THE AO. EVEN IN THE IMP UGNED ORDER THE ADDITION U/S 68 WAS NOT MADE WITH REFERENCE TO SALE PROCEEDS OF RS. 69,11,678/- REALIZED ON SALE OF SHARES BUT THE ADDITION WAS WITH REFERENCE TO INCOM E ELEMENT ONLY. WE THEREFORE FIND THAT EVEN IN THE IMPUGNED ORDER IN MAKING ADDITION U/S 68 THE AO HIMSELF ALLOWED DEDUCTION FOR PURCHASE COST OF SHARES. THESE FACTS THEREFORE INDICATED NEITHER THE COST OF PURCHASE WAS DOUBTED NOR ADDITION IN RESPECT THE REOF WAS MADE EITHER IN THE YEAR OF PURCHASE OR IN THE YEAR OF SALE. ON THESE FACTS THE REFORE WE FIND THAT THE PURCHASE COST OF SHARES PER SE WAS NOT DISPUTED BY THE AO AT ANY STAGE. IN THE CIRCUMSTANCES THE QUESTION IS WHETHER THE AO COULD DRAW ADVERSE INFE RENCE AGAINST THE ASSESSEE ONLY WITH REGARD TO CAPITAL GAINS WHICH WAS CLAIMED EXEM PT U/S 10(38) OF THE ACT. 21 6.2. IN THE IMPUGNED ORDER THE AO DISCUSSED NUMERO US FACTS WHICH LED HIM TO SUSPECT THAT SALE OF SHARES AND CONSEQUENT EARNING OF CAPITAL GAINS WAS NOT GENUINE. THE PRINCIPAL REASON FOR THE ADDITION WAS THE STATE MENT OF SHRI ARUN KUMAR KHEMKA RECORDED BY ADIT(INV) U/S 132(4) OF THE ACT WHEREIN HE HAD ALLEGEDLY ADMITTED THAT HE HAD PROVIDED ACCOMMODATION ENTRIES IN THE FORM O F PURCHASE & SALE OF SHARES. WE FIND THAT THE ENTIRE EDIFICE OF THE ASSESSMENT ORDE R WAS BASED ON THIS STATEMENT OF SHRI ARUN KHEMKA AND WHICH WAS LATER ON CORROBORATED IN THE LETTERS DATED 15.01.2007 GIVEN BY M/S. ASHISH STOCK BROKING PVT. LTD AND SH RI SUNIL KEDIA, STOCK BROKERS THROUGH WHOM THE SHARES WERE SOLD. BEFORE US, THE LD. CIT (D/R) PLACED STRONG RELIANCE ON THE CONFESSIONS OF SHRI KHEMKA AND THE STOCK BROKERS. HE ALSO STRONGLY RELIED ON THE FACTS NARRATED IN THE ASSESSMENT WHIC H INDICATED DUBIOUS MODE ADOPTED BY PARTIES FOR LAUNDERING OF UNACCOUNTED MONEY. ON GOING THROUGH THE ORDER OF THE CIT(A) HOWEVER WE FIND THAT EVERY ALLEGATION OF THE AO WHICH WAS ABLY MARSHALED BEFORE US BY THE LD DR WAS CONSIDERED BY THE CIT(A) IN HIS ORDER WHICH WERE INCORPORATED BY US IN PARA NO.3 OF ITS ORDER. 