TaxTMI 
TaxTMI 
2021 (12) TMI 808
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....ure on the part of the appellant to disclose fully and truly all material facts. b) The appellant respectfully submits that the AO initiated reassessment proceedings on the basis of suspicion, conjectures and surmises, without any concrete material or evidence to support the same and also without satisfying himself about reliability of the investigation report received by him from the Director of Investigation, Kolkata and applicability of the same to the facts in the case of the appellant. c) The appellant, therefore, prays that the very basis of initiating the reassessment proceedings, being vague and unreliable, the said proceedings be held as void ab initio and order passed pursuant thereto be quashed as bad in law. GROUND NO. 2 - AGAINST DENIAL OF S. 10 (38) EXEMPTION FOR LONG-TERM CAPITAL GAINS OF Rs. 5,93,45,030/- FROM SALE OF QUOTED SHARES OF JMD TELEFILMS LIMITED a) The CIT (A) has erred in confirming denial of exemption under Section 10(38) of the Act claimed by the appellant, though all the conditions stated in that section are satisfied, by alleging "bogus and manipulated" share prices without leading any evidence in support of such assumption and/or suspicion. ....
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....actions were carried out by the appellant through Motilal Oswal Securities Limited, the well-known broker registered with recognised stock exchanges and their brokerage/commission is duly charged in their bills which fact is totally ignored. The appellant has not paid any other amount to them or any other party as alleged. Since there is no valid basis or concrete evidence for his assumption about payment of commission for sale of the said shares, such disallowance is not sustainable - on facts and in law. c) In the above background, the appellant prays that the disallowance of Rs. 36,38,987/- as the imaginary expenditure (by way of commission for sale of the shares in JMD Telefilms Limited), which is neither paid nor claimed by the appellant, be deleted. GROUND NO. 5 - AGAINST LEVY OF INTEREST OF Rs. 1,60,35,802/- UNDER SECTION 234B OF THE ACT a) The CIT (A) has erred in confirming interest charged under Section 234B of the Act. b) The appellant politely submits that the denial of exemption under Section 10(38) of the Act and additions made by the AO and sustained by the CIT (A) could never have been imagined or predicted by the appellant. Hence, the appellant could not ha....
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.....O not finding favour with the objections raised by the assessee qua the validity of the reassessment proceedings dismissed the same vide his letter dated 05.07.2017. 3. During the course of the assessment proceedings, it was observed by the A.O that the assessee in his return of income had claimed LTCG on sale of shares of a scrip, viz. M/s JMD Telefilms Industries Ltd. (formerly known as Avtar Finance and Management Consultants) and subsequently known as M/s JMD Ventures Ltd. (Scrip Code: 511092) as shown below: Name of security Oty Date of purchase Purchase amount Date of sales Qty Sales amount LTCG JMD Telefilms Inds. Ltd. (Avtar Finance) 35000 26.02.09 59500 01.04.10 35000 2280950 2221450 JMD Telefilms Inds. Ltd. (Avtar Finance) 60000 26.02.09 102000 06.04.20 6000 3695400 3593400 JMD Telefilms Inds. Ltd. (Avtar Finance) 50000 26.02.09 85000 21.04.10 50000 2487500 2402500 JMD Telefilms Inds. Ltd. (Avtar Finance) 110000 26.02.09 187000 20.05.10 110000 9845000 9658000 JMD Telefilms Inds. Ltd. (Avtar Finance) 120000 26.02.09 204000 25.05.10 120000 10650000 10446000 JMD Telefilms Inds. Ltd. (Avtar Finance) 54376 26.02.09 9....
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....n the party but till the finalization of the assessment reply was not filed. 6. M/s Zodiac Commotrade P. Ltd. Sent through Postal authorities and same were returned back remarked as "Left". 7. M/s Neelanchal Mercantile P. Ltd. Sent through Postal authorities and same were returned back remarked as "Not Known". 8. M/s Ranisati Dealer P. ltd. Sent through Postal authorities and same were returned back remarked as "Not Known". 9. M/s Runicha Construction Co. P. Ltd. Sent through Postal authorities and same were returned back remarked as "Left". Further, the A.O issued summons u/s 131 of the Act for personal attendance of two of the aforementioned exist providers, viz. (i). M/s Runicha Contructions Co. P. Ltd; and (ii). M/s BP Fintrade P. Ltd., which were complied with by the said parties as under: Sr. No. Name of the Persons Remarks 1. M/s Runicha Construction Co. P. Ltd. Called for personal attendance on 11.12.2017 and produce the documents and sent through postal authorities and same were returned back remarked as "Left". 2. M/s BP Fintrade P. Ltd. Called for personal attendance on 11.12.2017 and produce the documents but reply received on 22.12.20....
