TaxTMI 
TaxTMI 
2020 (2) TMI 1030
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....ny stock. This conclusion is absolutely perverse in as much as on account of Short Term Capital Loss the capital of the appellant stands depleted/ reduced. The inference by the Income-tax Officer as well as CIT (A) is perverse and against the common accounting principles. 3. BECAUSE the Ld. CIT (A) has also erred both in law and on facts in making an addition of Rs. 1,22,76,352/- being capital loss incurred by the appellant on sale of shares listed on recognized stock exchange as unexplained credit under Section 68 of the Act read with Section 115BBE of the Act. 4. BECAUSE by sustaining the aforesaid addition and denying the set off of loss under Section 70, the Ld. CIT (A) has failed to appreciate that appellant was owner of equity shares of listed companies which the appellant held for number of months and the same were sold on recognized stock exchange after payment of Securities Transaction Tax (STT), resulting into a Short Term Capital Loss and therefore, the Short Term Capital Loss incurred by the appellant on transfer of Short Term Capital Asset was to be set off against the Long Term Capital Gain accruing to the appellant under Section 70 of the Act. ....
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....g total income of Rs. 3,12,59,350/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short 'the Act') was issued and served. The assessment under section 143(3) of the Act was completed on 27/12/2017. In the return of income filed, the assessee declared income under the "salary", "Income from house property", "income from business or profession", "income from capital gain" and "income from other sources". The assessee declared long-term capital gain of Rs. 4,15,67,925/- on sale of unlisted shares. Against the long-term capital gain, the assessee set off "short term capital loss" on sale of shares of four companies, out of which short-term capital loss of Rs. 1,22,76,352/- on sale of shares of following companies, was not allowed by the Assessing Officer holding the same as part of the accommodation entry business of providing "bogus long-term/short-term capital loss through trading of shares of penny stocks: Name of the Company Date of purchase Purchase Cost Date of Sale Sales Price Short Capital Gain/Loss Cressanda Solutions Ltd. 05.05.2014 3020080 March, 15 551600 (-)2468480/- Kailas....
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....h price and vice versa without any reason or basis to accommodate or generate bogus capital gain or loss. (c) The assessee has purchased shares of these companies at around Rs. 38/- to Rs. 55/- per share. Thereafter, by rigging, within a short span of time in 12 months, was sold at nearly Rs. 4.20 to Rs. 9/- per share. The dip in prices of these scrip are not supported by the fundamentals of the said companies. (d) Assessee has purchased shares of such companies/scrip which is devoid of any basic fundamentals. One of the companies i.e M/s Kailash Auto Finance Ltd., was suspended by the BSE for trading previously as well as afterward. A regular and genuine investor would hardly know that such a company even listed on BSE. From the Audited financials filed by the companies with BSE, it is a matter of fact that these Listed companies does not have any significant/real business as seen from its last many P&L accounts and do not have any significant fixed assets or plant and machinery (most of assets are either investment or loans.) (e) The price movement of Scrip is unrealistic and typically Bell shaped, that means huge rise over a short span, staying at peak....
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....e inputs form Income Tax Department as well as from its own surveillance system and that of the stock exchanges has taken appropriate action in case of the suspect scripts. These actions include passing interim direction suspending the trade reducing the price band etc. in a large number of penny stocks, the price band had been reduced to the lowest band of 2 percent. Interim orders were also passed by SEBI giving a finding that price was rigged. (l) Statement of Sh Sunil Dokania S/o Sh Gajadhar Dokania was recorded on 12.06.2015 on oath by the DDIT (Inv), Unit-1(2), Kolkata wherein Sh Sunil Dokania admitted that he managed all affairs of M/s Kailash Auto Finance Ltd and the directors on roll were dummy directors for the name shake only. He further admitted that in order to provide bogus LTCG in the scrips of M/s Kailash Auto Finance Ltd the amalgamation method was followed. He has explained the modus operand! adopted in arranging bogus LTCG/STCL to the beneficiaries, which includes the assessee as a beneficiary. The relevant portion of his statement is reproduced below." 2.2 The Assessing Officer has also reproduced the statement of Sh. Sunil Dokania, Kolkata given bef....
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....ears, we direct our clients to sell the shares of KALFIN on abnormally higher rate. At this stage we get equal amount of cash from the beneficiaries and get it deposited to various undisclosed proprietorship concerns and get it layered through various accounts and finally transfer it to bogus/shell companies who purchases shares from our beneficiaries. Q.17 Please furnish details of major clients who have taken accommodation entry in form of LTCG through scrips i.e of Kailash Auto controlled and managed by you. Ans. Sir. I have already stated that 1 um engaged in providing accommodation entry and scripts of Kailash Auto is used for providing bogus LTCG to various clients. Sir, I will submit the list of major clients within 7 days. Q.18 Please furnish details of other entry operators who arranged beneficiaries, bogus buyer for transactions in scrips Kailash Auto in order to execution of bogus LTCG. Ans. Sir, scripts Of Kailash Auto is controlled and managed by me. Apart from me, Mr. Vimal Lohati and Mr. B.L. Agarwal have created various paper companies by placing dummy directors for purchasing of scrips from various beneficiaries in order to provi....
