TaxTMI 
TaxTMI 
2019 (1) TMI 1464
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....kata carried out a country wide investigation to unearth the organized racket of generating bogus entries of Long Term Capital Gain which is exempt from tax. The modus operandi adopted by the operators was to make the beneficiary buy some shares of a pre-determined Penny stock company controlled by them. The initial transfer of shares in the name of beneficiary can be an 'off market transaction' or 'online transaction' and thereafter, issue of 'preferential shares' at nominal rates or issue of bogus shares even though there is hardly any profit or business activity in these companies. The beneficiary holds the shares for one year, the statuary period after which Long Term Capital Gain is exempt u/s 10(38) of the Act. The operators raise its price many times, often 500 to 1000 times. This is done through low volume transaction indulged in by the dummies of the operator at a pre-determined price. When the price reaches the desired level the beneficiary who bought the shares at a nominal price, is made to sell to a dumpy paper company of the operator. For this unaccounted cash is provided by the beneficiary which is routed through a few layers of paper companies by the operator and f....
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.... the physical certificates of the shares were acquired nor does he know the key personnel of M/s Trusha Mercantile Pvt. Ltd. from whom he has apparently purchased physical certificate of shares. 6. The Assessing Officer further observed that statement of stock broker Sh. Sanjay Vora was recorded by DDIT, Kolkata on 08.04.2015 wherein he appeared and confirmed that trading in penny stocks including M/s Turbotech Engineering Ltd. for providing bogus Long Term Capital Gain. This is another evidence to show that assessee's claim of Long Term Capital Gain was not genuine but arranged one. He further observed that details of sale of shares of M/s Turbotech Engineering Ltd. was obtained from the data, list of cross parties who purchased shares from him and provided exit entry was provided, which read as follows: PAN of Buyer Name of entity Return Income A.Y AADCN6251G Natural Housing Pvt. Ltd Rs. 8,99,380/- Rs. 1,46,810/- 2012-13 2014-15 AADCN6251G Chiranjit Mahanta Rs.3,31,240/- 2013-14 AAICM3232F M/S Ever Bright Trading Pvt. Ltd AAICM3232F Mould Trading Pvt. Ltd Rs.39,740/- Rs. 2,11,950/- 2013- 14 2014- 15 7. The Assessing Officer observe....
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....s to be established that prejudice has been caused to the appellant by the procedure followed. He relied on the decision of the Hon'ble Orissa High Court in the case of Jankinath Sarangi Vs State of Orissa where it was observed that there is no doubt that if the principles of natural justice are violated and there is a gross case this Court would interfere by striking down the order of dismissal; but there are cases we have to look to what actual prejudice has been caused to a person by the denial to him of a particular right. He further relied on the decision in the case of Union of India & Anr. Vs P. K. Roy & Ors. where it is held that a doctrine of natural justice cannot be imprisoned within the strait-jacket of a rigid formula and its application depends upon nature of jurisdiction conferred on the administrative authority upon the character of rights of persons affected, the scheme and policy of the statute and other relevant circumstances disclosed in a particular case. In view of the above mentioned decisions, the AO concluded that surrounding circumstantial evidences do not satisfy the test of human probabilities as defined by Hon'ble Supreme Court, Hon'ble High Court and T....
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.... book a note from Bombay Stock Exchange dated 01.01.2015 for suspension of trading of shares of M/s Turbotech Engineering Ltd. is placed. It was submitted that shares were sold by the assessee company on 20.05.2013 whereas suspension of trading in shares of the said company was done by the Bombay Stock Exchange on 01.11.2015 which is much after the assessee sold its shares. Therefore, the observation of the AO at page no. 24 in para 12 that the transaction in shares whereby assessee has shown to have earned Long Term Capital Gain is sham to introduce black money is not justified. He further submitted that the CIT(A) at page no. 29 in para 5.1 of his order was not justified in observing that the assessee created a smock screen by purchase and sale of share to convert black money by showing bogus Long Term Capital Gain is not justified. It was also argued that from page no. 21 in para 10, it will be seen that the Assessing Officer has not allowed cross examination of the persons on whose statement he relied on to treat the Long Term Capital Gain as sham and therefore, in view of the decision of Hon'ble Supreme Court in the case of Andaman Timber Industries Vs Commissioner of Excise ....
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....g Term Capital Gain of Rs. 23,51,714/- on sale of 5,000 shares of M/s Turbotech Engineering Ltd. which were purchased by the assessee on 26.11.2011 in an offline transaction from M/s Trusha Mercantile Pvt. Ltd. at the rate of Rs. 2/- per share payment for which was made in cash. The said shares were sold by the assessee at the rate of Rs. 475/- per share on 15.05.2013 aggregating to Rs. 23,51,714/- after making the payment of STT. The Assessing Officer observed that the increase in the price of share was 236 times the purchase price of share. He also observed that investigation was carried out by the Directorate of Investigation, Kolkata countrywide to unearth the organized racket of generating bogus entries of Long Term Capital Gain, which was exempt from tax. After discussing the modus of such racket of generating of bogus entries, the Assessing Officer pointed out that the statement of stock broker Sh. Sanjay Vora was recorded by DDIT, Kolkata on 08.04.2015 where he confirmed that trading in Penny stock included shares of M/s Turbotech Engineering Ltd. for providing Long Term Capital Gain. The Assessing Officer also observed that the trading in shares of M/s Turbotech Engineeri....
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....es, no defect in the said documentary evidences could be brought on record by the revenue. The addition in question was made merely on the basis of suspicion and surmises. No material has been brought on record to show that the assessee was involved in the racket which was unearthed by the Investigation Wing of the department. The revenue could not point out that in anywhere in the statement of Sh. Sanjay Vora and/or Sh. Praveen Kumar Agarwal, the name of the assessee was stated by them. Therefore, simply because some persons were involved in generation of bogus Long Term Capital Gain cannot lead to conclusion that the assessee was also involved in it without cogent material. 22. Further, after making inquiries from the person, from whom, the assessee purchased the shares in question and/or from the share broker through whom the assessee sold the shares, no material could be brought on record by the Assessing Officer to show that the transaction of the assessee was not genuine and the assessee actually paid any amount in cash to any person in consideration of cheque received by him from the authorized share broker. In absence of such a material being brought on record by the reven....