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TaxTMI 
TaxTMI 
TaxTMI 
2022 (9) TMI 455
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....t the facts of the case. 3. That the Ld. CIT(A) has erred in not considering that transaction of sale entered into by the assessee are genuine and not accommodation entries for the purpose of Capital gain and thus holding addition of Rs. 2,99 Crores u/s. 68 of the Act by treating the same as unexplained cash credit is against the facts and circumstance of the case. 4. That the Ld. CIT(A) has erred in not considering that during assessment proceedings details of shares purchased and sold by the assessee along with their sources, 'demat account' reflecting sale of shares, copy of bank statement, showing all the transaction and all other particulars regarding sale and purchase of shares to the satisfaction of the Assessing Officer were filed. 5. That the Ld. CIT(A) has also erred in not considering that in the Assessment order addition u/s. 68 was not made with reference to sale proceeds of Rs. 3.12 Crores realized on sale of shares, but the addition was with reference Rs. 2.99 Crores after allowing deduction of purchase cost of shares. The above facts substantiates that the Ld. Assessing Officer admits that the shares were purchased by the assessee ....
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.... Ld. DR submitted that the facts of the assessee's case are distinguishable from the facts of the case of the deceased assessee because in the said case the statement of the broker was not recorded while in the case of the deceased assessee the statement of Shri Khemka was recorded. 5.1. The Ld. DR reiterated the observations made by the AO in the assessment order and strongly supported the impugned order passed by the Ld. CIT(A). 6. In his rejoinder the Ld. Counsel for the deceased Assessee reiterated that the facts of the present case are identical to the facts of Shri Jatinder Kumar Jain's case, (father of the deceased assessee) and that the Ld. CIT(A) while sustaining the disallowance followed, the earlier decision in the case of Shri Jatinder Kumar Jain. 7. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case it is not in dispute that the deceased assessee earned LTCG amounting to Rs. 2,99,97,757/- from the sale of shares of M/s. Access Global Ltd. and claimed the exemption under section 10(38) of the Act which was denied by the AO. When the matter was taken to the Ld. CIT(A....
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...., he said company, Maple Goods Ltd., was amalgamated, into Access Global Ltd. through an order of the Hon'ble High Court of Calcutta under an approved amalgamation scheme, which envisaged 47 shares of Access Global Ltd., the amalgamated company against one share of Maple Goods Ltd., the amalgamating company. With this amalgamation, the appellant became holder/owner of 79,900 shares of Access Global Ltd. The said shares were, then, purportedly sold during the financial year under consideration i.e. 2012-13 at the recognised platform C-Star of Calcutta Stock Exchange against contract notes of a broker by the name M/s. Ashok Kumar Kayan, also of Calcutta and STT on such sale was duly paid. The payment of sale proceeds of shares were received by the appellant through an account payee cheque, which stood credited in the appellant's account. 2. Before the assessment could be finalised, the AO received information from the Investigation Wing of the Department at Kolkata that pursuant to a concerted investigation, an organized racket was unearthed which revealed that a cartel of brokers, including the brokers with whom the appellant dealt with viz. M/s. Ashok Kumar Kayan &....
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.... Jain & others in LTA No. 501 & 502/Ahd/2016. In particular, paragraphs 17 and 18 were extracted in the appellant's submissions, which for the sake of facility of reference, is also being extracted here in below: "17. Even on facts of the case, the orders of the authorities below cannot be accepted. There is no denying that consideration was' paid when the shares were purchased. The shares were, thereafter, sent to the company for the transfer of name. The company transferred the shares in the name of the assessee. There is nothing on record which could suggest that the shares were never transferred in the name of the assessee. There is also nothing on record to suggest that the shares were never with the assessee. On the contrary, the shares were, thereafter, transferred to the Demat account. The Demat account was in the name of the assessee, from where the shares were sold. In our understanding of the facts, if the shares were of some fictitious company which was not listed on the Bombay Stock Exchange/National Stock Exchange, the shares could never have been transferred to J Demat account. Sh. Mukesh Choksi may have been providing accommodation entries to variou....
