Per Shri A.T.Varkey, JM This is appeal preferred by the assessee against the order of Ld. CIT(A) 6, Kolkata dated 03.09.2018 for Assessment Year 2013-14.
2. The main grievance of the assessee is against the action of the Ld. CIT(A) in confirming the order of the AO wherein he added the entire sale proceeds claimed by assessee as long term capital gain of Rs. 22,85,789/- (according to the assessee it should be Rs. 22,83,789/-).
3. At the outset the ld. AR of the assessee submitted that the assessees claim on sales of shares of M/s Quest Financial Services Ltd. (herein after referred to as M/s. Quest Financial Services Ltd.) was held by A.O as bogus and resultantly the sale considerations from it was held as undisclosed income u/s 68 of the Act and denied the LTCG claim as well as exemption sought u/s 10(38) of the Act. Further the ld. AR of the assessee pointed out that the Tribunal in ITA No. 1721/Kol/2018 order dated 23.01.2019 had held that the ITA No. 2581/Kol/2018 Rajesh Kumar Rathi, AY 2013-14 sale of shares of M/s. Quest Financial Services Ltd. is not bogus and LTCG claim of assessee is valid. However, we would like to look into the facts of this case.
4. Brief facts of the case as noted by the AO was that the assessee had purchased 300 number of shares M/s. Pranjeevan Distributors Pvt. Ltd. from M/s. Dristi Suppliers Pvt. Ltd. @ 500 per share. Thereafter the AO noted that the M/s. Pranjeevan Distributors Pvt. Ltd. got merged with M/s. Quest Financial Services Ltd. and 300 number of shares of M/s. Pranjeevan Distributors Pvt. Ltd. got converted into 27000 shares of M/s. Quest Financial Services Ltd. @ 10/- per share. Subsequently, the assessee sold 27000 numbers of shares of the scrip of M/s. Quest Financial Services Ltd. on various dates at a value of Rs. 84.75 per share and Rs. 84.70 per share the total sale consideration was Rs. 22,85,788/- (excluding brokerage, STT etc.), through the broker M/s. Sikaria Shares & Stock Broking Pvt. Ltd. After taking into all the aforesaid details, the AO noted that he has received information from DDIT (Inv.) Unit-2(3), Kolkata from which he was of the opinion that the assessee has taken bogus accommodation entry of LTCG on sale of shares of M/s. Quest Financial Services Ltd. Thereafter, a show cause notice was issued and the AO after discussing the general report of the investigation wing and the modus operandi adopted in these cases as well as the learned DR drew our attention to page no 27 of assessment order wherein the AO has taken note of a survey operation conducted by investigation wing, Kolkata in different business premises of Shri Prakash Jajodia. Thereafter a list was prepared of 1543 beneficiaries who all had transacted in shares of M/s. QFSL from which it revealed the name of the assessee and according to the AO and the ld. DR this was direct evidence against the assessee. However the ld. AR pointed out that no document or list which the AO states to have been prepared on the basis of the statement of Shri Prakash Jajodia was never furnished to the assessee, therefore, the list even if prepared was prepared behind the back of the assessee, and so it cannot be used against the assessee and moreover without giving an opportunity to the assessee to cross-examine, Shri Prakash Jajodia, his statement cannot be used against the assessee. It was pointed out by ld. AR that this statement was taken in a survey operation as noted by the A.O so this statement cannot be used against the assessee since it does not have evidentiary value as held by Honble Supreme Court in S. Khader Khan & Sons, 352 ITR 480 (SC). The AO after this discussion has made addition of the entire sale proceeds of the shares as income and rejected the claim of exemption made u/s ITA No. 2581/Kol/2018 Rajesh Kumar Rathi, AY 2013-14 10(38) of the Act. The documents produced by the assessee like contract note, Demat statement, bank statement, amalgamation letter, share certificate of M/s. QFSL brokers confirmation etc. were brushed aside and the addition was made. On appeal, the Ld. CIT(A) confirmed the same. Aggrieved the assessee is before us.
5. We have heard both the parties and also perused the records. According to the ld. AR despite the assessee filing the entire documents to prove that the shares of M/s. QFSL was sold through Calcutta Stock Exchange after dematerializing the scrips has been disallowed only on the basis of a general report prepared by the investigation wing wherein no wrong doing of the assessee or its brokers was pointed out. He also relied on the coordinate bench decision in the case of Ram Niwal Taparia ITA No. 1721/Kol/2018 wherein the SMC Bench of this Tribunal vide order dated January 23rd, 2019 was pleased to allow the assessees claim for LTCG on sale of shares of M/s. QFSL and urged us to allow the claim of the assessee. Per contra, the ld. DR drew our attention to page 27 of the assessment order and urged before us that assessees name was found in the list prepared by Shri Prakash Jajodia during survey operation wherein the name of assessee was found as beneficiary. The ld. DR also drew our attention to para 5.4 of CIT(A), wherein the Ld. CIT(A) has taken note of the role of Mr. Balakrishna Sikaria who was in league with Mr. Prakash Jajodia and a director of the stock broking company to M/s. QFSL which were sold. According to ld. DR these statements shows that assessee was a beneficiary to this clandestine activity of pre- meditated, pre-planned, accommodation entry of bogus LTCG claim. Therefore, he want us to confirm the order of the Ld. CIT(A).
