Sri. Shailesh Haran, Bengaluru V. Income Tax Officer, Ward-5(2)(1), Bengaluru

ITA 2632/BANG/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9451 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 26-06-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 06-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRATIBHA R SHRI PRADEEP KUM
• Keywords: Principle of natural justice; Accommodation entries; Penny stocks; TDS; Set aside
• Section: 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ES : C , BANGALORE BEFORE SHRI N.V.VASUDEVAN, VICE PRESIDENT AND S HRI B.R.BASK A R A N, A CCOUNTANT MEMBER ITA NO. 2632 (BANG)/ 20 1 7 ( ASSESSMENT YEAR : 20 14 - 15 ) SRI SHAIL E SH HARAN, NO.47, S B ROAD, V.V.PURAM, BANGALORE - 560 0 04 PAN NO. A BYPJ6916D APPELLANT VS THE INCOME TAX OFFICER , WARD - 5(2)( 1 ), BANGALORE RESPONDENT APPELLANT BY : S MT PRATIBHA R, A DVOCATE RE VENUE BY : SHRI PRADEEP KUMAR, C IT DATE OF HEARING : 2 6 - 0 6 - 2019 DATE OF PRONOUNCEMENT : 28 - 06 - 2019 O R D E R PER SHRI N.V.VASUDEVAN, VICE PRESIDENT : THIS IS AN APPEAL FILED BY ASSESSEE AGAINST ORDER DATED 19 /0 9/2017 PASSED BY LD. CIT (A) - 5, BANGALORE RELATING TO A SSESSMENT YEAR 201 4 - 15 ON FOLLOWING GROUNDS OF APPEAL. 2. A SSESSEE IS AN INDIVIDUAL. DURING THE YEAR RELEVANT TO AY: 2014 - 15 THE ASSESSEE SOLD 6,590/ - EQUITY SHARES OF A COMPANY BY ITA NO. 2632 /BANG/201 7 2 NAME M/S NCL RESEARCH AND FINANCI A L SERVICES LTD. AND RECEIVED A SALE PROCEEDS OF RS.1,04,86,840/ - . ASSESSEE ALSO SOLD 68,426/ - S HARES OF M/S LIFELINE DRUGS AND PHARMA LTD. , A ND RECEIVED A SALE PROCEEDS OF RS.1,21,94,369/ - . ASSESSEE IN THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014 - 15 D ECLARED LONG TERM CAPITAL GAINS (LTCG) ON SALE OF THE AFORESAID SHARES OF RS.2,18,94, 467/ - AND CLAIMED THE SAME AS EXEMPT U/S 10(38) OF THE IT ACT, 1961. THE DETAILS OF THE TRANSACTIONS OF SALE AND THE SALE DETAILS OF THE PURCHASERS ARE AS FOLLOWS; 3. THE AO E XAMINED THE CLAIM OF ASSE S S E E FOR EXEMPTION U/S 10(38) OF THE IT ACT, 1961 ON THE LONG TERM CAPITAL GAINS OF SHARES. THE AO ISSUED LETTERS U/S 133(6) O THE IT ACT, 1961 TO THE PURCHASERS OF SHAR E S CALLING FOR DETAILS O F THE TRANSACTIONS FROM THE P URCHASERS OF THE SHARES FROM THE ASSESSEE. THEY DID NOT HOWEVER RESPOND TO THE NOTICES OF THE AO. ITA NO. 2632 /BANG/201 7 3 4. THE AO IN THE ORDER OF ASSESSMENT HAS MA D E A REFERENCE TO AN INV E STIGATION BY THE DI R ECTORATE OF INVESTIGATION, U/S133A OF THE IT ACT, 1961 WHEREIN THE S TATEMENT OF ONE DEVESH UPHADHYAYA WAS RECORDED U/S 131(1) OF THE IT ACT, 1961. HE WAS MANAGING AND CONTROLLING THE AFFAIRS OF M/S KATYANI COMMODITIES PVT.LTD.KOLKATA AND THIS COMPANY WAS USED FOR PROVIDING ACCOMMODATION ENTRIES OF BOGUS LTCG TO VARIOUS BENEFICIARIES. T HREE OTHER COMPAN IES NAM ELY M/S DHANRAKSHA VINCOM PVT.LTD, M/S LINUS HOLDINGS LTD AND M/S RIDHI VINCOM PVT.LTD. WERE ALSO USED TO PROVIDE ACCOMMODATION E NTRIES ON LTCG. THE AO ISSUED NOTICES T O A LL T HE AFORESAID CO M PANIES U/ S 133(6) OF TH E IT ACT, 1961, B UT NO REPLY WA S RECEIVED FROM THEM . 