TaxTMI 
TaxTMI 
2020 (3) TMI 1169
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....ined cash credits u/s.68 of the I.T. Act, 1961 and thereby erred in disallowing exemptions claimed by the Appellant u/s.l0(38) of the I.T. Act, 1961. 2. The learned Commissioner of Income Tax (Appeals) has erred in confirming the above addition made by the Assessing Officer as Income from other sources only on the basis of the investigation carried out by DGIT (INV) Kolkota and SEBI that Scrip of Alang Ind. Gases Ltd. is Penny Stock indulged in providing Bogus Long Term Capital Gain of which appellant is one of the beneficiaries. 3. The learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in completing the assessment without providing copy of the statements, material etc. relied upon by him hence the same being against the principles of natural justice and law requires to be cancelled. 4. The learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in not granting an opportunity for cross examination of the persons making the statement on the basis of which addition has been made. Hence the assessment so made being against the principles of natural justice and law is illegal ....
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....contained in paragraph Nos.4.3 to 4.11 which are reproduced hereunder: "Decision: 4.3. I have carefully considered the Assessment Order and submission filed by the Appellant. During the course of assessment proceedings, the AO has observed that on during the financial year under consideration, the assessee has claimed exemption of long term capital gain for Rs. 14,78,289/- u/s. 10(38) of the Act in respect of sale of share of Alang Industries Gases Limited. The assessee claimed that 28600 shares of Alang Industries Gases Ltd. have been purchased on 1.4.2012 @1/- per share. The appellant has obtained share certificates in physical form and same was dematerialized later on by him and then such shares were sold in the market. The appellant has claimed that as sale was subject matter of STT and the shares were sold through SEBI registered brokers. The appellant has mainly argued that entire transactions are supported by documentary evidences like purchase bill, payment, sale bill, consideration received through cheque, DEMAT statement etc hence such amount cannot be subject matter of addition relying upon findings of the Kolkata Investigation Directorate and SEBI as well as other....
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....r the shares of 'P' will automatically come to 'A'. Once the shares of 'P' will get credited to account of 'A' then the Entry Operator 'E' along with the share brokers will jack up the prices of shares of 'P'. As such common investors are not interested in 'P' hence the shares of this company is extremely sterile without much volatility. Through circular trading the shares of 'P' is increased. Once the prices of the shares are rigged to an optimum amount, entry operator asks the beneficiary to deliver the unaccounted cash. This may be delivered in parts as well as in one go. Once the unaccounted cash is delivered by the beneficiary 'A', the same is then routed by the operator to the books of counterparties (purchasers), through a maze of various other paper companies, which ultimately buy the shares belonging to the beneficiary at high prices. When the corresponding amount reaches into the account of these counter parties, either by way of Cheque or RTGS, the operator instructs the beneficiary to place a option for the shares in a particular lot size on a particular date and time. According same is being convey....
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....ies. It is an established law that Income Tax proceedings fall in the domain of preponderance of probabilities, meaning that the action of assessee is considered to be rational and well inform falling in the domain where probable choice are exercised. In Sumati Dayal Case Hon'ble Supreme Court has held as under:- "It is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. [See. Parimisetti Seetharamamma (supra) at P. 5361. But, in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut, the said e....
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....umstances of the case. The Revenue's principal and the only charge is qua the genuineness of the transaction/s, and which has been acceded to by the first appellate authority in view of the documentary evidences furnished by the assessee in support of his claims. That genuineness could validly be tested on the ground or principle of preponderance of human probabilities, which could thus form a valid ground or parameter for determining the genuineness, stands since settled by the apex court in Sumati Dayal (supra), relied upon by the Revenue, wherein the apex court, in declaring the transaction as non-genuine, discarded a host of documentary evidences filed or relied upon by the assessee-appellant. That documentary evidences are not by themselves conclusive, and the truth of the matter or the documents could be determined on the basis of or on the anvil of the surrounding facts and circumstances of the case is well settled, and for which the Revenue relies on the decision in the case of Durga Prasad More (supra). What is relevant, more so where the genuineness of the transaction is in issue, is the truth of the document/s furnished in substantiation, as well as the substance of ....
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.... provisions of the Act. The first appellate authority has in this regard mentioned the settlement number of the transaction as D-2005326. The same, even as stated by the A.O. (refer para 4.8 of the assessment order), is the number of the contract note issued by the broker. The settlement, where the transaction is carried through the SE, which is admittedly not the case, is between the brokers or the members of the SE and, accordingly, only a net amount is payable or receivable by a particular broker for a particular period, called the settlement period, which extends to generally one week or a fortnight, and which is to or from the SE, which aggregates the financial impact, i.e., the net result of all the transactions amongst all the brokers for the settlement period, acting as a collecting/disbursing agency. A single amount is thus either payable or receivable by each broker to or from the SE for a particular period, which is again numbered (i.e., as settlement number), and serves to settle the financial obligations to or claims on all the other members of the exchange, i.e., of each broker, for that period. This is of course accompanied by giving and taking delivery of the shares....
