TaxTMI 
TaxTMI 
2015 (4) TMI 257
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...., not a registered client of the broker, Suresh Kumar Somani, from whom the shares (2500 in number) in a company, Emrald Commercial Ltd. (ECL), were stated to have been purchased on 06.05.2004. The purchase was in cash, so that it was not verifiable, at least in-so-far as to its time, which is of essence. Further, the said transaction was not through the stock exchange, so that the same was not registered with it. In fact, the first trade in the said shares on the Calcutta Stock Exchange, with which the assessee's broker, S.K. Somani, was registered, was only on 03.03.2005, i.e., 10 months after the date of the assessee's purchase. The shares were in a nondescript company, with no financial and/or physical assets of value or reported earnings. The shares, purchased at an average rate of Rs. 21.70 per share in May 2004, went up to as much as from Rs. 465 to Rs. 489 in July, 2005, i.e., just over years' time. Each of these incidents matched with that which could be expected in a case of a transaction in a penny stock, the modus operandi of the transactions in which was also listed by the AO. Accordingly, relying on the decisions by the apex court in the case of Sumati Dayal vs. CIT [....
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....y the apex court in Sumati Dayal (supra), relied upon by the Revenue, wherein the apex court, in declaring the transaction as non-genuine, discarded a host of documentary evidences filed or relied upon by the assessee-appellant. That documentary evidences are not by themselves conclusive, and the truth of the matter or the documents could be determined on the basis of or on the anvil of the surrounding facts and circumstances of the case is well settled, and for which the Revenue relies on the decision in the case of Durga Prasad More (supra). What is relevant, more so where the genuineness of the transaction is in issue, is the truth of the document/s furnished in substantiation, as well as the substance of the transaction and not its form, and which is to be determined on the basis of and on the conspectus of the entirety of the facts and circumstances of the case. The issue before us is whether the documents furnished by the assessee, including averments made by him, or even his broker, satisfy the test of preponderance of human probabilities. In our view if the assessee has reasonably explained the 'intriguing' facts and circumstances as pointed by the AO, and on the strength o....
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....or receivable by a particular broker for a particular period, called the settlement period, which extends to generally one week or a fortnight, and which is to or from the SE, which aggregates the financial impact, i.e., the net result of all the transactions amongst all the brokers for the settlement period, acting as a collecting/disbursing agency. A single amount is thus either payable or receivable by each broker to or from the SE for a particular period, which is again numbered (i.e., as settlement number), and serves to settle the financial obligations to or claims on all the other members of the exchange, i.e., of each broker, for that period. This is of course accompanied by giving and taking delivery of the shares, either in physical form or by issuing or accepting delivery, which in either case is remitted by the member to his clients, for on behalf of the whom he acts, charging a fee called brokerage/commission, for his services. The whole purport of the forgoing note on the trading process is to clarify that the settlement only signifies a settlement between the brokers, carried out through the exchange acting as a nodal agency, so that the purchase transaction/s under ....
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....year, having been dematerialized only on 12.07.2005 (PB pg.10), i.e., days prior to their sale on 22.07.2005. That is, assuming that the shares were actually purchased and delivered to the assessee in May, 2004. Rather, as it would appear to us, the dematerialization of the shares coincides with the spiraling price of the scrip, so that an orchestration of the 'events' is apparent. The shares, even assuming a valid purchase, thus, would be close to the date/s of dematerialization. The assessee states of having reported its purchase (of shares) on 06.05.2004, per his balance-sheet as at 31.03.2005, enclosing it along with his return of income for A.Y.2005-06 (PB pgs. 15, 16). The return of income, however, is filed only on 28.10.2005, which is even subsequent to the sale of shares on 12.07.2005, so that the said reporting of the transaction, which of course does not bear the date of purchase, is to no moment. The assessee relies on a communication from the company dated 17.05.2004 (PB pg. 2) to show that the shares were lodged for transfer with the company immediately upon purchase on 06.05.2004, evidencing, thus, the validity of the purchase date. In this regard, we may firstly cla....
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....evant as the trading on the exchange, which only would make the share a listed share, gain on which is exempt u/s.10(38), could as per the guidelines only be in the D-mat form. No wonder, the trading on the exchange in the said scrip commences only on 03.03.2005. The assessee speaks of having deposited STT, but, then, the question is whether the said payment would make a nongenuine transaction, genuine. 4.4 Further on, why, and on what basis, the assessee, a teacher by profession as well as a partner in a partnership, with no documented or reported experience in trading in shares or investment therein - his balance sheet as on 31.03.2005 reflecting no investment in shares except the 2500 shares in ECL (besides another for a meager amount of Rs. 2100), pick the said shares, i.e., selected the said scrip for investment, and which in fact stood issued only days earlier on 31.03.2004. The company reportedly has no standing either in the industry or in the market (i.e., for the goods or services it presumably deals in), or even in the trading circles, i.e., for shares. That apart, no material to establish its business activity, viz. it's annual reports, or of the companies under the sa....
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....s back dated, i.e., per a back dated contract note, paid for in cash, so that there is no trail; c). the purchases are in the physical form, and dematerialized only subsequently; generally long after the purchase date, being back dated and, further, close to the date of sale; and d). the investee is a penny stock company, with no credentials, and the sale rates artificially hiked, with no real buyers, so that the inference of the sales being bogus, is unmistakable. 4.5 The assessee was show caused on all these parameters, seven in number, listed at para 4.11 (page 7) of the assessment order, to no satisfactory reply by the assessee and, in fact, at any stage. There is in fact no reply to the AO (refer para 4.14 (i) of the assessment order), whose satisfaction the law mandates, so that the purview of the appellate authority is as to whether the AO in being not satisfied had acted reasonably, i.e., given the assessee's explanation, including the materials/evidences furnished in support, or not. The AO, accordingly, treated the impugned transaction as not satisfactorily explained, and added the same u/s.68 of the Act. Reliance was placed by him on the decisions by the tribunal in t....
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.... genuine. The approach is fallacious. Firstly, documentary evidences, in the face of unusual events, as prevailing in the instant case, and without any corroborative or circumstantial evidence/s, cannot be regarded as conclusive. Two, the preponderance of probabilities only denotes the simultaneous existence of several 'facts', each probable in itself, albeit low, so as to cast a serious doubt on the truth of the reported 'facts', which together make up for a bizarre statement, leading to the inference of collusiveness or a device set up to conceal the truth, i.e., in the absence of credible and independent evidences. For a scrip to trade at nearly 50 times its' face value, only a few months after its issue, only implies, if not price manipulation, trail blazing performance and/or great business prospects (with of course proven management record, so as to be able to translate that into reality), while even as much as the company's business or industry or future program (all of which would be in public domain), is conspicuous by its absence, i.e., even years after the transaction/s. The company is, by all counts, a paper company, and its share transactions, managed. We, accordingly,....