TaxTMI 
TaxTMI 
TaxTMI 
2019 (8) TMI 1429
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....rial on record. 2. That on facts and in the circumstances of the case, the Ld. CIT(A) is not justified in confirming the addition of Rs. 1,76,675/- on account of alleged commission merely on the basis of suspicion and without any material on record. 2. Briefly stated facts of the case are that, the assessee an individual, was engaged in running proprietorship firm under the name of M/s. S.R. Investment having commission income from various mutual funds and sub brokerage for trading in shares. For the year under consideration, the assessee filed return of income on 31/08/2015, declaring total income of Rs. 16,62,370/-. In the return of income, the assessee also claimed long-term capital gain on the sale of shares of "HPC Bioscience Ltd." as exempt from Income-tax under the provisions of section 10(38) of the Income-tax Act, 1961 (in short 'the Act'). The case was selected for scrutiny. In the course of scrutiny, on behalf of the assessee, it was submitted that he purchased 5000 shares in physical form in private placement from the company on 31/12/2012 for Rs. 50,000/- and the company declared bonus in the ratio of 1:1 on 31/03/2013 and the assessee was allotted 5000 bonus shar....
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....further submitted that shares have been sold on Bombay Stock Exchange by way of paying Security Transaction Tax (STT) through broker, namely, Adroit Financial Services Private Limited and thus assessee fulfilled all the documentary requirement of claiming exemption of the long-term capital gain under section 10(38) of the Act on the sale of the shares of the HPC bioscience. He further submitted that assessee is not new to the share trading and he is engaged in the activity of share purchase and sales for last many years. The Ld. counsel relied on the following decisions of the coordinate benches of the Tribunal: 1. Chandder Prakash Vs. Income Tax Officer, ITA No.6880/Del/2017 (AY: 2014-15), dated 12.03.2018; 2. Shri Meghraj Singh Shekhawat Vs. DCIT, ITA No. 443 & 444/JP/2017 (AY: 2013-14 & 2014-15), dated 07.03.2018 3. Shri Deepak Nagar Vs. ACIT, ITA No. 3212/Del/2019 (AY: 2015-16), dated 12.06.2019 4. On the contrary, learned DR relied on the order of the lower authorities and submitted that finding of the lower authorities should be seen in the light of the human probabilities as held in the decision of the Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT 214 ....
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....ecognized stock exchange have been placed before the lower authorities. The assessee has also filed copy of these documents, including bank statement at the time of purchase of the shares in the paper book filed before us. 5.2 Whereas according to the Department, the documents are only in the form of the paper trail, and all the circumstantial evidence establishes that the transaction is routing of unaccounted money through accommodation entry provider and bogus claim of long-term capital gain for claiming benefit of exempted income. The contentions of lower authorities are that transactions are against the human probabilities. 5.3 We find that in the case of Sumati Dayal (supra), the assessee's own income from winning horse races, which according to the Hon'ble Supreme Court, was not genuine when seen from human probabilities as it was improbable for an individual to win so many horse races. The observations of the Hon'ble Supreme Court are reproduced as under: "8. During the year 1970-71, (pertaining to asst. yr. 1971-72) between 6th April, 1970 to 20th March, 1971, the appellant claims to have won in horse races a total amount of Rs. 3,11,831 on 13 occasions out of which ....
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....ot show any drawings on race days or on the immediately preceding days for the purchase of jackpot combination tickets, which entitled sizable amounts varying generally between Rs. 2,000 and Rs. 3,000. The drawings recorded in the books cannot be co-related to the various racing events at which the appellant made the alleged winnings. (iv) While the appellant's capital account was credited with the gross amounts of race winnings, there were no debits either for expenses and purchase of tickets or for losses. (v) In view of the exceptional luck claimed to have been enjoyed by the appellant, her loss of interest in races from 1972 assumes significance. Winnings in racing became liable to income-tax from 1st April, 1972 but one would not give up an activity yielding or likely to yield a large income merely because the income would suffer tax. The position would be different, however, if the claim of winnings in races was false and what were passed off as such winnings really represented the appellant's taxable income from some undisclosed sources. The majority opinion concludes that it would not be unreasonable to infer that the appellant had not really participated i....
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....ord an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the appellant from other sources is not based on evidence. (Emphasis supplied by us)" 5.4 In the assessment order, the Assessing Officer referred to the investigation carried out by the Directorate of Income-tax (Investigation), Kolkatta, to unearth the organized racket of generating bogus entries of long-term capital gain. The Assessing Officer has referred to various modes of acquiring such shares or stocks (termed as 'Penny Stock') including through merger of unlisted companies with listed companies , preferential share allotment , allotment of bonus sh....
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....NAN ENTERPRISES 4. 535217 23-Apr- 14 HPC BIO 44 12000 64.2 770700 AABCL3306N BEGORO BUILDERS PRIVATE LIMITED a 5. 535217 2 8-Apr- 14 HPC BIO 67 12000 63.6 762600 AAFCG2554B GAJGAMINI MERCHANDIS E PRIVATE LIMITED 6. 535217 05- May- 14 HPC BIO 134 9000 58.6 527580 AALCA7880J ANTARYAMI TRADERS PRIVATE LIMITED 7. 535217 07- May- 14 HPC BIO 20 3000 56.3 168915 AAACA7626H ATULI ALAN PORTFOLIO & FINANCE PRIVATE LIMITED 8. 535217 07- May- 14 HPC BIO 21 6000 56.3 337830 AMEPK4853B RAJIV KUMAR 9. 535217 19- May- 14 HPC BIO 136 6000 54.6 327660 AATCS3687H SIDHIMAN VYAPAAR PRIVATE LIMITED 10. 535217 19- May- 14 HPC BIO 137 15000 54.6 819150 AATCS3687H SIDHIMAN VYAPAAR PRIVATE LIMITED 5.4.4 The Ld. Assessing officer issued letter under section 133(6) of the Act to the buyers who purchased shares from the assessee but none responded. According to the Assessing Officer, the entities who purchased shares from the assessee are appearing in the list of the companies provided by the entry operators as engaged in providing accommodation entry. The Assessing Offic....
