IN INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER SN ITA No. AY Appellant Respondent Shri Pratik Suryakant Shah, F-104, Tulip Citadel Flats, Income Tax Officer, 2006-07 1 810/Ahd/2015 Shreyas Tekra, Ambawadi, Ward-10(3) Ahmedabad-380015 Ahmedabad PAN : APZPS 0112 B Shobhanaben Suryakant Shah, F-104, Tulip Citadel Flats, 2 811/Ahd/2015 2006-07 Shreyas Tekra, Ambawadi, Revenue Ahmedabad-380015 PAN : ABGPS 2286 M Suryakant Panachand Shah, F-104, Tulip Citadel Flats, 3 812/Ahd/2015 2006-07 Shreyas Tekra, Ambawadi, Revenue Ahmedabad-380015 PAN : ACXPS 7059 J Suryakant P. Shah HUF, F-104, Tulip Citadel Flats, 4 813/Ahd/2015 2006-07 Shreyas Tekra, Ambawadi, Revenue Ahmedabad-380015 PAN : AAPHS 7043 J Rachna P. Shah, F-104, Tulip Citadel Flats, 814/Ahd/2015 2006-07 Shreyas Tekra, Ambawadi, Revenue 5 Ahmedabad-380015 PAN : BDLPS 1498 D Vaishal Suryakant Shah F-104, Tulip Citadel Flats, 6 815/Ahd/2015 2006-07 Shreyas Tekra, Ambawadi, Revenue Ahmedabad-380015 PAN : APXPS 7301 G Shri Dhwani Mahendra Shah, 104, Devashri Appartments, 7 922/Ahd/2015 2008-09 Pritamnagar Akhada, Paldi, Revenue Ahmedabad 380007 PAN : AVBPS 2933 C Dipali Mahendra Shah, 2008-09 104, Devashri Appartments, 923 & 8-9 & Pritamnagar Akhada, Paldi, Revenue 924/Ahd/2015 2009-10 Ahmedabad 380007 PAN : AQBPS 1861 Q Bharti Somchand Shah 2006-07 104, Devashri Appartments, 925 & & 10-11 Pritamnagar Akhada, Paldi, Revenue 926/Ahd/2015 2008-09 Ahmedabad 380007 PAN : AGDPS 4182 Q ITA Nos. 810 to 815, 922 to 926/Ahd/2015 Shri Pratik Suryakant Shah & others Total 11 Appls AYs 2006-07 & 2008-09 2 Assessee(s) by : Shri Bharat Shah, AR Revenue by : Shri P. S. Choudhary, Sr DR / Dateof Hearing : 20/10/2016 / Date of Pronouncement: 21/10/2016 ORDER PER BENCH : above captioned appeals by different assessees are preferred against separate orders of CIT(A). Counsel for assessees, at very outset, stated that in this bunch of appeals, facts and issues are identical. DR fairly conceded to this and, on such concession, all these appeals were heard together and disposed of by this common order for sake of convenience and brevity. 2. As agreed by Representatives of both sides, we have considered facts of ITA No.810/Ahd/2015 for AY 2006-07 in case of Shri Pratik Suryakant Shah. 3. common grievance in all these appeals relates to treatment of Long Term Capital Gains as undisclosed income of assessee, denying exemptions of Long Term Capital Gains on sale of shares. 4. Briefly stated facts of case are that returns of income of assessees were accepted u/s 143(1) of Act. Subsequently, Assessing Officer received information relating to search and seizure action carried out in case of M/s. Mahasagar Securities Pvt Ltd, including group companies which were controlled by one Shri Mukesh M. Choksi at Mumbai. In his statement, Shri Mukesh Choksi admitted that all his group- companies were providing entries for taking profit or loss by showing purchase or sales of shares and securities to various parties across India, on which he charged certain commission from beneficiary parties. Since ITA Nos. 810 to 815, 922 to 926/Ahd/2015 Shri Pratik Suryakant Shah & others Total 11 Appls AYs 2006-07 & 2008-09 3 impugned appellants were beneficiaries of such accommodation entries provided by Shri Mukesh Choksi, assessments were reopened. Statutory notices were issued and served upon assessees and reasons for reopening of assessment were provided. relevant portion of same reads as under:- Please refer to on-going re-assessment proceedings in your case for A. Y. 2006-07. In this connection, it is to state that search and seizure action carried out by Department on 25/11/2009 in group case of M/s. Mahasagar Securities Pvt. Ltd. and also covered its all group companies which were controlled by Shri Mukesh M. Chokshi at Mumbai. Shri Mukesh M. Choksi himself admitted that my all group companies are providing entry for taking profit or loss by showing purchase or sale of shares and securities to various parties across India en which he charged certain commission from beneficiary parties. same information received by this office along with copy of statement of Shri Mukesh M. Chokshi recorded by Department on oath u/s. 131 of I. T. Act in which details also pertain to you. On scrutiny of data/details received in this office, it is ascertained that you were also involved for taking unverifiable/bogus beneficial entries from group companies belongs to Shri Mukesh Choksi during F. Y. 2005-06. Your total transaction involved is Rs.2,77,740/- for taking unverifiable/bogus entries by showing purchase and sale of share and securities. 