AI Insights
M/s. Bhumi Cotton Pvt. Ltd. appealed against the order of the National Faceless Appeal Centre, Delhi, which confirmed the disallowance of exemption claimed under section 10(38) of the Income Tax Act for the assessment year 2014-15. The company had claimed a Long Term Capital Gain of Rs.3,05,41,643 as exempt, which was denied based on investigations by the Kolkata Investigation Directorate suggesting the use of accommodation entries. The Tribunal found that the company did not substantiate the genuineness of the transactions and upheld the lower authorities' decisions.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 132833 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 1 month(s) 22 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-03-2023
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
A
Next Hearing Date
28-02-2023
Assessment Year
2014-2015
Appeal Filed On
16-01-2022
Judgement Text
आयकर अपीलीय अधिकरण “ए” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA No.41/PUN/2022 धििाारण वर्ा / Assessment Year : 2014-15 M/s. Bhumi Cotton Pvt. Ltd., Shop No. 1, Runwal Complex, Old Mondha, Opposite Hanuman Mandir, Jalna – 431203 PAN : AADCB4659E .......अपीलाथी / Appellant बिाम / V/s. ACIT, Jalna Circle, Jalna ......प्रत्यथी / Respondent Assessee by : Shri Hari Krishan Revenue by : Shri Ramnath P. Murkunde सुनवाई की तारीख / Date of Hearing : 01-03-2023 घोषणा की तारीख / Date of Pronouncement : 09-03-2023 आदेश / ORDER PER S.S. VISWANETHRA RAVI, JM : This appeal by the assessee against the order dated 18-11-2021 passed by the National Faceless Appeal Centre, Delhi (“NFAC”) for assessment year 2014- 15. 2. We note that the assessee is a company, engaged in the business of ginning and pressing of raw cotton. The assessee filed on-line return of income declaring a total income of Rs.Nil and the assessment was completed u/s. 143(3) of the Act. Thereafter, in pursuance of the directions of PCIT u/s. 263 of the Act and the AO issued notice u/s. 142(1) of the Act. During the said proceedings, the AO observed that the assessee claimed Long Term Capital Gain of Rs.3,05,41,643/- as exempt u/s. 10(38) of the Act. The AO by placing reference to investigation conducted by the Kolkata Investigation Directorate, suspecting the 2 ITA No.41/PUN/2022, A.Y. 2014-15 modus operandi in claiming Long Term Capital Gain by Accommodation Entry, denied the claim of exemption u/s. 10(38) of the Act. The CIT(A) confirmed the same. Aggrieved by the order of CIT(A), NFAC, Delhi, the assessee is before us. 3. Ground No. 1 raised by the assessee challenging the action of CIT(A) in confirming the disallowance of exemption claimed u/s. 10(38) of the Act. 4. The ld. AR, Shri Hari Krishan submits that the addition made by the AO and as confirmed by the CIT(A), NFAC, Delhi is in violation of principles of natural justice. The said two authorities denied the exemption on the basis of reports of Kolkata and Bangalore Investigation wings and also order of SEBI in the case of M/s. NCL Research & Financial Services Ltd. He argued that both the authorities below did not confront the reports of Kolkata and Bangalore Investigation wings with the assessee. He vehemently argued that the order passed by the CIT(A) is vitiated and unsustainable in law for non-confrontation of the said reports with the assessee. He drew our attention for not placing the same before this Tribunal by the ld. DR. He submits that the M/s. NCL Research & Financial Services Ltd. was indulged in share price manipulation and thereby the SEBI passed adverse order against the same having found fraud practices in share price. The NFAC, Delhi even did not confront the order of SEBI with the assessee. The case laws relied on by the ld. DR in the case of S.P. Chengalvaraya Naidu Vs. jagannath reported in 1994 AIR 853 (SC) etc. are not applicable to the case on hand. The AO and CIT(A) did not establish any fraud in the case of assessee but only relying on the reports of Kolkata and Bangalore Investigation wings denied the claim of assessee. Further, it was not established that any cash was provided by the assessee which was routed back by way of sale proceeds of the shares of M/s. NCL Research & Financial Services Ltd. 5. The respondent-revenue did not bring on record any evidence to show that any criminal complaint or whatsoever filed by the SEBI or by any authorities for the alleged fraud or manipulation committed by M/s. NCL Research & Financial 3 ITA No.41/PUN/2022, A.Y. 2014-15 Services Ltd. He vehemently argued the discussion made by the AO and CIT(A) regarding the general methods and modus operandi adopted by the alleged companies and the beneficiaries to claim exempt Capital Gains does not establish any fraud or manipulation of assessee. He pleaded in the absence of such particulars, details etc. the decision of Hon’ble Supreme Court are not applicable to the facts on hand and in no way help to the respondent-revenue. 