5. THE AO THEREAFTER, REFERRED TO THE INVESTIGATION CONDUCTED BY THE DIRECTORATE OF INVESTIGATION, KOLKATA, WHEREIN THERE WAS A FINDING THAT UNDISCLOSED AND UNACCOUNTED C A SH GET DEPOSIT ED IN VARIOUS ACCOUNTS AND ULTIMATELY GETS TRANSFERRED TO COMP A NI E S, WHO EXISTED ONLY ON P A PER. ACCORDING TO THE AO, T HE INVESTIGATION ALSO REVEAL ED THAT SOME COMPANIE S WERE USED AS ENTRY OP E R A TORS TO PROVIDE ENTRIES OF BOGUS LTCG. THERE IS ALSO REFERENCE T O THE FACT THAT SCRI P M/S.NCL RESEARCH AND FI NANCIAL S ERVICES LTD HAS BEEN SUSPENDED FOR TRADING BY THE SECU R ITIES AND EXCHANGE BOARD OF INDIA ( SEBI ) IN THE ORDER OF ASSESSEE . ASSESSEE S STATEMENT WAS RECORDED IN WHICH HE MAINTAINED THAT TRANSACTION W E RE IN FACT CARRIED OUT BY HIM BUT DID NOT KNOW A NYTHING ABOUT THE INVESTIGATION ON TH ESE SCRI P BY THE IT DEPARTMENT. THEREAFTER, THE AO HAS REFERRED TO THE TRANSACTION HAVING BEEN DONE BY THE ASSESSEE THROUGH ANAND RATHI SHARE AND STOCK B ROKERS LTD , T HE FACT THAT THE SE BROKERS WERE ALSO PART OF THE MODUS OPERANDI OF ITA NO. 2632 /BANG/201 7 4 PRO V IDING ACCOMMODATION ENTR Y FOR LTCG . THE AO ULTIMATELY BROUGHT TO TAX THE ENTIRE CONSIDERATION RECEIVED ON SALE OF THE SHARES TO TAX, A UNEXPLAINED CASH CR E DITS U/S 68 OF THE IT ACT, 1961. 6. ON APPEAL BY THE AS SESSEE , THE CIT(A) CONFIRMED THE ACTION OF AO . AGGRIEVED BY THE ORDER OF LD.CIT(A), THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING OF THIS APPEAL , LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE ORDER DATED 05 - 04 - 2019 IN ITA NO.2783 & 2784(B)/2018 FOR AY: 2015 - 16 IN ASSESSEES OWN CASE WHEREIN ON IDENTICAL ISSUE O F LTCG AND EXEMPTION U/S 10(38) OF THE IT ACT, 1961 THE HON'BLE TRIBUNAL HELD TH A T TH E ISSUE WHETHER THE TRANSACTION WERE GENUINE OR NOT AND THE CLAIM OF THE ASSE SS EE FOR EXEMPTION U/S 10(38) OF THE IT ACT, 1961 H A S TO BE EXAMINED FRESH BY THE AO. THE TRIBUNAL HELD THAT THE STATEMENT ON WHICH THE AO PLACED RELIANCE FOR COMING TO THIS CONC LUSION IN THE ORDER OF ASSESSMENT WERE NOT CONFRONTED T O THE ASSESSEE . THE TRIBUNAL THEREFORE, DIRECTED THE AO TO FURNI S H SUCH STATEMENT AND ALSO AFFORD THE RIGHT OF CROSS EXAMINATION TO THE ASSESSEE . FOLLOWING WERE THE RELEVANT OBSERVATION OF THE TRIBUNAL; 8. HAVING CONSIDERED BOTH SIDES, WE FIND THAT ALTHOUGH THE AO HAS BROUGHT OUT VARIOUS FACTS IN RELATION TO MODUS OPERANDI AND METHODOLOGY USED BY ASSESSEE AND OTHER PERSONS INVOLVED IN BOGUS LONG TERM CAPITAL GAIN ISSUES BUT THE AO WENT ON TO MAKE ADDITIONS ONLY ON THE BASIS OF 3 RD PARTY INFORMATION AGAINST THE ASSESSEE. WE FURTHER NOTICED THAT THE AO HAS BROUGHT OUT COMPLETE DETAILS OF SALE TRANSACTIONS AND ALSO BROUGHT OUT CERTAIN FACTS TO COME TO THE CONC LUSION THAT THE PRICES OF SHARES HAS BEEN RIGGED IN THE MARKET SO AS TO GET THE