AI Drafter 
TaxTMI 
TaxTMI 
2020 (5) TMI 551
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.... generating bogus LTCG and the investigations revealed that a scheme was hatched by various players to obtain/provide accommodation of entry of bogus LTCG through manipulation of stock market. Therefore, the Assessing Officer re-opened and scrutinized the assessment and found that the assessee purchased 1,00,000 shares of Kailash Auto Finance Limited @ Rs. 1 per share through promoters quota, subsequently sold penny stocks on various dates for sale consideration of Rs. 39,17,760/-, through a broker B.Lodha Securities Ltd., disclosed Long Term Capital Gain in his return of income and claimed it as an exempt income U/s.10(38). The Assessing Officer examined the entire set of transactions in the background of the information received from the DIT(Inv), Kolkatta and upon such examination of facts and on detail analysis of the transactions held, inter alia, that the assessee has deliberately entered in to a sham transaction of purchase and sale of bogus shares with full knowledge of such transactions in view of the substantial gains shown on the sale of such penny stocks, within reasonably a short period so as to convert the unaccounted money into accounted money in the guise of exem....
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.... explaining the modus operandi the AO has explained the importance of accommodation entries, penny stock companies, the presence of entry operators, the importance of Jamakharchi companies, the role of beneficiary who will be provided accommodation entries to bring in his unaccounted money in to the books of accounts by way of bringing into the concept of exempted LTCG under section 10(38) of the Act. So initially there will be purchase of shares by beneficiary, such share prices will be rigged up by a modus operandi and once the eligible period of one year had elapsed shares will be sold in the market. The paper companies are utilized for handling such low volume transactions. Normally the syndicate member of the brokers (middlemen) contact the beneficiary for initial booking. The beneficiary will provide the required amount of cash which is routed through various paper companies of the entry operators and finally parked in a paper company which will then by shares from beneficiaries and provide sale consideration in cheques. Para 4.6 of the assessment order and 4.7 gives the flow chart of the process involved. Para 4.8 speaks on one movement and cash trials. Thus from th....
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....to a 'nil' or nominal rate of tax. The advantage for manipulative taxpayer is that he can launder such sale receipts through payment of no tax." SEBI has barred about 250 such entities. SEBI has found that price of KAFL was rigged by way of manipulation made by the promoters/brokers/operators. SEBI has analyzed trading frequency, trading volume generated and contribution to price rise. Following is the analysis which SEBI has noticed in its order: "7. During the analysis it was noticed that certain entities related/connected to Kailash Auto were found to be the net buyers to the beneficiaries and thereby created artificial demand for the supply of shares from beneficiaries. From the Know Your Client (KYC) details, their bank statements, off-market transactions amongst them and the information available on the website of the MCA it was observed that those entities were connected to each other. Two such interconnected groups were identified (hereinafter referred to as 'Kailash Auto Group I" and "Kailash Auto Group II'). The particulars of the entities consisting Kailash Auto Group I and Kailash Auto Group II and the basis of relat....
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....olume was mainly on account of matched trading amongst Kailash Auto Group I and Kailash Auto Group II entities and beneficiaries. This artificial volume in the scrip created by the beneficiaries including the Notices and the entities of Kailash Auto Group I and Kailash Auto Group II had the potential to induce any genuine investor to invest in the scrip without knowing the scheme of operations deployed, as in the instant case. Such facts and circumstances reinforces the finding in the interim order that that beneficiaries and entities of the Kailash Auto Group I and Kailash Auto Group II had used the securities market system to artificially increase volume for making illegal gains arid to convert ill-gotten gains into genuine one. This is a direct evidence that share of M/s Kailash Auto Finance Ltd. was artificially hiked to create non-genuine LTCG to you along with other beneficiaries. This is the reason why SEBI has passed order under Section. 11(1), 11(4) & 11(e) of SEBI Act, 1992. A statement of Sri Harshvardhan Kayan was recorded on 27.01.20 15 by DDIT (Inv), Kolkata. In his statement, he has narrated entire modus operandi and confirmed role of Sri Sunil Doka....
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....ers/promoters/ operators is also a circumstantial evidence against the assessee that the so called LTCG is arranged one. Together such evidences form a chain of circumstances leading to an inference or presumption of the principal fact for which the AO has relied on the decision of ITAT New Delhi in the case of Harsh Win Chadha Vs DCIT (I.T.A.Nos.3088 to 3098 & 3107/Del/2005), held that "The tax liability in the cases of suspicious transactions, is to be assessed on the basis of the material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information/evidence available with AO." It explained the circumstantial evidences as "Circumstantial evidence is evidence of the circumstances, a's opposed to direct evidence. Considering all this it is found that: The shares of this 'penny stock' company, MIs. KAILASH AUTO FINANCE LIMITED is controlled by a group of people viz, promoter/operator! brokers. All purchases of shares were arranged by them on assurance of booking bogus LTCG in favour of the assessee. Purchase of shares of M/s.KAILASH AUTO FINANCE LIMITED was through off- line. ....
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....l before this Tribunal. Since the findings recorded by the lower authorities are not challenged with relevant material by the assessee, the Ld. DR pleaded to dismiss the appeal. 5. We heard the Ld.DR and gone through the relevant material. The Assessing Officer received a report from the investigation wing of Kolkata, in which, inter alia, the assessee was specified as one of the parties who indulged in bogus/non-genuine long term capital gain from the transactions of alleged purchase and sale of shares of M/s. Kailash Auto Finance Ltd., which was found by them as penny stock company and a scheme was hatched by various players to obtain/provide accommodation of entry of bogus LTCG through manipulation of stock market for generating bogus LTCG . Therefore, the Assessing Officer re-opened and scrutinized the assessment and found that the assessee purchased off market 1,00,000/- shares of a unlisted company like M/s.Careful Projects Advosory Ltd.(merged with M/s. Kailash Auto Finance Ltd., afterwards) @ Rs. 1 per share, as per purchase bill dated 10/02/2012 from one closely held company named, M/s.Sanskriti Vincom Pvt. Ltyd., of Kolkata 700 005, subsequently sold shares on vario....