6.3. IN THE COURSE OF HEARING OF THE PRESENT APPEAL THE LD. DR THOUGH CONTESTED THE CORRECTNESS OF FINDINGS OF CIT(A) HE WAS NOT ABLE T O BRING TO OUR ATTENTION ANY COGENT MATERIAL OR EVIDENCE TO DISLODGE CIT(A)S FINDINGS WHICH WERE RECORDED AFTER DUE CONSIDERATION AND DELIBERATION OF THE AOS OBSERVAT IONS AND THE MATERIAL BROUGHT BEFORE HIM BY THE ASSESSEE. AS NOTED IN THE EARLIE R PARAGRAPHS IN THE IMPUGNED ORDER THE AO HIMSELF ALLOWED DEDUCTION FOR COST OF PURCH ASE AND ONLY THE CAPITAL GAINS PART WAS ASSESSED. ONCE THE AO ACCEPTED THE COST OF ACQU ISITION AND ALLOWED DEDUCTION THEREFORE IT WAS NOT OPEN FOR THE AO TO DISPUTE OR DISBELIEVE THE PURCHASE OF SHARES. WE FURTHER NOTE THAT BEFORE THE LOWER AUTHORITIES A S WELL AS BEFORE US THE ASSESSEE HAD FILED EVIDENCE IN THE FORM OF LETTERS OF AMALGAMATI NG COMPANIES WHEREIN THEY HAD ACKNOWLEDGED RECEIPT OF SHARE SCRIPS FOR REGISTRAT ION OF SHARES IN THE ASSESSEES NAME. THE AMALGAMATION OF THE COMPANIES WAS APPROVED BY T HE CALCUTTA HIGH COURT AND THERE WAS NO MATERIAL WHICH SHOWED THAT APPROVAL FO R THE AMALGAMATION WAS OBTAINED BY MISREPRESENTATION OF FACTS. WE ALSO NOTE THAT TH E ASSESSEE HAD FURNISHED EVIDENCE IN THE FORM OF LETTERS ISSUED BY THE AMALGAMATED COMPA NIES; ALLOTTING FRESH SHARES TO THE 22 ASSESSEE IN EXCHANGE OF THE SHARES OF THE AMALGAMAT ING COMPANIES. THE LETTERS OF ALLOTMENT CONTAINED DETAILS WITH REGARD TO NUMBER O F SHARES, DISTINCTIVE NUMBERS OF SHARES, FOLIO NUMBER, SHARE CERTIFICATE NUMBERS ETC . SHARES OF THE AMALGAMATED COMPANIES WERE LISTED FOR TRADING ON CALCUTTA STOCK EXCHANGE. AS PER SEBI REGULATIONS THE SHARES WERE REQUIRED TO BE HELD IN DEMATERIALIZED FORM. FOR THIS PURPOSE THE ASSESSEE SURRENDERED SHARE CERTIFICATES TO EUREKA STOCK & SHARE BROKING SERVICES LTD., A DEPOSITORY PARTICIPANT OF NSDL. BE FORE US THE ASSESSEE FILED COPY OF THE APPLICATION MADE WITH THE DEPOSITORY PARTICIPA NT FOR SURRENDER OF SHARE SCRIPS FROM WHICH WE FIND THAT THE DISTINCTIVE NUMBER OF S HARES , SHARE CERTIFICATE NUMBERS ETC EXACTLY TALLIED WITH THE INFORMATION MENTIONED IN THE LETTERS OF ALLOTMENT ISSUED IN FAVOUR OF THE ASSESSEE BY THE AMALGAMATED COMPANIES . ON SURRENDER OF PHYSICAL SHARE SCRIPS TO THE DEPOSITORY PARTICIPANT; ASSESSEES DE MAT ACCOUNT WAS GIVEN CREDIT BY NSDL. MEANING THEREBY THE PHYSICAL CUSTODY OF THESE SHARES NOW REST WITH NSDL. IT IS NOT THE CASE OF AO NOR ANY EVIDENCE WAS BROUGHT ON RECORD WHICH IN ANY WAY SUGGESTED THAT THE DEPOSITORY PARTICIPANT OR NSDL W ERE ACTING UNDER THE INFLUENCE OF SHRI KHEMKA OR THE STOCK BROKERS. ADMITTEDLY NSDL I S AN INDEPENDENT BODY. HAD THERE BEEN NO GENUINE PURCHASE OF SHARES BY THE ASS ESSEE THEN IT WOULD NOT HAVE BEEN POSSIBLE FOR THE ASSESSEE