TaxTMI 
TaxTMI 
2022 (3) TMI 829
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....application of mind This is further evident from following features of reasons recorded: i) That in reasons recorded in column no 8(a) it is incorrectly stated that assessee has not filed return of income where as factually return was filed on 02/02/2015 which itself vitiates the belief formed; ii) That in reasons no tangible material is narrated or described so as to form valid belief u/s 148 of the Act; iii) That mere DIT information is mentioned in reasons recorded which is nowhere corroborated by any independent material; iv) That merely for verification and examination case is reopened u/s 148 which is not permissible u/s 148 and for verification only possible option is recourse to section 143(2) of the Act which is missed here (refer para 3 & 5 of reasons recorded); v) That as stated in opening para of reasons recorded mere suspicion created by investigation wing information is made as sole basis to form belief which is proscribed in law; vi) That to make deep scrutiny reopening u/s 148 is made as stated in penultimate para of reasons recorded; vii) That existence of information relied in reasons before Ld AO at the time of reasons recording is disputed and seri....
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....lied in impugned orders, which is sufficient to quash the assessment order and order passed by Ld CIT-A. 3. That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the action of Id AO in making addition of Rs. 24,69,636/- without appreciating that burden to, prove that transaction is bogus/sham has remained un-discharged from side of revenue and contrary findings of Ld CIT-A are repudiated at length. 4. That on the facts and in the circumstances of the case and in law, both Id CIT-A and Id AO erred in making subject additions without appreciating that the modus operandi relied extensively in impugned orders is never co-related even remotely to the facts of the present case as there is no iota of evidence brought on record which can display that assessee herein has inducted certain cash at the time of sale to certain indentified broker/middleman/syndicate member who has in turn introduced certain identified artificial paper company for alleged parking of said cash to buy the shares sold by the assessee which theoretical trail has remained inchoate completely modifying the entire basis of the addition. 5. That on the facts and in the circ....
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....g spirit of law contained in section 10(38) and section 43(5)(d) where statutory status is provided to evidences generated from stock exchange system treating the same to be impeccable and only from finance act 2017 with prospective effective from AY 2018-2019, amendment is made in section 10(38), prior to which such gains would remain exempt. 10. That the appellant craves leave to add add/alter any/all grounds of appeal before or at the time of hearing of the appeal. Humble Prayer: i) To quash reopening made without authority of law merely for verification and scrutiny and without valid notice u/s 143(2) of the Act. ii) To delete the addition of Rs. 24,69,636/- on a/c of alleged bogus LTCG. iii) To quash assessment order and Id CIT-A order for being passed in serious violation of audi altrem partem. iv) To hold section 68 etc does not apply to sale of shares and that too sans credit in books of account maintained by assessee; v) To restore returned income vi) Any other appropriate relief" Excerpts from the Assessment Order: 3. The assessee is an individual and during the relevant year, the assessee is house wife only earn interest income on FDRs and saving bank a....
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....as the share price movements and the profit earned by the beneficiaries were beyond human probabilities. Thus a deeper study was needed to ascertain whether the transactions were genuine investment transactions or colorable device only to convert the unaccounted cash into tax exempt income. In short, it was to be ascertained whether the apparent was real. 11. The scrip were thoroughly examined and the following facts emerged: Facts of the Share namely M/s Esteem Bio (EBFL) 12. The revenue held that from the Individual Transaction Statement of the assessee and the Investigation Report on Manipulation of penny stocks for bogus Long Term Capital Gain (hereinafter referred as LTCG), it was noticed that the assessee is a LTCG beneficiary and during the relevant year has earn LTCG exempt u/s 10(38) of net amount of Rs. 21,03,034/- through transactions in the impugned scrip of M/s Esteem Bio (EBFL). 13. The investigation report was thoroughly perused by the AO and after going through the relevant material and statements recorded on Oath u/s 131(1), it was evident that the scrip was operated in a well-coordinated and pre-arranged fashion to provide transactions in the form of bogus LTC....
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....tal Current Assets 0.85 2.87 5.38 3.70 1.99 Loans and Advances 13.49 8.59 0.00 0.00 0.75 Total CA, Loans & Advances 14.34 11.46 5.38 3.70 2.74 Current Liabilities 1.98 0.03 0.00 0.00 0.00 Provisions 0.03 0.02 0.00 0.00 0.00 Total CL & Provisions 2.01 0.05 0.00 0.00 0.00 Net Current Assets 12.33 11.41 5.38 3.70 2.74 Total Assets 27.70 26.21 11.80 9.27 7.22 Book Value (Rs.) 18.31 17.08 285.43 998.86 570.38 Profit & Loss Account of Esteem Bio Organic Food Processing ------------------------in Rs. Cr. -------------------- Mar 14 Mar 13 Mar 12 Mar 11 Mar 10 12 mths 12 mths 12 mths 12 mths 12 mths Income Revenue From Operations (Gross) 3.20 6.43 0.90 0.23 0.00 Revenue From Operations (Net) 3.20 6.43 0.90 0.23 0.0 Total Operating Revenues 3.20 6.43 0.90 0.23 0.00 Other Income 0.11 0.08 0.00 0.00 0.00 Total Revenue 3.31 6.51 0.90 0.23 0.03 Expenses Operating and direct Expenses 0.00 0....
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....als and was suspended by the BSE for trading previously as well as afterward. A regular and genuine investor would hardly know-that such a company to even listed on BSE. b. From the Audited financials filed by the company with BSE, it is a matter of fact that the listed company does not have any significant/real business as seen from its last many P&L accounts and do not have any significant fixed assets or plant and machinery most of assets being either investment or loans. c. The price movements of scrip are unrealistic and typically Bell shaped that means huge rise over a short span, staying at peak over a short span of time and then sharp decline in price of share. And not matching with overall movement of share market to general and movement of other scripts in same line of business. d. Price movement of scrip upward and down word done mainly through thin volume and all/most entities involved in the same are related in some way and are mainly operated by some entry operator and are bogus. e. There is hardly any history of dividend pay-outs. f. There existed circumstantial factors such as splitting of shares, change in name and address of the listed company, which is ....
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....What this office has come to conclude on the basis of above analysis, documentary evidences, circumstantial evidences, human conduct and preponderance of probabilities is that what is apparent in this case is not real, that these financial transactions were sham ones and that this entire edifice was only a colorable device used to evade tax. 21. The Assessing Officer further held that according to Oxford English dictionary SHAM means: "A thing that is not what it is purported to be. In this instant case even though prima facie it appears that assessee received the aforementioned proceeds out of sale of shares of the scrip in clandestine manner. The detailed analysis and the modus oprendi discussed above firmly establish the events in the instant case. 22. Based on the holistic investigation and enquiries made by the AO, the modus operndi and the movements of the script, the Assessing Officer came to a conclusion that the transactions have not genuine and disallowed the exemption claimed by the assessee u/s 10(38) of the Act. 23. Aggrieved the assessee filed appeal before the ld. CIT(A). 24. Excerpts from the order of the Ld. CIT(A): During the financial year 2012-13 the appel....
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....a major exercise and unearthed the massive racket of entry operators and manipulators to launder the black money and tax evasion. During the said exercise various statements were recorded. Certainly, simultaneous action was not taking place in each and every beneficiary's case. Therefore every beneficiary or his representative was not available at the time of recording of those statements. This situation is unlike a normal court of law where at the time of recording of the statement, the other party or his representative is present in the same court and at the same time and his offering of the said cross examination does not pose any practical difficulty. It was not so in the present case. There is one more aspect of the matter. The Investigation Wing of the Income Tax department in course of discharge of the official duty, has generated a report which is almost akin to an expert opinion. Therefore, if necessary, the author of the report could be cross-examined. However, at no point of time there was demand to cross examine the author of the report. During the hearings conducted in connection with the present appellate proceedings, the AR did not accept the idea to cross examin....
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.... penny stock companies for trading. The Ld. AR, on behalf of the appellant has reiterated, that the various searches and investigations conducted by the IT Dept, Inv Wing Kolkata found no material against the Appellant, hence he has no role and is thus an innocent investor. Prima facie, it may appear to be so but, Income tax Act follows the juridical principle of 'preponderance of probability' and not 'beyond reasonable doubt'. More so in a scam of such a massive scale, with so many players involved, the laws of evidence have to be accordingly applied. Even the AO has drawn strength from judicial pronouncements which specially address such peculiar circumstances and facts. All the circumstantial evidences point to the active or passive connivance of one and all who were part of it and were beneficiaries from this dubious plan. The appellant's vociferous assertion may for a moment appear reasonable, but then the careful reading of Investigation Wing Kolkata's report gives the true perspective. The predetermined plan was executed with perfection which would not in any case falter with the rules/documentation. But allowing misuse of provisions was never t....
