$ 1 * IN HIGH COURT OF DELHI AT NEW DELHI Date of Decision: 29.07.2020 + I.T.A. 203/2020 & C.Ms. 16898/2020 and 16899/2020 SANJAY KAUL Appellant Through: Mr. Deepak Kapoor and Mr.Saurabh Soni, Advocates. versus PRINCIPAL COMMISSIONER OF INCOME TAX DELHI-8, NEW DELHI Respondent Through: Mr.Kunal Sharma, Senior Standing Counsel with Ms. Zehra Khan, Advocate for Revenue. CORAM: HON'BLE MR. JUSTICE MANMOHAN HON'BLE MR. JUSTICE SANJEEV NARULA JUDGMENT SANJEEV NARULA, J. (Oral): 1. present appeal under Section 260-A of Income Tax Act, 1961 ( Act ) is directed against order dated 07.01.2020 ( impugned order ) passed by Income Tax Appellate Tribunal ( ITAT ), Bench-G, New Delhi in ITA No. 1593/Del/2019 for Assessment Year ( AY ) 2015-16 whereby appeal of Appellant- assessee has been dismissed and consequently order of CIT(A) has been upheld. 2. Briefly stated facts of present case are that Assessee filed its original Income-tax return on 30.09.2015 declaring total income of I.T.A. 203/2020 Page 1 of 12 Rs.3,12,59,350/- for assessment year in question. During previous year 2014-15 relevant to AY 2015-16, appellant earned long-term capital gain ( LTCG ) of Rs.4,15,67,925/- on sale of shares in unlisted companies. appellant further incurred short-term capital loss ( STCL ) of Rs. 1,57,23,872/- out of which sum of Rs.1,22,76,352/- related to purchase and sale of shares of following three listed companies: S.No. Description STCL (Rs.) 1. Cressanda Solutions Ltd. 24,66,430 2. Kailash Auto Finance Ltd. 42,52,805 3. Matra Kaushal Enterprises 55,55,067 Ltd. ( MKEL ) Total 1,22,76,352 3. AO framed assessment order dated 27.12.2017 under section 143(3) of Act , making addition of Rs.1,22,76,352/- under Section 68 read with 115BBE and Rs.3,06,908/- under section 69C of Act, disallowing STCL claimed as set off under Section 70 of Act, in computation of income on ground that it was bogus. Aggrieved by said order, appellant filed first appeal under Section 246A of Act before CIT(A). Vide order dated 14.01.2019, said appeal of appellant was dismissed and additions made under Section 68 and 69C of Act were confirmed. In further appeal, ITAT confirmed order of CIT(A) and rejected appeal of Assessee. ITAT, while dismissing appeal, agreed with contention of assesee that addition for STCL cannot be made under Section 68 of Act. However, it also observed that mentioning of I.T.A. 203/2020 Page 2 of 12 wrong section in assessment order would not render entire assessment as null and void as AO has correctly acquired jurisdiction over case. 4. Before us, Mr. Deepak Kapoor, learned counsel appearing on behalf of appellant impugns aforesaid order by arguing that ITAT has committed grave error having failed to take into consideration that transactions related to shares of aforenoted three listed companies, were carried through its registered share broker-M/s. Elite Wealth Advisors Ltd., on Bombay Stock Exchange, which is recognised stock exchange. He argues that there was no possibility of any nexus between buying and selling brokers since appellant carried out transactions through registered broker. Learned counsel further argues that assessee has discharged onus and substantiated STCL arising out of sale transactions of aforenoted three companies by sufficient documentary evidence produced before AO, CIT(A) and ITAT. None of documents produced were rebutted or contradicted by authorities. appellant has discharged onus and substantiated STCL and in these circumstances additions are not sustainable. Once ITAT held that Section 68 is not applicable, since it was case of cash debit and not cash credit, burden of proof was on revenue to sustain addition by leading cogent evidence. income-tax department failed to gather and produce any credible material in support of treatment of STCL as bogus and therefore, order of ITAT upholding additions is unsustainable. 5. We have given due deliberation to contentions of Appellant, however, we find that no substantial question of law arises for our consideration to entertain present appeal. I.T.A. 203/2020 Page 3 of 12 6. assessee, in income-tax return, set off STCL of Rs.1,22,76,352/-, relating to sale of shares of three companies. This was disallowed by AO holding same as part of accommodation entry business of providing bogus long-term/short-term capital loss. AO relied upon report of Deputy Director of Income-tax (Investigation), Unit 2(3), Kolkata wherein general practice followed by companies, brokers and operators for providing LTCG/STCL to beneficiaries has been explained. involvement of assessee in entire chain of generating bogus entries of long-term capital gain/loss were taken into consideration. AO concluded that assessee was not regular investor in shares and had invested only in high risk stocks which during investigation were found to be obscure companies with no business activity or asset and were identified as Penny Stocks . AO concluded that assessee had entered into sham transaction with full knowledge so as to convert unaccounted