TO DELIVER SHARES OF THES E COMPANIES TO NSDL FOR HOLDING IN DEMATERIALIZED FORM. WITH REFERENCE TO THE DATES OF ACQUISITION AND DATES OF PAYMENTS, WE FIND THAT THE AOS FINDING THAT SHARE PURCHASE W AS ANTEDATED WAS NOT A CORRECT FINDING OF FACT. HAVING REGARD TO OVERWHELMING DOCU MENTARY EVIDENCES BROUGHT ON RECORD BY THE ASSESSEE AND CONSIDERING THE FACT TH AT EVEN THE AO HIMSELF ACCEPTED AND ALLOWED THE DEDUCTION FOR COST OF PURCHASE OF SHAR ES, WE DO NOT FIND ANY JUSTIFICATION IN AOS CONCLUSION THAT THE PURCHASE OF SHARES BY T HE ASSESSEE REMAINED UNVERIFIABLE. 6.4. THE SHARES OF KHOOBSURAT LTD & EMRALD COMMERCI AL LTD WERE SOLD BY THE ASSESSEE IN 2005 AT PRICES VARYING BETWEEN RS.469 TO RS.492. SALE OF SH ARES WAS EVIDENCED BY THE CONTRACT NOTES ISSUED BY THE BROKE RS, COPIES OF WHICH WERE PLACED BEFORE US. THE CONTRACT NOTES WERE IN THE PRESCRIBE D FORMAT AND CONTAINED PRESCRIBED INFORMATION. TRANSACTION CHARGES, STT AND SERVICE T AX THEREON WAS PAID TO THE BROKERS. NO INFIRMITY OR FALSITY IN ANY OF THE DOCU MENTS WAS PROVED BEFORE US. SALE 23 CONSIDERATION ON SALE OF SHARES WAS RECEIVED BY AC COUNT PAYEE CHEQUE. IT IS ALSO ADMITTED BY THE AO THAT PAYMENT ON SALE OF SHARES W AS RECEIVED THROUGH CSE WHICH FACT ESTABLISHED THAT THE PAYMENT WAS NOT RECEIVED FROM THE BROKER WHO HAD ALLEGEDLY ADMITTED THAT THE CHEQUE WAS ISSUED IN LIEU OF CASH . WE ALSO NOTE THAT AT THE TIME WHEN ASSESSEE SOLD HIS SHARES, SEVERAL OTHER PERSONS AL SO TRANSACTED IN THESE SHARES ON CSE AT PRICES SIMILAR TO THE PRICE AT WHICH THE ASSESSE E SOLD HIS HOLDING. IT WAS THEREFORE NOT A CASE WHERE THE ASSESSEE ALONE TRANSACTED IN S HARES OF THESE 2 COMPANIES AND THE PRICES OF SHARES COULD HAVE BEEN MANIPULATED BY TH E ASSESSEE. IN FACT WE FIND THAT EVEN IN FEBRUARY 2009 SHARES OF KHOOBSURAT LTD WERE TRANSACTED ON CSE AT RS.477 AND SHARES OF EMRALD COMMERCIAL LTD WERE TRANSACTE D AT RS.464.50. EVEN DURING THE PERIOD JANUARY TO MARCH 2011 SHARES OF BOTH THE CO MPANIES WERE TRANSACTED ON CSE AT PRICES RANGING FROM RS.464 TO RS. 477 PER SHARE. THESE FACTS THEREFORE SHOW THAT LONG AFTER THE DATE ON WHICH THE ASSESSEE SOLD HIS SHARES; SHARES OF BOTH THE COMPANIES WERE REGULARLY TRANSACTED ON CSE AT PRICES WHICH AR E MORE OR LESS SIMILAR TO THE PRICES AT WHICH THE ASSESSEE SOLD HIS SHARES IN 2005. WE F IND THERE HAS BEEN NO FALL IN THE MARKET PRICES OF