TaxTMI 
TaxTMI 
2021 (1) TMI 361
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....44/Mum/2018 for Assessment Year 2015-16 as a lead case. 3. The brief facts of the case are, assessee is the director of M/s Dodhia Synthetics Ltd. & partner of M/s Hi Tech Yarns. During the year under consideration, assessee has derived its income from business, capital gains and income from other sources. The return of income was filed on 29.10.15 declaring total income at Rs. 20,98,850/-. Thereafter, the case was selected for scrutiny under CASS and statutory notices u/s 143(2) and 142(1) along with questionnaire were duly served upon the assessee. In response, AR of the assessee attended and furnished the relevant information as called for. 4. The main issue under consideration in this appeal is the claim of deduction u/s 10(38) of the Act, the relevant facts are, during the year assessee had earned LTCG of Rs. 99,55,347/- on sale of shares of the scrip M/s Parag Shilpa Investments Ltd (later name changed to M/s PS IT Infra and Service Ltd). The details of the transaction are, assessee purchased 12,500 shares (face value of Rs. 10/-) at cost of Rs. 500,000/- and later the face value of the shares were split into Re.1/- per share. The total number shares of the assessee wer....
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....n response, assessee submitted the below reply: "...With reference to your show cause notice u/s 142(1) Dated 08-12-2017" proposing to make addition of Rs. 99,55,347 u/s 68 by disallowing the LTCG claimed as exempt u/s. 10(38) from sale of PS IT Infra shares for AY 2015-16, the undersigned assessee hereby submit as under: 1) For AY 2015-16, the Return of Income disclosing the total income of Rs. 20,98,850 was filed on 29.10.2015. During the year relevant to AY 2015-16, the assessee had sold shares of a listed company namely 'PS IT Infrastructure' for Rs. 1,04,55,347 which were purchased for Rs. 5,00,000/- during AY 2014-15, resulting in LTCG of Rs, 99,55,347 claimed as exempt u/s. 10(38), 2) Under Para 02 of SCN, it is mentioned that 'during the course of assessment you have furnished purchase bill of shares & DP Statements to strengthen your claim of LTCG' which is not correct. In addition to above, the assessee has submitted many other documentary evidences also as per the List enclosed to prove the claim of LTCG, which are not mentioned in SCN. The List of documents and evidences submitted during the assessment proceeding is attached fo....
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....015 (Annual Report Attached) Sales & Other Revenue Nil 142,98,15,283 1,036,231,309 3,98,63,17,293 Net Profit before tax (10,31,216) 5,49,559 10,500,386 1,72,10,515 Provision for tax Nil 1,33,000 3,244,619 55,83,952 Net Profit After Tax (10,31,216) 4,14,559 7,255,767 1,16,26,563 EPS 0.01 0.13 0.22 Authorised Capital - 13,00,00,000 55,52,00,000 55,52,00,000 Paid up share capital 24,00,000 11,24,00,000 53,76,00,000 53,76,00,000 Reserve & Surplus 8,00,310 34,45,155 1,07,00,921 2,23,27,484 On comparison with subsequent 02 years as above, it can been seen that: a) The Sales of PS IT Infrastructure have increased from Rs, 142.98 Crs. in FY 12-13 to Rs. 398. 63 Cr. in FY 14-15, which is almost 2. 75 times. b) Net Profit before tax has increased from Rs. 5,49,559 in FY 12-13 to Rs. 1,05,00,386 in FY 13- 14 and Rs. 1,72,10,515 in FY 14-15, c) Net Profit after tax has increased from Rs. 4,14,559 in FY 12-13 to Rs. 72,55,767 in FY 2013-14 and to Rs. 1,16,26,563 in FY 2014-15. d) The paid up share capital of the Company was R....
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....try. 7) Para 6.2 of SCN : The shares of PS IT Infra were purchased off-market from M/s. Compass Distributors Put. Ltd. relying upon the advertisement by Bhushit Trading Pvt. Ltd.in Economic Times dated 21/06/2013. Based on the future potential of PS IT Infra, as they were in Computer Hardware & Software business, we took the decision to invest in above company. Before making any investment, one goes by future potentials of the company and the business sector. During the recording of my statement, I have stated that the business of PS IT Infra was computer hardware and software. Since 04 years have lapsed since the date of purchase, I could not furnish the financials of the company which am have furnished now under para 04 above. 8) Para 6.3 of SCN; It is stated by your good self that 'family members have stated on oath that they don't know anything about these companies (Parag Shilpa, Compass Distributors, M/s. Bhushit Trading Pvt. Ltd.) which is not correct. The relationship with family members is (1) Shri Munsukhlal Dodhia (age 67 Yrs./father),(2) Harakchand Dodhia (age 65 yrs / Uncle) (3) Shri Pradeep Dodhia (age 55/uncle), (4) Shri Ri....