money into accounted money in guise of capital loss. Further, evidence in nature of testimonies of person in-charge with management and control of aforenoted Penny Stock companies were also taken into account. This evidence forms basis for Assessing Officer to conclude that STCL claimed by assessee was not genuine or market driven but was pre-arranged transaction noted in accounts of assessee in lieu of unaccounted cash. Although AO and CIT (A) treated capital loss as unexplained entry under Section 68 of Act, ITAT held that said provision is not attracted. However, ITAT still sustained additions observing that STCL should be disallowed as same has resulted from bogus transactions. This finding of fact is based taking into consideration entire evidence on record and also views expressed by this Court in case of Suman Poddar v. Income Tax Officer, ITA No. I.T.A. 203/2020 Page 4 of 12 841/2019. relevant portion of impugned order is extracted hereinbelow: 4.7 first, issue which has been raised by assessee that it has not been confronted with statements of various parties relied upon by Assessing Officer. assessee has also contended that opportunity of cross-examining those parties/persons was not provided to assessee. According to assessee, this resulted in violation of principle of natural justice and thus assessment should be held void ab intio. However, in our opinion, not providing opportunity of cross-examination may be in nature of irregularity which is curable but not illegality leading to annulling of assess1nent. Further, ld. CIT(A) in Para 4.1 of impugned order has held that addition has not been made solely on basis of statement of those persons/parties. relevant part of order of Ld. CIT(A) is reproduced as under: "4.1 I have considered submission of appellant and observation of AO made in assessment order on issue. appellant has stated that it has not been allowed cross-examination of parties on basis of whose statement, addition has been made. On this issue it is observed from assessment record that AO has made addition on strength of independent analysis of documents to arrive at conclusion that appellant has failed to prove genuineness of transaction in respect of STCL as discussed above. Statements and other material found in course of investigation has been used by him as corroborative material to strengthen his findings. As per requirement of section 68 of Act, AO has shifted onus back on appellant by confronting adverse findings. Therefore, appellant has failed to discharge onus cast upon it u/s 68 of Act to explain transaction. Investigation Wing has conducted detailed enquiries, made analysis of seized / impounded documents and made analysis of beneficiaries. report prepared contains details of complete modus operandi, commission charged against accommodation I.T.A. 203/2020 Page 5 of 12 entries, list of conduit companies, list of their bank accounts in name of conduits. said list contains names of companies in which appellant dealt. Therefore, findings in case of Investigation wing corroborate independent findings of AO. Therefore, AO was not required to allow appellant opportunity to cross-examine." 4.8 Tribunal in case of Ram Niwas Gupta, Dehradun Vs DCIT, Dehradun on 6th February, 2019 in ITA No.4881 to 4883/Del/2016 (Assessment Years: 2010-11, 2012-13 and 2013-14), after considering various decisions of Hon'ble Supreme Court, including decision in case Andaman Timbers Industries Vs Commissioner of Central excise, Kolkata -II reported in 2015 (324) E.L.T. 641 (SC), 2017 (50) S.T.R. 93 (SC), 2016 (15) SCC 785 has held as under: "105. In our opinion right to cross-examine witness who made adverse report, is not invariable attribute of requirement of dictum, "audi alteram partem". principles of natural justice do not require formal cross-examination. Formal cross-examination is part of procedural justice. It is governed by rules of evidence, and is creation of Court. It is part of legal and statutory justice, and not part of natural justice, therefore, it cannot be laid down as general proposition of law that revenue cannot rely on any evidence which has not been subjected to cross- examination. However, if witness has given directly incriminating statement and addition in assessment is based solely or mainly on basis of such statement, in that eventuality it is incumbent on Assessing Officer to allow cross-examination. Adverse evidence and material, relied upon in order, to reach finality, should be disclosed to assessee. I.T.A. 203/2020 Page 6 of 12 But this rule is not applicable where material or evidence used is of Collateral Nature." 