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....m on 'penny stock' sale; Disregards paper-trail through contract-notes. Pune ITAT upheld undisclosed income addition for sale proceeds received by assessee-individual on sale of shares & rejected asessee's short term capital gains ['STCG'] claim for AY 200607: Based on the enquiries conducted by BSE/SEBI, AO observed that the shares of a company dealt in by assessee were tainted by penny stock in as much as its prices were manipulated, Accordingly he held that the STCG brought into books was nothing but income from undisclosed sources. It was noted that assessee had claimed huge STCG of Rs. 22 lakh in respect of penny stock purchased for a paltry sum of Rs. 75,000/, further noted that broker from whom assessee purchased the shares was visited with the penalties by SEBI and was debarred from acting as a share broken On assessee's completion of paper-trail by producing contract notes, ITAT remarks that "mere furnishing of contract notes etc. and more specifically when seen in the background of the above noted facts, does not inspire any confidence and cannot be a ground to delete an addition, which is otherwise made on the solid bedrock of detailed enquiries....
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.... years time at Rs. 485/- without there being any reason on record. This unexplained spurt in the value of unknown company shares is beyond preponderance of probability. It has been held by Hon'ble Apex Court in the case of Durga Prasad More and Sumati Dayal that the test of human probabilities have also to be applied by the authorities below. In the case of Sumati Dayal 214 ITR 801, it was held that during the year 1970-71 (pertaining to the assessment year 1971-72) between April 6, 1970, and March 20, 1971, the appellant claims to have won in horse race a total amount of Rs. 3,11,831/- on 13 occasions out of which ten winnings were from jackpots and three were from treble events. Similarly in the year 1971-72, the appellant won races on two occasions and both times the winning were from a jackpot. These receipts were tested on the touch stone of human probability and it was found that apparent was not real. That it was contrary to statistical theory and experience of the frequencies and probabilities. The exceptional luck enjoyed by the assessee was held to be beyond preponderance of probability. Hence the Hon'ble Apex Court has affirmed the view that it would not be unrea....
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....ious year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year." 4.9 It may be seen that whether explanation of the appellant is satisfactory or not is to be seen with reference to the opinion of the assessing officer. The legal position in this regard is discussed in the following paragraphs. In the context of section 147, Ld.CIT(A) held that Hon'ble Supreme Court while delivering judgment in the case of Raymond Woollen Mills Ltd Vs. Income-Tax Officer And Others [1999] 236 ITR 34 (SC) laid down a ratio that the sufficiency or correctness of the material is not a thing to be considered by the courts. This view is reaffirmed by Hon'ble SC, in case of Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. 291 ITR 500(5C). The Hon'ble SC has stated as under: "This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (....
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....o establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by the Income-tax Officer and examined whether there was any material available on the record from which the requisite belief could be formed by the Income-tax officer and further whether that material had any rational connection. Or a live link for the formation of the requisite belief..." 4.13 Hon'ble Delhi High Court, while delivering the judgment, in case of Dalmia Pvt. Ltd. Vs Commissioner of Income Tax Delhi [2011] 14 Taxmann.com 106 (Delhi), on 25 September, 2011 has uphold this principle. The Hon'ble HC stated as under: "..The sufficiency or correctness of the material is not a thing to be considered at this stage as held by Supreme Court in the case of Raymond Woolen Mills Ltd. V ITO (1999) 236 ITR 34 (SC), Green Arts (P) Ltd. V ITO (2005) 257 ITR 639 (Delhi). The assessee cannot challenge sufficiency of belief-ITO V. Lakhmani Mewal Das (1976) 103 ITR 437 (SC)..." 4.14 Therefore, Ld.CIT(A) came to a conclusion that if the subj....
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....om 196) * Dinesh Kumar Khandelwal, HUF vs. ITO in ITA No. 58 & 59/Nag/2015 vide order dated 24h August, 2016 * Ratnakar M. Pujari vs. ITO in ITA No. 995/Mum/2012 vide order dated 03.08.2016 * Disha N. Lalwani vs. ITO in ITA No. 6398/Mum/2012 vide order dated 22.03.2017 * ITO vs. Shamim M. Bharwoni [2016] 69 taxnnann.com 65 * Usha Chandresh Shah Vs. ITO in ITA No. 6858/Mum/2011 vide order dated 26.09.2014 * CIT vs. Smt. Jasvinder Kaur 357 ITR 638 order dated 12.06.2013 (Gauhati HC) The Ld. CIT(A) held that while Ld. AR has supported his contention citing various decisions of Hon'ble High Courts and ITATs but the final interpretation of the legislative intent and law of the land has been clearly put forth by the Hon'ble Supreme Court in the following three landmark judgments: * Durga Prasad More [1971] 82 ITR 540 (SC) * Sumati Dayal 214 ITR 801 (SC) * Mc Dowell & Co. 154 ITR 148 (SC) As can be seen from the magnitude, volume and surgical precision of the entire operation, it was an exercise which was targeted to introduce unaccounted money into the books, that too without paying taxes, by abusing the exemption provisions u/s 10(38) of the statute, to cir....
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....ke of completeness: M/s SBS Realtors (P) Ltd ITA No.7791/Del/2018 Date of pronouncement: 01.04.2019 "6. From a perusal of the above reasons, it is seen that the Investigation Wing has supplied certain information to the Assessing Officer with regard to receipt of cheques by the assessee from various companies who are considered to be S.K. Jain group companies by the Investigation Wing. As per the Investigation Wing, the above cheques paid by S.K. Jain group companies were accommodation entries to M/s SBS Realtors Pvt. Ltd. i.e., the assessee. However, what is the material found during the course of search of S.K. Jain group cases which had led to form the belief that all those companies are providing accommodation entries is not mentioned in the reasons recorded. It is also not mentioned whether any of the directors of the above companies have provided accommodation entries to M/s SBS Realtors Pvt. Ltd. It is also not mentioned whether any document was found which led to the belief of giving of accommodation entries by those twelve companies to the assessee. On receipt of above information, the Assessing Officer compared the figures in the balance sheet of the assessee filed for....
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.... identification and creditworthiness of the transaction is not permissible under law and is liable to be quashed." Further in above order on reference to investigation wing information for reopening of the case, it is succinctly held that: "The learned counsel for the assessee has also mentioned that the notice has been issued mechanically without application of mind and the satisfaction by the Assessing Officer is only the borrowed satisfaction of the Investigation Wing. The Assessing Officer, without applying his mind, has simply on the basis of information of the Investigation Wing jumped to the conclusion that there is escapement of income. From a perusal of the aforesaid reasons, we do not find any application of mind by the Assessing Officer for reaching to the conclusion that there was escapement of income except the information from the Investigation Wing. After getting the information from the Investigation Wing, the Assessing Officer compared the figures in the balance sheet and has found that the assessee has issued share capital of Rs. 2,35,00,000/-. The issue of share capital by itself is not sufficient to reach to the conclusion of escapement of income. The Investi....
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....ped to the conclusion that there is escapement of income. The reasons so recorded do not show that there is any application of mind by the Assessing Officer for reaching the conclusion that there was escapement of income except the information from the Investigation Wing. The Hon'ble Delhi High Court in a number of decisions has held that reopening of assessment on the basis of report of the Investigation Wing without independent application of mind by the Assessing Officer is not in accordance with law and accordingly the reassessment proceedings have been quashed. The Hon'ble Bombay High Court recently in the case of South Yarra Holdings vs. ITO, vide Writ Petition No.3398 of 2018, order dated 1st March, 2019, at para 7 of the order has observed as under:- "7. It is a settled position in law that re-opening of an assessment has to be done by an Assessing Officer on his own satisfaction. It is not open to an Assessing Officer issue a reopening notice at the dictate and/or satisfaction of some other authority. Therefore, on receipt of any information which suggests escapement of income, the Assessing Officer must examine the information in the context of the facts of the ....
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....or" is even more mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom. 23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. 24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to th....
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.... 23,52,034/- and further Rs. 1,17,062/- has been added on alleged brokerage /commission paid @5% of Rs. 23,52,034/-. So total addition made in assessment order was Rs. 24,69,636/- which was sustained at CIT-A level, and same is impugned here before this Hon'ble Tribunal. With this brief factual introduction we wish to humbly submit straightway that in identical /same facts in assessee's own case for AY 2015-2016, this Hon'ble ITAT (A bench Delhi ITAT in ITA 1070/Del/2019) vide order dated 06/08/2019 has deleted the identical addition for which we reproduce relevant paragraphs from said order to display present matter is fully covered by that order: "3. The appellant purchased shares of following companies:- 1. M/s. Esteem Bio Organic Food Processing Ltd. - 6,000 shares on 11.02.2013 2. M/s. Randers Corporation Ltd. - 3500 shares on 20.11.2012 4. The shares were purchased online through two brokers namely ISF Securities and SMC Global Securities stationed at New Delhi. 6. Shares of M/s. Esteem Bio Organic Food Processing Ltd. were sold on different dates namely 22.02.2014 1200 shares, 28.02.2014 1200 shares, 04.03.2014 2400 shares and on 06.03.2014 1200 shares. The sale t....