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....iples and market factors. c. Investment Profile of the assessee; Assessee has mainly invested in shares of his own companies or companies of his relatives. Assessee has traded in other shares only for Short Term and that too, of reputed and known companies. Investment in M/s Parag Shilpa Investment Ltd is not justified based on his investment profile. d. Findings of Investigation wing: The findings of the Directorate of Investigation of Mumbai and Kolkata as discussed above have proved that Shri Sajjan Kedia, Shri Anuj Agrawal, Jagdish Prasad Purohit, and associated brokers, entry operators and the assessee had worked out an arrangement in which the shares were acquired by the assessee, the share prices were rigged and then with the help of entry operators by routing the cash, shares were sold at high price to arrive at tax free capital gains, e. Analysis of transactions: Facts revealed that such trading transactions of purchase and sale of shares are not been effected, for commercial purpose but to create artificial gains, with a view to evade taxes - i. Transactions of shares were not governed by market factors prevalent at relevant time in suc....
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....e contention of the Ld. AR has been considered and noticed that the same is very routine, without any merits and credible documents, hence not tenable. The above AOs have given detailed findings, done due analysis of shares purchased and sales, financial analysis of the scrip and discussed in detail the jacking/rigging up of share prices of PS IT Infrastructure Ltd, daily trading details in shares of the company in graphical form for the period from 21.5.2012 to 4.11.2016, etc., in their assessment orders, while making the above additions, by placing their reliance upon the report of the investigation wing, Kolkata. They have conclusively held the fact that these appellants have indulged in obtaining the bogus 7 unexplained 7 fictitious entries of LTCG of Rs. 99,78,894/-, Rs. 1,04,66,763/-, Rs. 99,33,382/-, Rs. 99,55,347/-, Rs. 1,00,06,175/- and Rs. 99,47,372/-, respectively. The AO, therefore, was quite justified in taxing the entire LTCG of Rs. 99,78,894/-, Rs. 1,04,66,763/-, Rs. 99,33,382/-, Rs. 99,55,347/-, Rs. 1,00,06,175/- and Rs. 99,47,372/-, in the hands of Shri Harakchand Dodhia, Shri Mansukhlal Dodhia, Shri Pradeep Dodhia, Shri Bhadresh Dodhia Shri Jinesh Dodhia and Shri ....
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.... documentary evidences, circumstantial evidences and preponderance of probabilities is that what is apparent in this case is not real and the financial transactions were sham and colourable device used to evade tax. She further brought to our notice para 11 of the assessment order and submitted that the statement of assessee recorded by AO clearly shows that assessee is not aware of the business or dealing of the person Shri Eknath through whom assessee has purchased shares and assessee does not know this person and only contacted over phone. Assessee has purchased this scrip of this company on the advice of Shri Eknath who is a stranger to the assessee. She submitted that even though assessee has made payment by cheque, however she brought to our notice page 3 of the paper book which is a copy of the advertisement given in the newspaper Economic Times and further she brought to our notice the analysis of AO on the changing price of the scrip in short period of time. She further brought to our notice page 54 of the paper book and heavily relied on the findings of AO that the whole transaction is sham in order to avail the benefits of section 10(38) of the Act. 14. In rejoinde....
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....nd seizure action of Rs. 12,12,04,711/- as undisclosed income earned from business and profession. During the assessment proceeding the AO noted that the assessee has shown long term capital gain of Rs. 1,32,56,113/- which is claimed as exempt u/s 10(38) of the Act on sale of shares of M/s Rutron International Ltd. The AO received information from Investigation Wing, Kolkata that during the search conducted u/s 132 of the Act on 12.04.2015 at the business premises of one Shri Anil Agarwal Group it was found that Shri Anil Agarwal isone of the promoters of M/s Rutron International Ltd. Further, it was unearth through search action that Shri Anil Agarwal through a number of private limited shell companies and other penny stock companies was involved in providing bogus long term capital gain to customers for commission. Accordingly, the Assessing Officer issued a show cause notice date 03.03.2016. In response to the show cause notice the assessee filed his reply dated 15.03.2016 which has been reproduced by the AO at page 3 & 4 of the assessment order. The assessee given the details of the purchase and sale of shares of M/s Rutron International Ltd. and clarified that the shares were ....
