TaxTMI 
TaxTMI 
TaxTMI 
2019 (9) TMI 1066
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....- The return of income was processed u/s. 143(1) of the IT Act, 1961.Thereafter, the case has been selected for scrutiny under CASS and accordingly, notice u/s. 143(2) dtd. 31.08.2015 was issued and served on die assessee. Subsequently, notices u/s. 142(1) has been issued to the assessee. On perusal of the return of income filed by the assessee, it is seen that the assessee has claimed the long term capital gain on sale of shares of M/s. Kailash Auto Finance Ltd. of which sale value of 1,65,000 shares amounts to Rs. 64,25,672/-.The abovementioned shares are of a company which has been identified as a penny stock company by the Directorate of Investigation, Department of Income tax the shares of which have been used in a pre arranged manner to provide accommodation Long term Capital Gain/business Loss by manipulating share prices by controlled sate and purchase transactions.lt is seen from the assessee's case records that his return of income does not show any substantial trading activity or investment in shares of listed companies. The prime business of the assessee is trading and export of aluminum caps and he also derives salary income from a related company in the same line ....
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....essee had no reply to this. Statement of Sri Sunil Dokania was recorded by DDIT-Unit 1(2) Kolkata on 12.06.2015. In his statement he has elaborately explained the modus operandi & admitted that M/s. Kailash Auto Finance Ltd. is a penny stock company & that he, alongwith Sri B L Agarwal & Sri Vimal Lohati has provided bogus LTCG to various beneficiaries. In answer to various questions he has clearly admitted his business of entry providing issue of dummy directors, control over layering companies, modus operandi of getting LTCG. It would be worthwhile to mention that one Shri Jyothi Vardhan Sonthalia, one of the beneficiaries in Shri Sunil Dokania's statement dtd. 12.06.2015 has admitted that the LTCG earned by them by selling scrips of M/s. Kailash Auto Finance Ltd is not genuine & they are ready to pay the taxes. He has also admitted that cash was paid to Sri Vimal Lohati & B L Agarwal for arranging the LTCG on sale of M/s. Kailash Auto Finance Ltd. scrip. Thus, the statement of Shri Sunil Dokania has been confirmed by a beneficiary & not merely another entry operator. The assessee contented that the statement had not been provided to them and that cross examination had not b....
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.... CIT(A) in this regard as under :- I have carefully considered the facts of the case, contentions of the appellant, facts and circumstances of the case and the views held by the AO in the assessment order. I have also considered judicial pronouncements relied upon by the appellant and the other judicial pronouncements from Hon'ble Supreme Court and High Courts which have immense relevance in the facts of this case. The findings of investigations made by various Directorates, statements recorded during the assessment proceedings have been taken into account. Following are my findings: - i) Shares Purchase: The appellant purchased 5,00,000 shares of M/s Panchshul Marketing Ltd. (amalgamated with M/s Kailash Auto Ltd.) off market from M/s Needful Vincom Pvt. Ltd., a Kolkata Based company, on 05.10.2012 for 5,00,000/- at Rs. l/- per share from the company. This company was only 2 years old having a profit of Rs. 20,000. Normal return of investment of the appellant for FY 2012-13 was 7.80% for and FY 2013-14 was 18.70%. The fact is that the appellant earned unrealistic huge percentage of return i.e. 3800% on investment, when sensex/gold return were far behind the strong performa....
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....ablished that in his statement including Shri Sunil Dholakia who is director of a few stock holding, categorically accepted that M/s. Kailash Auto Ltd. was a penny stock company whose aim was to provide entry of bogus LTCG by various means. Further, search and seizure operation u/s 132 of the IT Act conducted nationwide in the case of Shri Sunil Dholakia revealed his confession about the modus operandi adopted by him and the related concerns which acted as entry operators and Shri Anil Kedia, in his statement, has stated that M/s Kailash Auto Ltd is the scrip being controlled by them and used for providing accommodation entry of LTCG The modus operandi explained by them clearly states that the penny stock share of the companies like M/s Kailash Auto Ltd and others were used for providing bogus LTCG or STCG. The broker and other directors have also accepted that under the guise of transactions in shares of M/s Kailash Auto Ltd, bogus LTCG entries were provided. Moreover, Mr. Ajay Kedia, in his statement has stated that M/s Kailash Auto Ltd is a shell company managed by Shri Sajjan Kumar Jain. It would be worthwhile to mention that one looking to the facts and circumstances mentioned....
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....eal intension behind the transactions undertaken by the appellant. The Madras High Court held that it is the duty of the Court that every case where Hon'ble Madras High Court to get behind the smoke, ingenuity is expended to avoid taking welfare legislation .screen and discover true state of the affairs. 4.1.1 The facts and circumstances of the case, as recorded above, clearly suggest that the revenue cannot take or accept such make-believe transactions, as presented by the appellant. Truth or genuineness of such transactions must prevail over the smoke screen, created by way of premeditated series of steps taken by the appellant, with, a view to imparting a colour of genuineness and character of commercial nature, to such share transactions. Needless to say that one has to look at the whole transactions and a series of steps taken to accomplish such share transactions, in an integrated manner, with a view to ascertaining the true nature and character of such purchase and sale of shares. 4.1.2 I also find that the instant case is similar to the decision of Hon'ble Bombay High Court in the case of Sanjoy Binial Chand Jain L/H Shantidevi Binialchand Jain vs Pr.CIT-1, Nagp....