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....e are of the considered view that the assessee has successfully discharged the onus cast upon him by provisions of section 68 of the Act as mentioned elsewhere, such discharge of onus is purely a question of fact and therefore the judicial decisions relied upon by the DR would do no good on the peculiar plethora of evidences in respect of the facts of the case in hand and hence the judicial decisions relied upon by both the sides, though perused, but not considered on the facts of the case in hand. 31. We accordingly direct the Assessing Officer to accept the long term capital gains declared as such. 32. As mentioned elsewhere the facts of all the appellants are identical, the companies whose shares have been purchased / sold giving rise to long term capital gain are same, though the quantum may differ. For our detailed discussion here in above, the appeals of all the appellants are allowed with the direction to accept the long term capital gain declared as such. 33. Since we have accepted the long term capital gains we do not find any merit in the additions on account of alleged payment of commission to the brokers and, therefore, additions made on this account is also directed....
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....rused the relevant material available on record. The purchase of shares of Swaca Business Machines Ltd. by both the assessee was evidenced by way of Contract Note issued by the recognized stock broker ASE Capital Markets Ltd. It is not in dispute that ASE Capital Markets Ltd. is one of the recognized stock brokers by Security Exchange Board of India. The shares were also sold through ASE Capital Markets Ltd. The Contract Notes for purchase and sale of shares were filed by both the assessees before the Assessing Officer at the time of assessment proceeding. The assessment proceedings were completed on the ground that one Shri Chandrakant Shah provided accommodation entry to various persons. The question arises for consideration is whether the assesseee transaction in respect of purchase of shares and sale of shares through ASE Capital Markets Ltd. is a bogus transaction? This Tribunal is of the considered opinion that when the fact that ASE Capital Markets Ltd. is a recognized stock broker is not in dispute and the assesseee have also purchased the shares at the market rate and sold the same at market rate through recognized stock broker of Security Exchange Board of India, it canno....
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....act that ASE Capital Markets Ltd. is a recognized stock broker is not in dispute and the assesses have also purchased the shares at the market rate and sold the same at market rate through recognized stock broker of Security Exchange Board of India, it cannot be said that the transaction was a bogus one". In the circumstances, I am inclined to follow the decision of Coordinate Bench in the case of Nirav Kumar Mahendra Kumar Sapani (supra). Transactions done through recognized stock exchanges where payments were made through bank cannot be doubted or disbelieved based on an investigation report of the Department, which at the best can be strong reason to suspect the veracity of the claim but not good enough to disbelieve it. I am therefore of the opinion that there is nothing concrete brought on record by the Department to show that transactions entered by the assessee in the shares of SMIL were bogus or sham. I therefore do not find any reason to uphold the orders of the lower authorities. Such orders are set aide and the addition is deleted." Prayer: We humbly submit that above inundated jurisprudence squarely applies to present facts where online purchase/sale of share remains....
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.... the issue of capital gain is clearly covered by the explanation to section 147 of the Income Tax Act, 1961. Hence it is a case where it shall be deemed to be case where Income chargeable to tax has escaped assessment. 4. In view of the findings stated in para 2 above the undersigned has reason to believe that the assessee's income for AY 2014-2015 has escaped assessment within the meaning of section 147 of the I.T.Act,1961. 5. Since without scrutiny the matter of bogus capital gain cannot be examined /verified, the only requirement to initiate proceeding u/s 147 is reason to believe which has recorded above (refer paragraphs 2 to 4) 6. In this case four years but not more than six years have elapsed from the end of the assessment year under consideration and income chargeable to tax which has escaped assessment is more than Rs. 1 lac necessary sanction to issue notice u/s 148 of the Act is being obtained separately from the Pr CIT 13 DELHI under amended provisions of section 151 of the Act w.e.f 01/06/2015." 31. In the backdrop of recording of reasons, the issue of notice where income as escaped assessment and the sanction for issue of notice as per the provisions of Sectio....
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....otal income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E; (c) where an assessment has been made, but- (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed; (ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of....
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....xpiry of the time limit for making the assessment, re-assessment or re-computation as specified in subsection (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice: Provided further that in a case- (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and (b) subsequently a notice has been served under clause (ii) of subsection (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or re-computation as specified in subsection (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice. Explanation.-For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section. (2) The Assessing Officer shall, before is....
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....nue authorities with regard to the trade of shares of M/s Esteem Bio Organic Food Processing Ltd. The entire modus oprendi was available with the Assessing Officer and the same has been available in the public domain. The Assessing Officer has clearly mentioned that the financials of the company for the relevant period do not show any substantial change to support a huge price moment reflect that the Assessing Officer has been very focused on the issue which triggered the reopening u/s 147. The Assessing Officer is aware of the fact that the capital gains need to be examined in detail before taxing the same shows that the Assessing Officer has not merely swayed by the information received but take a conscious decision to examine the capital gains declared by the assessee in detail so as to tax or exempt the same. The Assessing Officer has clearly mentioned that as reasons to believe that the income of the assessee has escaped assessment for the A.Y. 2014-15 within the meaning of Section 147 of the I.T. Act. The Assessing Officer is well aware of the time limit to reopen the assessment as per the provisions of Section 151 and has obtained due approval from the relevant authorities i....
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.... is a fit case for issuance of notice u/s 148", the issuance of notice under section 147/148 was held to be valid. 38. In the case of PCIT Vs Meenakshi Overseas Pvt. Ltd. in ITA No. 651/2015 order dated 11.01.2016 by the division bench of Hon'ble Jurisdictional High Court held, "16........for the purpose of Section 151(1) of the Act, what the Court should be satisfied about is that the Addl. CIT has recorded his satisfaction "on the reasons recorded by the Assessing Officer that it is a fit case for the issue of such notice". In the present case, the Court is satisfied that by recording in his own writing the words: "Yes, I am satisfied", the mandate of Section 151(1) of the Act as far as the approval of the Addl. CIT was concerned, stood fulfilled." 39. The above preposition has been referred to in the case of S. Gandhi & Others in WP(C) 8482/2018 order dated 10.09.2018 by the Hon'ble Jurisdictional High Court. 40. Similar view has been expressed by the Hon'ble High Court of Delhi in the case Experion Developers Pvt. Ltd. Vs. ACIT 115 Taxman 338. 41. The expression "has reasons to believe" is wider than "is satisfied and the reasons must have be live link with the formation ....
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....the instant case, we find that the information and the reasons to belief have tangible and rationale interconnection much needed for reopening of the case u/s 147. 43. The Hon'ble Supreme Court in the case of Raymond Woolen Mills Vs ITO 236 ITR 34 held as under: "We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority." 44. At the time of reopening what is required is reasons to believe with regard to escapement of income, the Ass....
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....ng Ltd. cannot be treated as a penny stock. 47. We have gone through the decisions and also facts on record. The ld. AR's contention that the report of the investigation wing and the enquiries conducted by the revenue is much later than the dates of purchase and sale of shares and the order of the SEBI is also much later than the date of transactions and nowhere SEBI has declared the transactions at earlier dated as void cannot hold any water for the simple reason that any act of a person involving an operation against the law would always be liable for action only after the due enquiries have been made and the facts have come to fore. It cannot be said that since no enquiries have been conducted and the transactions have been undertaken, the conduct of the assessee is certified one cannot be established. Any enquiry in a scam is initiated only after the scam erupts in public and taken due cognizance. Hence, it cannot be said that since the transactions have been taken before the enquiries such transactions remain un-coloured or simple, straight and genuine. 48. The assessee cannot take shelter for the sole reason representing that the transactions have been taken place on the st....
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.... and HPC Biosciences Ltd., as it was prima facie found that several entities have indulged in manipulative transactions in securities and misuse of the securities market. The interim order, pending investigation, restrained these persons, including the Noticees in the present case, from accessing the securities market and from buying, selling or dealing in securities, either directly or indirectly, in any manner, till further directions. 2. It has been observed in the interim order that these companies had very small capital base prior to the year 2011. During the year 2011 and 2012, these companies increased their capital base by issuing shares to several entities. Once the equity share capital base of these companies increased substantially, they came out with IPO in the year 2013. After listing, the share price of all these companies increased astronomically till December 31, 2014. More particularly, the price of the scrip of Esteem Bio witnessed substantial increase during the period February 7, 2013 to December 31, 2014, i.e. within a span of 244 trading days. 3. It has also been observed that these scrips were not in demand by the general investors. However, a set of conn....