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.... thereafter maintained in the range of Rs. 62 to Rs. 145, which as per him was with a purpose that the interested beneficiaries were able to book the LTCG on sale of the shares held by them. Thereafter, as noticed by the A.O, the price of the share of the aforementioned company was made to fall freely so that the interested beneficiaries who had purchased at a high market price could avail bogus Short Term Capital Loss. It was observed by the A.O that the price of the shares had thereafter gone down to merely Rs. 7.50/-. It was inferred by the A.O that in the course of the aforesaid exercise the LTCG beneficiary would pay cash to exit entry provider or a person who wants to book a loss and in return would get a cheque. The A.O was of the view that the operator would thereafter take his commission qua the aforesaid accommodation entry in cash. Also, he was of the view that thereafter as price of the share would crash the loss taking beneficiary would sell his holding that was purchased at a high value for a small price which would result in an artificial loss. In order to fortify his conviction that the price of the scrip in question viz. JMD Telefilms Industries Ltd. was artificial....
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....rential basis of M/s JMD Telefilms Industries Ltd. for sRs. 17,00,000/- on 26.02.2009. This was an off-market transaction and these shares were later dematerialized. Owing to share split, the number of shares with assessee swelled to 10,00,000 on 13.07.2009. Subsequently, the assessee sold 767500 of these shares on BSE through broker in F.Y. 2010-11. b. Sale of shares and unusual rise in the price: Further the assessee has sold 767500 shares for sale consideration of Rs. 6,06,49,780/- which is 4543% gain and as discussed the rise in share prices is not holding to any commercial principles and market factors. c. Findings of Investigation wing: The findings of the Directorate of Investigation as discussed above have proved that several share 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 operators by routing the cash, shares were sold at high price to arrive at tax free capital gains. d. 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 a....
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....n of Rs. 5,93,45,030/- derived by the assessee from the sale of share of M/s JMD Telefilms Industries Ltd. was derived from bogus and manipulated share prices which were nothing but unexplained investment/income of the asssessee that was converted under the garb of share market investment, the CIT(A) upheld the view taken by the A.O. Accordingly, the CIT(A) sustained the addition of Rs. 5,93,45,030/- that was made by the A.O u/s 68 of the Act a/w the addition of Rs. 36,68,987/- made by him u/s 69C of the Act. The CIT(A) while upholding the view taken by the A.O held as under: "10 Decision: I have considered the facts of the case and submissions made by the appellant. Crux of the matter taken up in the ground of appeal no. 5 to 18 is whether the amount of long term capital gains of Rs. 6,06,49,780/- claimed as exempt under Section 10(38) of the Act I. T. Act, 1961 are taxable as unexplained cash credits u/s 68 of the I.T. Act, 1961 and a sum of Rs. 36,38,987/- is taxable as unexplained commission u/s 69C of the I.T. Act, 1961 or not in facts of the case and in law. It appears from the records that assessee became owner of 1700000 equity shares of JMD Telefilms by subscription an....
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.... Act. 1961. 10.3 Assessee company and its CAs were specifically informed to file details and documents relating to the bank account copies and copies of utilization of funds, however, the CAs have not filed details and documents, especially copies of bank accounts for the entire financial year 2010-11 relevant to AY 2011-12, however these are not filed till date. 10.4 It appears from the details of share trading account that assessee traded and/or invested in shares of Justdial Company in 2014, that is, two and a half years after the last transaction in the share of JMD Telefilms Limited in October 2010. 10.5 Assessee has not revealed the user of the funds derived from the sale of shares of JMD Telefilms Limited. 10.6 Prima facie it would appear that the share market prices were going up in the shares of JMD Telefilms Limited for persons like the assessee and others who were lucky and fortunate enough to visualise the potential in shares of JMD Telefilms Limited which started going up from March 2010 and collapsed in October 2010 to its original levels, Assessee is a director of several West Coast Group Companies and invested in JMD Telefilms Ltd, Moreover it also appears t....
