TaxTMI 
TaxTMI 
2022 (11) TMI 468
X X X X Extracts X X X X
X X X X Extracts X X X X
....tely on presumptions, surmises and conjectures for declaring bogus transactions in declared penny stock companies equity share (c) That the learned commissioner of Income Tax Appeals) confirmed the impugned order based completely on third persons statements recorded during investigation proceedings without providing copy of complete set of proceedings and statements which were recorded against principle of natural justice. (d) That the learned commissioner of Income Tax (Appeals) confirmed the order for addition in income on the basis of report prepared on the basis of third persons statements recorded behind the appellant without providing opportunity to cross examine them while specifically demanded by the appellant. (e) That the learned commissioner of Income Tax (Appeals) erred the confirming the impugned assessment order due to heavy gain in short period without considering the speculatary nature of the stock market. (f) That the learned Commissioner of Income Tax (Appeals) confirmed the impugned assessment order by non speaking order referring irrelevant judgement, which were neither applicable on facts or the law without considering the binding precedent of the Hon&#....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Scrip Date of Purchase Cost of Purchase Date of Sale Sale Proceeds Long Term Capital Gains Sunrise Asian Ltd. 1.04.2012 1,00,000 2.08.2013 24,23,696 23,23,696 While examining the issue of Long Term Capital Gains, the AO noticed the following facts. ''2.1 The assessee has shown to have invested in shares of M/s. Santoshimaa Tradelinks Limited, an unlisted company on 01-04-2012. Later on, it was merged with Sunrise Asian Limited. Detaill with respect to this transaction was filed by the assessee during the courseof assessment proceedings. Following observations have been made in relation to alleged purchase of 5000 shares of M/s. Sunrise Asian Limited. (i) The assessee has shown purchase of 5000 shares on 01-04-2012 (ii) The Bill for this transaction was raised by one Santoshima Tradelinks Ltd. on 01-04-2012 (there is an overwriting / cutting) i.e. actual date of purchase is not ascertained i.e. actual date of purchase is not ascertained. (iii) The Santoshima Tradelinks Ltd. was merged with M/s. Sunrise Asian Ltd. The Board of Directors have approved the merger on 9-11-2012 and informed the BSE accordingly. (iv) The assessee has sold all the 5000 share....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for assessment year under reference. 7. During the course of investigation, it was also emerged that the syndicate of entry providers charged commission from the beneficiaries in lieu of providing bogus entries. In fact, one of the beneficiaries Shri Ajit Gupta of Delhi have categorically admitted in his statements recorded u/s 132(4) that he paid commission of 6% in cash in lieu of bogus entry of Long Term Capital Gains shown from artificial trading in penny stock bogus company M/s. Sunrise Asian Limited. Looking to such credible evidence on this issue, I estimate an amount equivalent to 6% of the bogus Long Term Capital Gains entry which comes to Rs.1,45,421/- (calculated on sale proceeds of Rs.24,23,696/-) as commission paid by you in lieu of entry of bogus Long Term Capital Gain of Rs.23,23,696/-. Therefore, an addition of Rs.1,45,421/- on this count, is proposed to be added to your total income for the year under consideration. 8. In view of above, you are requested to show cause as to why exemption claimed u/s 10(38) towards Long Term Capital Gains of Rs.23,23,696/- be denied and why it should not be added u/s 68 to the total income. Further, explain as to why an amount ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 4.Copy of balance sheet for the financial year 2012-13 The shares Satishimanto Tradelinks Ltd. Changed name Sunrise Asian Ltd 2012-13 holding was more than 18 months therefore is correct and acceptable as such long term capital gain exemption claimed U/s 10(38) of IT Act 3. That the Para 3rd of notice stated in detail about seam of long term capital gain short term capital gain is running by the operators based on Delhi, Kolkata & Mumbai etc. They proved facility to convert black money in exempted income u/s 10(38) of the IT. Act on commission of 6% by bogus long term capital gain entry. The syndicate of scam operators managed all documents as legally required and managed the market price of shares astronomical proportions with in stipulated period of one year. The SEBI has also passed order for suspending trading by the document of such 26 scrips out of these penny stock companies. But by the documents of the assessee is also involved in the seam is not proved. The assessee is doing investment regularly for last eight year and declaring income in Income Tax return. If any person did any trading transaction in the scripts of selected companies selected in penny stock does....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y Vora was recorded in what capacity during survey operation of office premise of M/s AnandRathi shares and stock broker Ltd, Hemar Bharwada and other at Kolkata, 20 is not mentioned, therefore his statement is neither considerable nor reliable. (iii) That the Sanjay vora accepted in his answer of Q.No.60 the list of companies and quantity of shares traded but not accepted the trading was bogus nor accepted involvement in bogus long term capital gain syndicate and told that he derived only brokerage income from trading of those share as reflected in books of account. (C) Statement of ShriAnuj Agarwal S/oshriArarwal was recorded on 05.03.2016. (i) That the copy of pages regarding Q. No. 6 to 10 and 20 to 26 were not provided. therefore this incomplete statement cannot be read against the assessee in quasi-judicial proceedings not suppose to reply by the assessee. (ii). That the statement of Shri AnujAgarwal was recorded in what capacity during survey operation of office premises of korp securities Ltd and other companies situated at martio business house, Kolkata 01 is not mentioned therefore his statement is neither considerable nor reliable. (iii). That Shri Anuj Agarwal....