TaxTMI 
TaxTMI 
2019 (4) TMI 1294
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....respect of sale proceeds of shares of Kailash Auto Finance Limited (KAFL) treating the same as income from undisclosed sources after rejecting the assessee's claim of Long Term Capital Gains (LTCG) on sale of those shares. 2. Whether on the facts and circumstances of the case, the ld CITA was justified in upholding the charging of interest u/s 234A, 234B and 234C of the Act. 3. The brief facts of this issue are that the assessee claimed long term capital gains from transactions in shares of Kailash Auto Finance Limited (KAFL). The assessee on 1.3.2012 purchased 50000 shares of the face value of Rs. 1 each in Careful Projects Advisory Limited (CPAL) through off market from M/s. Needful Vincom Pvt Ltd for a consideration of Rs. 50,000/-. The payment for the same was made by account payee cheque no. 231563 drawn on Vijaya Bank, N S Road Brnach Kolkata on 10.3.2012. This investment in shares to the extent of Rs. 50,000/- was duly disclosed in the balance sheet of the assessee as at 31.3.2013 together with various other investment in shares of listed and unlisted scrips. This company (ie CPAL) was later amalgamated with KAFL by virtue of an order of Hon'ble Allahabad High Court an....
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....tified and worked upon. After that, number of search and surveys were conducted in the office premises of more than 32 share broking entities which accepted that they were actively involved in the bogus LTCG / STCL scam. Surveys were also conducted in the office premises of many accommodation entry providers and their statements recorded. All have accepted their role in the scam. Beneficiaries of more than 38000 crore have been identified and segregated DGIT(Investigation) wise. Total number of more than 60000 PANs of the beneficiaries have been identified which have been reported to the assessment wing through the DGITs. Out of 84 penny stock companies which have been used for generating bogus LTCG, the above named penny stock , i.e M/s Kailash Auto Finance Limited is one of the same. Further, the scrip has also been banned by SEBI. The basic trade pattern of all the 84 scrips are same. A close view of all such data suggested that there is a common pattern in the trading of such scrips and the pattern is that they represent a bell shape in their trading. It means first, their prices start from low range, then it rises rapidly, stays there for a while and then it decreases more ....
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....ase in price of shares of KAFL from the date of purchase till the date of sale of the shares by the assessee. We find that the holding period of shares , purchase price, documentation for sale of shares are not at all disputed by the revenue. We also find that the moment the notice u/s 133(6) of the Act sent to Needful Vincom Private Limited was returned with a postal remark - 'Addressee moved / not known', the ld AO sought to verify the transactions with the broker i.e M/s SKP Securities Ltd, who had duly confirmed the share transactions by way of a written reply dated 29.11.2016. This fact is also duly mentioned by the ld AO in page 2 of his assessment order. Reply was also sought from Bombay Stock Exchange (BSE) by the ld AO which remained uncomplied by BSE. We hold that the assessee cannot be faulted with in this regard for non-compliance on the part of BSE to the notice issued by the ld AO, as admittedly the same was done behind the back of the assessee. 5.1. In the course of hearing of the case, the ld AR referred to various documentary evidences furnished in the Paper Book in support of the claim of the assessee to prove the genuineness of the transactions relating to LTC....
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.... the ld AO are based on presumptions and suspicion alone and are perverse. In the course of hearing of the case, the ld AR referred to various documentary evidences furnished in the Paper Book in support of the claim of the assessee to prove the genuineness of the transactions relating to LTCG on sale of shares of KAFL. The documentary evidences included the following: (i) Purchase Bill for purchase of 2,40,000 shares of CPAL from M/s Brijdhara Mercantile Pvt. Ltd. on 20.12.2011 falling in the previous year relevant to the Assessment Year 2012-13. (ii) Bank Statement showing payment of the purchase consideration of shares of CPAL to Brijdhara. (iii) Balance Sheet of the Assessee for the FY 2011-12 to 2012-13 to show that the investment in the shares of CPAL was duly disclosed. (iv) Demat Statement with United Bank of India, a Depository Participant (DP) showing the aforesaid shares of CPAL in the account of the assessee. (v) The letter dated 8th June, 2013 of KAFL informing the assessee that the CPAL was merged with KAFL by virtue of Court order and the assessee was allotted shares of KAFL as against the shares of CPAL in the ratio of 1:1. (vi) The Demat statement....