BENEFIT OF LONG TERM CAPITAL GAIN BUT WHILE MAKING THE ADDITIONS USED THE STATEMENT OF 3 RD PARTIES AGAINST THE ASSES S EE WITHOUT ITA NO. 2632 /BANG/201 7 5 PROVIDING AN OPPORTUNITY TO THE ASSESSEE FOR CR OSS EXAMINATION. WHEN THE AO HAS USED 3 RD PARTY INFORMATION, IT IS THE DUTY O F THE AO TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO REBUT THE EVIDENCES USE D AGAINST HIM OTHERWISE IT WILL AMOUNT TO VIOLATION OF PRINCIPAL OF NATURAL JUSTICE. IN THIS CASE, THE ENTIRE CASE IS BASED ON THE STATEMENT OF PERSON WHO IS INVOLVED IN THE PENNY STOCK ISSUE. UNLESS THE STATEMENT OF THE 3 RD PERSONS WHO GAVE THE STATEMENTS AGAINST THE ASSESSEE IS PROVIDED TO THE ASSESSEE FOR HIS REBUTTAL, THE AO CANNOT MAKE ADDITIONS ONLY ON THE BASIS OF SUCH STATEMENT WHEN THE ASSES S EE HAS FILED COMPLETE DETAILS OF SALE TRANSACTION TO PROVE THE GEN UINENESS OF SUCH TRANSACTIONS. WE FURTHER NOTICED THE HONBLE KARNATAKA HIGH COURT IN A SERIES OF WRIT PETITIONS AD AN OCCASION TO EXAMINE THE ISSUE OF PENNY STOCKS IN THE RE - OPENED ASST. PROCEEDINGS AND AFTER CONSIDERING THE RELEVANT FACTS HELD THAT RE - ASS T. ORDERS PASSED WITHOUT NOTICE TO THE PETITIONERS OVER A STATEMENT OF CERTAIN PERSONS, IS ILLEGAL AND CANNOT BE SUSTAINED. HOWEVER THE COURT FURTHER HELD THAT LIBERTY IS RESERVED TO THE ASSESSING AUTHORITIES TO ISSUE NOTICE TO THE PETITIONERS, FURN ISH COPIES OF THE STATEMENT, THE BASIS OF SUCH NOTES AND EXTENT REASONABLE OPPORTUNITY OF HEARING TO THE PETITIONERS AND THEREAFTER PASS ORDERS IN ACCORDANCE WITH LAW. ALTHOUGH, THE HONBLE COURT HAS ALLOWED THE WRIT PETITION FILED BY THE PETITIONERS BUT FINALLY LIBERTY HAS BEEN GIVEN TO THE REVENUE TO PROCEED AGAINST THE PETITIONERS BY GIVING EVIDENCES USED AGAINST THEM AND THEREAFTER PASS ORDERS IN ACCORDANCE WITH LAW. 9. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE NEEDS TO BE REEXAMINED BY THE AO IN THE LIGHT OF THE CLAIM OF THE ASSESSEE THAT EVIDENCES USED AGAINST THE ASSESSEE WAS NOT GIVEN FOR HIS REBUTTAL. THEREFORE, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO REDO THE ASST. AFTER GIVING REASONABLE OPPORTUNITY OF HE ARING TO THE ASSESSEE INCLUDING THE EVIDENCES IF ANY USED AGAINST HIM. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSE S . 8 . THE FACTS AND CIRCUMSTANCES IN THE PRESENT ASSESSMENT YEAR AR E ALSO IDENTICAL AN THERE FORE, WE DEEM IT FIT AND PROPER TO S ET ASIDE THE ORDER OF THE CIT(A) ON THE ISSUE IN QUESTION TO THE AO FOR ITA NO. 2632 /BANG/201 7 6 FRESH CONSIDERATION ON LINES INDICATED BY THE TRIBUNAL IN THE ORDER REFERRED TO ABOVE. 9. IN TH E RESULT, THE APPEAL IS TR EA TED AS ALLOWED FOR STATISTICAL PU R POSES. O RDER PRONOUNCED IN THE OPEN COURT ON JUNE, 2019. SD/ - SD/ - ( B .R.BASK A RAN ) ( N.V.VASUDEVAN ) ACCOUNTANT MEMBER VIC E PRESIDENT DATED: 28 - 6 - 2019 *AM COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5. DR 6. ITO (TDS) 7.GUARD FILE BY ORDER ASST. REGISTRAR ITA NO. 2632 /BANG/201 7 7