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....e tax department at Kolkata. In nutshell, the entire profits of Rs. 5,93,45,030/- derived from the so called sale of JMD Telefilms Limited were derived from bogus and manipulated share prices and were nothing but unexplained investments/income of the assessee which was converted under the garb of share market investments and purchase/sale and hence the profits of Rs. 5,93,45,030/-were correctly and legally taxed as income u/s.68 of the l.T. Act, 1961. Assessee does not have any case in this regard and hence its appeals from grounds of appeal no. 5 TO 18 are dismissed. Similarly, all such transactions must have been executed at a cost and hence the addition of Rs. 36,38,987/- at the rate of 6% of Rs. Sale price of Rs. 6,06,49,780/- u/s, 69C of the l.T. Act, 1961 are also confirmed and assessee's appeal is dismissed on this count as well. 10.8 It is noteworthy to rely on the following judicial pronouncements to decide on the assessee's involvement in the scam of bogus LTCG unearthed by the Kolkata Investigation Wing. Ratnakar M Pujar Vs ITO [ITAT Mumbai] ITA No. 995/Mum/2012 dated 03.08.2016. The assessee has purchased 4000 shares of M/s. Shiv Om Investments on 11th May, ....
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....e of Investigation, Kolkata. As stated by the A.O, the name of the assessee had figured in the list of the beneficiaries of bogus LTCG/STCL. On the basis of the aforesaid information the case of the assessee was reopened by the A.O u/s 147 of the Act. The reasons to believe on the basis of which the case of the assessee was reopened read as under : "2. The Directorate of Investigation, Kolkata, has undertaken an in-depth investigation into the accommodation entry activity that has taken place in Long Term Capital Gain (LTCG)/Short Term Capital Loss (STCL) on a larger scale. As a result, numerous beneficiaries of bogus transactions have been identified who have altogether availed the benefit of huge value of bogus entries of LTCG/STCL. In the investigations carried out by the Investigation Directorates, the approach was to target the individuals and thereafter identify the penny stocks and eventual beneficiaries. This method yielded substantial results and penny stocks were identified. The data which was procured during the course of Search and Survey action conducted on various penny stocks at several locations all over the country has been processed painstakingly and it was foun....
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....ld reasons, viz. (i) that the case of the assessee had been reopened on the basis of borrowed satisfaction of the Directorate of Investigation, Kolkata; and (ii). that the reassessment proceedings had been initiated on the basis of suspicion, conjectures and surmises, without there being any concrete material or evidence to support the same. Per contra, it is the claim of the ld. Departmental Representative (for short "D.R") that as the A.O had after duly applying his mind to the information pertaining to bogus LTCG/STCL as was uploaded by the Directorate of Systems arrived at a bonafide belief that the income of the assessee chargeable to tax had escaped assessment, therefore, no infirmity emerges from the assumption of jurisdiction for reopening of the assessee"s case by the A.O. Ld. D.R in order to drive home his aforesaid claim took us through the "reasons to believe" on the basis of which the case of the assessee was reopened by the A.O u/s 147 of the Act. 7. After hearing at length the ld. authorized representatives for both the parties qua the aforesaid issue in hand, we are unable to persuade ourselves to subscribe to the contentions advanced by the ld. A.R as regards the ....
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....dence or conclusion. Our aforesaid view is as per the mandate of the judgment of the Hon'ble Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500, wherein the Hon'ble Court had observed as under : 16. Sec. 147 authorises and permits the AO to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the AO has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion. The function of the AO is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. vs. ITO (1991) 98 CTR (SC) 161 : (1991) 191 ITR 662 (SC), for initiation of action under s. 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite c....