3. In this context, letter issued to you on 17/10/2013 and duly served upon you on same date. In said fetter, reasons were furnished to you and requested to produce or cause to be produced before undersigned accounts and/or documents as that may be necessary to produce in support of your explanation. However, it is observed that you have not complied this letter till date. 4. In view of above, you are requested to show cause in writing with as to why transaction of Rs.2,77,740/- should not be treated as bogus treating it as bogus entries of purchase and sale of shares and securities and should not be treated as your deemed income and taxed under head Income from Other Sources. 5. In response to notice and queries, assessee filed detailed reply explaining nature of transactions including purchase and sale of shares. It was explained that payments have been done through ITA Nos. 810 to 815, 922 to 926/Ahd/2015 Shri Pratik Suryakant Shah & others Total 11 Appls AYs 2006-07 & 2008-09 4 banking channels, shares were transferred to respective demat accounts and were sold from there. 6. assessee also questioned statement of Shri Mukesh Choksi and strongly contended that no adverse view should be taken merely on strength of statement of third party whose statement has not been confronted to assessee, nor any opportunity is given to cross-examine. 7. detailed submissions of assessee did not find any favour with Assessing Officer. Assessing Officer also dismissed request of assessee for providing opportunity of cross-examination. relevant findings of Assessing Officer read as under:- vi) Regarding assessee's opinion/request to give opportunity of cross- examination both of material found from third party, i.e. his book, etc. as well as cross-examination of person who has deposed against her and without compliance of same, it would not be correct or maintainable to draw any adverse inference as observed in show cause notice, it has no weight for following reasons: a) It is confirmed by NSE/ISE that no trades have been executed in names of persons who have traded through group companies of M/s.Mahasagar Securities Pvt. Ltd. controlled by Shri Mukesh R. Chokshi. b) Since, M/s. Alliance Intermediateries & Network Pvt. Ltd. is no more sub-broker in NSE, so how it is possible to give credit of any claim consequent upon shares traded through M/s. Alliance Intermediateries'& Network Pvt. Ltd. c) Further, key person of M/s. Alliance Intermediateries & Network Pvt. Ltd. Shri Mukesh Chokshi has himself admitted in his statement during search operation u/s. 132 of I.T. Act that his group companies were engaged in fraudulent billing activities in business of providing bogus speculation profit/loss, short term/long term capital gain/loss, commodities profit/loss on commodity trading (through MCX). d) assessee has not furnished any supporting evidences for purchase and sale of shares, such as nature and source of payment, payment receipts, name and address of party to whom payment was made for ITA Nos. 810 to 815, 922 to 926/Ahd/2015 Shri Pratik Suryakant Shah & others Total 11 Appls AYs 2006-07 & 2008-09 5 purchase of shares, copy of bills/invoices, copy of transfer forms, any details regarding any application made for demat of such shares, etc. e) There is no reason to disbelieve statement of Shri Mukesh R. Chokshi that he was engaged in fraudulent billing activities in business of providing bogus speculation profit/loss, short term/long term capital gain/loss, etc. and relevant findings of DDIT(Inv.), Mumbai in this regard that no company other than M/s Richmond Securities Private limited has traded thought our exchange. Thus, transactions which have not been carried out though stock exchange are illegal and fraudulent and are not eligible for claim of exempt income u/s. 10(38) of I.T. Act. Thus, as stated above, there is no reason to give opportunity to assessee to cross-examine Shri Mukesh R. Chokshi and materials found from third party, i.e. books, etc. Therefore, I do not agree with opinion of assessee and reject request of assessee. 