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the high prices of any script in market cannot be deemed as involved in scam of penny stock scripts. 6. That the assessee does regular working in share market for last 10 years and one of company script Sunrise Asian Ltd were traded cannot be deemed that the assessee is also involved in scam. There is no conclusive evidence of record to prove that the assessee was also did the transaction in such a manner merited in notice and paid return black money to the operator of the scam Therefore proposal to make addition is ab initio illegal and without any goods reason and bias for the same on record. 7. That the para 7 of notice is regarding commission paid to broker@ 6% in cash in lieu of bogus entry of long term capital gain shown artificial trading in penny stock bogus company while the assessee is not involved in such Scam the copy of statement provide me proved that he had received brokerage/ commission @ .050% to 1% which is normal in market trading as per customer creditability. Therefore the addition of 6% is also unjustifiable. Again, therefore it is requested that the proposal for addition in income U/S 68 and 69C is not justifiable. Notice is completely based on conju....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany. (iv) The assessee purchased the shares of M/s. Santoshima Tradelink Ltd. Interestingly this company i.e. M/s. Santoshima Tradelink Ltd. also merged with the Sunrise Asian Limited with the same order of merger. It shows that M/s. M/s. Santoshima Tradelink Ltd. was also a part & parcel of the entire arrangement. (v) The assesee has vehemently argued that the persons whose statements were recorded on oath by the investigation wing of the department were not related to the assessee. However, it may be pointed out that the all these persons whose statements were recorded have categorically admitted that the transactions made for these scripts were actually bogus. (vi) Shri Sanjay Vora, Regional Director of M/s. Anand Rathi Shares and Stock Brokers Ltd. one of the other share brokers of the racket, also admitted about the entire modus operandi of the scam including involvement his company M/s. Anand Rathi Shares and Stock Brokers Ltd. in it. A notice u/s 133(6) was issued to M/s. Sunrise Asian Limited to its only known address at 133, Panchratna, Opera House, Mumbai which return back by the postal authorities with the remarks ''not claim return to sender''. Further on goog....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dded a sum of Rs.23,23,696/- u/s 68 of the Act to the total income of the assesee as unexplained cash credit. As regards the issue of commission paid in lieu of bogus entry of LTCG, the AO noted that the assesee has failed to controvert his observations as these syndicate members which include promoters/directors of penny stock company, share brokers etc. had admitted that they provided bogus LTCG entry in lieu of commission. The AO noted that the gist of statements of beneficiaries namely Shri Sanjeev Kumar Agarwal, Manish Uppal, Ajit Gupta, Shri Charchit Gupta and others who categorically admitted in their statements under oath before the Investigation Wing of the Department that they paid commission for getting bogus LTCG entries. Hence, the AO held that the assessee had paid commission @ Rs.6% of sale value of M/s. Sunrise Asian Ltd. and paid a sum of Rs.1,45,421/- equal to 6% of the amount of sale proceeds of bogus share transaction and the assessee had not offered any explanation about the source of the same. Thus the AO made two additions namely Rs.23,23,696/- u/s 68 and Rs. 1,45,421/- u/s 69C of the Act respectively. 2.4 In first appeal, the ld. CIT(A) has confirmed the ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ltd was manipulated. The statements of those three persons were confirmed circumstantially by the unnatural movements in the price of the shares of Sunrise Asian Ltd. Assessee's investment had multiplied manifold within a short span of only sixteen months. The investment in shares of a non-descript company without any business worth mentioning but yielding manifold increase in value simply defies logic. It is beyond of realm of human possibility. It is not a case of the company striking a gold mine or oil field. Human probability had to be kept into consideration in deciding this kind of cases. Mere ownership of paper evidence will not suffice. In fact, because of existence of paper evidences only, the companies whose shares were claimed to have been bought and sold are called paper companies and the transactions are fittingly labelled paper transactions. In this kind of operation yielding bogus LTCG, there is systematic collusion between brokers, operators and beneficiaries. When such collusion takes place, any amount of paper evidences can be generated. Such evidences do not appeal to me as genuine considering the facts of the case. AO had relied on various decisions of Hon&....