TaxTMI 
TaxTMI 
2019 (6) TMI 162
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.... of Rs..20,45,457/-. The return filed by the assessee was processed under section 143(1) of the Act. As per investigation carried out by the Investigation Wing of the Department in certain cases, it has come to light that large scale manipulation has been done in market price of shares of certain companies listed on the Bombay Stock Exchange by a group of persons acting as a syndicate for the purpose of providing entries of tax exempt bogus long term capital gains to large number of persons (beneficiaries) in lieu of unaccounted cash in order to convert black money into white without payment of income tax. On going through the details given by the investigation wing, the Assessing Officer noticed that the name of Harish Kumar HUF with PAN AADHH6741J is also mentioned in the statement list of clients to whom bogus long term capital gain has been facilitated for the sale of shares of scrip Blue Circle of M/s. Blue Circle Services Ltd. for Rs..21,58,650/- for the financial year 2012-13. Accordingly, the return income filed by the assessee was reopened under section 147 of the Act and notice under section 148 of the Act dated 09.09.2016 was issued and served on the assessee. The case w....
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....ssee claimed exemption under section 10(38) of the Act towards long term capital gains of Rs..20,45,457/- and the same is reflected in Schedule E1 of assessee's return of income. With this backdrop, the assessee was requested through notice under section 142(1) of the Act to furnish the following details: 1. It is seen that you have sold shares of M/s. Blue Circle Services Ltd. which is a penny stock company resulting in bogus long term capital gain of Rs..20,45,457/-. 2. Details of shares purchased along with bills, cash receipt from the selling company, copy of share certificate, stock holding list and transaction statement, sales contracts, etc. 3. Name and address of the broker through whom purchased and other details relating to the sale of shares. 4. Profit and loss account and balance sheet, along with schedules, statement of income. 5. Complete set of return of income as filed, VAT returns, Audit Report and sales books along with bills and receipts, etc. 6. Copy of bank accounts and Analysis of bank statements. 7. Name, address, PAN and loan confirmations from the loan creditors and sundry creditors, etc. ....
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....ed that the impugned information is opposed to facts, establishment principles of law and is pure conjecture. Additions cannot be made merely on the basis of presumption and suspicion, however strong it may appear, 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 Assessee submits that all transactions are genuine transactions which were done on bonafide advice and belief. There were no malafide or malicious or malicious intentions in any of the transactions of the Assessee. In the light of the above facts stated, the proofs, submitted to you and explanations provided it is prayed that having sold the shares after holding them for 1 year and 4 months, Long Term Capital Gains from the aforesaid sale be allowed. " 5. The Directorate of Investigation had undertaken the accommodation entry of Long Term Capital Gain (LTCG) investigation. A very large number of beneficiaries who have together taken huge amount bogus entries of L TCG were identified by the investigation wing. As a result of the investigation, 64811 beneficiaries involving bogus LTCG of nearly 38,000 cror....
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....ich STT is paid, is exempt from taxation point of view. This means that if shares of any company are held for more than a period of 12 months and are then sold on any recognized Stock Exchange (on which STT is paid on the transactions), then the capital gain arising out of this transaction is exempt under section 10(38) of the Act. Since the minimum holding period is 12 months for becoming eligible for the definition of LTCG, the beneficiary with the help of the broker manipulates the date of purchase of shares. For such backdated purchases, the broker also issues backdated contract notes, bills, etc. to the assessee so as to give genuine colour to the otherwise bogus transactions. The back dating of purchases is done by the brokers by showing the purchases as off market deal. The crucial problem arises as to how to show payments for such back-dated purchase. This is done in either of the following two methods. The entire purchase price is paid in cash or, which is more subtle method. It may be mentioned that sometimes purchase price can also be paid by cheque, and yet the sale transactions of shares, resulting into LTCG, may be bogus. The reason being the rates of penny scrips are....