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....ices and contributing to positive LTP. They have been alleged to have violated the provisions of Regulation 3 (a), 3(b), 3(c), 3(d), 4 (1), 4(2)(a) & 4(2)(e) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations). The Noticees have therefore been called upon to show cause as to why directions under sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 (SEBI Act) be not issued against them for the aforesaid alleged violations. 6. I find that in response to the SCN issued to the Noticees, Shri Ashwin Verma (Noticee No. 4) has responded vide letters dated June 11, 2018. However, none of the other Noticees has responded to the SCN till date. In order to proceed further in the matter, an opportunity of hearing was granted to the Noticees on January 30, 2019. On the date scheduled for hearing, Shri Dipak Purwar, Chartered Accountant, appeared for hearing as Authorized Representative of Noticee No. 4 and made oral submissions on the lines of the written reply filed by the Noticee in the matter. The summary of the written and oral submissions made by Noticee No. 4 is as under: a)....
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....lishing successive NHP during the period of investigation. The SCN alleges that regulations 3(a), (b), (c), (d), 4(1), 4(2) (a) and (e) of PFUTP Regulations have been violated by the Noticees. The provisions of these regulations are reproduced hereunder: Regulation 3. Prohibition of certain dealings in securities "No person shall directly or indirectly - (a) buy, sell or otherwise deal in the securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of ....
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.... transactions with Shri Ashvin Verma (Noticee No. 5). Shri Ashvin Verma and Shri Pawan Kumar Kaul (Noticee No. 2) shared common email address and contact number. Shri Pawan Kumar Kaul has executed off- market transactions with Core Capital Services Ltd. (Noticee No. 6). Shri Ashvin Verma (Noticee No. 4) has executed off-market transactions with River High Share Brokers Pvt. Ltd. (Noticee No. 7), Core Capital Services Ltd. (Noticee No. 6), Shri Vishal Yadav (Noticee No. 3) and others in the group. Shri Vishal Yadav (Noticee No. 3) has also executed off-market transactions with Core Capital Services Ltd. (Noticee No. 6), River High Share Brokers Pvt. Ltd. (Noticee No. 7), Shri Ashwin Verma (Noticee No. 4) and others in the group. Sure Portfolio Services Pvt. Ltd. (Noticee No. 8) has traded in the scrip of Esteem Bio and it is having common director, address and email id with several other entities in the trading group. 13. The details of the trades executed by and between the Noticees along with the inter-se connections and relationship shared by the Noticees with each other were provided to them along with the SCN. Most of the Noticees have chosen not to respond to the SCN and eve....
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....nder: Positive contribution to LTP by Noticees trading among themselves Buyer / counterparty Accurate Buildwell Private Limited (LTP eontributi on in Rupees, Number of trades in bracket) Pawan Kumar KanJ (LTP eontributi on in Rope.es, Number of trades In bracket) Ashvin Verma (LTP eontributi oil in Rupees, Number of trades in bracket) Vtslmi Yackv (LTP eontributi on in Rupees, Number of trades in bracket) Sure Portfolio Services Private Limited (LTP contiibyti on in Rupees) Number1 of trades In bracket) T oral (LTP contributi on in Rupees, Number of trades in bracket) Accurate Buildwell Private limited 0.05 (1) 24.75 (2) .. _ 24.80 (3) Century Buildmart Private limited 10.7 (1) 15.1 (2) - - 25.80 (3) Core Capital Services Limited 14.50 (1) 14.50 (1) Pawan Kumar Kaul 5.5 (t) - - - _ River High Eight Share Brokers Private limited 10.1 (1) 1.85 (1) 11.95 (2) Vishal Yadav - - 7.85 (1) - 7.85 (1) Total 15.65(3) 35.45 (3) 22.95 (3) 14.50(1) 1.85 (1) 90.4 (11) NHP contributio....
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....anuary and February 2014. I note that the trade log for the above trades and the pre-order book positions for both buy and sell orders were provided to the Noticees along with the SCN. Noticees have not responded to the same, therefore, it can be assumed that they have nothing contrary to offer in their defence to the allegations made in the SCN However, m order to examine whether the trades executed by the Noticees were manipulative or not, the aforesaid trades executed by the Noticees are discussed further hereunder. 16. From the details of trades entered into by the Noticees and the details of orders placed during the day on which the trades were executed, I note that for the trade executed between Shri Pa wan Kumar Kaul (Noticee No. 2) and Century Buildmart Pvt. Ltd. (Noticee No, 5) on January 16, 2014, the order book analysis has revealed that Pawan Kumar Kaul placed sell order for 1200 shares at 3:09:53 PM at a price ofRs. 134.90. Before this sell order there was no other sell order available in the system. The buy order available in the system was at the price of Rs. 112.35, which was much lower than the sell order price. Within 4 seconds of placing the sell order, i.e. at....
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.... at Rs. 173.85. This trade created NHP difference of Rs. 7.85, Thus, I find that the sell order of Noticee No, 4 was pending in the system since morning and there was no buying interest in the scrip at the price quoted by the Noticee No. 4. It was only after a group entity (Noticee No. 3) placed a matching buy order, the sell order resulted into a trade and established a NHP. 20. On January 23, 2014, Accurate Buildwell Pvt. Ltd. (Noticee No. 1) placed sell order for 1200 shares at 3:11:01 PM at a price of Rs. 182.00. Before this sell order there was no other sell order or buy order pending in the system. At 3:11:05 PM, Pawan Kumar Kaul (Noticee No. 2), a connected entity, placed buy order at the same price and the same volume as the sell order of Noticee No. 1 and die trade for 1200 shares got executed at the rate of Rs.l82.00 per share. This trade established a NHP and the difference of this high price from the last high price was Rs. 5.00.1 note that the orders were placed in the evening by the Noticees and the orders matched within a time difference of 4 seconds. Considering the absence of liquidity in the scrip and the negligible volume of trade and the timing of orders place....
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....e sell order, there were no pending sell orders available, while one buy order was pending at Rs. 369.10. Subsequently, buy order was placed by tire same entity at same price and for the same volume as sell order which resulted into trade at a price of Rs. 384.00 per share. This trade established a NHP in the scrip and artificially raised the price of the scrip sending a false and deceptive perception to innocent investors about the market value of the scrip. 24. I also note that the trades of the Noticees have made positive contribution to LTP on several occasions in the scrip of Esteem Bio and such trades executed by the Noticees were instrumental in unusual price rise in the scrip. The Noticees by acting as counterparty to each other have executed successive trades at prices higher than the last traded price and as per findings of the investigation, such trades have contributed Rs. 90.04 to the price use in the scrip. Sure Portfolio Services Pvt. Ltd. (Noticee No. 8) has executed trades which contributed Rs. 1.85 to positive LTP and the trade has matched with River High Right Share Brokers Pvt. Ltd. (Notic.ee No. 7). Similarly, trades of other Noticees have also contributed to....
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....ticees so far. In this context I would like to refer to the order of Hon'ble Securities Appellate Tribunal (SAT) in the matter of Shri Lakhi Prasad Kheradi Vs. SEBI decided on June 21, 2018 wherein the Hon'ble SAT while addressing the issue as to whether the entity had contributed to 9.17% of the market NHP within a span of two weeks has observed as follows: "....Very fact that the appellant had indulged in self-trades/ LTP/ NHP without giving any justifiable reason, dearly justifies the inference dram by the .AO that the trades executed by the appellant were manipulative trades..." 28. After analyzing the trades executed by the connected entities (the Noticees) amongst themselves, one can surely say that such a trading pattern cannot be called as involving any genuine trading; rather by so trading continuously for a period of around one and half months, such trading pattern had resulted into an artificial rise in price and volume in the shares of Esteem Bio thereby creating a false and misleading impression about the trading in the scrip of Esteem Bio to the investors at large in the market. By continuously entering sell and buy orders deliberately to match each other's order ....
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....fide intention to trade. Almost each trade of the Noticees was instrumental in establishing a NHP and contributing to LTP to increase the price of the scrip of Esteem Bio. In view of the repeated nature of such trades, the culpability in increasing the price is established. I can clearly find that the trades of the Noticees are not trades executed in normal course of trading and investment in securities market. Noticees have deliberately .manipulated the price of the scrip and created a misleading appearance of trading in the scrip to induce innocent investors in the securities market thereby contravening the provisions of regulations 3 (a), 3(b), 3(c), 3(d), 4 (1), 4(2)(a) and 4(2)(e) of the PFUTP Regulations. Directions: 31. In view of the foregoing. I, in order to protect the interest of the investors in the securities market, in exercise of the powers conferred upon me under sections 11 (1), 1 IB, 11(4) read with section 19 of die SEBI Act, 1992 hereby restrain the Noticees from accessing the securities market and further prohibit them from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manne....