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....sses. There is no dispute about the basic legal postulate of section 68, which provides that where any sum is found credited in the books of accounts of an assessee maintained for any previous 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 income of the assessee of that previous year. The expression "nature and source" appearing in section 68 has to be understood as a requirement of the genuineness of the source. It is also a settled legal position that the onus of the assessee, of explaining the genuineness of the source does not get discharged merely by demonstrating that the transactions are done through the banking channels or even by filing the income tax assessment particulars. In view of various decisions including that of CIT v. United Commercial & Industrial Company Pvt. Ltd. [1991] 187 LTR 596 (Cal) & CLT v. Precision Finance Pvt. Ltd. [1994] 208 LTR 465 (Cal), there is absolutely no escape from proving the genuineness of the transaction before the AO, so as to escape the rigours of sectio....
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....ns. A beneficiary of this racket is one who is desirous of laundering his unaccounted and untaxed money. On his request, he is made to buy some shares of a predetermined penny stock company controlled by the operators. The shares of such companies are transferred to the beneficiary at a very nominal price, mostly off-line, through preferential allotment or offline sale, mostly to save on STT. The beneficiary holds the share for one year, which is the statutory period after which long-term capital gains is exempt under the provisions of section 10 of the Act. In the meantime, the operators rig the price of the stock by circular trading and gradually raise its price manifold. This is done through low-volume transaction indulged in by the dummies of the operator at a predetermined price. When the price reaches the desired level, the beneficiary who bought the shares at a nominal price, is made to sell it to a dummy paper company maintained by the operator. For this, unaccounted cash is provided by the beneficiary which is routed through a few layers of paper companies by the operator and is finally parked with the dummy paper company that ultimately buys the shares. The Directorate of....
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..... The intention behind such a purchase is not far to seek It was only meant to encash it after holding it for a year, when the price of this share would be manipulated and rigged and would be sold through the good offices of a broker who is part of the racket. Merely because the appellant paid the purchase price of the said share by cheque does not establish the genuineness of this transaction. 10. The broker through whom the appellant purchased the aforesaid shares viz. Sh. Suresh Khemka was investigated by the Investigation Wing at Kolkata and his statement was recorded on 13/03/2015. In reply to a question [No. 7] regarding the nature of business done by him, he deposed the following: "Ans:-Sir, I am mainly a stockbroker. I have also issued "Kachha Panna" of shares to my clients for various private limited companies. These private limited companies were merged with different listed companies afterwards. My proprietorship concern is S.K. Khemka at 34 Vivekananda Road, Kolkata-7. My broker code of Calcutta Stock Exchange is 03/577." Further, in reply to Question No.-10, which required him to specify the names of the companies, whose shares were sold via contract ....
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....e beneficiaries." 12. Further, in response to Question No. 19, requiring him to explain the modus operandi of long-term capital gain/loss entry being provided to the beneficiaries, it was submitted by him: "Ans:-The Long Term (LT) entry beneficiary approaches an entry operator who is having a listed company through some agent/mediator or directly. Beneficiary then on the instruction of entry operator buys the shares of a listed paper company (generally not doing any business or with a miniscule business activity) at a very low price. The share price of the listed company are then jacked up to a desired level with the concerted and regular buying and selling of the shares by the other dummy persons or other paper companies/HUF (generally controlled and managed by same entry operator). Sometimes a cartel is formed by various entry operators for jacking up the price of the shares and thus paper companies of various entry operators are used for buying and selling of shares and raising the price of shares to a desired level. When finally the shares held by the beneficiary of the listed company reach the desired level/price then the beneficiary is intimated by the operator or an....
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....ted company was a paper company in as much as for the financial years 2010-11 & 2011-12, there was no revenue from either sale of products or sale of services and the total profit from continuing operations was merely Rs. 7742/- & Rs. 7488/- respectively. 14. It must also be stated here, that the facts of the cases relied upon by the appellant is materially different in as much as the share scrip dealt by the appellant has been identified as Penny Stock and the brokers through whom the appellant purchased and sold the said shares, have admitted to be indulging in the racket of providing bogus LTCG entries through the scrips of Maple Goods Ltd. and Access Global Ltd. during the sustained investigation by the Directorate of Investigation at Kolkata. This was neither the case in Pradeep Kumar Aggarwal, nor in Hitesh Gandhi. The appellant's case stands on its own footing. In the case of Hitesh Gandhi, there was a disbursement of dividend during the period for which the shares were held, which went on to prove that transactions were undertaken in the shares of a genuine company and not in paper company or penny stock. 15. So far as the lack of opportunity for cross....