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....perators. He has provided list of beneficiaries as well as operators and modus operandi. 2.7 The assessee failed to justify before the Assessing Officer for making investment in the shares of above referred companies without any financial rationale. 2.8 The Assessing Officer on the basis of the material available on record, surrounding circumstances, human conduct and preponderance of the probabilities, held the short term capital loss claimed by the assessee as not genuinely market derived loss but a pre-arranged transaction rooted in account of the assessee in lieu of unaccounted cash. The Assessing Officer treated the short-term capital loss of Rs. 1,22,76,352/- as unexplained under section 68 of the Act. The Assessing Officer also made addition for commission income charged by the accommodation entry providers @ 2.5% of the amount of Rs. 1,22,76,352/- in terms of section 69C of Act. 2.9 On further appeal, the ld. CIT(A) rejected the contention of the assessee to provide cross-examination of the accommodation entry providers on the ground that the statement was not the sole basis for making addition by the Assessing Officer and he has made the addition on the strength o....
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....zed stock exchange after payment of Security Transaction Tax (STT) and payment through banking channels. He submitted that the addition has been made without recording any specific documents/material and without allowing the assessee to confront material/cross examine of the parties on whose statement the Assessing Officer has relied upon. He submitted that broker of the assessee has neither denied nor disputed genuineness of the transaction and thus the addition sustained by the ld. CIT(A) on mere speculation, assumptions and allegations is not in accordance with law. 3.1 The Ld. counsel further submitted that addition under section 68 is completely perverse and in it logical manner without applying the mind inasmuch as the cash credit was introduced by the assessee and on the contrary, the capital of the assessee has got depleted due to shorten capital loss. According to the assessee, it was a case of "cash debit" instead of "cash credit". 4. The Ld. DR, on the other hand, relied on the order of the lower authorities and submitted that the assessee has failed to justify the financial rationale and other factors behind investment in companies not having worth proportionate t....
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....m/2010) 13. Hon'ble ITAT Mumbai in the case of ITO Vs. Shamim M Bharwani (2016) (69 Taxmann.com 65) 14. Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More [(1972) 82 ITR 540] 15. McDowell & Co. Ltd. [(1985) 154 ITR (SC)] 4.1 In the rejoinder, the Ld. counsel of the assessee submitted that the trading in the stock of Cressanda Solutions Ltd. were stopped with effect from 20/02/2013 for a short period on account of reduction and consolidation of the capital as evident from the notice dated 14/02/2013 and 12/03/2013 available on the BSE portal and the scrip was again listed with effect from 14/03/2013. He submitted that the stock of Cresanda Solutions Ltd. are still listed on BSE and trading activities are still continuing. He submitted that the documents as evidence filed by the assessee in the form of bank statement, brokers ledger, contact notes, de-mat account statement, transaction statement etc. duly confirmed that transaction was carried out on recognizing stock exchange. He further submitted that in the case of Suman Poddar (supra) the shares of Cresenda Solutions Ltd. were purchased at price of Rs. 10 per share and were sold at the pr....
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.... and the addition was confirmed u/s 68 of the Act. Whereas, the present case relates to STCL and in a case of Cash Debit. (b) Section 68 is a deeming provision and is only applicable where there is cash credit in books. In the present case there is CASH DEBIT. Thus in the catina of legal cases the Hon'ble SC has held that burden of proof lies upon the I.T. Department if a receipt is sought to be taxed as income. Since the present case is not covered u/s 68 and the transactions are in fact in the nature of CASH DEBIT, it is amply clear that the department has miserably failed to discharge the burden. (c) Since section 68 is not applicable the onus is on the IT Department that the loss incurred by the assessee is not genuine. The IT Department has not led any specific, direct and pointed evidence to discharge this onus. d) Suman Poddar purchased shares of Crassanda @Rs. 10 and sold the same @ Rs. 491. However, in case of assessee the assessee purchased the shares at much lower price of Rs. 53 (after the price of Crassanda corrected from 491 to 53 i.e. a fall of 826%)." 4.5 In support of the contention that short-term capital loss claimed by the assessee is no....
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....of the shares transacted by the assessee has been reproduced above. According to the assessee purchase and sale of the shares have been made on recognized stock exchange through registered brokers and payments have been made and received by way of bank account. According to him, in view of all the documents containing contract notes, de-mat account statement etc. the transaction have been carried out are in the normal course of its investment activity. On the Contra, according to the Revenue authorities the assessee has obtained the accommodation entries of short capital loss to set off the tax liability of long-term capital gain arising on sale shares of unlisted companies. 4.7 The first, issue which has been raised by the assessee that it has not been confronted with the statements of various parties relied upon by the Assessing Officer. The assessee has also contended that opportunity of cross-examining those parties/persons was not provided to the assessee. According to the assessee, this resulted in the violation of the principle of natural justice and thus assessment should be held void ab intio. However, in our opinion, not providing opportunity of cross-examination may b....