6. Shri Hari Krishan, argued the order of this Tribunal in the case of Abhishek Ashok Lohade in ITA No. 816/PUN/2018 is not applicable as it was passed ex- parte of the assessee. Further, he placed reliance on the submissions made before the AO as well as NFAC, Delhi and prayed to allow ground No. 1 in favour of the assessee. The ld. AR placed on record the decision of Hon’ble Supreme Court in the case of Odeon Builders (P.) Ltd. reported in 418 ITR 315 (SC) and the Hon’ble High Court of Bombay in the case of Shapporji Pallonji & Co. Ltd. reported in 423 ITR 220 (Bombay) for the proposition non-confrontation of investigation reports to the assessee and thereby leads assessment invalid. Further, he placed on record the decision of Hon’ble High Court of Bombay in the case of Smt. Jamnadevi Agrawal reported in 328 ITR 656 (Bombay) and argued that the AO has to make separate and independent enquiry with regard to assessment and the additions should not be made taking into account the general reports concerning third party. 7. The ld. DR, Shri Ramnath P. Murkunde drew our attention to the order dated 22-11-2022 in the case of Abhishek Ashok Lohade (supra) and argued that the issue raised in the present appeal is similar to the issue in the said case on same identical facts. The Tribunal considered every issue in detail including report of Kolkata Investigation Directorate and the arguments made by the ld. AR on fraud. He contended though it is ex-parte of assessee, this Tribunal by following the decision of Hon’ble Supreme Court in the case of Friends Trading Co. in Civil Appeal No. 5608of 2011 confirmed the order of CIT(A) in denying exemption u/s. 10(38) of the Act. The ld. DR vehemently placed reliance on the said order. 4 ITA No.41/PUN/2022, A.Y. 2014-15 Further, he drew our attention in the case of S.P. Chengalavaraya Naidu (supra) and Smt. Badami (Deceased) By her L.R. in Civil Appeal No. 1723 of 2008 (SC) and argued that the case of the assessee is covered by this judgment of Hon’ble Supreme Court and supported the order of CIT(A) in denying claim of exemption of Long Term Capital Gains. 8. Heard both the parties and perused the material available on record. Regarding the decision of Hon’ble Supreme Court in the case of Odeon Builders (P.) Ltd (supra), wherein, the Hon’ble Supreme Court was pleased to hold the disallowance is bad for not providing copy of information gathered by investigation team of Department. In the present case, the AO detailed the modus operandi as analyzed by the Investigation Wings of Kolkata and Bangalore and the same was reproduced in the assessment order. Admittedly, the said reports are available in public domain which is evident from the assessment order from pages 2 to 20 of the assessment order. Therefore, the submission of ld. AR is not acceptable that the AO did not provide the said reports to the assessee. Regarding the decision in the case of Smt. Jamnadevi Agrawal (supra) of Hon’ble Bombay High Court, the AO in the present case made separate and independent enquiries with regard to claim of assessee in respect of Long Term Capital Gains, passed detailed order in this regard. Therefore, the AO examined the issue in detail and denied the claim u/s. 10(38) of the Act which was confirmed by the CIT(A). Thus, the proposition as canvassed by the ld. AR in terms of decision of Hon’ble High Court of Bombay in the case of Smt. Yamnadevi Agrawal (supra) is not applicable. 9. Further, coming to the order of this Tribunal in the case of Abhishek Ashok Lohade (supra) as placed reliance in the case of Frainds Trading Co. of Hon’ble Supreme Court which is not disputed the facts and circumstances of the said case are similar to the case on hand but however, challenged the same basing ex-parte of assessee. Therefore, we safely conclude that the issue raised in the case of Abhishek Ashok Lohade (supra) and the issue on hand in the present case are 5 ITA No.41/PUN/2022, A.Y. 2014-15 similar basing on the same identical facts. The relevant portion of the said order from paras 6 to 10 are reproduced here-in-below for ready reference : “6. Since the issue in the present appeal is no more res integra, covered by several judicial precedents as well as one of the recent decision of the Hon’ble Calcutta High Court in the case of PCIT vs. Swati Bajaj, 446 ITR 56 (Calcutta), we proceed to dispose of the same after hearing the ld. Sr. DR even in the absence of assessee. 7. The ld. Sr. DR placed reliance on the order of the ld. CIT(A) submits that in view of the decision of the Hon’ble Calcutta High Court in the case of Swati Bajaj (supra), the order of the ld. CIT(A) be upheld. 