8. Assessing Officer concluded by denying exemption of Long Term Capital Gains on sale of shares and treated this sale consideration as deemed income. 9. assessee carried matter before CIT(A), but without any success. 10. Aggrieved by this, assessee is before us. 11. ld. Counsel for assessee(s) vehemently stated that denial of cross-examination and relying on third party s statement without affording any opportunity to assessee(s) and also by not providing copy of statement has vitiated entire assessment order. It is say of Counsel that denial of natural justice cannot be considered in framing assessment order. Counsel for assessee continued by stating that shares were purchased through brokers and same were also sold through brokers. If brokers turned out to be scamster, assessee cannot be held responsible for same. 12. Per contra, DR strongly supported findings of Revenue Authorities. It is say of DR that assessment is not merely based ITA Nos. 810 to 815, 922 to 926/Ahd/2015 Shri Pratik Suryakant Shah & others Total 11 Appls AYs 2006-07 & 2008-09 6 upon statement of Shri Mukesh Choksi, but also on fact that entire transactions of assessee were bogus. 13. Having heard rival contentions, we have carefully perused orders of authorities below. As mentioned elsewhere, we have considered facts in ITA No.810/Ahd/2015. We find that assessee had purchased 3000 shares of Telant Info Ltd from M/s. Mahasagar Securities Pvt Ltd on April 2004. consideration was paid and payment of consideration is not in dispute. shares of Telant Info Ltd were listed in Bombay Stock Exchange at that point of time. shares so purchased were sold through M/s. Alliance Intermediateries & Network Pvt Ltd and consideration was received by cheque. It would be pertinent to mention here that though shares were purchased in physical form, same were sent to company with share application form and shares were transferred by company in name of purchaser. Thereafter, shares were transferred in demat account, from where they were sold. It is not case of Revenue that consideration paid by assessee at time of purchase of shares was received back in cash, nor it is case of Revenue that sale consideration received by assessee was returned back in cash. It is also not case of Revenue that shares in question are still lying with assessee, nor it is case of Revenue that amounts received by assessee on sale of shares is more than what is declared by assessee. 14. entire assessment is based upon statement of Shri Mukesh Choksi. It is undisputed fact that neither copy of statement was supplied to assessee nor any opportunity of cross-examination was given by Assessing Officer/CIT(A). Hon ble Supreme Court in ITA Nos. 810 to 815, 922 to 926/Ahd/2015 Shri Pratik Suryakant Shah & others Total 11 Appls AYs 2006-07 & 2008-09 7 case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006 was seized with following action of Tribunal:- 6. plea of no cross examination granted to various dealers would not help appellant case since examination of dealers would not bring out any material which would not be in possession of appellant themselves to explain as to why their ex factory prices remain static. Since we are not upholding and applying ex factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb Commissioners orders. 15. Hon ble Apex Court held as under:- According to us, not allowing assessee to cross-examine witnesses by Adjudicating Authority though statements of those witnesses were made basis of impugned order is serious flaw which makes order nullity inasmuch as it amounted to violation of principles of natural justice because of which assessee was adversely affected. It is to be borne in mind that order of Commissioner was based upon statements given by aforesaid two witnesses. Even when assessee disputed correctness of statements and wanted to cross-examine, Adjudicating Authority did not grant this opportunity to assessee. It would be pertinent to note that in impugned order passed by Adjudicating Authority he has specifically mentioned that such opportunity was sought by assessee. However, no such opportunity was granted and aforesaid plea is not even dealt