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.... known by their respective name or Noticee no. and collectively referred to as "Noticees") In the matter of Esteem Bio Organic Food Processing Limited Background: 1.The present proceedings are arising out of a show cause notice dated August 14, 2017 (hereinafter referred to as "SCN") alleging inter alia that a scheme was devised in the Initial Public Offer (hereinafter referred to as "IPO") of equity shares of Esteem Bio Organic Food Processing Limited(hereinafter referred to as "Esteem Bio/Company"), wherein the applicants of the IPO were funded by entities connected with the Company itself and subsequently the IPO proceeds were not utilized towards the objects of raising funds and instead were allegedly transferred to few of the entities who had funded the applicants of the IPO. Before conducting the investigation in the IPO of the Company, a common ex-parte ad interim order dated June 29, 2015 was issued inter alia against the Company and to three other companies who were seen to have followed a common modus operandi in deploying a fraudulent scheme with respect to their respective IPOs. 2. The brief facts related to the IPO and the scheme allegedly deployed by the Compa....
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....ants. The Company, was able to raise an amount of INR11.29 Crore from 470 applicants. The details of applications received, shares allotted etc., are tabulated herein below: Table 3: Break up of applications Class of applicant No. of applications No. of shares applied No. of shares allotted No. of Allottees whom shares allotted No. of shares Application rejected Market Maker 1 7,50,000 7,50,000 1 0 HNI 32 11,64,000 11,46,000 32 0 RII 479 28,74,000 26,22,000 437 1,74,000 Total 512 47,88,000 45,18,000 470 1,74,000 vi. It was also noticed during the investigation that certain entities had provided funds to several IPO applicants to enable them to make application under the IPO of the Company. Such entities were further noticed to be connected with the Company itself, based on various factors like fund transactions, common directorship in companies, etc. For the sake of convenience of reference, the said entities are hereinafter referred to as "funding group entities". vii. The investigation further revealed that applications of 270 Retail Individual Investors (RIIs) were funded by the funding group entities, out of which 238 ....
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.... Industrial, N V Sales Corporation, A One Furniture (Proprietorship firms of Noticee no. 6), Goldline and AMS Powertronic Pvt. Ltd. 3 Madhukar Dubey Proprieto rship Firm * N V Sales Corporation * A One Furniture (Noticee no. 6) Dhanlaksh mi Bank - 01910670 000 1580 * N.V. Sales Corporation had issued 16 cheques of INR 1.50 Lakh each to the Company on behalf of 16 Non ASBA retail investors. (9 allottees got allotment) * It had received INR 10.60 Lakh from Khan Enterprises (Proprietorship firm of Noticee no. 7) Yes Bank - 01368390 000 2266 * A One Furniture had issued 20 cheques of INR 1.50 Lakh each to the Company on behalf of 20 Non ASBA retail investors. (20 allottees got allotment) * It had received INR 16.50 Lakh from Magnum Industrial Corporation and INR 15 Lakh from Sumit Kumar. 4 Ram Prakash Proprietorship Firm * Khan Enterprise (Noticee no. 7) Tamilnad Mercantile Bank - 21115005 080 0272 * Khan Enterprise had issued 19 cheques of INR 1.50 Lakh each to the Company on behalf of 19 Non ASBA retail investors. (18 allottees got allotment) * It had received INR 22.40 Lakh from Shiv Traders & INR 5 Lakh from Garg Traders & Suppliers. * Shi....
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....of Rs. 1.50 Lakh each to the Company on behalf of 3 non ASBA allottees. (2 allottees got allotment) * It had received INR 5.00 Lakh from Core Capital Services Pvt. Ltd. Further, it had fund movement with AMS Powertronic Pvt. Ltd., Goldline, Madhukar Dubey (Noticee no. 6). 12 Gracious Software Pvt Ltd. (Noticee no. 15) Axis Bank - 91202001 500 6932 * It had issued 42 cheques of INR 1.50 Lakh each to the Company on behalf of 42 non ASBA allottees. (42 allottees got allotment) * It had received INR 63 Lakh from Mayfair Infosolution Pvt Ltd. Further, it had fund movement with Goldline. x. A summary of the amounts funded by various funding group entities, no. of allottees who got allotment of shares due to such act of funding made on their behalf by the respective funding entities etc., are presented in the table herein below: Table 5 Sr. No. Funding Entity Amount funded (Rs. in lacs) No. of allottees got allotmen t Received back from IPO proceeds of Esteem (Rs. in lacs) No. of shares allotted 1 Goldline International Finvest Ltd. (Noticee no. 4) 277.50 39(2 ASBA) 484.60 10,32,000 2 Satendra Kumar & Proprietorship firm (Noticee no. 5) 58.5....
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....e nos. 1, 2, 3, 4, 9, 10, 12, 13through SPAD and Notice nos. 5, 6, 7, 8, 11, 14 and 15,through affixation. It is noted that the Noticee nos. 1, 3, 4, 10and 15 had sought inspection of the documents which was granted to them. Later on, opportunity of personal hearing to the Noticees was granted on June 18, 2019 which was rescheduled to July 02, 2019. However, as inspection of documents was sought by few more Noticees, the personal hearing was again rescheduled to August 06, 2019. It is noted from the records that the hearing notice was served upon on various Noticees through substituted mode of service, viz., Newspaper publication, with the following details: Table 6 6. On the said date, i.e., August 06, 2019,only Noticee no. 13 appeared through authorize On the said date, i.e., August 06, 2019, only Noticee no. 13 appeared through authorized representative and he was heard, while adjournment requests were received from Noticee nos. 1, 3, 4,10and 15Accordingly, the Noticee no. 1, 3, 4 10and 15were provided with another opportunity of personal hearing on November 14, 2019. On the said date only, Noticee no. 3 appeared on his behalf as well as on behalf of the Company (Noticee no.....
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.... Goldline have formed basis of making allegations. The case deserves reinvestigation for appreciation of correct facts, as has been done in certain other cases. viii. IPO proceeds were utilized towards the stated objects and land development agreements for an amount of INR 5.66 Crore have been executed by the Company. ix. Apart from the above, the Company had spent INR29.00Lakh (approx.) towards expenses of IPO. The details of the said amount spent are: INR2.66 (approx.) Lakh to BSE; INR2.88 Lakh to SAP Printer Solutions Pvt. Ltd.; INR20.00Lakh (approx.) to Guiness Corporate Advisor (Merchant Banker); INR1.23 Lakh to NSDL and CDSL; and INR1.24 Lakh (approx.) to Innovative Communication. Also, INR 58.00 Lakh has been paid to Cameo Corporate Services. x. The Company has also extended an amount of INR 4.40 Crore in short term loans to various entities. 8. Noticee no. 10 (Avisha Credit Capital Limited), vide its letter dated September 11, 2017, while denying the allegations, has submitted that it is a Non-Banking Financial Company (hereinafter referred to as 'Avisha') and in its normal course of business, it had provided funds to needy people, who in turn have discretion to uti....
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....annot be said to have made under instructions of anyone else, particularly in the absence of any evidence. vi. Ms. Sunita had also applied under the IPO of another company viz., Eco Friendly Food Processing Park Ltd. ("ECO"). The said application in the IPO was rejected and the refund amount of INR1.50 Lakh was utilized towards application of IPO of Esteem Bio. vii. In ECO also, Noticee no. 3(Brij Kishore Sabharwal), is one of the Directors. As her application for shares of ECO was rejected, the same shows that Ms. Sunita does not have any connection (except professional) with the Noticee no. 3. viii. There is no direct connection with Noticee no. 4 (Goldline International Finvest Ltd.). It has taken loan of INR50.00 Lakh from Noticee no. 4, which was a RBI registered NBFC, during FY 2012-13. The said loan has been repaid during FY 2014-15 with interest of INR 5.81 Lakh (approx.). ix. There is no allegation of receipt of IPO proceeds by Ace Consultants. x. For an act to be termed as 'fraudulent', inducement or misrepresentation needs to be present, as held by Hon'ble Supreme Court in the matter of Ram Chandra Singh Vs. Savitri Devi and Ors. [2003 8 SCC 319]. By the invest....