8. We heard the ld. Sr. DR and perused the material on record. The issue in the present appeal relates to whether or not the claim for exemption of capital gains u/s 10(38) of the Act is genuine. The material facts to be noted herein are as under : During the course of assessment proceedings, the Assessing Officer noticed that the appellant had indulged in suspicious “suspicious transaction relating to long term capital gains on sale of shares” and relating to claim of appellant for exemption of Rs.51,32,174/- u/s 10(38) and sale of shares of M/s SRK Industries Limited. The appellant purchased 6500 shares of Transcend Commerce Limited (hereinafter TCL) @ Rs.10 per share for an amount of Rs.65,000/- on 29.10.2012 from Shubhmangal Sales Pvt. Ltd, which is Kolkata based broker. The bill does not bear any serial number, SEBI approval number and registration number of the broker, (page no. 26 of the Paper book dated 19.12.2017). The payment of Rs.65,000/- was made on 29.10.2012 from IDBI Bank A/c. The TCL subsequently amalgamated with M/s SRK Limited (herein after SRK) and the appellant was issued 14430 shares of SRK Ltd. on 22.03.2013. The company further sub divided the equity from Rs.10/- to Rs.5/- and the shares with the assessee increased to 28860. The entire shares were sold on 23.12.2013 for an amount of Rs.51,32,174/- resulting in capital gain of Rs.50,67,174/-, which was claimed exempt u/s 10(38) of the Act. The case of the Assessing Officer is that the appellant is a beneficiary of accommodation entries or long term capital gains from Calcutta Entry Provider, namely, Mr. Anil Khemka of Devshyam Stock Broking P. Ltd.. The Investigation Wing of the Income Tax Department, Calcutta had conducted search and seizure operations on the said entry provider and recorded the statement on 30.03.2015 wherein it is stated that he had admitted to have provided the accommodation entries in respect of scripts as per list which includes the company M/s. SRK Limited. He further stated to have been admitted that the companies controlled by him one paper companies which were used for giving accommodation entries and list of the companies was also provided and the said companies were managed/operated by dummy directors, namely, S/Shri Sanjay Parakh, Anil Agarwal, Akash Agarwal and Devesh Upadhyaya. The investigation report dated 27.04.2015 of the Income Tax Department was available in the public domain and also narrated the modus operandi adopted for the purpose of claiming the bogus long term capital gains. During the course of assessment proceedings, the Assessing Officer had called upon to substantiate the genuineness of the transactions of purchase and sale of shares in the light of the findings as set out in para 14 at page 8 and 9 of the assessment order. The Assessing Officer also furnished the copies of the statement recorded from entry providers as well as the directors of the dummy company. It is born on record that despite the adequate opportunity afforded to the appellant, the appellant had failed to rebut the findings of the Assessing Officer. In the circumstances, the Assessing Officer made addition of sale proceeds of the shares invoking the provisions of section 68 of the Act. Even on appeal before the ld. CIT(A), the conclusion reached by the Assessing Officer was confirmed invoking the doctrine of human probabilities placing reliance on the decision of the Hon’ble Supreme Court in the case of Sumati Dayal vs. CIT, 214 ITR 801 (SC) and CIT vs. Durga Prasad More, 82 ITR 540 (SC). This finding 6 ITA No.41/PUN/2022, A.Y. 2014-15 of the ld. CIT(A) confirming the action of the Assessing Officer is under challenge before us contenting that the appellant had discharged the onus of proving the genuineness of transactions of capital gains in respect of exemption u/s 10(38) of the Act. In a case involving identical facts of the case, the Hon’ble Calcutta High Court after making reference to the decisions of Hon’ble Madras High Court in the case of CIT vs. Manish D. Jain, 120 taxmann.com 180 (Mad.) and PCIT vs. Prabha Jain, 439 ITR 304 (Mad.) had confirmed the action of the Assessing Officer by holding that the Assessing Officer had cogently brought out the factual scenario to establish machinations of fraudulent, manipulative and deceptive dealings and how the stock exchanges system was misused to generate bogus LTCG. 9. There is yet one more reason as to why we are inclined to confirm the addition made by Assessing Officer, in view of the well settled principle of law that fraud vitiate everything and even principle of natural justice have no application and such transaction is void ab initio. The Hon’ble Supreme Court in the case of Friends Trading Co. vs. Union of India in Civil Appeal No.5608 of 2011 vide order dated 23.09.2022 held in