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....ross-examine the witness who made adverse report, is not an invariable attribute of the requirement of the dictum, "audi alteram partem". The principles of natural justice do not require formal cross-examination. Formal cross-examination is a part of procedural justice. It is governed by the rules of evidence, and is the creation of Court. It is part of legal and statutory justice, and not a part of natural justice, therefore, it cannot be laid down as a general proposition of law that the revenue cannot rely on any evidence which has not been subjected to cross-examination. However, if a witness has given directly incriminating statement and the addition in the assessment is based solely or mainly on the basis of such statement, in that eventuality it is incumbent on the Assessing Officer to allow cross-examination. Adverse evidence and material, relied upon in the order, to reach the finality, should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of Collateral Nature." 4.9 We find that the Assessing Officer in the assessment order has referred to the general modus operandi of the bogus accommodation entry ....
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....ital loss to set off their profit. The loss seeking beneficiary pays cheques to the beneficiary of long-term capital gain and cash provided by the beneficiary of long-term capital gain is returned to the beneficiary of seeking loss. These are also terms as "Exit Providers" as they facilitate exist to the long terms gain beneficiary. The operator who arranged wedding of both the beneficiary of capital gain and Exit Providers, deduct his commission before payment by cash. As the prices of shares crash and the Exist Providers sells the shares for a small value, which were bought at high-value, result in generation of artificial loss. 5.1 After describing the general modus operandi of accommodation entry by way of bogus capital gain/loss, the Assessing Officer has highlighted the statement of the persons who claimed to have provided bogus capital gain/loss entries. The assessee was then asked to justify the investment in the relevant shares. The Assessing Officer has pointed out that these companies are not having any significant/real business as seen from the financial statement of those companies. The price movement of the shares was also found to be unrealistic by him. The Assess....
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.... being no financial rational the investment in the shares has been made to claim long-term capital loss and presumably unaccounted cash has been received by the assessee. Thus, the contention of the Ld. counsel of the assessee that the decision of the Hon'ble Supreme Court in the case of Sumati Dayal (supra) applies only in the case of the cash credit entries is rejected. 5.4 The Hon'ble Delhi High Court in the case of Suman Poddar (supra), observed that Shares of Cressanda Solutions Ltd. have been identified by the Bombay Stock Exchange as penny stock used for obtaining bogus Long Term Caiptal gain and no evidence of actual sale except contract notes issued by the share broker were produced by the assessee. The Hon'ble High Court accordingly dismissed the appeal of the assessee as no substantial question of law involved: "7. Thus, Tribunal has in depth analyzed balance sheets and profit and loss accounts of Cressanda Solutions Ltd. which shows that astronomical increase in share price of said company which led to returns of 491% for Appellant, was completely unjustified. Pertinently, EPS of said company was Rs. 0.01/- as in March 2016, it was Rs. - 0.01/- a....
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....pth, in light of conduct of assessee and other surrounding circumstances in order to see whether assessee is liable to provisions of section 68 or not. In case of NR Portfolio, it was held that genuineness and credibility are deeper and obtrusive. Similarly, bank statements provided by assessee to prove genuineness of transactions cannot be considered in view of judgment of Hon'ble court in case of Pratham Telecom India Pvt. Ltd., wherein, it was stated that bank statement is not sufficient enough to discharge burden. Regarding failure to accord opportunity of cross examination, we rely on judgment of Prem Castings Pvt. Ltd. Similarly, Tribunal in case of Udit Kalra, ITA No. 6717/Del/2017 for assessment year 2014-15 has categorically held that when there was specific confirmation with Revenue that assessee has indulged in ITA 841/2019 Page 8 of 10 non-genuine and bogus capital gains obtained from transactions of purchase and sale of shares, it can be good reason to treat transactions as bogus. differences of case of Udit kalra attempted by Ld. AR does not add any credence to justify transactions. Investigation Wing has also conducted enquiries which proved that assessee is also....
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....change as penny stock being used for obtaining bogus Long Term Capital Gain. NO evidence of actual sale except contract notes issued by share broker were produced by assessee. No question of law, therefore arises in present case and consistent finding of fact returned against Appellant are based on evidence on record." 5.5 It is evident that one leg of the transaction (sale transaction of the share for capital gain) is bogus and non-genuine, then in same set of circumstances; the other leg of the transaction (purchase of share for capital loss) is bound to be bogus and not genuine. Thus, the transaction of the assessee of purchase and subsequent sale leading to short term capital loss are not genuinely entered. 5.6 In view of the decision of the Hon'ble High Court being of Jurisdictional High Court and in respect of the same share scrip in which the assessee has transacted, the ratio of other decisions of the Tribunal and other high courts relied upon by the assessee cannot be applied over the facts of the instant case. 5.7 In view of the above facts and circumstances, the short-term capital loss claimed by the assessee is not found to be genuine and deserve to be disa....