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....ent should be made available to the appellant........" 12. Similar observations have also been made by Hon'ble SAT in the matter of Shruti Vora Vs. SEBI (Date of decision: February 12, 2020). In the said matter, the appellant therein had challenged the rejection of her request to inspect all the documents collected during the investigation. While rejecting the said challenge, Hon'ble SAT inter alia held : "...A bare reading of the provisions of the Act and the Rules as referred to above do not provide supply of documents upon which no reliance has been placed by the AO, nor even the principles of natural justice require supply of such documents which has not been relied upon by the AO." (emphasis supplied). Therefore, applying the ratio of the aforesaid orders in the present case, I observe that the demand of the Noticees to provide them with the copy of investigation report and other material collected during the investigation is devoid of merit and has to be rejected since in the extant case, all the documents that have been relied upon in the SCN to make the allegations against the Noticees have already been furnished to them along with the SCN itself. Moreover, as per the mat....
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....or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made there under; (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange; (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder. SEBI (PFUTP) Regulations, 2003 Prohibition of certain dealings in securities Regulation 3. No person shall directly or indirectly- (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made thereunder; (c) employ any device, scheme or artifice t....
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.... 2 Satendra Kumar * Nisha Traders had received funds from Magnum Industrial and Bright Sr.no. Particulars Connection - Fund Movement Proprietors hip Firm Bright Securities * A R Enterprise * Nisha Traders (Noticee no. 5) Securities * Bright Securities had fund movement with Nisha Traders, Magnum Industrial, N V Sales Corporation, A One Furniture, Goldline and AMS Powertronic Pvt. Ltd. * Address: Plot No. 3, Gali No. 3, East Guru Angad Nagar, Laxmi Nagar, Delhi - 110092. * Proprietorship firm of Sumit Kumar, Madhukar Dubey and Satendra Kumar were having common address. 3 Madhukar Dubey Proprietors hip Firm * Alliance Traders * N V Sales Corporation * A One Furniture * Magnum Industrial (Noticee no. 6) * N V Sales Corporation had fund movement with Khan Enterprises, AMS Powertronic Pvt. Ltd. * A One Furniture had received funds from Magnum Industrial. * Alliance Traders had received funds from AMS Powertronic Pvt. Ltd., Mayfair Infosolution Pvt. Ltd., A One Furniture, N V Sales Corporation, Nisha Traders. * Magnum Industrial had received funds from ECO and A One Furniture. * Address: Plot No. 3, Gali No. 3, East Guru Angad Nagar, L....
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....arels Pvt. Ltd. (Noticee no. 14) * It had fund movement with AMS Powertronic Pvt. Ltd., Goldline, Madhukar Dubey and Mayfair Infosolution Pvt. Ltd. 12 Gracious Software Pvt. Ltd. (Noticee no. 15) * It had fund movement with Goldline and Mayfair Infosolution Pvt. Ltd. 13 Aavia Buildtech Pvt. Ltd. * It had received IPO proceeds of INR 40.00 Lakh from the Company. * Aavia Buildtech Pvt. Ltd. and Aavia Softech Pvt. Ltd., were having common address: 1/2486, Gali No. 26, Ramnagar, Modern Shahdra, East Delhi 110032. * Aavia Buildtech Pvt. Ltd. and Aavia Softech Pvt. Ltd. have common Directors: 1) Sr. no. Particulars Connection - Fund Movement Kamal Singhal 2) Ramprakash. * Mr. Ramprakash is the proprietor of M/s. Khan Enterprise and Ms/. Aggrawal Traders. 14 Shiv Traders * Shiv Traders had fund movement with Mayfair Infosolution Pvt. Ltd., Khan Enterprise, Neelkanth Trading, AMS Powertronic Pvt. Ltd., Aavia Buildtech Pvt. Ltd., Esteem Bio. 15 AMS Powertronic Pvt. Ltd. * It had received INR 325.00 Lakh from the IPO proceeds of Esteem Bio. * It had fund movement with Mayfair Infosolution Pvt. Ltd., Goldline, Amsons Apparels Pvt. Ltd., N V Sales Corporation, Aavia Soft....
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....leged in the SCN, took place out of commercial dealings, however, no verifiable documents such as balance sheets, invoices, TDS certificate, agreement/contract etc., have been produced before me to support such a tall claim of having transferred huge sums of money, viz :INR 239.60 Lakh from the IPO proceeds directly and INR 245 Lakhs indirectly (through ECO), to the Noticee no. 4 as a matter of so called commercial transactions. Similarly, Noticee no. 10, which has claimed to be an NBFC as also made a bald and superfluous statement stating that it had provided funds to needy people, who had their own discretion to utilize such funds(in the manner they wanted). I note that the said assertions of the Noticee no. 10have not been supported by any independently verifiable piece of evidence to lay credence on the arguments so advanced by it that it financed the needy people. No documents corroborating such loans & advances made by it to the needy people, such as the copies of applications made by such people to it for financial support, the purpose of such advances made, the subsequent recoveries of such advances with interest etc. have been made available to me to verify and get satisfi....
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....dline (Noticee no. 4) is concerned, the Noticee no. 13has vehemently argued that it had received an amount of INR 50.00 Lakh from Noticee no. 4 (Goldline International)and the said amount was repaid to it along with interest @ 9%. In support of her contentions, the Noticee no. 13has submitted copy of bank account statement showing the relevant transaction entries, copy of Income Tax Returns and balance sheetsetc. A perusal of the said documents reflectsthat the Noticee no. 13had received INR 25 Lakh each on January 15 and 17, 2013 from the Noticee no. 4and has also transferred back INR 15 Lakh each on March 03, 2014 and March 07, 2014. Similarly, through three separate transactions executed on June 25, 2014, July 08, 2014 and July 17, 2014, the Noticee no. 13has transferred back another sum of INR 25 Lakh to the Noticee no. 4and finally on July 26, 2014, an amount of INR 81, 917 has been transferred to the Noticee no. 4. 22. It is noted that apart from showing the payment of interest on the said amount, the Noticeeno.13has also credibly demonstrated before me that the said transactions were genuine loan transactions between Noticee no. 4 and Noticee no. 13, as found to have been ....
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....SF w.e.f March 21, 2014. I find such an explanation is completely baseless offering no justification of continuation of Noticee no.3 as a Director of a company acquired by the proprietor of Noticee no.13 since the services of Noticee no. 3 could have been availed in any other form also to retain retail clients, instead of allowing him to continue as a Director of the Company. Irrespective of the aforesaid, in my view a close connection between Noticee no.3and Noticee no.13, is now established beyond doubt. 24. The details of connections amongst the rest of the Noticees have already been enumerated in the Table no.7 above and in the absence of any plausible explanation offered by such persons/Noticees, I am constrained to conclude that the allegations that these entities were enjoying a close connection amongst themselves stand vindicated based on the common factors indicated in the Table no. 7, more particularly in the light of the fact that basis of such alleged connections has been derived from tangible factual supports like common directorships, common addresses and fund movements etc., observed amongst these Noticees. 25. I note that as per the regulatory framework prevaili....
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....s themselves) which was grossly against the norms governing the issue of shares under IPO. 29. Having found that the Noticees have prima facie enjoyed inter se connections amongst themselves as alleged in the SCN, I note that the other connected leg of the allegation pertaining to the funding of IPO applicants by the funding group entities and their direct and indirect funds movements with the Company indicating that the Company, out of the IPO proceeds so received by it in the IPO, has transferred huge amounts of money to many of the funding group entities also stands on solid factual evidence. I have already placed a graphical representation at para 2 (viii) of this order showing the transfer of funds from the IPO proceeds of the Company to various entities which included funds transfers to certain funding group entities. 30. Curiously, I find that the Company has offered no justification whatsoever to provide an insight as to why did it accept cheques directly from various third parties on behalf of large number of individual IPO applicants, who even apparently were not related to those third party funding entities. It is observed that the Company has evaded this aspect by c....
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....NBFC. 32. Insofar as the Noticee no. 13 (Ace Consultant) is concerned, I note that it faces the allegation of having funded one ASBA applicant, who was eventually allotted shares under the IPO of the Company. In this regard, the Noticee no. 13 has argued that the allegations do not have merit as it was the proprietor of the Noticee no. 13 itself, viz., Ms. Sunita Khemka, whose application has been alleged to have been funded by the Noticee no. 13 (her proprietorship firm). I further observe that the Noticee no. 13 has filed various documents like copy of bank account statements, income tax returns etc., in its support to justify the movement of fund on behalf of its proprietor. 33. I have carefully perused the allegations against the Noticee no. 13 and its submissions to counter the said allegations. At the outset, it is noted that the Noticee no. 13 is facing a limited allegation of having funded one ASBA applicant and there is no charge levelled against the Noticee no. 13 to have received the funds from the IPO proceeds of the Company or to have funded other IPO applicants. Further, in order to verify the claim of the Noticee no. 13, I have perused the annexure to the SCN con....