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....loans and investments. * The whole process of preferential allotment was a prearranged and a managed process so as to allot preferential shares to beneficiaries of bogus LTCG which could later be sold by them for booking accommodation entry of bogus LTCG/STCG in the garb of sale proceeds on sale of shares. * The shares were rigged on the stock exchange by manipulation of stock exchange. * Various share brokers have confirmed the fact that the shares of HPC Bioscience have been used for providing entry of bogus LTCG/STCG. * Various Exit Providers have confirmed that they have purchased the shares of HPC Bioscience to provide entry of bogus LTCG/STCG. 5.4.7 Assessing Officer relied on various judicial decisions to support his contention and after elaborate discussion held the sale proceeds of Rs. 58,89,195/- as unexplained. 5.4.8 In the instant case before us, the assessee is habitual investor in sharemarket but as observed by the Assessing Officer, the assessee has purchased shares of established public and private limited companies in a small amount through stock exchange as compared to purchase of 5,000 shares from offmarket. The Ld. counsel of the assessee was ask....
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.... 5.4.10 The Assessing Officer has referred to statement of various brokers, who admitted to have manipulated the price of "HPC bioscience". These statements support the other evidences on record. 5.5 Before us, the Ld. cousnel of the assessee submitted that SEBI had not delisted the share of HPC bioscience and thus following the decision of the Tribunal in the case of Shri Deepak Nagar (supra), the addition made by the Assessing Officer deserve to be deleted. However, the Ld. DR brought to the knowledge of Bench that SEBI found the unusual price and volume movement in the shares of the company and involvement of the company and its directors and other brokers in price escalation. The relevant part of the SEBI enquiry having refrence no. WTM/RKA/ISD/54/2015 dated 29th June, 2015 in HPC bioscience alongwith other three shares, which was placed on record by the Ld. DR, is reproduced as under: "36. It is matter of common knowledge that in a private placement, wherein allotment is made to select persons or group of persons on one -to- one basis, the issuer and their promoters/ directors have connection on account of acquaintance and familiarity. Such inference of connection become....
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....n. From the aforesaid observations of preliminary inquiry it is inter alia noted that a) All the companies had very small share capital prior to the year 2011. In the year 2011 and 2012 the companies increased their capital base by issuing shares to several entities by way of preferential allotment and later by issuing bonus shares. Certain preferential allottees transferred their shares in the respective company to pre IP transferees. b) Thereafter, all the companies came out with IPOs and the entities belonging to Funding Group funded substantial portion of the IPOs. IPO proceeds of respective IPO were immediately routed back to the entities of the Funding Group by the concerned companies and thus they financed their own IPO and allotted shares without receipt of consideration to the extent they returned the subscription monies to the Funding Group from IPO proceeds. c) The respective companies had actively concealed the deviation in utilisation of IPO proceeds as they deliberately did not make any disclosures as required under clause 46 of SME Listing Agreement. d) Once the shares were listed at the exchange, Trading Group entities started pushing up the price of the....
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....iscovery was kept aside and the market lost its purpose. It is evident from the above analysis that the Trading Group entities provided a hugely profitable exit to the preferential allottees and pre IPO transferees. 42. The analysis of trading during the examination period shows uniform pattern of repeated placing of buy orders at price above LTP in four fundamentally weak newly listed companies to push the price up significantly and provide hugely profitable exit to the preferential allottees and pre-TPO transferees. Since all the aforesaid companies did not have any financial standing in the securities market, in my view, the only way they could have increased their share value is by way of market manipulation. I further note that, Trading Group entities and preferential allottees/pre-IPO transferees traded amongst themselves as substantiated by their matching contribution to net buy and net sell. Further, as mentioned earlier the Trading Group entities did not have the financial capacity to buy shares at such high price and they are found to have been funded by several entities including the entities of the Funding Group. Such trading behaviour belies economic rationale and i....
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....al growth of the value of company's shares naturally excited the suspicions of the Revenue. The company was even directed to be delisted from the stock exchange. Having regard to these circumstances and principally on the ground that the findings are entirely of fact, this court is of the opinion that no substantial question of law arises in the present appeal." 5.9 In the case of Sanjay Bimal Chand Jain L/H of Shantidevi Bimal Chand Jain (supra), the assessee had purchased shares of two penny stocks of Calcutta-based companies, i.e., 8000 shares at the rate of Rs. 5.50 per shares on 08/08/2003 and 4000 shares at the rate of Rs. 4 per share on 05/08/2003. The assessee sold 2200 shares at an exorbitant rate of Rs. 486.55 per shares on 07/06/2005 and 800 shares on 20/06/2005 at the rate of 485.65. The authorities held that the assessee had not tendered cogent evidence to explain as how the shares in an unknown company with worth Rs. 5 had jumped to Rs. 485 in no time. In view of the facts, the Hon'ble Bombay High Court confirmed the addition. 5.10 In the case of M.K. Rajeshwari Vs. ITO (supra), the coordinate bench of the Tribunal has held that while dealing the issue of long-....