4.9 We find that Assessing Officer in assessment order has referred to general modus operandi of bogus accommodation entry and thereafter, he has further referred to statement of parties who has provided accommodation entry through managing and controlling shares of companies, in which assessee has also transacted. Assessing Officer thereafter asked assessee to justify rationale behind investment in these penny stock companies not having financial worth, however, assessee failed to justify same. Assessing Officer provided as why investment in shares transacted by assessee was not justified in view of comparison of other shares available. Assessing Officer also pointed out price fluctuation in shares of companies over period, dividend history and other financial parameters to substantiate that there was no financial logic for investment in company except for claim of bogus short-term capital loss against receipt of cash money. Ld. Assessing Officer accordingly concluded that addition was made on basis of material available on record, surrounding circumstances, human conduct and preponderance of probabilities. 4.10 In view of above facts and circumstances and in law, we find that in instant case addition in dispute is not solely on basis of statement of persons and Assessing Officer has relied on other materials. statements of persons who controlled business of providing accommodation entry have been corroborated with material, surround circumstances and preponderance of probability. We accordingly uphold finding of CIT(A) on that issue in dispute. relevant grounds of appeal of assessee are accordingly rejected. xxx xxx xxx I.T.A. 203/2020 Page 7 of 12 5.1 After describing general modus operandi of accommodation entry by way of bogus capital gain/loss, Assessing Officer has highlighted statement of persons who claimed to have provided bogus capital gain/loss entries. assessee was then asked to justify investment in relevant shares. Assessing Officer has pointed out that these companies are not having any significant/real business as seen from financial statement of those companies. price movement of shares was also found to be unrealistic by him. Assessing Officer has particularly pointed out that price movement of relevant shares transacted by assessee, were not matching with movement of share market in general and movement of other scrips in same line of business. Assessing Officer also pointed out that volume transacted in those script was also very low. There was no history of dividend payout by those companies. ld. Assessing Officer has pointed out that assessee could not explain, why it invested in such script without knowing financial performance of company. relevant analysis has been reproduced by Assessing Officer in Para 3.4 (Page-1 J.) of assessment order. conclusion of AO has already been reproduced by us in brief facts of case. xxx xxx xxx 5.4 Hon'ble Delhi High Court in case of Suman Poddar (supra), observed that Shares of Cressanda Solutions Ltd. have been identified by Bombay Stock Exchange as penny stock used for obtaining bogus Long Term Capital gain and no evidence of actual sale except contract notes issued by share broker were produced by assessee. Hon'ble High Court accordingly dismissed appeal of assessee as no substantial question of law involved. "7. Thus, Tribunal has in depth analyzed balance sheets and profit And loss accounts of Cressanda Solutions Ltd. which shows that astronomical increase in share price of said company which led to returns of 491% for Appellant, was completely unjustified. Pertinently, EPS of said company was Rs. 0.01/- as in March 2016, it was I.T.A. 203/2020 Page 8 of 12 Rs. - 0.01/- as in March 2015 and -0.48/- as in March 2014. Similarly, other financial parameters of said company cannot justify price in excess of Rs. 500/- at which Appellant claims to have sold said shares to obtain Long Terms Capital Gains. It is not explained as to why anyone would purchase said shares at such high price. Tribunal goes on to observe in impugned order as follows: 10. With such financials and affairs of business, purchase of share of face value Rs. 10/- at rate of Rs.491/- by any person and assessee's contention that such transaction is genuine and credible and arguing to accept such contention would only make decision of judicial authorities fallacy. 11. Evidences put forth by Revenue regarding entry operation fairly leads to conclusion that assessee is one of beneficiaries of accommodation entry receipts in. form of long term capital gains. assessee has failed to prove that share transactions are genuine and http://itatonline.org could not furnish evidences regarding sale of shares except copies of ITA 841/2019 Page 7 of 10 contract notes, cheques received against overwhelming evidences collected by Revenue regarding operation. of entire affairs of assessee. This cannot be case of intelligent investment or simple and straight case of tax planning to gain benefit of longterm capital gains. earnings @491% over period of 5 months is beyond human probability and defies business logic of any business enterprise dealing with share transactions. net worth of company is not known to assessee. Even brokers who coordinated transactions were also unknown to assessee. All these facts give credence to unreliability of entire transaction of shares giving rise to such capital gains. ratio laid down by Hon'ble