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....f as many as 270 applicants were funded by the funding group entities and out of the said applications, a total number of 238 applicants got allotment of 14,28,000 shares from the Company under its IPO. Another set of 96000 shares were also funded indirectly. Further, the market maker category also was fully funded since one market maker, who was allotted 7,50,000 shares was also funded by Noticee no. 4 (Goldline) and similarly, in the HNI category, out of total 11,46,000 shares allotted, application of one HNI for 60,000 shares was funded by the Noticee no. 4. Thus, in total, out of 45,18,000 shares allotted by the Company under its IPO, the allotment of 23,34,000 shares was funded by the funding group entities, which comes to 51.66% of the total shares allotted, while all the funding group entities have been found to be directly/indirectly connected with the Company itself. 36. As the Company and its connected entities were the major financial source behind the IPO applications of a huge chunk of 51.66% of the total shares allotted, it is apparent that but for the aforesaid financial support/funding made by the Company and its connected entities, and only due to the concerted e....
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....reproduced hereunder: "2. Underwriting On the basis of representations and warranties contained in this Agreement and subject to its terms and conditions, the Underwriter hereby agrees to underwrite and/or procure subscription for the Equity Shares in the manner and on the terms and conditions contained in Section 5 of this Agreement. ...... 5. Issue Notwithstanding anything contained elsewhere or otherwise in this Agreement, the Company agrees that the maximum number of Equity Shares in the Issue that the Underwriter have to underwrite is 45,00,000 Equity Shares, which is allocated as under: Name of the Underwriter No. of Shares Underwritten GMBPL 37,50,000 GSL 7,50,000 In the issue, Underwriter shall only be responsible for ensuring completion of the subscription in respect of such applicants, including ensuring full payment of the issue Price in respect of the Equity Shares for which such applications are made, in the manner set forth in this Section. The default in full and timely payment of the Issue Price in respect of the Equity Shares for which the applicant has placed a application and received allocation in respect of such application; or The with....
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.... I observe that on a holistic assessment of the financial transactions that have taken place between the Company and various funding group entities as highlighted above, that have neither been disputed nor could be substantiated with any tangible justifiable reasons by the Noticees and additionally looking at the non-response of large number of Noticees to the SCN , the preponderance in all probabilities that emerges is unabashedly tilted in support of the allegation of the SCN that the Company and its connected entities have indeed acted upon a pre-mediated scheme to fund large number of IPO applicants in order to garner the statutory minimum number of applications so as to make the IPO successful. Thus, as far as the first issue for consideration is concerned, I am clear that the same has to be answered affirmatively against the Noticees and in favour of the allegations made in the SCN. I shall now deal with the second issue to cover the next set of allegations that the after completion of the IPO process, the Company transferred the IPO proceeds to various funding group entities in deviation from the objects of IPO prospectus. Issue II: Whether the proceeds of IPO have been ut....
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....d INR 99.67 Lakh claimed to have been invested in short term loans On the other hand contrary to the aforesaid claims made during the investigation., as noted in the SCN, the Company was found to have actually transferred almost the entire proceeds so raised in the IPO to different entities soon after the completion of the IPO . Further out of the said transfers, as much as INR 5.80 Crore has also been transferred to a few of the funding group entities. The Company has offered no explanation or subsequently no reasoning to explain as to why in its submission made during the investigation were subsequently found to be not supported by any verifiable evidence and instead the same is found to be a false claim on the face of the actual funds transfers that have taken place in its accounts post IPO exercise. 46. In so far as the expenses claimed to have been incurred towards one of the stated objects of the Prospectus viz., development of farm land for transition to organic farming is concerned, it is noted from the Prospectus that the Company had stated to have taken a land admeasuring 295.80 Acres in the year 2008, on a lease for the period of 99 years which commenced from 01.03.193....
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....n/discrepancy noticed in the submissions of the Noticee Company, is the dates mentioned in those unenforceable agreements. For illustration, the agreement with Raj Marketing India Limited, proprietorship firm based in Ghaziabad is meant for development of 97.34 acres of land, and it carries date of execution as April 02, 2012. It may be recalled here that the Company came out with its IPO only in January, 2013. Thus, after raising money through the IPO in January, 2013, a document which was purportedly executed almost 9 months prior to the IPO has been shown in support of the Company's claim of having utilized the IPO proceeds (raised 9 months after the date of execution of the said document) for the aforesaid object of IPO. I observe that the said agreement, if was really executed prior to the IPO, should have been mentioned in the disclosures made by the Company in its IPO prospectus. However, the Prospectus filed by the Company does not contain any detail of such an agreement having been executed by the Company. The aforesaid observation assumes crucial significance in the calling the Company's bluffs as the purpose behind executing the said invalid agreements, i.e., to meet the....
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....ations for utilization of proceeds of IPO which creates an incongruous and contradictory situation that can hardly justify the utilization of IPO proceeds. 52. After noting the above said factual contradictions, I further note that although the Company has claimed to have executed the agreements of large values, they are not supported by any documents pertaining to Board level processes, approval by the Board of Directors, Board resolutions, document in nature of authorization in favour of the executant of the agreement, disclosures to stock exchange etc. Similarly, the execution of these agreements is also not found to be supported by any statutory documents nor the Company has demonstrated crucial compliances like approval of layout/Land development plan from local authorities, incorporating such amounts of transfers in the balance sheets, profits/losses arising out of such agreements as required to be mentioned in Company's book of accounts, deduction of tax at source from the payments made to those vendors, TDS certificates issued by it etc. 53. I also note that notwithstanding the fact that the so called agreements have been signed by the Company on its letter head, these ....
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....ars of executing those so called agreements. Moreover, the Company has not even identified the respective portions of land, the development of which was entrusted to those 4 entities under those fabricated agreements. Thus, I find that the claim of the Company that it has spent INR 5.60 Crore towards one of the most important stated objects, of its IPO i.e. development of land for organic farming, is grossly misleading, lacking any genuineness as the Company has not been able to produce even elementary evidentiary material and basic documentary support which could have substantiated the rationale behind transfer of such large sums of amounts out of IPO proceeds to various entities. Instead, the explanations offered by the Company to justify these transfers of funds to those entities are replete with contradictions, hence cannot hold any value. 55. In the light of the observations recorded above, I am constrained to hold that the aforesaid invalid agreements cannot provide any respite to the Company in defending such a serious charge made in the SCN about non-utilization or rather wrongful utilization of IPO proceeds in deviation from the stated objects as per the prospectus of IP....
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....hind the back of the public shareholders. Further, the Company has also not bothered to provide any details on the recovery status of those so called short term loans which have remained outstanding for recovery even after 7 years of advancing them to those four entities. In sum, the Company has failed to satisfy me on utilization of the said amount of INR 4.40 Crore towards the stated objects of IPO as disclosed in the prospectus. 58. I also note that the Company has not mentioned anything about spending of even a single rupee on the stated IPO objects like 'Setting up of Shade Net Cultivation facility', 'Procurement of farm tools and equipment's' and 'brand building'. I note that the Company in its Prospectus, had claimed that it had a plan to spend INR 3.80 Crore, INR 30.00 Lakh and 80.00 Lakh, respectively, for the aforesaid objects. Not only in the Prospectus, even in the communication addressed to SEBI during the investigation, the Company had asserted to have already spent INR 3.75 Crore, INR 29.06 Lakh and 30.00 Lakh respectively on the above said three objects. However, from the records filed during the present proceedings before me, the Company has not furnished details....
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....their face value, the amounts of funds transfers as per the claim of the Company in the submissions at the stage of investigation and the amounts of funds transfer as per the explanation offered by the Company during the present proceedings do not reconcile at all. I note that even during the present proceedings, the Company has not been able to furnish any information whatsoever with respect to the expenses incurred towards setting up of net cultivation facility, purchase of tools, brand building etc., towards which, the Company had claimed to have spent INR 4.34 Crore, as on March 31, 2015 during the investigation proceedings. It is thus clear that the Noticee no. 1 (Company) has not come out with clean hands and has tried to mislead SEBI by coming out with different contradictory explanations and claims at different stages of the proceedings about the utilisation of IPO proceeds while none of the submissions made at different points of time have any strength to rebut the allegations made in the SCN. 61. Against the aforesaid deficiencies and inconsistencies noted in the explanations and submissions made by the Company with respect to the utilisation of IPO proceeds, it may be ....