THESE SHARES EVEN AFTER 6 YEARS AN D THE SHARES OF THESE COMPANIES ARE STILL ACTIVELY TRANSACTED ON CSE. 6.5. WE ALSO NOTE THAT AFTER SHARES WERE SOLD, DELI VERY OF SHARES WAS GIVEN FROM THE DEMAT ACCOUNT OF THE ASSESSEE AND SHARES STOOD TRAN SFERRED TO THE DEMAT ACCOUNT OF THE BROKERS. DOCUMENTARY EVIDENCES ON RECORD THEREFORE SHOWED THAT SALE OF SHARES WAS FULL VERIFIABLE WITH REFERENCE TO CREDIBLE THIRD P ARTY EVIDENCES. BEFORE THE AO AS WELL AS BEFORE US THE ASSESSEE WAS ABLE TO SUBSTANTIATE HIS PURCHASE & SALE OF SHARES BY PRODUCING DOCUMENTS AND EVIDENCES WHICH ORDINARILY AN INVESTOR MAINTAINS IN RELATION TO HIS TRANSACTIONS IN SHARES. ON THESE FA CTS THEREFORE WE FIND THAT THE ASSESSEE HAD DISCHARGED ONUS OF SUBSTANTIATING HIS TRANSACTI ONS OF PURCHASE & SALE OF SHARES. 6.6. WE ALSO DO NOT FIND FORCE IN THE SUBMISSIONS O F THE LD. DR THAT ASSESSEES SHARE TRANSACTIONS SHOULD BE CONSIDERED TO BE BOGUS BECAUSE THE BROKERS THROUGH WHOM ASSESSEE SOLD SHARES WERE FOUND GUILTY OF PR ICE MANIPULATION OF SHARES BY SEBI. FROM THE COPY OF SEBIS ORDER WE NOTE THAT S EBI CONDUCTED INVESTIGATION IN 24 UNUSUAL PRICE MOVEMENTS OF SHARES TRADED ON CSE. ON IN DEPTH ENQUIRY SEBI FOUND CREDITBLE EVIDENCE OF PRICE MANIPULATION OF SHARES OF 11 COMPANIES. KHOOBSURAT LTD & EMALD COMMERCIAL LTD WERE NOT AMONGST THE LIST O F COMPANIES IN WHOSE CASE SEBI FOUND EVIDENCE OF PRICE MANIPULATION. ALTHOUG H ASSESSEES BROKERS WERE FOUND GUILTY OF MANIPULATING PRICES OF SHARES OF 2 COMPA NIES BUT NO EVIDENCE WAS FOUND BY SEBI TO SHOW THAT THE BROKERS WERE INVOLVED IN MAN IPULATING SHARE PRICES OF KHOOBSURAT LTD & EMRALD COMMERCIAL LTD. AT THE RELE VANT TIME BOTH THE BROKERS WERE CARRYING ON BROKING BUSINESS AND THEREFORE MER ELY BECAUSE AT A LATER DATE SEBI FOUND EVIDENCE AGAINST THESE BROKERS REGARDING PRIC E MANIPULATION OF SHARES OF SOME OTHER COMPANIES, NO ADVERSE INFERENCE COULD BE DRAW N AGAINST THE ASSESSEE. 6.7. IN THE ASSESSMENT ORDER AS ALSO BEFORE US THE LD. DR PUT MUCH EMPHASIS ON CONFESSIONAL STATEMENT OF SHRI KHEMKA AND THE STOCK BROKER TO SUPPORT THE AOS CONCLUSION THAT CAPITAL DISCLOSED IN FACT REPRESENT ED ASSESSEES UNDISCLOSED INCOME. THIS ASPECT HAS BEEN ELABORATELY DEALT WITH BY THE CIT(A) AND WE AGREE WITH THE CONCLUSIONS OF CIT(A). WE FURTHER NOTE THAT THE ADD ITION U/S 68 IS JUSTIFIED BY THE AO PRINCIPALLY ON THE BASIS OF ALLEGED