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....ssee and/or his broker namely Ashika Stock Broking Ltd. nowhere appear in the said lists annexed to SEBI's interim order dated 29th March, 2016. On a specific query to the ld DR appearing for Revenue, he fairly agreed that the assessee's name and/or the name of Ashika Stock Broking Ltd. do not appear in the list annexed to various orders of the SEBI including final order dated 15th June, 2016 referred to in the impugned assessment order. 5.3. The ld AR also brought our attention to the enquiry report made by Pr. Director of Income Tax (Investigation), Kolkata in the matter of transactions of KAFL. The ld AO relied on the statements of different persons including Sri Sunil Kumar Dokania recorded by the Investigation Wing of Kolkata who explained the modus operandi of providing accommodation entries of LTCG and Short Term Capital Loss (STCL). These persons also provided the lists of beneficiaries to whom they provided accommodation entries. The ld AR has shown that the list of beneficiaries provided by these persons also did not contain the name of the assessee and/or the name of the share broker viz. Ashika Stock Broking Ltd. 5.4. The ld AR, on the other hand, relied on the....
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.... various bogus scripts to provide LTCG as the same is exempt from the tax. Kailash Auto is such scrips which is engaged in providing accommodation entry in form of LTCG / STCL to various beneficiaries. Beneficiaries are allotted the shares at nominal price and the price of the shares rise artificially by using loopholes of stock exchange mechanism and the shares were sold at desired level to various bogus entities. These bogus entities are paid by the unaccounted money of the beneficiaries in cash. As a result unaccounted income ploughed back in the file of individuals and HUFs in the form of bogus LTCG without paying income tax on it. In process the bogus Short Term Capital Loss is also booked by the entities who wants to reduce their taxability. 5.8. The ld AR submitted that there is no allegation by Shri Sunil Dokania and/or the ld AO that the assessee ever approached Shri Dokania and/or any other person whatsoever, to approach for such bogus LTCG. Therefore the ld AO has wrongly drawn inference against the assessee from the statement of Shri Dokania. The ld. AR also referred to the statements of various other persons annexed with the Assessment order to show that none of ....
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....l - [2012] 20 taxmann.com 529 (Bom HC) 5.9. The ld AR submitted that all the observations, conclusions and findings of the lower authorities are based on suspicion, surmises and hearsay. It is a trite law that the suspicion howsoever strong cannot partake the character of legal evidence. Reference was made to the judgement of Hon'ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC). The ld AR submitted that the entire case of the revenue hinges upon the presumption that the assessee has ploughed back his own unaccounted money in the form of bogus LTCG. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that the assessee had brought back his unaccounted income in the form of LTCG. The ld AR referred to the judgement of Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. vs. ACIT [2017] 164 ITD 1 (Mumbai-Trib.)(SB) The Tribunal observed as under: 46. ......... Ultimately the entire case of Revenue hinges upon the presumption that assessee is bound to have some large share in so called secret money in the form of premium and its circula....
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....s were all through account payee cheques and reflected in the books of accounts. The purchase of shares and the sale of shares were also reflected in Demat account statements. The sale of shares suffered STT, brokerage etc. In the facts and circumstances of the case, it cannot be held that the transactions were bogus. The ld AR referred to the following judgements of Jurisdictional High Court:- (i) M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012] (Cal HC) - In this case the ld AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed. The Hon'ble High Court held that the opinion of the ld AO that the assessee generated a sizeable amount of loss out of prearranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the ld AO but he miserably failed to substantiate that. The High Court held that the transactions were at the prevailing price and therefore the suspicion of the ld AO was misplaced and not substantiated. (ii) CIT V. Lakshmangarh Estate & Trading Co. Limited [2013] 40 taxmann.com 439 (Cal) - In this case the....