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....s, all of which were found to be involved in providing funds to a large number of retail IPO applicants so as to ensure that the minimum mandatory subscription level is achieved thereby ensuring a successful listing of the equity scrip of the Company. 63. The Company has contended that the transfer of funds made to the above stated four Noticees including Noticee no. 4 were arising out of commercial transactions. However, as already noted and discussed at length while dealing with the aspects of connection between various entities, no details with respect to the business for which such funds transfers were effected, have been provided by the Noticee no. 1. I, find it beyond acceptance that the Company would enter into so called commercial transactions with four incorporated entities and transferred funds to them involving large sums of money out of the IPO proceeds in the range of INR 15.50 Lakh to INR 4.84 Crore and when asked about the details of such fund transfer, there would be no answer either from the Company or from the receiving entities (Noticee nos. 4, 9 etc.). Moreover, the Company which was under a serious statutory obligation to utilize such funds in the interest of....
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.... the Company has neither explained as to what were the constraining factors that prevented it from submitting all the information during the investigation nor has it explained to me what further details or information it wants to furnish now (which it could not furnish earlier) which will mitigate all its hardships and exonerate it from the allegations made in the SCN. The proceedings before me is a quasi-judicial proceedings and the Company is free to furnish any additional information or evidence as it wishes to give to defend itself against the allegations levelled in the SCN, for which there is no need for having another fresh round of investigation by SEBI. 66. In order to grant a fair trial to the Company before arriving at final conclusion, the Company was afforded repeated opportunities to submit all such documents and information which it failed to furnish to the Investigation Authority. I believe the Company has also availed the opportunities and has put up its best possible defense to rebut the charges made in the SCN. The Company and Noticee no. 2 have appeared before me for personal hearing and also have filed their written replies including documents such as agreeme....
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....through and crosses the mandatory statutory threshold of achieving 90% of the shares offered under the IPO which could be made possible only by their concerted action of funding the applications to the extent of 51.66% the shares allotted under the IPO but for which, the IPO would have certainly failed to meet the mandatory mark in terms of Regulation 14(1) of ICDR Regulations. Consequently, the application received under IPO and would have miserably fallen short of the pre-condition of 90% of offer size and the Company would have been under obligation to repay the rest of the subscription money raised by it from the non-funded applicants under the IPO. The scheme that the Company had crafted and implemented in coordination with other Noticees, especially the funding group Noticees to fraudulently ensure success of its IPO programme, is selfevident and explains why the Company had to transfer bulk of the IPO proceeds to a few of the funding group entities immediately after completion of the IPO and why the Company failed to deploy the IPO proceeds towards the objects of IPO thereby betraying the faith and trust of those genuine investors who had subscribed to its shares under the I....
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....tablish the charges is concerned, I note that for proceedings like the present one, the degree of proof is of preponderance of probabilities, which as elaborated above, is totally in support of the charges made in the SCN. It may be relevant to refer and rely upon the observations of the Hon'ble Delhi High Court that: "Clearly, given the manner in which fraudulent acts are undertaken under deceit and camouflage, if done with the affairs of a company/trust etc., the standards of proof required to prove such fraudulent conduct would necessarily be less stringent." [SEBI Vs. CRB Capital Markets Ltd. (date of decision: December 05, 2019)] 70. Insofar as Noticee nos. 2 and 3 are concerned, it is noted that both of them have been arraigned as Noticees by virtue of their directorship with the Company during the IPO process of the Company. It is noted that Noticee no. 2 has since expired and copy of the death certificate has also been furnished in this connection, hence, the proceedings in the present matter against the Noticee no. 2 stands abated and therefore no direction needs to be issued. 71. The Noticee no. 3 has not disputed his directorship with the Company nor has claimed to b....
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....my view the facts and circumstances of the present case leave no room for doubt that the fraudulent scheme through which the Company got its IPO successfully funded, subscribed and listed as well as the proceeds of IPO got diverted for objects other than the stated objects of the IPO, was actually conceived and implemented by the natural person such as, Noticee no. 3 in the present case, who managed the affairs of the Company at the given point of time. Therefore, Noticee no. 3 being at the helm of affairs of the Company during the relevant period, has to be held liable for being involved (as a Director of the Company), in the said scheme that ensured the listing of the securities of the Company in the BSE-SME segment, Thus, Noticee no. 3 is equally liable alongwith the Company, for the violations of provisions of law, as already have been held above, to have been violated by the Company. 75. I may add here that the purpose of putting a statutory threshold of achieving subscription of at least 90% of shares being offered under IPO, is apparently to restrict the entry of issuers who may not have the competence enough to garner interest of adequate number of investors and by keepin....
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....lic in any manner for a period of 8 years. iv. Noticee no. 3 is hereby restrained from holding post of director, any managerial position or associating himself in any capacity with any listed public company and with any public company which intends to raise money from the public, or with any intermediary registered with SEBI for a period of 3 years. v. The Noticees, as mentioned below are hereby restrained and prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in any manner whatsoever manner, for the period specified in their respective columns: Table 10 Sr. No. Name of Entity Debarred vide interim order Period of debarment 1 Esteem Bio Organic Food Processing Ltd. Yes Till date of this order 3 Brij Kishore Sabharwal Yes Till date of this order 4 Goldline International Finvest Ltd. Yes Till date of this order 5 Satendra Kumar & its Proprietorship firm viz. Nisha Traders, Bright Securities Yes Till date of this order 6 Madhukar Dubey & its Proprietorship firm viz. N V Sales Corporation, A One Furniture Yes Till date of this order 7 Ram Prakash & its Proprietorship firm viz. Khan....
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....g of fact arrived by the SEBI clearly proves that the scrips of M/s Esteem Bio Organic Food Processing Ltd. where manipulated in stock exchange and fraudulent scheme was deployed by the said company right from year January 2013 during the period which the assessee had entered into the transaction. This fact itself nails the finding of the Assessing Officer which has discussed in detail and also by the ld. CIT(A). It is immaterial that order of the SEBI came in 2018 because the SEBI has analysed the entire trading of shares from year 2013 and found that not only the prices of the scrips of the said company were rigged but also were involved in fraudulent activities, which led to completely debarred its trading in the stock exchange. Thus, this order of SEBI clearly implicates, the entire transaction of purchase and sale of shares and goes to prove that the transaction was not genuine and corroborates the findings of the enquiry conducted by the Income Tax Department. 55. All these enquiries conclusively proved that the trades have been manipulated and the gains or the losses made by the beneficiaries cannot be said to be genuine. 56. Reliance is also placed on the judgment of Hon'....
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.... The ld. AR also argued that the strong suspicion cannot overtake the facts on record and the judicial pronouncements. 63. On this issue we hold that preponderance of the evidence is one type of evidentiary standard used in a burden of proof analysis. Under the preponderance standard, the burden of proof is met when the party with the burden convinces the fact finder that there is a greater chance that the claim is true. This is the burden of proof in a civil trial. The theory of "preponderance of probability‟ is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. In situations like this case, one may fall into realm of "preponderance of probability‟ where there are many probable factors, some in favour of the assessee and some may go against the assessee, but the probable factors have to be weighed on material facts so collected. Prima facie, it may appear to be a case made on preponderance of probabilities but not beyond rea....
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....t on merits also the profits earned by the assessee cannot be said to be genuine. 65. The ld. Counsel for the assessee has much harped on the judgment of Hon'ble Jurisdictional High Court in the case of the assessee (supra) stating that the facts and ratio laid down therein is clearly applicable in the present case also. We have already clarified in our foregoing paragraph 46 that the facts involved in the present case are different and why the said judgment will not be a binding precedence on the facts of the present case. For the sake of ready reference, the observation and the finding of the Hon'ble High Court while upholding the order of the Tribunal are as under: "11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quant....
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....hat 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 consideration has been received through banking channels." The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 12. Mr. Hossain's submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspici....
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..... was rigged and this company was involved in fraudulent scheme only for giving accommodation entries. This finding itself distinguishes the case before the Hon'ble High Court. The Hon'ble High Court has not laid down any principle albeit has confirmed the finding of ITAT based on facts which we have already and held as clearly distinguishable. Accordingly, reliance placed by the ld. Counsel on the said judgment is not relevant. 67. Thus, on going through the entire facts and circumstances of the case, it can be concluded based on the following snap shot that transactions entered by the assessee are not genuine. 1. A tangible and reliable information has been available with the Assessing Officer to initiate proceedings u/s 148 of the Act. 2. Proper reasons have been recorded before issue of the notice. 3. The reasons recorded are related to the information received 4. The information received and the reasons recorded pertain to escapement of income. 4. The Assessing Officer had reasons to believe based on the information received which have been duly recorded. 5. The Assessing Officer has right jurisdiction to issue the notice and the same has been duly served as per the....