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....thout charging any premium under preferential issue. He has referred to the bank statement of the assessee and submitted that the assessee paid the purchase consideration/ share application money vide cheque on 29.02.2012 the payment made by the assessee is duly reflected in the back statement of the assessee. Therefore, the assessee purchased shares in preferential allotment of the company and against the purchase consideration paid by the assessee through cheque. He has also referred to the D-mat account of the assessee and submitted that the shares were dematerialized on 18.06.2012 and thereafter the shares were sold from 13.03.2013 onwards on various dates through M/s Anand Rathi Shares & Stock Brokers Ltd. The shares were sold by the assessee are reflected in the D-mat account of the assessee and the sale consideration was directly credited to the bank account of the assessee. Therefore, the assessee has produced all the relevant evidence to show the allotment of shares, payment of consideration through cheque at the time of allotment of shares dematerialization of the shares and thereafter, sale of shares from the D-mat account. Hence, the transaction of purchase and sale of ....
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....urrounding circumstances clearly lead to only one possible conclusion that the assessee has manipulated the entire record and availed the bogus transaction of long term capital gain to convert his unaccounted income to avoid tax through long term capital gain. He has relied upon the decision of Hon'ble Bombay High Court in case of Sanjay Bimalchand Jain vs. Pr. CIT 89 taxaman.com 196. The ld. DR has then referred to the finding of the AO as well as ld. CIT(A) and submitted that when Sh. Anil Agarwal has clearly admitted in the statement that through his company he is engaged in providing bogus long term capital gain to the clients and M/s Rutron International Ltd. is one of the company is whose share transferred by Shri Anil Agrawal. He has relied upon the orders of the authorities below. 5. We have considered the rival submissions as well as relevant material on record. The assessee has produced record of allotment of 3,50,000 equity shares of M/s Rutron International Ltd. under preferential issue at par of face value of Rs. 10/- each vide allotment letter dated 08.03.2012. The Assessing Officer has not disputed the genuineness of the letter of allotment issued by the....
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....nvestments & Trading Co. Ltd. 12. SRK Industries Ltd. 13. Dhenu Buildcon Infra ltd. Ans. M/s Comfort Securities Ltd. has business nexus with the following companies Name of the Company Nature of Business Transaction 1. First Financial Services Ltd. Brokerage and Consultancy Services 2. Splash Media and Infra Ltd. Brokerage, Share Holding and Consultancy Services 3. Fact Enterprises Ltd Broking as well as share holding 4. Rutron International Ltd. Consultancy Services 5. D.B. (International) Stock Consultancy Services Brokers Ltd. 6. Unisys Software & Holding Broking Services Industries Ltd. Apart from the above mentioned companies neither I nor M/s Comfort Securities Ltd. has any business nexus with the companies mentioned supra. Q5. Do you know the promoters and directors of the above said companies? Whether M/s Comfort Securities Pvt. Ltd. or you have any association with the promoters and directors of the above said companies or have ever had any business transactions with the promoters and directors of the above said companies. Ans. Sir, I know some of the directors of the First Fina....
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.... to substantiate the transaction of purchase, dematerialization and sale of shares then, in the absence of any contrary material brought on record the same cannot be held as bogus transaction merely on the basis of statement of one Shri Anil Agrawal recorded by the Investigation Wing, Kolkata wherein there is a general statement of providing bogus long term capital gain transaction to the clients without stating anything about the transaction of allotment of shares by the company to the assessee. Further, Shir Anil Agrawal was not a director of M/s Rutron International Ltd. as perceived by the AO and therefore, the entire finding of the AO is without any corroborative evidence or tangible material. 6. The assessee has specifically demanded the cross examined to Shri Anil Agrawal which was denied by the AO as under :- "(ii) The assessee's pleas that effective opportunity may be provided to cross examination. In this regard, it is pointed out that the Hon'ble Supreme Court in the case of C.Vasantlal & Co. v/s CIT 45 ITR 206 (SC) (3 Judge Bench) has observed that "the ITO is not bound by any technical rules of the law of evidence. It is open to him t....