CONFESSION OF S HRI KHEMKA. EVEN THOUGH IN THE CONFESSION OF SHRI KHEMKA, SERIOUS ALLEGATIONS WERE LEVELED AGAINST THE ASSESSEE THE ADIT(INV) DID NOT CONFRONT THE ASSESSEE WITH THE AL LEGED CONFESSION STATEMENTS OF SHRI KHEMKA NOR ALLOWED OPPORTUNITY OF HIS CROSS EX AMINATION TO THE ASSESSEE. WHEN THE CIT(A) NOTED THIS OMISSION HE REQUIRED THE AO T O PERSONALLY EXAMINE THE STOCK BROKERS AND SHRI KHEMKA SINCE THEIR EARLIER STATEME NTS BEFORE THE ADIT(INV) WERE RETRACTED. WE ARE OF THE OPINION THAT WHEN THE CONF ESSION OF THE DEPARTMENT WITNESS WAS RETRACTED BY HIM AND THE RETRACTION WAS ALSO BA CKED BY OTHER DOCUMENTARY EVIDENCES; THEN IT WAS NECESSARY FOR THE AO TO PERS ONALLY EXAMINE THE SAID PERSON BEFORE USING HIS ALLEGED CONFESSION AS THE SOLE BAS IS FOR DRAWING ADVERSE INFERENCE AGAINST THIRD PERSON. WE HOWEVER FIND THAT THE AO A T NO STAGE PERSONALLY EXAMINED EITHER SHRI KHEMKA OR THE STOCK BROKERS BUT SIMPLY RELIED ON THE EARLIER STATEMENTS BEFORE THE ADIT (INV.). CONSIDERING THIS GLARING OM ISSION THE CIT(A) HAD REQUIRED THE AO TO PERSONALLY EXAMINE THE WITNESSES IN REMAND PR OCEEDING. WE HOWEVER FIND FROM THE REMAND REPORT THAT THE AO DECLINED TO EXAMINE H IS WITNESSES NOR ALLOWED THE 25 ASSESSEE THE OPPORTUNITY OF CROSS EXAMINATION. WE A LSO NOTE EVEN THOUGH IN THE REMAND PROCEEDING THE CIT(A) EXPRESSLY DIRECTED THE AO TO INVESTIGATE THE ALLEGED TRAIL OF CASH THE AO DID NOT BRING ON RECORD ANY E VIDENCE TO SUBSTANTIATE HIS CONCLUSION THAT ASSESSEES OWN CASH WAS RETURNED TO HIM IN FORM OF CHEQUES. FAILURE ON THE PART OF THE AO TO EVEN INVESTIGATE THE ALLEG ED CASH TRAIL JUSTIFIES THE CIT(A)S CONCLUSION THAT THE AO HAD NO MATERIAL OR EVIDENCE WITH HIM TO PROVE THAT THE CAPITAL GAIN EARNED BY ASSESSEE ON SALE OF SHARES REPRESENT ED ASSESSEES UNDISCLOSED INCOME. 6.8. KEEPING IN VIEW OF THE ABOVE OBSERVATIONS WE F IND THAT IN THE PRESENT CASE THE CONFESSIONAL STATEMENT OF SHRI KHEMKA WAS NOT BACKE D BY ANY OTHER INDEPENDENT EVIDENCE. ON THE OTHER HAND THE ASSESSEES EXPLANAT IONS WERE BACKED BY RELEVANT DOCUMENTARY EVIDENCES WHICH SUBSTANTIATED PURCHASE & SALE OF SHARES. HAVING REGARD TO THE TOTALITY OF THE FACTS AND EVIDENCES AS BROU GHT ON RECORD AND EXAMINED BY THE CIT(A) WE FIND THAT THERE WAS NO INFIRMITY IN THE O RDER OF THE CIT(A) DELETING THE ADDITION OF RS.67,04,678/- MADE U/S 68 OF THE ACT. ACCORDINGLY WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE REVENUES APPEAL. 