TaxTMI 
TaxTMI 
2020 (2) TMI 1030
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....s 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. 5. BECAUSE the Ld. CIT (A) has failed to appreciate the evidence tendered by t....
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....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/- Kailash Auto Finance Ltd. 23.02.2014 4764424 February, 15 511619 (-)4252805/- MKEL (Matra Kaushal Enterprises Ltd.) 25.03.2014 7715360 March, 15 2160293 (....
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....ging, 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 over a short span of time and then sharp decline in price of share and not matching with overall movement of share market in general and movement of other scrips in same line of business. (f) Price movement of scrip upward and down word done m....
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.... 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 before the Deputy Director of Income-Tax (Investigation), Kolkata on 12/06/2015, where he has admitted of having engaged in providing accommodation entry through control and management of various companies, including the shares of M/s. Kailash Auto Finance Ltd., i.e., the share of company in which t....
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....hares 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 provide bogus LTCG." 2.3 Further, answer of Sh. Sunil Dikania to the question No. 28 & 29 are also reproduced as under for ready reference: "Q.28 During the course of Surrey operation u/s 133A of the Income Tax Act, 1961 on 19-05- 2015 at the registered office of Kailash Auto Finance Limited at 19, Rollant complex, 37/17, The Mall, Kanpur, statement of ....
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.... 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 of independent analysis of the documents to arrive at the conclusion that the assessee has failed to prove genuineness of the short-term capital loss and the statement had been used only as collaborative material. The ld. CIT(A) held that the transaction of assessee can by no stretch of imagination be considered as investment transaction and they are only make believe transaction. 2.10 The ld....
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....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 to investment. According to him, evidences gathered during the course of search by the Investigation Wing, particularly in relation to the shares transacted by the assessee, clearly shows that large number of persons have availed bogus long-term capital gain and which is possible only through the persons available and interested in getting long-term capital loss. According to the ld. DR , the entry operators....
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.... 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 price of Rs. 491 per share, however, in the case of the assessee the shares have been purchased at much lower price of Rs. 53/-per share. 4.2 The Ld. counsel further submitted that trading in the case of 'Kailash Auto Ltd.' was suspended by the Bombay Stock Exchange with effect from 04/08/2016, where the assessee purchased shares of Kailash Auto Ltd. on 20/03/2014 and sold the same on 08/01/2015. He submitted that trading in the shares of 'Matra Kaushal Ltd.' was never suspended. 4.3 The Ld. coun....
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.... 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 not bogus accommodation entry, the Ld. counsel relied on following decisions: S. No. Issue involved Case Citation Forum 1. Exemption of LTCG in alleged penny stocks u/s 10(38) Shri Deepak Nagar vs A.C.I.T. (2019) 73 ITR (Trib) 74 (HAT [DEL]): ITA No. 3212/DEL/2019- (A.Y. 2015-16) (Date: 12-06-2019) DELHI BENCH 'B' 2. -Do- Mukta Gupta vs ITO, Ward-1(4) Mohan Lai Agarwal (HUF) vs ITO, Ward- 1(4) ITA No. 2766/DEL/2018- (A.Y. 2014-15) ITA No. 2767/DEL/2018 (A.Y. 2014-15) (Date: 26-11-2018) 'SMC' BENCH 3. - Do- CIT IV vs Fair Finvest Ltd. (2013) 357 ITR 146- De....
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....ted 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 be in the nature of irregularity which is curable but not an illegality leading to annulling of the assessment. Further, the ld. CIT(A) in Para 4.1 of the impugned order has held that addition has not been made solely on the basis of the statement of those persons/parties. The relevant part of the order of Ld. CIT(A) is reproduced as under: "4.1 I have considered the submission of the appellant and observation of the AO made in the assessment order on the issue The appellant has stated that it has not been allowed cross-examination of parties on the basis of whose statement, the addition has been made. On this issue it is observed from the assessment record that....
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....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 and thereafter, he has further referred to statement of the parties who had provided accommodation entry through managing and controlling the shares of the companies, in which the assessee has also transacted. The Assessing Officer thereafter asked the assessee to justify the rationale behind investment in these penny stock companies not having financial worth, however, the assessee failed to justify the same. The Assessing Officer provided as why the investment in the shares transacted by the assessee was not justified in view of the comparison of the other shares available. The Assessing Officer also pointed out the price fluctuation in the shares of the companies over a period, dividend hist....
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....try 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 Assessing Officer has particularly pointed out that price movement of the relevant shares transacted by the assessee, were not matching with movement of the share market in general and movement of the other scrips in the same line of the business. The Assessing Officer also pointed out that volume transacted in those script was also very low. There was no history of dividend payout by those companies. The ld. Assessing Officer has pointed out that the assessee could not explain, why it invested in such script without knowing the financial performance of the company. The relevant analysis has been reproduced by the Assessing Officer in Para 3.4 (Page-11) of the assessment order. The conclusion of AO has alr....
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....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/- as in March 2015 and -0.48/- as in March 2014. Similarly, other financial parameters of said company cannot justify price in excess of Rs. 500/- at which Appellant claims to have sold said shares to obtain Long Terms Capital Gains. It is not explained as to why anyone would purchase said shares at such high price. Tribunal goes on to observe in impugned order as follows: 10. With such financials and affairs of business, purchase of share of face value Rs. 10/- at rate of Rs. 491/- by any person and assessee's contention that such transaction is genuine and credible and arguing to accept such contention would only make decision of judicial authorities fallacy. 11. Evidences put forth by Revenue regarding ....
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....ally 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 one of beneficiaries of transactions entered by Companies through multiple layering of transactions and entries provided. Even BSE listed this company as being used for generating bogus LTCG. On facts of case and judicial pronouncements will give rise to only conclusion that entire activities of assessee is colourable device to obtain bogus capital gains. Hon'ble High Court of Delhi in case of Udit Kalra, ITA No. 220/2009 held that company had meager resources and astronomical growth of value of company's shares only excited suspicion of Revenue and hence, treated receipts of sale of shares to be bogus. Hon 'ble High Court has also dealt with arguments of assessee that he was denied right of cross examination of individu....
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....on'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 disallowed. The relevant grounds of the appeal of the assessee are accordingly dismissed. 6. The next issue which has been raised by the assessee that no addition could have been made under section 68 of the Act in the case of the assessee. According to the assessee, the case of the assessee is of cash debit and not of cash credit, hence provisions of section 68 are not attracted. We find that the Ld. CIT(A) has rejected this contention of the assessee. We agree with the contention of the asseesee that addition for short term capital loss cannot be made under section 68 of the Act, because addition has not been made for unexplained credit on sale of the shares during the year but in respect of the claim of bogus short capital loss. In the case of the assesse....