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....ds and evidences right from the purchase bills, certificate issued by the Registrar about the change of name, the communication between the assessee and the seller of the shares and thereafter, the amalgamation of M/s Gravity Barter Ltd. with M/s Oasis Cine Communication Ltd. which was duly approved by the Hon'ble High Court vide order dated 28.8.2011. The assessee in the mean time got the physical share certificate dematerialized into Demat account on 16.02.2012. There is no reason to doubt the allotment of the shares to the assessee after amalgamation took place between M/s Gravity Barter Ltd. and M/s Oasis Cine Communication Ltd. and subsequent to amalgamation the assessee was allotted shares of M/s Oasis Cine Communication Ltd. on 04.02.2012. Hence, the allotment of 35,200 equity shares of M/s Oasis Cine Communication Ltd. cannot be doubted or disputed as these shares were issued post amalgamation and by a listed company. It is also not in dispute that these shares of M/s Oasis Cine Communication Ltd. were issued in exchange of the shares held by the assessee of M/s Gravity Barter Ltd. Therefore, once the shares issued by M/s Oasis Cine Communication Ltd. cannot be doubted ....
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....ficer has not disputed that the fair market value of the shares of M/s Gravity Barter Ltd. was more than the purchase price claimed by the assessee. It may be a case that ensuring merger/amalgamation of the said company with M/s Oasis Cine Communication Ltd. the assessee might have anticipant the exceptional appreciation in the share price due to extraordinary event of merger/ amalgamation. However, the same cannot be a reason for doubting genuineness of the transaction if the motive of purchase of the share is to earn an extraordinary gain because of some internal information available to the assessee. 7. In case of equity shares M/s Paridhi Properties Ltd. the assessee purchase 50,000 equity share on 26.03.2011 by paying share application money of Rs. 5 lacs which is duly reflected in the bank account of the assessee as paid on 28.03.2011. Therefore, the payment of share application money has been duly established by the assessee through his bank account for allotment of shares of 50,000 equity shares of M/s Paridhi Properties Ltd. The share allotted in private placement as per of Rs. 10/- cannot be termed as penny stock. The AO doubted that the entire process o....
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....the assessment year based on the statement of Shri Deepak Patwari recorded by the Investigation Wing of Kolkata however, the assessee has specifically demanded the cross examination of Shri Deepak Patwari vide letter dated 15.03.2016 specifically in paras 3 and 4 as reproduced by the AO at page No. 7 of the assessment order as under:- "3. Since, the shares were allotted by the company through private placement after completing the formalities of ROC and were sold through the recognized Bombay Stock Exchage (BSE) there is no question of knowing individual persons or company official personally in the whole process, so the assessee is not in position to produce any one for cross examination before your good self. Since your good self has got the authority, we humbly request you to kindly issue the notice u/s 131 of the Income tax Act 1961 to the concerned individual persons or company officials for cross examination. Please note that the assessee is ready to bear the cost of their travelling in this regards. 4. As regard your opportunity given to us to read the recorded statement of Shri Deepak Patwari and to produce him from the cross examination before your good s....
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.... because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that crossexamination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to crossexamine those dealers and what extraction the appellant wanted from them. 7. As mentioned above, the app....
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....nd collection of premium was so designed that assesseecompany need not incur advertisement expenses and the responsibility for sales promotion and advertisement lies wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI or by the department that Assessee-Company was beneficiary of any such accounts. At least something would have been unearthed from such global level investigation by two Central Government authorities. In case of certain donations given to a Church, originating through these benami bank accounts on the behest of one of the employees of the assessee company, does not implicate that GTC as a corporate entity was having the control of these bank accounts completely. Without going into the authenticity and veracity of the statements of the witnesses Smt. Nirmala Sundaram, we are of the opinion that this one incident of donation through bank accounts at the direction of one of the employee of the Company does not implicate that the entire premium collected all throug....
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....ently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants's account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The AO has discus....
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....erial to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account." Thus, it is clear that the Tribunal in the said case has analyzed an identical issue wherein the shares allotted in the private placement @ Rs. 10 at par of face value which were dematerialized and thereafter sold by the assessee and accordingly the Tribunal after placing reliance on the decision of Hon'ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra) as well as the decision of Hon'ble jurisdiction High court in case of CIT vs. Smt. Pooja Agarwal (supra) as held that when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above purchase consideration as claimed and evid....