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..../STCL that was uploaded by the Directorate of Systems, which in turn was based on the in-depth investigations as regards accommodation entry activities qua bogus LTCG/STCL carried out by the Directorate of Investigation, Kolkata, wherein the name of the assessee is stated to have figured as a beneficiary of such bogus transactions. Backed by the aforesaid information the case of the assessee was reopened by the A.O u/s 147 of the Act. After deliberating at length on the facts of the case, the A.O in the course of the reassessment proceedings dubbed the assessee"s claim of LTCG as an accommodation entry and added the entire sale consideration of Rs. 6,06,49,780/- as an unexplained credit u/s 68 of the Act. Also, the A.O made a further addition u/s 69C of Rs. 36,38,987/- i.e @6% of the amount of the sale proceeds of shares towards unaccounted commission which as per him the assessee would have paid for obtaining the aforesaid accommodation entry. Accordingly, the A.O vide his order u/s 143(3) r.w.s 147, dated 27.12.2017 assessed the income of the assessee at Rs. 6,84,06,690/-. 9. As observed by us hereinabove, the case of the assessee was reopened by the A.O on the basis of informat....
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....d point is not applicable to us." The A.O further issued summons u/s 131 of the Act to two of the aforementioned parties who had purchased the scrip of M/s JMD Telefilms Industries Ltd. from the assessee, viz. (i). M/s Runicha Construction Co. P. Ltd; and (ii). M/s BP Fintrade P. Ltd. Although, the notice u/s 133(6) sent to M/s Runicha Construction P. Ltd. was as in the past returned unserved, however, the other party, viz. M/s BP Fintrade P. Ltd. vide its reply dated 22.12.2017 reiterated that the assessee was not known to it and it had never dealt with him ever. In fact, to the extent information was gathered by the A.O from some of the purchasers of the scrip of M/s JMD Telefilms Industries Ltd., the same revealed that they had purchased the aforesaid shares from the stock exchange and had no link with the assessee. In the backdrop of the aforesaid facts, we find, that it remains as a matter of fact borne from the record that the A.O had failed to establish any nexus between the aforementioned parties who through their broker had purchased the scrip of M/s JMD Telefilms Industries Ltd. from the assessee on the floor of BSE. Although the A.O while referring to the modus operandi....
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.... statements any allegation as regards obtaining of any accommodation entry by the assessee, viz. Kamlesh Nemichand Gupta finds any mention. In fact, in neither of the said statements the name of the assessee had even figured. For a fair appreciation of the statements of the aforementioned respective persons we deem it fit to briefly cull out the contents of the same, as under : (A) Shri. Pravin Kumar Aggarwal : Statement of Shri. Pravin Kumar Aggarwal, stated by the A.O to be an entry operator, was recorded in the course of the survey proceedings conducted u/s 133A of the Act. It was admitted by him that he in lieu of commission was engaged in providing bogus share capital, bogus billing, bogus sub-contract, bogus commission, accommodation entries, purchase and sale of un-quoted shares . (B). Shri. Dhruv Narayan Jha : Statement of Shri. Dhruv Narayan Jha, Promoter of JMD Telefilms Industries Ltd. was recorded by the DDIT(Inv.), Kolkata on two occasions on 21.01.2015, viz. (i). In the course of survey conducted u/s 133A on M/s Warner Multimedia Ltd, Kolkata; and (ii). In the course of the survey conducted u/s 133A on M/s Blue Circle Services Ltd. It was stated by him that he....
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....ther companies which were created for the sole purpose of providing accommodation entries in form of LTCG to various beneficiaries. On being further queried about the names of the listed companies/scrips in which he was providing accommodation entries of LTCG, he gave names of 20 companies which also included the name of JMD Telefilms Industries Ltd. On a perusal of the aforesaid statements of the abovementioned promoters/broker/entry operator a common aspect that emerges therefrom, as stated by the ld. A.R, and rightly so, is that neither of them had at any stage ever alleged that the assessee, viz. Shri. Kamlesh Nemichand Gupta had taken any accommodation entry of bogus LTCG. In fact, the name of the assessee had not even figured at all in the statements of either of the aforementioned persons. In the backdrop of the aforesaid facts, we are of the considered view that the specific observation of the A.O recorded in the assessment order, i.e "the findings of the Directorate of Investigation, Kolkata, proved that several share brokers, entry operators and the assessee had worked out an arrangement as per which shares were acquired by the assessee, the share prices were rigged and ....
