TaxTMI 
TaxTMI 
2021 (1) TMI 361
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....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 were increased to 125000 shares. All the above share....
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....h 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 for your perusal. 3) Considering the documentary evidences, the LTCG disclosed....
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....6) 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 Rs. 53,76,00,000. Reserves Surplus have increased from Rs. 1,07,00,921 as on 31-03-2014 to Rs. 2,23,27,484 as on 31-03-2015. e) As per Annual Report for FY 2013-14 (Para 10), the number of equity shares held in demateriali....
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....s 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 Ritesh Dodhia (brother and (5) Shri Jinesh Dodhia (brother). We are joint family and together m the business. During the recording of statement, we have furnished all the preliminary informations about the shares i.e. Names of Parag Shilpa, Compass Distributors, Date of purchase, Amount investe....
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....n 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 such trade, but same were product of design and mutual connivance on part of assessee and the operators. ii. The assessee resorted to a preconceived scheme to procure long-term capital gains by way of price difference in share transactions not supported by market factors. iii. Cumulative events in such transactions of shares revealed that same were devoid....
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....pany 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 Ritesh Dodhia, respectively, hence, does not require any interference, accordingly sustained and the above grounds of appeal are DISMISSED. 11. Aggrieved with the above order, assessee is in appeal before us raising the following grounds of appeal:- 1) On the facts and the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeal), Mumbai erred in upholding the Addition of Rs. 9....
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....hom 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 rejoinder, Ld. AR submitted that assessee has even though not met Shri Eknath based on the advertisement in Economic Times, he contacted Shri Eknath and applied for the shares and purchased the shares by paying through cheque and the share certificate was issued to the assessee on 25.10.2013. She further submitted that the findings of AO that Shri Jagdish is a dummy director is not relevant to the facts of this case and moreover, nowhere in the statemen....
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....ses 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 allotted to the assessee by the company as preferential shares allotments on payment through cheque. The shares were sold by the assessee from his D-mat account through the broker M/s Anand Rathi Share and Stock Brokers Ltd. and therefore, the assessee denied any involvement of availing the bogus of long term capital gain. The AO did not accept and explanation of the assessee and referred to the statement of Shri Anil Agarwal recorded by Investigation Wing Kolk....
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.... 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 shares is genuine one as the assessee has proved the genuineness by producing the relevant record whereas the Assessing Officer has not produced any material or record to controvert the evidence produce by the assessee. Thus, ld. AR has submitted that the transaction of purchase and sale of shares is genuine and the long term capital gain arising from purchase and sale of shares cannot be treated as bogus transaction. Hence, ld. AR has pleaded that the addition made b....
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....ed 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 company to the assessee wherein it has been communicated that the assessee has been allotted 3,50,000 equity shares vide allotment letter dated 08.03.2012 against the application of the assessee at par of face value of Rs. 10/- each without any premium. The assessee has also produced the bank statement showing the payment of consideration of the acquisition of shares on 29.02.2012. It appears that the said payment was made by the assessee at the time of applying for allotment of....
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....lding 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 Financial Services Limited, Splash Media & Infra Services Ltd, Rutron International Limited and FACT enterprise Ltd. Regarding other companies I am not aware who are the directors of these companies." Thus, it is clear from the relevant part of statement of Shri Anil Agrawal as reproduced by the AO that he has stated having business nexus with these companies and nature of business being consultancy services. Hence, he has not stated anything about providing bogus long term capital gain in respect of the equity shares of M/s Rutron International Ltd. A business nexus with any company will not automatically lead to the conclusion that the sha....
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....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 to collect material to facilitate assessment even by Private enquiry." Thus, in view of the decision of Hon'ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra) the assessment based on statement without giving an opportunity is not sustainable in law. We further note that the assessee produced copy of affidavit of Shri Anil Agrawal who has retracted his statement before the Investigation Wing, Kolkata however, without going into controversy of the retraction of the statement we find that the statement cannot be used by the AO without giving an opportunity to cross examination of Shri Anil Agrawal. The Coordinate Bench of this Tribunal in case of Pramo....
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....hares 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 then the holding of the shares of the M/s Gravity Barter Ltd. by the assessee correspondingly cannot be doubted because of the reasons that the shares of M/s Oasis Cine Communication Ltd. could be allotted only in exchange of shares of M/s Gravity Barter Ltd. The holding the shares of M/s Gravity Barter Ltd. and the allotment of shares M/s Oasis Cine Communication Ltd. are directly interconnected. In the absence of holding of shares M/s Gravity Barter Ltd. the shares of the M/s Oasis Cine Communication Ltd. could not be issued or allotted to the assessee. Therefore, holding of the shares by the assessee at least at time of amalgamation took place and shares of the M/s Oasis Cine Communication L....
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....y 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 of application and allotment of shares as it have been completed within a short duration of 5 days, which in the opinion of the AO is not possible in ordinary course. However, when the assessee has produced the record including the share application, payment of share application money, allotment of share then merely because of a short period of time will not be a sufficient reason to hold that the transaction is bogus. The shares allotted to the assessee vide share certificate dated 31.03.2011 were dematerialized on 21.10.2011, therefore, on the date of dematerialization of the shares the holding of the shares of the assessee cannot be doubted and hence the acquisition of the shares of the assessee cannot b....
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....ur 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 self, we have to submit that from the reading of the statements of Shri Deepak Patwari it is clear that he has never taken the name of the assessee, nor the assessee is aware of any Shri Deepak Patwari neither he has made any transaction with him, so in what capacity he can call him for cross examination before your good self. Since your good self has got the authority, we humbly request youto kindly issue the notice u/s 131 of the income Tax act 1961 to him also for cross examination. We also request your good self to kingly provide us the copy of statements of Shri Deepak Patwari along with the other relevant documents. Please note that the assessee is ready to bear the cost of his travelling in this regard." It is manifest from the....
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....ply 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 appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came bef....
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....porate 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 throughout the country and deposited in Benami bank accounts actually belongs to the assessee-company or the assessee-company had direct control on these bank accounts. Ultimately, the entire case of the revenue hinges upon the presumption that assessee is bound to have some large share in so-called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of 'preponderance of probability' is applied to weigh the evidences of either side and draw a conclu....
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....ny 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 discussed modus operandi in some sham transactions which were detected in the search case of B.C. Purohit Group. The AO has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the appellant's case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle-3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purihit and Co. group. The AR made submission before the AO that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P. K. Agarwal. It was also submitted that there was no mention of Sh. ....
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.... 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 evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. Similar in the case in hand the assessee has produced the relevant record to show the allotment of shares by the company on payment of consideration by cheque and therefore, it is not a case of payment of consideration by in cash. But the transaction is established from the evidence and record which cannot be manipulated as all the entries are part of the bank account of the assessee and the assessee dematerialized the shares in the D-mat account which is also an independent material and evidence cannot be manipulated. Therefore, the holding of the shares by the assessee cannot be doubted and the finding of the AO is based merely on the suspicion and surmises without any cogent material to show....