the context of availment of alleged forged DEPB under the Customs Act, wherein, it was found DEPB licenses were forged and it was held that the exemption benefit availed on such forged DEPB are void ab initio on the principle that fraud vitiate everything and the period of limitation was held to have no application and the Department was held to be justified in invoking the extended period of limitation and the fact that whether the beneficiary had no knowledge of about the fraud/forged and fake DEPB licenses have no bearing the imposition of custom duty. The ratio of judgement is squarely applicable to the transaction under consideration before us. Further, the application of principle of the fraud under judicial Acts was considered by the Hon’ble Supreme Court in the case of Smt. Badami (Deceased) By her L.R. vs. Bhali in Civil Appeal No.1723 of 2008 dated 22.05.2012, wherein, the Hon’ble Apex Court held as follows : “20. In S. P. Chengalvaraya Naidu (dead) by L.Rs. v. Jagannath (dead) by L.Rs. and others [AIR 1994 SC 853] this court commenced the verdict with the following words:- ““Fraud-avoids all judicial acts, ecclesiastical or temporal” observed Chief Justice Edward Coke of England about three centuries ago. It is the settled proposition of law that a judgment or decree obtained by playing fraud on the court is a nullity and non est in the eyes of law. Such a judgment/decree - by the first court or by the highest court - has to be treated as a nullity by every court, whether superior or inferior. It can be challenged in any court even in collateral proceedings.” 21. In the said case it was clearly stated that the courts of law are meant for imparting justice between the parties and one who comes to the court, must come with clean hands. A person whose case is based on falsehood has no right to approach the Court. A litigant who approaches the court, is bound to produce all the documents executed by him which are relevant to the litigation. If a vital document is withheld in order to gain advantage on the other side he would be guilty of playing fraud on court as well as on the opposite party. 22. In Smt. Shrist Dhawan v. M/s. Shaw Brothers [AIR 1992 SC 1555] it has been opined that fraud and collusion vitiate even the most solemn proceedings in any civilised system of jurisprudence. It has been defined as an act of trickery or deceit. The aforesaid principle has been reiterated in Roshan Deen v. Preeti Lal [AIR 2002 SC 33], Ram Preeti Yadav v. U. P. Board of High School and Intermediate Education and other [(2003) 8 SC 311] and Ram Chandra Singh v. Savitri Devi and others [(2003) 8 SCC 319]. 7 ITA No.41/PUN/2022, A.Y. 2014-15 23. In State of Andhra Pradesh and another v. T. Suryachandra Rao [AIR 2005 SC 3110] after referring to the earlier decision this court observed as follows:- “In Lazaurs Estate Ltd. v. Beasley [(1956) 1 QB 702] Lord Denning observed at pages 712 & 713, “No judgment of a Court, no order of a Minister can be allowed to stand if it has been obtained by fraud. Fraud unravels everything.” In the same judgment Lord Parker LJ observed that fraud vitiates all transactions known to the law of however high a degree of solemnity. ” 24. Yet in another decision Hamza Haji v. State of Kerala & Anr. [AIR 2006 SC 3028] it has been held that no court will allow itself to be used as an instrument of fraud and no court, by way of rule of evidence and procedure, can allow its eyes to be closed to the fact it is being used as an instrument of fraud. The basic principle is that a party who secures the judgment by taking recourse to fraud should not be enabled to enjoy the fruits thereof.” 10. In the present case also, the appellant deliberately withheld the information from the Assessing Officer as well as the ld. CIT(A) which is within exclusive knowledge of appellant to establish the genuineness of transactions of purchase of shares of that company. It is nothing but a fraud played by the appellant against the Assessing Officer as well as the ld. CIT(A) who are quasi judicial authorities employed for execution of the provisions of the Income Tax Act. Therefore, the principle of fraud can be squarely applied to the facts of the present case and principles of natural justice have no application. Applying the said doctrine, we have no hesitation to hold that the transaction of purchase and sale of shares of SRK Industries under consideration before us is void ab-initio, this is nothing but sham, make believe and colourful device adopted with excellent paper work with intention bringing the undisclosed income into books of account. Accordingly, we confirm the orders of the Assessing Officer as well as the ld. CIT(A) and find no merits in the appeal preferred by the assessee before us.” 10. In the light of the above, coming