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....argin/EPS/Bonus/Dividend etc. From the financial of M/s. Blue Circle Services Ltd, the Assessing Officer noticed that there is a pre-arranged trade pattern and unrealistic boost in the shares figures. The share price increased multi fold even without any semblance of any positive factor, which clearly shows that there was artificial rigging by circular trading of shares forming cartel as could be evidenced from the trading details verified by SEBI on BSE Exchange. 11. During the course of investigation, these 'Operators' and Directors of the 'Paper Companies' were questioned and statements were recorded on oath. In these statements, they have submitted that these companies were plotted with the intention of providing bogus LTCG to required parties on a 'commission'. They have also submitted that parties were approached and the money (in cash) received from such parties were routed through various bank accounts managed by these operators and paper-companies. Finally the same was paid back to the parties through banking channels, through Stock Exchange, as the price paid to the shares purchased from these parties through Stock Exchange (i.e., in the guise o....
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.... CIT(A) observed that the shares of the assessee were purchased through off market and not through stock exchange. M/s. Blue Circle Services did not pay dividend or did not issue bonus shares during the period of holding of these shares by the assessee, corresponding to the increase in the price of the share of M/s. Blue Circle Services. During this period, there has been no corporate announcement by M/s. Blue Circle Services which suggests that the company is undertaking any substantial development activity and moreover, the assessee has not disputed the above facts. By following the decision of the Tribunal in the case of ITO v. Shamim M. Bharwani [2016] 69 taxmann.com 65 (Mumbai - Trib.) and by following the decision of the Hon'ble High Court of Bombay in the case of Sanjay Bimalchand Jain v. PCIT in [2018] 89 taxmann.com 196 (Bombay), the ld. CIT(A) confirmed the action of the Assessing Officer to treat the entire sale proceeds of the above mentioned penny stock as income under section 68 of the Act. 16. In this case, as per assessee, 2700 shares at Rs..39.20 of M/s. Blue Circle Services Limited were purchased from M/s. Badri Prasad & Sons on 20.04.2011 through off market, t....
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.... with mutual understanding by placing simultaneous synchronized orders. Successful hitting of order placed for large volume of shares itself indicates that buyers are in collusion with the assessee. Otherwise placing of orders placed is not possible particularly when trade price is static for various trades executed. It may be noted that all the trades have been executed at a fraction of second. All these trading patterns shows that your Long Term Capital Gain is arranged one. The assessee sold 27000 shares on 14.08.2012 , i.e., on one single day claiming long term capital gains of Rs..20,45,456/- and these shares were purchased by the company which is also a jamakarachi company and exit providers. 18. From the details submitted by the assessee, his broker M/s. Sugal & Damani Share Brokers Ltd and the ITS details in the AST module, the Department came to know that all the 27000 shares of M/s. Blue Circle Services Ltd. pertaining to the assessee were purchased by M/s. Kingfisher Properties Pvt Ltd, 95A, CR Avenue, 1st Floor, Kolkata-700073 with PAN AAECK3394G through M/s. Gateway Financial Services Ltd. 19. In their sworn statement before the investigation wing, Shri Jagdis....
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.... entries. Accommodation entry is a financial transaction between two parties where one party enters the financial transaction in its books for accommodating the other party. Here one party provides book entry of influx of funds to the other party (beneficiary) in a manner that this other party doesn't have to pay any tax on such influx of funds. For this, such influx of funds in the books of beneficiary is done in the form of either some liability, which is never repaid by the beneficiary or in the form of some tax exempt income. These transactions are accommodated in lieu of cash of equal amount taken from the beneficiary. The entry operator earns some commission charged over and above this amount of accommodation entry, generally at certain fixed percentage for giving such accommodation entry. The purpose of such transactions is to accommodate one party (the beneficiary) by influx of money in its books through the other party, who take cash in unaccounted manner from such beneficiary. An entry operator is a person who is in the business of giving such accommodation entries in lieu of cash after charging certain percentage of commission in cash. Jama kharchi ....