6. After giving our thoughtful consideration, we note that the assessee has produced the following documents to prove the LTCG claim which are as follows:
i. Share Certificate of M/s. Pranjeevan Distributors Pvt. Ltd. placed at page 13 to 17 of the Paper Book.
ii. Letter from M/s. Pranjeevan Distributors Pvt. Ltd. dated 11.01.2011 to the assessee wherein the share certificate have been returned after registration of transfer vide letter dated 11.01.2011 (page 12 of Paper Book).
iii. Copy of bank statement showing the transaction in respect of purchase of shares page no. 19 of Paper Book.
iv. Copy of amalgamation letter dated 17.02.2012 issued by M/s. QFSL dated 17.08.2018 page no. 20 of Paper Book. ITA No. 2581/Kol/2018 Rajesh Kumar Rathi, AY 2013-14
v. Copy of shares certification of M/s. QFSL of 27000 shares dated 20.01.2012 page
21 of Paper Book.
vi. Copies of contract notes dated 20.12.2012 page 22 of Paper Book and dated 18.12.2012 page 23 of Paper Book.
vii. Copy of bank statement showing the transaction in respect of sale of shares page
24 of Paper Book.
viii. Copy of Demat acknowledgement receipt along with Demat statement page 25 to
27 of Paper Book.
ix. Copy of brokers confirmation page 28 of Paper Book.
7. With the aforesaid documents, the assessee claimed that its sale consideration received from sale of shares of M/s. Quest Financial Services Ltd. which scrips were held by the assessee for more than 12 months and wherein STT was paid at the time of sale through Calcutta Stock Exchange should be allowed as exempt u/s 10(38) of the Act was not agreed upon by AO as well as CIT(A) on the theory of human probabilities and terming the same as suspicion transaction. Other than that the assessees name was allegedly found in the list prepared during a survey in Prakash Jajodias business premises and no other material was referred to by A.O to accuse the assessee of any wrong doing on the part of the assessee. We note that the AO has not furnished to the assessee, the purported list prepared after survey at Prakash Jajodias business premises. The AO cannot draw adverse inference against assessee without providing a copy of the material/statement/list to the assessee which A.O intends to use against the assessee and admittedly in this case material [list] which has been prepared behind the back of the assessee cannot be used against the assessee. In any case if there is any incriminating statement made by Shri Prakash Jajodia, the AO was duty bound to allow the assessee to furnish a copy of the same and allow the assessee to cross examine, Mr. Prakash Jajodia. Without doing so, the statement if any made by Shri Prakash Jajodia cannot use against the assessee. Moreover, the survey statement cannot be acted upon without any corroborative material to support the allegations as held by the Honble Supreme Court in S. Khader Khan & Sons (supra). Thus we find that though the A.O/CIT(A) has taken the aid of certain statements/list to allege suspicion transactions, they did not bother to provide a copy of the material/statement/list to the assessee, and thus failed to gave an opportunity to assessee to confront these statements and further the ITA No. 2581/Kol/2018 Rajesh Kumar Rathi, AY 2013-14 AO/CIT(A) failed to provide opportunity to assessee to cross-examine the maker of statements purportedly made against the assessee, without which these statements of third parties cannot be relied upon to draw adverse view against the assessee. Other than certain statements of third persons with the infirmities as pointed out, there was no other material with the A.O/CIT(A) to controvert the evidences furnished by the assessee before the AO/CIT(A). Taking into consideration all the evidences as enumerated in Para-6 [supra] which were adduced by the assessee and taking note that there is no adverse view expressed by AO/CIT(A)about the documents furnished by assessee to substantiate the claim, we are of the opinion that assessee has discharged the onus to prove the genuineness of the transaction which led him to claim LTCG on the sale consideration of shares M/s. QFSL and therefore, relying on the coordinate bench decision in Ram Niwal Taparia (supra) wherein the Tribunal allowed the similar claim of LTCG on the sale consideration of shares M/s. QFSL, we allow the claim of the assessee.
8. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 17th July, 2019 Sd/- Sd/- (Dr. A. L. Saini) (A. T. Varkey) Accountant Member Judicial Member Dated: 17th July, 2019 Biswajit (Sr. PS) Copy of the order forwarded to:
1 Appellant Rajesh Kumar Rathi, 47, Deshbandhu Nagar Road, Hindmotor, Hooghly
712 233.
2 Respondent ITO, Ward 23(3), Hooghly. CIT(A) , Kolkata. CIT , Kolkata DR, Kolkata Benches, Kolkata /True Copy, By order, Assistant Registrar