6.9. IN THE RESULT ITA NO.256/KOL/2011 IS DISMISSED . II. ITA NOS.247,248, 255, 257 & 259/KOL/2011 (BY TH E REVENUE ). 7. ITA NOS. 255, 247, 248 & 259/KOL/2011 PERTAIN TO ASST YEAR 2005-06 AND ITA NO. 257/KOL/2011 PERTAINS TO ASST YEAR 2006-07. A S NOTED IN THE FOREGOING THE BASIC FACTS AND THE ISSUE INVOLVED IN ALL THE 5 APPEALS A RE EXACTLY SAME AS IN THE CASE OF MR. RAKESH AGARWAL. THE RESPONDENT ASSESSEES IN THESE APPEALS HAD EARNED CAPITAL GAIN ON SALE OF EQUITY SHARES OF KHOOBSURAT LTD & EMARAL D COMMERCIAL LTD. SINCE THE SHARES WERE HELD FOR PERIOD OF MORE THAN 12 MONTHS, THE LONG TERM CAPITAL GAINS WAS CLAIMED EXEMPT U/S 10(38) OF THE ACT. THE ASSESSIN G OFFICER FOLLOWING THE SAME REASONING AS IN THE CASE OF RAKESH AGARWAL, ASSESSE D THE CAPITAL GAINS AS INCOME OF THE ASSESSEES U/S 68 OF THE ACT AFTER ALLOWING DEDU CTION FOR COST OF PURCHASE. THE CIT (A) FOLLOWING HIS APPELLATE ORDER IN THE CASE OF RA KESH AGARWAL DELETED THE ADDITIONS MADE IN ALL THE 5 CASES. THE COUNSELS FOR BOTH THE PARTIES AGREED THAT THE DECISION OF THIS TRIBUNAL IN THE CASE OF RAKESH AGARWAL WILL BE EQUALLY APPLICABLE IN THESE 26 APPEALS. ACCORDINGLY FOLLOWING THE REASONS DISCUSS ED IN OUR ORDER IN THE CASE OF RAKESH AGARWAL; WE UPHOLD THE ORDER OF THE CIT (A) DELETING ADDITIONS MADE U/S 68 IN ALL THE 5 CASES. 8. IN THE RESULT THE APPEALS FILED BY THE REVENUE I N ITA NOS.247,248, 255,257 AND 259/KOL/2011 ARE ALSO DISMISSED. ORDER PRONOUNCED IN THE COURT ON 11.10.2011. SD/- SD/- . .. . . .. . , ,, , B.R.MITTAL, JUDICIAL MEMBER . .. . . .. . , ,, , !' !' !' !' , C.D.RAO, ACCOUNTANT MEMBER. ( (( ( ' ' ' ') )) ) DATE: 11.10.2011. !5 0 .6 7!6&8- COPY OF THE ORDER FORWARDED TO: 1. AMITA AGARWAL, R-605, CITY CENTRE, SALT LAKE, KO LKATA-700064. 2..POONAM AGARWAL, SEVOKE ROAD, SILIGURI 3. RADHESHYAM AGARWAL, HUF, PANJABIPARA, SILIGURI. 4. RAKESH AGARWAL,. R-605, CITY CENTRE, SALT LAKE, KOLKATA-700064. 5. RAKESH AGARWAL, HUF, R-605, CITY CENTRE, SALT LA KE, KOLKATA-700064. 6. MANJU DEVI AGARWAL,. R-605, CITY CENTRE, SALT LA KE, KOLKATA-700064. 9. A.C.I.T., CENTRAL CIRCLE-XXIV, KOLKATA 10. CIT. 11. CIT(A)-CENTRAL-III, KOLKATA 11. DR, KOLKATA BENCHES, KOLKATA /6 ./ TRUE COPY, !5$2/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES ORDER PRONOUNCED BY SD/- SD/- (JM) (AM) (NVK) (CDR)