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....hrough stock exchange and brokers and some nominal commission is charged in cash on the net prearranged bogus capital gain accruing to the beneficiary. This pre-arranged bogus capital gain income so earned through rigging of shares is claimed as exempt in the books of beneficiary. Sir, I would like to apprise you that accommodation of LT and Short Term Gain/Loss might appear to be genuine prima facie as the payments while investing in shares or selling of the shares is in cheques through Stock Exchange brokers. But as I have told you that these LT and ST entries are minutely managed and supervised, controlled by the entry operators as explained earlier for earning commission income and thus are actually are in the nature of accommodation entries. When the shares are finally sold by the beneficiary, the cheque payments received by him are in fact for the equivalent amount of cash paid by him to the entry provider in unaccounted manner. Q 9 Kindly state names of the companies, by purchasing the shares of which in the above manner, you provided accommodation entries of bogus LTCG to different beneficiaries. Ans. Sir. I don't remember all such companies a....
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....ve provided DIN of all key family members. On verification of DIN of such persons, it is found that they are one of the directors in many companies. You are already one of the directors in so many companies and your family members are also directors in different companies. The number of companies against each of your family members are detailed below: Name of the individual DIN No. of companies under directorship Anil Kumar Purohit 00082942 49 Chandrakala Purohit 01617901 10 Pawan Kumar Purohit 00083020 29 Jagadish Prasad Purohit 00083125 32 Sushil Kumar Purohit 00073684 41 Kailash Prasad Purohit 01319534 22 Rajendra Kumar Kothari 00083059 46 Please explain the reason behind floating so many companies by you and your family members. Ans: Sir, I again admit that all companies were incorporated for providing accommodation entry to ultimate beneficiaries. 20. Further, on verification of the website to see the directors M/s. Blue Circle Services Ltd., the Assessing Officer noted that Shri Anil Kumar Purohit is one of the directors. Shri Anil Kumar Purohit, as can be seen from the statement of S....
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....cuted on the same terminal and cross deals among themselves. In the process, they have not only enriched themselves but have also aided and abetted the process of legitimising the gains."(source Business Standard dated 06.02.2013). (iii) The purchase and sale of the shares is not made by the public but by the bogus entities managed and controlled by the promoter of the penny stock company or the operator which are referred to as "Exit Providers". In order to make it look genuine, though the shares of Blue Circle scrip were sold by the assessee through M/s. Sugal Damani Share Brokers Ltd, in reality as seen from the trade pattern in point 18.2, all the 27000 shares were purchased by company, i.e., M/s. Kingfisher Properties Pvt. Ltd. on single day through the exit provider M/s. Gateway Financial Services Ltd. (iii.a) M/s. Gateway Financial Services Ltd is among the 22 brokers, which was involved in 84 BSE-listed penny stocks and through 5000 listed and unlisted firms. It is among top 5 brokers along with Calcutta Stock Exchange Ltd, SMC Global Securities Ltd, Anand Rathi Share and Stock Brokers Ltd and Comfort Securities Ltd. which helped in trades worth Rs. 1,563 ....
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....clearly explained how the assessee has been provided accommodation entry in lieu of cash through a Entry Provider and the same shares, though sold online (i) by way of demating the shares, (ii) through registered stock broker and (iii) receiving the payment for sale of shares through bank transaction, these shares have actually been sold by pre-arranging trading in shares of Blue Circle Services Ltd and has been purchased by one Jamakarachi company, M/s. Kingfisher Properties Pvt. Ltd through the exit provider M/s. Gateway Financial Services Ltd. (iv.b) The role of each of these players in connection with the assessee beneficiary has been explained details in the order. 23. In the assessment order, the Assessing Officer explained the entire working of the flow of conversion of black money into white using long term capital gains tax exemption and penny stock from the assessee in a circular pattern and back to him. Moreover, out of the list of beneficiaries submitted by the brokers/entry providers received from share brokers/directors/dummy directors of bogus companies before the investigation wing substantiates that the assessee is one of the beneficiary. 24. The cas....