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....would jump from Rs. 5/- to Rs. 485/-. The findings recorded by the authorities are pure findings of the facts based on a proper appreciation of the material on record. While recording the said findings, the authorities have followed the tests laid down by the Hon'ble Supreme Court and this Court in several decisions. The findings do not give rise to any substantial question of law. The judgments reported in (2012)20 Taxman.com 529 (Bombay) (CIT Versus Jamnadevi Agrawal), (1957) 31 ITR 294 (Bombay) Puranmal Radhakishan Versus CIT), (1970) 77 ITR 2.53 (SC) (Raja Bahadur Versus CIT) and (2015) 235 Taxman 1 (Bom) (CIT Versus Smt. Dana M. Shah) and relied on by the learned counsel for the assessee are distinguishable on facts and cannot be applied to the case in hand. Since no substantial question of law arises in this appeal, the appeal is dismissed by the Hon'ble Court. As stated above, since the issue involved in the above stated judgment is similar to that raised in the present case, the decision of the jurisdictional High Court is binding on the lower authorities. 4.1.4 Reliance is also placed on the following judicial pronouncements : (a) Hon'ble SC in case of Su....
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....al, have been identified as penny shares by the Investigation Wing of the Department because rates of these shares are not based on business results of the companies but same are fluctuated by insider's trading from negligible value to very high price and vice versa without any reason or basis, solely to accommodate or generate bogus capital gain or loss. In the instant case, all the above features are present in the transaction of shares made by the appellant. As discussed above, M/s Kailash Auto Ltd was caught by the Investigation Wing of the Income Tax Department in providing accommodation entries. In this respect, it is also pertinent to mention that even appellant has failed to adduce any plausible reason for unexpected escalation in the price of this scrip and the unnatural gain occurred to him through these transactions. As noted by the AO, this was an off-market deal. There could be no real value attached to this scrip. In the case of Ratnakar M. Pujari Vs. ITO (ITAT Mumbai) Appeal Number: J.T.A. No.99S/Mum/2012, Date of Judgement/Order : 03.08.2016, Assessment Year2006-07the issue of penny stock has been considered by the Hon'ble ITAT in detail and it was held that....
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....e was also referred to the Special Bench and the ICICI Ltd., was added as an appellant. While discussing the judgment of the Supreme Court, in the case of McDowell and Co. Ltd.(supra), the Tribunal (SB) had, inter alia, noted that the Courts and Tribunals had to expose subterfuges, colourable device, and dubious methods in tax cases, that the lawful dues to the State cannot be withheld through schemes of subterfuge, a colourable device, and a dubious method, that the approach in such cases must be to take the entire arrangement as a whole and see if it makes am economic or commercial sense without attaching weight lo the steps that go to make up the arrangement or the scheme, each of which may be legally valid, that the genuineness of the arrangement has to be viewed not in relation to every step taken to achieve the result but in relation to the final result, that one has to look at the truth of the transaction (and if permissible) by going behind the facade of documentation or the series of steps taken, that the Courts (and Tribunals) always have the freedom to 'go behind' the documents to find out the real intention of the party, that the rule presupposes that in a giv....
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....16, 30.09.2016, 21.10.2016, 27.10.2016 and 13.07.2017 which prohibited many entities, one of which is the appellant from accessing the securities market or dealing in securities. However, vide this order the proceedings of SEB1 continue against M/s Kailash Auto Ltd. In this regard, it must be noted that the irregular proceedings and violations suspected by the SEBI is as per SEBFs guidelines and domain which is at large length different from the area and focus of Income tax operations. While the Departments focus is on tax evasion and the dubious methods employed by tax evaders, one of which is taking accommodation entries through bogus share transactions and claiming the whole earnings as exempt under LTCG, SEBI seeks to regulate the Share markets etc through control and prevention of misuse of the procedures. A revocation of suspension from trading in securities is not the same as a clean chit given by the Department in an assessment proceedings. Hence, the SEBI findings can at best be only indicative for the purposes of the AO. 4.1.10 In view of the discussion made in the preceding paragraphs, I am of the considered opinion that if viewed in the light of observations made by H....
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....fication for such astonishing jump. In identical situation wherein the enormous jump in share price in very little time without any economic or financial justification was confirmed by the ITA, the same was duly confirmed by the honourable jurisdictional High Court in the case of Sanjay B. Jain (supra). The jurisdictional High Court had observed that ITAT has rightly applied the tests provided by the honourable jurisdictional High Court and the honourable Supreme Court in this regard. We find that the ratio from this case law is fully applicable on the facts of this case which undisputedly show that there is an enormous jump in no time of the share of little-known company. This is a classic case of penny stock transaction. Such conversion of unaccounted money through dubious method is not permitted on the touchstone of Hon'ble Supreme Court decision in the case of CIT Vs. Durga Prasad More 82 ITR 540, and Sumati Dayal Vs. CIT (1995 SCC Supl. (2) 453 vide order dated 28.3.1995). Hon'ble Apex Court had occasion to dwell upon such dubious transaction through manipulation of stock prices in the case of Securities and Exchange Board of India Vs. Rakhi Trading Pvt. Ltd. (Civil Ap....