TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 162
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....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 was reopened with the reason that the income o....
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....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. 8. Name and address of sundry debtors. 9. Rate of interest received and paid 10. Any other details.....
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....esumption 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 crores have been identified. 6. The Assessing Officer observed that the information which leads to the conclusion that the transaction of purchase/sale of shares is an accommodate....
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.... 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 artificially hiked by the vested interests, said there are no real buyers for such scrips when rates are quoted very high in the market. Thus, even if the purchases are genuine in a given case, t....
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....he 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 of the sale consideration received by the parties for the shares sold through Stock Exchange). (It is also to be noted that the shares sold by the parties were purchased by none other than these operators ....
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.... 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, then the 27000 equity shares of Blue Circle (due to split in 1:10 ratio) is transferred into assessee's account only on 10.08.2012 by M/s. Badri Prasad & Sons. There is no transfer certificate from M/s. Blue Cir....
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....ades 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 Jagdish Purohit, Shri Bikash Sureka, Shri Devesh Upadhaya have clearly stated on oath that the directors of M/s. Blue Circle Services Ltd. were dummy directors and that they have provided accommodation entries of bogus LTCG to different beneficiaries of M/s. Blue Circle Services Ltd. by prearranging trading in shar....
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....lux 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 companies refer to the companies under the control of accommodation entry operator, and from the books of these companies, funds are transferred, in one form or the other, to the books of the beneficiary. There is no actual business activity in these companies and funds (to be transferred to beneficiary) in the books and bank accounts of these companies are brought by a complex rot....
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....ne 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 at present. However, I have provided such accommodation entries of bogus LTCG by prearranged trading in shares of M/s. Blue Circle Services Limited, M/s. Rander Corporation Ltd. and M/s. Radford Global Limited. Q 10 Kindly state as to on whose instructions/intimations, you provided accommodation entries of bogus LTCG by prearranged trading in shares of the above companies. Ans: As I stated earlier, this ac....
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....n 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 Shri Jagdish Prasad Purohit, is a relative of Shri Jagdish Prasad Purohit representing him in arranging accommodation entries of beneficiaries by providing bogus LTCG. 21. The Investigation Wing, Kolkata, identified the 61 BSE listed penny stocks which have been used for generating bogus LTCG. One of which is M/s. Blue Circle Services Ltd with scrip name of BLUE CIRCLE scrip code 508939 and total trade value was Rs..1387,65,82,309. Beneficiaries of more than Rs..38 thousand crores have been identified by the Investigation Wing, Kolkata and To....
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....ugal 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 crores, which were bogus to generate fake LTCG or Short term capital Losses. M/s. Gateway Financial Services Ltd. has been penalised by SEBI time and again during the financial years 2013-14, 2015-16. (iii. b) M/s. Kingfisher Properties Pvt. Ltd, the purchaser of the scrip Blue Circle from the assessee, is a Jamakarachi company for providing accommodation entries. In a SEBI Circular No. MSEI/ID/4462/2016 August 29, 2016, SEBI order in the matter of Radford Global Limited, SEBI had confirmed that M/s. Kingfisher Properties Pvt. Ltd is an exit provider and is a suspected ....
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....ment 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 case law relied on by the assessee in the grounds of appeal in the consolidated order dated 06.04.2018 in the cases of Vimalchand Gulabchand v. ITO in I.T.A. No. 2003/Chny/2017; Praveen Chand v. ITO in I.T.A. No. 1721/Chny/2017; Mahendra Kumar Bhandi v. ITO in I.T.A. No. 2748/Chny/2017 all relating to assessment year 2014-15 has no application to the facts of the present case, because, in the present case, the assessee was given reasonable opportunity to look into the details received from the investigation wing. Moreover, in a SEBI Circular No. MSEI/ID/4462/2016 August 29, 2016, SEBI order in the matter of Radford Global Limited, SEBI had confirmed that M/s. Kingfisher Properties Pvt. Ltd. is an exist p....