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....ounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amount has been rejected unreasonably," 20. The appellant cannot also insist on proof or direct evidence regarding allegation of use of Unaccounted and untaxed cash emanating from his coffers. Presumption plays a critical role in coming to a finding in the circumstances, as to the involvement of unaccounted cash to obtain the benefit of laundering. The connivance and understanding between the parties to this manipulation is in the special knowledge of the conspiring parties and hence direct evidence may not be available. Since it is exceedingly difficult to prove facts which are especially within the knowledge of the parties concerned, the legal proof in such circumstances partakes the character of a prudent person's estimate as to the probabilities of the case. 21. The Hon'ble Supreme Court in the case of SEBI Vs. Kishore R. Ajmera [2016] 6 SCC 368, while emphasizing that in the quasi-judici....
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.... current situation. The Hon'ble Supreme Court, in the case of Mumbai Kamgar Sabha vs. Abdulbhai Faizullabhai, AIR 1976 SC 1455, has observed: "It is trite, going by Anglophonic principles that a ruling of a Superior Court is binding law. It is not of a scriptural sanctity but of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decisions, exalting the precedents into a prison house of bigotry, regardless of the varying circumstances and myriad developments. Realism dictates that the judgment has to be read, subject to the facts directly presented for consideration and not affecting the matters which may lurk in the dark" 24. In the light of the above, and taking note of the entirety of the case and the facts, the action of the Assessing Officer in bringing the impugned long-term capital gains to tax as deemed income is upheld. It is ordered accordingly. 25. In the result, the appeal is dismissed. Thereafter the Ld. CIT(A) in para 4.4 of the impugned order held as under: 4.4 after carefully going through rival submiss....
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....with the Certificate number and the share folio number. All these documents have, apparently, been accepted by the lower authorities in as much as neither the AO nor the Ld. CIT (A) has pointed out any defect in these documents. A perusal of the orders of both the lower authorities would show that nowhere have the lower authorities cast any doubt on the genuineness of these documents. The only reason for not accepting the assessee's claim of having earned Long Term Capital Gain is on the basis of the statement of Shri Harshvardhan Kayan and also of two more persons viz. Shri Nand Jain and Shri Suresh Khemka. 6.2 We have also gone through the statement of Shri Harshvardhan Kayan and it is palpable that nowhere in the statement, Shri Harshvardhan Kayan has made any reference to the name of the assessee. Even in the statements of Shri Nand Jain and Shri Suresh Khemka there has been a passing reference of the name of the company M/s. Access Global Limited but there is no specific mention of the name of the assessee. It is also noteworthy that the statement of Shri Harshvardhan Kayan was recorded at the back of the assessee and only a copy of the statement was supplied to t....
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.... Wing, secondly on the statement of Shri Harshvardhan Kayan and thirdly on the surmise that it was highly unlikely and improbable that the assessee could have earned such huge amount of Long Term Capital Gain. 6.4 We have also gone through the report of the Investigation Wing and undoubtedly the name of Shri Ashok Kumar Kayan appears at serial No. 20 and it has been indicated in this report that this person was actively involved in Long Term Capital Gain scam. It is also seen that in reply to question No. 7, Shri Harshvardhan Kayan had stated in the statement recorded that he and his father Shri Ashok Kumar Kayan were engaged in providing Long Term Capital Gain/Loss entry through trading of different scripts by different 'Jama-Kharchi' companies through their broking companies M/s. Kayan Securities Pvt. Ltd. and M/s. Ashok Kumar Kayan. Further, in the list of names pertaining to scrips in CStar of Kolkata Stock Exchange, the name of the company M/s. Access Global Limited is also mentioned. However, the name of the assessee does not appear anywhere and the AO has simply proceeded to assume that since Shri Ashok Kumar Kayan's name was in the list of entry operato....
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....rence to be drawn from the reading of the investigation report and the statement of one Shri Mahesh Garg, such inferences would be improper when the assessee had produced the relevant material. The Hon'ble Delhi High Court went on to observe that at least the AO ought to have enquired into the matter, if necessary, by invoking powers under section 131 of the Act but no effort was made in this regard and, therefore, in absence of any such finding that the material disclosed was untrustworthy or lacked credibility, the AO merely concluded on the basis of the investigation report to make the addition under section 68 of the Act which was unsustainable in the eyes of law. In the present case it is apparent that the AO has not made any enquiry and the entire assessment order as well as the order of the Ld. First Appellate Authority is devoid of fact of any such enquiry, but the lower authorities have heavily relied upon the report of Investigation Wing wherein M/s. Access Global Limited has been allegedly identified as one of the penny stock company whose share prices had been artificially rigged to create non genuine Long Term Capital Gain. However, the AO failed to bring on record....