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....all now advert to the documentary evidence/material that was placed on record by the assessee in order to drive home his claim of having carried out genuine transactions of purchase/sale of shares of JMD Telefilms Industries Ltd. As is discernible from the orders of the lower authorities, we find that the assessee had on 26.02.2009 by way of an off-market transaction purchased one lac equity shares of JMD Telefilms Industries Ltd. of a face value of Rs. 10/- each at a premium of Rs. 7/- per share i.e for a total consideration of Rs. 17 lac by way of a preferential allotment in physical form. The payment of the purchase consideration of Rs. 17 lac was made by the assessee vide account payee Cheque no. 168253, dated 15.01.2009 drawn on his Saving Bank A/c No. 06130100003249 with Bank of Baroad, Branch: Mittal Tower, Nariman Point, Mumbai in favour of JMD Telefilms Industries Ltd. Our attention was drawn by the ld. A.R to the copy of the share application form, copy of the bank account a/w the copy of the cheque vide which payment of the purchase consideration of the aforementioned shares was made. Also, the assessee had filed before the lower authorities the copy of the share allotme....
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....o support his claim of having carried out genuine transactions of purchase/sale of shares of JMD Telefilms Industries Ltd. 12. As stated by the ld. A.R, and rightly so, the observations of the A.O are found to be more or less backed by information received by him from the Directorate of Investigation, Kolkata and the unsubstantiated statements of third parties who are not connected with the assessee. Insofar the third party statements relied upon by the A.O are concerned, the same, as observed by us hereinabove, do not raise any allegation qua the authenticity of the transactions of purchase/sale of shares of JMD Telefilms Industries Ltd. by the assessee. Also, the A.O instead of disproving the contents of the aforesaid documentary evidence that were filed by the assessee in support of his claim of having made genuine purchase/sale of shares in question, had rather in disregard of the same chosen to remain guided by assumptions, presumptions, surmises and principles of preponderance of human probabilities. Insofar the observation of the A.O that the statement of the assessee recorded u/s 131 of the Act in the course of the assessment proceedings revealed, viz. that the assessee ha....
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....tors; and the financials of the company also did not show any reason for the extraordinary performance of its stock. In our considered view, though the aforesaid data gathered by the A.O being based on the facts cannot be faulted on our part, but we are unable to persuade ourselves to concur with him that for the said reason the assessee is to be held to have evaded taxes and laundered his unaccounted money by booking a bogus claim of LTCG that is exempt u/s 10(38) of the Act. Although, the A.O had at length discussed in his order the information that was shared with him by the Investigation wing of Kolkata i.e the modus operandi adopted by beneficiaries with the help of entry operators to obtain tax free capital gains, however, we are afraid that nothing concrete has been brought on record which would prove to the hilt the falsity of the assessee"s claim of having carried out genuine transactions of purchase/sale of shares under consideration, and therein prove that he in the garb of a bogus transaction had only procured a bogus entry of capital gain. On the contrary, we find that the assessee had duly substantiated the purchase of shares under consideration on the basis of suppor....
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....ns wherein the CIT(A) had tried to put himself in the arm chair of the assessee and indirectly had called for an explanation as to why the investments were not made by him or; if they were so made, then, why they were not made in a desired manner. At this stage, we may herein observe that the prudence of the assessee qua the manner of making of investments remains his sole prerogative and cannot be interfered with by the department. Insofar the invoking of the principle of preponderance of human probability is concerned, the same, in our considered view would come into play after disproving and dislodging to the hilt the documentary evidence that had been placed on record by the assessee to substantiate the genuineness of the transaction of purchase/sale of shares in question. Our aforesaid view that in the absence of any evidence, whatsoever, to allege that money had changed hands between the assessee and the broker or any other person, or that some person provided the entry to convert unaccounted money for getting benefit of LTCG, the unsubstantiated claim of the department that the assesseee had taken recourse to a structured transaction for evading his taxes and laundering his ....
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....simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that "There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, f....
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.... same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue." Also, a similar view had been taken by the Hon'ble High Court of Bombay in the case of CIT Vs. Shyam R. Pawar (2015) 229 Taxman 256 (Bom). In its aforesaid judgment, the Hon'ble High Court referring to the facts of the case before them observed, that while for the depar....