to the facts on hand, we note that the assessee had purchased 20,000 shares from M/s. NCL Research & Financial Services Ltd. on 28-03-2011, for an amount of Rs. 17,40,200/- and thereafter sold the said shares on various dates for a total sum of Rs. 3,22,81,843/-. Admittedly, all these transactions availed through assessee’s brokers i.e. M/s. Adinath Stock Broking P. Ltd. through assessee’s De-mat Account. The A.O suspected the said transaction in claiming long term capital gain as Accommodation Entry with reference to the findings of the Investigation wing along with report of SEBI. The A.O obtained the report of the said Investigation Wing which was deliberated in the assessment order and held the long term capital gain as claimed by the assessee in respect of sale of shares of NCL Research & Finance Ltd. is a pre-arranged method employed by the assessee in connivance with Accommodation Entry operator. According to the A.O that the Investigation Wing covered script code of 8 ITA No.41/PUN/2022, A.Y. 2014-15 NCL Research and Finance Ltd. which is evident from para 5 of the assessment order and identified the said NCL Research and Finance Ltd. being used for providing bogus accommodation entries of long term capital gain. As it appears from para 9 of the assessment order that the Investigation Wing surveyed SMC global securities Ltd. and the concerned person of the said entity accepted their role in providing Accommodation Entry on syndicate. Further, the SEBI which is a premier regulatory body of share market directed BSE to suspend trading of 28 penny stock companies amongst which NCL Research & finance Ltd. is one, which is evident from page 11 of the A.O’s order therefore, the A.O discussed the issue in detail like that of report of Investigation wing, statement of concerned person who provided accommodation entry. The order of SEBI in suspending penny stock of those companies, who involved in ragging of prices of penny stocks companies. Therefore, we find the facts and circumstances in the present case are similar and identical to the facts in the case of Abhishek Ashok Lohade (supra), we find the order of CIT(A) is justified and in confirming the order of AO in denying exemption u/s. 10(38) of the Act. Thus, ground No. 1 raised by the assessee is dismissed. 11. Ground No. 2 raised by the assessee is with regard to addition made on account of entry of interest in Form No. 26AS. 12. The ld. AR submits that the assessee does not know M/s. Rukmini Impex Pvt. Ltd. nor the assessee dealt any business transaction with the said company. The AO arbitrarily made addition in this regard. Further, he submits that the assessee did not claim even TDS credit in this regard. The ld. DR did not report any objection in remanding the issue to the file of AO for verification in terms of submissions of ld. AR. Therefore, taking into consideration the facts and circumstances of the case and in the interest of justice, we deem it proper to remand the matter to the file of AO for its fresh consideration. The assessee is liberty to file evidence, if any, in support of its claim. Thus, ground No. 2 raised by the assessee is allowed for statistical purpose. 9 ITA No.41/PUN/2022, A.Y. 2014-15 13. Ground No. 3 raised by the assessee challenging the action of CIT(A) in upholding the addition made u/s. 68 of the Act. 14. The ld. AR submits that the assessee could not identify the individual transaction of Rs.1,53,230/-. However, the AO proceeded to add the said amount to the income of the assessee in the absence of any evidence that the same is credited in the books of accounts of the assessee. We find force in the arguments of ld. AR and without there being entry in the books of accounts, the addition made u/s. 68 of the Act is not maintainable. Therefore, in the interest of justice, we deem it proper to remand the issue to the file of AO for its fresh consideration. The assessee is liberty to file evidences, if any, in support of its claim. Thus, the ground No. 3 raised by the assessee is allowed for statistical purpose. 15. In the result, the appeal of assessee is partly allowed. Order pronounced in the open court on 09 th March, 2023. Sd/- sd/- (Inturi Rama Rao) (S.S. Viswanethra Ravi) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; ददनाांक / Dated : 09 th March, 2023. रदवAnkam आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपीलाथी / The Appellant. 2. प्रत्यथी / The Respondent. 3. The concerned CIT, Pune. 4. दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, “ए” बेंच, पुणे / DR, ITAT, “A” Bench, Pune. 5. गार्ड फ़ाइल / Guard File.//सत्यादपत प्रदत// True Copy// आदेशानुसार / BY ORDER, /// TRUE COPY /// वररष्ठ दनजी सदचव / Sr. Private Secretary आयकर अपीलीय अदधकरण ,पुणे / ITAT, Pune
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