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.... brokers are in fact required to maintain separate bank account for the funds received from or on behalf of the clients, so that the same do not merge with that of the broker himself. What is equally important is the date on which the shares were dematerialized. This is as no transaction could be carried out in listed shares, i.e., in the physical form, where the shares stand dematerialized by the company. Why were the shares sent for dematerialization only in May 2005, i.e., after a delay of over a year, having been dematerialized only on 12.07.2005 (PB pg.10), i.e., days prior to their sale on 22.07.2005. That is, assuming that the shares were actually purchased and delivered to the assessee in May, 2004. Rather, as it would appear to us, the dematerialization of the shares coincides with the spiraling price of the scrip, so that an orchestration of the 'events' is apparent. The shares, even assuming a valid purchase, thus, would be close to the date/s of dematerialization. The assessee states of having reported its purchase (of shares) on 06.05.2004, per his balance-sheet as at 31.03.2005, enclosing it along with his return of income for A.Y.2005-06 (PB pgs. 15, 16). The....
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.... besides establishing its date. Such remittances are generally through registered post, so that it would constitute evidence with the company for having delivered the shares, which are even otherwise valuable documents. The incidental question that arises is the date when the shares were dematerialized by the company. This is as it clearly shows that the shares, issued only on 31.03.2004, being remitted to the transferee in the physical form on 17.05.2004, were not converted into the D-mat form till then. This is relevant as the trading on the exchange, which only would make the share a listed share, gain on which is exempt u/s.l0(38), could as per the guidelines only be in the D-mat form. No wonder, the trading on the exchange in the said scrip commences only on 03.03.2005. 'How could, in that case, it be said that the assessee has transferred/sold a listed share after holding it for a period of a year (or more)?' The assessee speaks of having deposited STT, but, then, the question is whether the said payment would make a non-genuine transaction, genuine. 4.4 Further on, why, and on what basis, the assessee, a teacher by profession as well as a partner in a partnership, with....
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....dustry/s in which, if any, the said company operates, or its financials, much less future prospects, the information on all of which gets factored into and captured in what is called 'price1, representing an equilibrium of the supply and demand forces. In fact, each of the other incidences, i.e., for a penny stock company, are exhibited in the present case, as pointed out by the AO per paras 4.8 and 4.9 of his order, as under: (a) The scrip is a penny stock, purchased at a low price, which is over a period of time ramped up by operators acting in benami names or name lenders. The purchases are off market purchases, and not reported on the exchange; (b) purchase/s is back dated, i.e., per a back dated contract note, paid for in cash, so that there is no trail; (c) the purchases are in the physical form, and dematerialized only subsequently; generally long after the purchase date, being back dated and, further, close to the date of sale; and (d) The investee is a penny stock company, with no credentials, and the sale rates artificially hiked, with no real buyers, so that inference of the sales being bogus, is unmistakable. 4.5 The assessee was show caused on all these p....
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....ussion, being the validity of the inferential findings -there being a difference between the two Revenue authorities. We find the observations by the AO as valid and relevant, to no satisfactory answer or explanation by the assessee, i.e., to the questions, incidents or the phenomenon observed. Dismissing the same as mere suspicions, as does the Id. CIT (A), is, to our mind, glossing over the many attendant facts and incidents, the most vital, and on which we observe complete silence or absence of any explanation, is the absence of any credentials of the investee company. The Id. CIT (A) picks up one incident or aspect of the transaction at a time to note of it being backed by documentary evidence/s and, therefore, genuine. The approach is fallacious. Firstly, documentary evidences, in the face of unusual events, as prevailing in the instant case, and without any corroborative or circumstantial evidence/s, cannot be regarded as conclusive. Two, the preponderance of probabilities only denotes the simultaneous existence of several 'facts', each probable in itself, albeit low, so as to cast a serious doubt on the truth of the reported 'facts', which together make up ....
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....d to be shell companies, said loan transactions could not be said to be genuine merely because assessee filed loan confirmations copies of ledger accounts and other supporting evidences. The relevant observation of the ITAT is also reproduced herein below: "8 As I proceed to deal with genuineness aspect, it is important to bear in mind the fact that what is genuine and what is not genuine is a matter of perception based on facts of the case vis-a-vis the ground realities. The facts of the case cannot be considered in isolation with the ground realties. It will, therefore, be useful to understand as to how the shell entities, which the loan creditors are alleged to be, typically function, and then compare these characteristics with the facts of the case and in the light of well settled legal principles. A shell entity is generally an entity without any significant trading, manufacturing or service activity, or with high volume low margin transactions- to give it color of a normal business entity, used as a vehicle for various financial maneuvers. A shell entity, by itself, is not an illegal entity but it is their act of abatement of, and being part of, financial maneuverings to le....