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....ed the decision of the Tribunal wherein it was found that the chain of transactions entered into by the assessee have been proved, accounted for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. On these facts, the appeal of the revenue was summarily dismissed by High Court. 5.12. The ld AR submitted before us that where the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. In support of the aforesaid submissions, the ld AR, in addition to the aforesaid judgements, has referred to and relied on the following cases:- (i) Baijnath Agarwal vs. ACIT - [2010] 40 SOT 475 (Agra (TM) (ii) ITO vs. Bibi Rani Bansal - [2011] 44 SOT 500 (Agra) (TM) (iii) ITO vs. Ashok Kumar Bansal - ITA No. 28....
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....Agr/2007 (Agra ITAT) 5.14. The ld AR further submitted that the ld AO was not justified in taking an adverse view against the assessee on the ground of abnormal price rise of the shares and price rigging. It was submitted that there is no allegation in orders of SEBI and/or the enquiry report of the Investigation Wing to the effect that the assessee and/or his broker was a party to the price rigging or manipulation of price in BSE. The ld AR referred to the following judgements in support of this contention wherein under similar facts of the case it was held that the ld AO was not justified in refusing to allow the benefit under section 10(38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :- (i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (iii) Lalit Mohan Jalan (HUF) vs. ACIT - ITA No. 693/Kol/2009 (Kol ITAT) (iv) Mukesh R. Marolia vs. Addl. CIT - [2006] 6 SOT 247 (Mum) 5.15. The ld AR also submitted that the ld AO was not justified in disallowing the assessee's claim of exemption under section 10....
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.... the ld AO was not justified in concluding that the assessee's transactions relating to LTCG on sale of shares of KAFL were bogus. The ld CIT(A) was also not justified in dismissing the appeal without properly appreciating the facts of the case and the evidences produced by the assessee in support of his case. Various judgements referred to by the assessee in support of assessee's claim of exemption of LTCG on sale of shares of KAFL was not distinguished on facts and/or on law by the ld CIT(A) . On the other hand, he agreed with the ld AO, who relying on surrounding circumstances held that the assessee's transactions of LTCG were bogus ignoring all legal evidences furnished by the assessee in support of the genuineness of the transactions resulting in LTCG. The ld AR prayed that the order of the ld CIT(A) be set aside and the exemption under section 10(38) of the Act be allowed to the assessee. 6. We have heard both the rival submissions and perused the materials available on record. We find lot of force in the arguments of the ld AR that the ld AO was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumstances, human conduct, and pre....
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....ent. We find that the assessee and / or the broker Ashita Stock Broking Ltd was not the primary allottees of shares either in CPAL or in KAFL as could be evident from the SEBI's order. We find that the SEBI order did mention the list of 246 beneficiaries of persons trading in shares of KAFL, wherein, the assessee and / or Ashita Stock Broking Ltd's name is not reflected at all. Hence the allegation that the assessee and / or Ashita Stock Broking Ltd getting involved in price rigging of KAFL shares fails. We also find that even the SEBI's order heavily relied upon by the ld AO clearly states that the company KAFL had performed very well during the year under appeal and the P/E ratio had increased substantially. Thus we hold that the said orders of SEBI is no evidence against the assessee, much less to speak of direct evidence. The enquiry by the Investigation Wing and/or the statements of several persons recorded by the Investigation Wing in connection with the alleged bogus transactions in the shares of KAFL also did not implicate the assessee and/or his broker. It is also a matter of record that the assessee furnished all evidences in the form of bills, contract notes, demat state....