with by Adjudicating Authority. As far as Tribunal is concerned, we find that rejection of this plea is totally untenable. Tribunal has simply stated that cross-examination of said dealers could not have brought out any material which would not be in possession of appellant themselves to explain as to why their ex-factory prices remain static. It was not for Tribunal to have guess work as to for what purposes appellant wanted to cross-examine those dealers and what extraction appellant wanted from them. As mentioned above, appellant had contested truthfulness of statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail opportunity of cross-examination. That apart, Adjudicating Authority simply relied upon price list as maintained at depot to determine price for purpose of levy of excise duty. Whether goods were, in fact, sold to said dealers/witnesses at price which is mentioned in price list itself could be subject matter of cross-examination. Therefore, it was not for Adjudicating Authority to presuppose as to what could be subject matter ITA Nos. 810 to 815, 922 to 926/Ahd/2015 Shri Pratik Suryakant Shah & others Total 11 Appls AYs 2006-07 & 2008-09 8 of cross-examination and make remarks as mentioned above. We may also point out that on earlier occasion when matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting case back to Tribunal with directions to decide appeal on merits giving its reasons for accepting or rejecting submissions. In view above, we are of opinion that if testimony of these two witnesses is discredited, there was no material with Department on basis of which it could justify its action, as statement of aforesaid two witnesses was only basis of issuing Show Cause We, thus, set aside impugned order as passed by Tribunal and allow this appeal. 16. On strength of aforementioned decision of Hon ble Supreme Court, assessment order has to be quashed. 17. For sake of completeness of adjudication, even on facts of case, orders of authorities below cannot be accepted. There is no denying that consideration was paid when shares were purchased. shares were thereafter sent to company for transfer of name. company transferred shares in name of assessee. There is nothing on record which could suggest that shares were never transferred in name of assessee. There is also nothing on record to suggest that shares were never with assessee. On contrary, shares were thereafter transferred to demat account. demat account was in name of assessee, from where shares were sold. In our understanding of facts, if shares were of some fictitious company which was not listed in Bombay Stock Exchange/National Stock Exchange, shares could never have been transferred to demat account. Shri Mukesh Choksi may have been providing accommodation entries to various persons but so far as facts of case in hand suggest that transactions were genuine and therefore, no adverse inference should be drawn. ITA Nos. 810 to 815, 922 to 926/Ahd/2015 Shri Pratik Suryakant Shah & others Total 11 Appls AYs 2006-07 & 2008-09 9 18. In light of decisions of Hon ble Supreme Court in case of Andaman Timber Industries (supra) and considering facts in totality, claim of assessee cannot be denied on basis of presumption and surmises in respect of penny stock by disregarding direct evidences on record relating to sale/purchase transactions in shares supported by broker s contract notes, confirmation of receipt of sale proceeds through regular banking channels and demat account. 19. As mentioned elsewhere and as agreed by Representatives of both sides; since facts are common in all impugned appeals, all appeals by assessees are allowed. Assessing Officer is directed to treat surplus as Long Term Capital Gains and allow exemption as claimed by assessees. 20. In result, all appeals filed by assessees are allowed. Order pronounced in Court on 21st October, 2016 at Ahmedabad. Sd/- Sd/- (S.S. GODARA) (N.K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 21/10/2016 Biju T., PS /Copy of Order forwarded to : 1. / Appellant 2. / Respondent. 3. ! / Concerned CIT 4. ! ( ) / CIT(A) 5. $ ' ' , , / DR, ITAT, Ahmedabad 6. - / Guard file. / BY ORDER, TRUE COPY / (Dy./Asstt.Registrar) / ITAT, Ahmedabad , Pratik Suryakant Shah v. Income-tax Officer, Ward-10(3) Ahmedabad