Supreme Court in case of Sumati Dayal vs. CIT, 214 ITR 801 is squarely applicable to case. Though assessee has received amounts by way of I.T.A. 203/2020 Page 9 of 12 account payee cheques, transactions cannot be treated as genuine in presence of overwhelming evidences put forward by Revenue. fact that in spite of earning such steep profits, assessee never ventured to involve himself in any other transaction which broker cannot be mere coincidence of lack of interest. Reliance is place on judgment in case of Nipun Builders and Developers Pvt. Ltd. (supra), where it was held that it is duty of Tribunal to scratch surface and probe documentary evidence in depth, in light of conduct of assessee and other surrounding circumstances in order to see whether assessee is liable to provisions of section 68 or not. In case of NR Portfolio, it was held that genuineness and credibility are deeper and obtusive. Similarly, bank statements provided by assessee to prove genuineness of transactions cannot be considered in view of judgment of Hon'ble court in case of Pratham Telecom India Pvt. Ltd., wherein, it was stated that bank statement is not sufficient enough to discharge burden. Regarding failure to accord opportunity of cross examination, we rely on judgment of Prem Castings Pvt. Ltd. Similarly, Tribunal in case of Udit Kalra, ITA No. 6717/Del/2017 for assessment year 2014-15 has categorically held that when there was specific confirmation with Revenue that assessee has indulged in ITA 841/2019 Page 8 of 10 non- genuine and bogus capital gains obtained from transactions of purchase and sale of shares, it can be good reason to treat transactions as bogus. differences of case of Udit Kalra attempted by Ld. AR does not add any credence to justify transactions. Investigation Wing has also conducted enquiries which proved that assessee is also one of beneficiaries of transactions entered by Companies through multiple layering of transactions and entries provided. Even BSE listed this company as being used for generating bogus LTCG. On facts of case and judicial pronouncements will give rise to only conclusion that entire activities of assessee is colourable device to obtain bogus capital gains. Hon'ble High Court of Delhi in case of Udit Kalra, ITA No. 220/2009 held I.T.A. 203/2020 Page 10 of 12 that company had meager resources and astronomical growth of value of company's shares only excited suspicion of Revenue and hence, treated receipts of sale of shares to be bogus. Hon'ble High Court has also dealt with arguments of assessee that he was denied right of cross examination of individuals whose statements led to enquiry. Id. AR argument that no question of law has been framed in case of Udit Kalra also does not make any tangible difference to decision of this case. Since additions have been confirmed based on enquiries by Revenue, taking into consideration ratio laid down by various High Courts and Hon'ble Supreme Court, our decision is equally applicable to receipts obtained from all three entities. Further, reliance is also placed on orders of various Courts and Tribunals listed below. MK. Rajeshwari vs. ITO in ITA No. l7231Bang/2018, order dated 12.10.2018. Abhimanyu Soin vs. ACIT in ITA No. 951 1/Chd/2016, order dated 18.04.2018. Sanjay Bimalchand Jain vs. ITO 89 taxmann.com 196. Dinesh Kumar Khandelwal, HUF vs. ITO in ITA No. 58 & 591 Nagl2015, order dated 24.08.2016. Ratnakar M Pujari vs. ITO in IT No. 9951Muml2012, order dated 03.08.2016. ITA 841/2019 Page 9 of 10 Disha N. Lalwani vs. ITO in ITA No. 6398 / Mum / 2012, order dated 22.03.2017. ITO vs. Shamin. M Bharwani [20 16] 69 taxmann.com 65. Usha Chandresh Shah Vs ITO in ITA No. 6858 / Mum / 2011, order dated 26.09.2014. CIT vs. Smt. Jasvinder Kaur 357 ITR 638. 12. facts as well as rationale given by Hon'ble High Court are squarely applicable to case before us. Hence, keeping in view overall facts and circumstances of case that profits earned by assessee are part of major scheme of accommodation entries and keeping in view ratio of judgments quoted above, we, hereby decline to interfere in order of Ld. CIT(A). (emphasis supplied) 8. From above extract, it would be seen that Cressanda Solutions Ltd. was in fact identified by Bombay Stock I.T.A. 203/2020 Page 11 of 12 Exchange as penny stock being used for obtaining bogus Long Term Capital Gain. NO evidence of actual sale except contract notes issued by share broker were produced by assessee. No question of law, therefore arises in present case and consistent finding of fact returned against Appellant are based on evidence on record. 7. In view of concurrent factual findings arrived at by income-tax authorities and with no tenable evidence with assessee to contrary, in our opinion, no substantial question of law arises for our consideration. As result, present appeal along with pending applications is dismissed. SANJEEV NARULA, J MANMOHAN, J JULY 29, 2020 v I.T.A. 203/2020 Page 12 of 12 Sanjay Kaul v. Principal Commissioner of Income-tax Delhi-8, New Delhi