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ine in the presence of the overwhelming evidences put forward by the Revenue. The fact that in spite of earning such steep profits, the assessee never ventured to involve himself in any other transaction with the broker cannot be a mere coincidence of lack of interest. Reliance is placed on the judgment in the case of Nipun Builders and Developers Pvt. Ltd (supra), where it was held that it is the duty of the Tribunal to scratch the surface and probe the documentary evidence in depth, in the light of the conduct of assessee arid other surrounding circumstances in order to see whether the assessee is able to the provisions of section 68 or not. In the case of NR Portfolio, it was held that the genuineness and credibility are deeper and obtrusive. Similarly, the bank statements provided by the assessee to prove the genuineness of the transactions cannot be considered in view of the judgment of Hon'ble court in the case of Pratham Telecom India Pvt Ltd, wherein, it was stated that bank statement is not sufficient enough to discharge the burden. Regarding the failure to accord the opportunity of cross examination, we rely on the judgment of Prem Castings Pvt. Ltd. Similarly, the Tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....order dated 22.03.2017. >ITO vs Shamim M. Bharwoni [2016] 69 taxmann. com 65. > Usha Chandresh Shah Vs ITO in ITA No. 6858/Mum/2011, order dated 26. 09. 2014. > CIT vs. Smt. Jasvinder Kaur 357 ITR 638 12. The facts as well as rationale given by the Hon'ble High Court are squarely applicable to the case before us. Hence, keeping in view the overall facts and circumstances of the case that the profits earned by the assessee are a part of major scheme of the accommodation entries and keeping in view the ratio of the judgments quoted above, we, hereby decline to interfere in the order of the Id. CIT(A)'' The above decision of Hon'ble Tribunal was confirmed by Hon'ble Delhi High Court in Suman Poddar vs ITO (ITA NO. 841/2019 decided on 17.09.2019). Assessee's SLP was dismissed by Hon'ble Apex Court in the case cited above. The decision of Hon'ble Apex Court on similar issue has to be given precedence over the case laws cited by the appellant. 6.3.1. Suffice it to say that there was systematic-generation of bogus capital gains by manipulating the prices of penny stocks shares which was unearthed by the Investigation Wing of the department in Kolkatta. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the scam which appears to be an attempt to delay or halt the proceedings by instrument of cross examination While in impugned assessment order only three persons statements on oath (partly referred) which were general and vague in nature and nobody told specifically about involvement with the assessee in transaction. (ii) On Page 23 in first line mentioned that the assessee purchased 10000 shares of Sunrise Asain Ltd. while the assessee purchased only 5000 shares of santoshima Tradelink Ltd in Rs 100000/-. (iii) and mentioned in para 8.02 that the penny scrip jumped by almost 4000% while the appellant got Rs 2423696/ against investment of Rs 100000/- which is almost 2400%. So many companies having ups and down every year for ready reference last three year market data submitting for record. 3. That the learned CIT Appeals copied the written arguments in the impugned appeal order. The points are submitting for ready reference as under: (i) supporting arguments: (A) (1) The impugned order is against the facts of this case, Completely based on cooked story, based on observations on investigation Authority report while these were against documentary evidence. (ii) W....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d cited cases of the various Hon'ble High courts and Tribunals. 5. That the learned Commissioner (Appeals) has erred in applying the suman Poddar's cases and other referred cases on Page 53 & 54 of the impugned order), for ready reference the appellant submits reasons for non application of the each referred judgement in the matter sub-judice before this Hon'ble Tribunal: (a) Suman Poddar Vs ITO (2019) 112 Tax mannn. com 330 9SC) order is special leave petition is dismissed' copy enclosed for ready reference. (i) The above order is not binding precedent under Article 141 of the constitution. The order in SLP in case of Suman Poddar was rejected limney by non speaking order of dismissal saying that it is not a fit case and does not constitute the law laid down by the Hon'ble Supreme Court (ii) That the Hon'ble Supreme Court decided this issue in several judgements and having constant view, For ready reference submits copy of the following judgements: (1) State of Manipur & other Vs Thingujam Brojen (AIR 1996 S.C. 2124 (Page 9) (2) Collector of customs Bombay Vs Elephanta Oil Industries Ltd ( AIR 2003 S.C. 1455 (Para 15) (3) Union of India Vs Jaipal Si....
X X X X Extracts X X X X
X X X X Extracts X X X X
....learly indicates that there was reasonable belief with the Assessing officer that income has escaped assessment, therefore, so far as, reopening is concerned. we find no infirmity in the conclusion of the Id Commissioner of Income Tax (appeal) thus, this ground is decided against the assessee." While in present appeal the Assessee ( appellant) requested for cross examination but not permitted therefore this judgement is on different facts (v) Usha Chandresh Shah Vs ITO. (ITA No. 6858/mum/2011. order dated 26.09 2014. That case is also decided on principle of human probabilities it is not help to the Respondent this issue also discussed separately. 6. It is also pertinent to mention and discuss the application of the judgements referred in impugned assessment order (a) Para 5.3 of assessment order: (i) State of jammu & Kashmir Vs Bakshi Ghulam Mohammed (AIR 1967 S.C. 122) The learned 1.T.O. referred the Hon'ble court observation in para 5.3.1. regarding application of principle of natural justice as held by the Hon'ble Supreme court in case of agendra Nath Bora Vs Commr. of Hills Division and Appeal Assam that: "That the rules of natural justice vary with the v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6 (2). Jaipur, Appeal No. 826/JP/2014 decided on 16/07/2018 (vii) Vivek Agarwal v. The Income Tax Officer, Ward - 1 (2), Jaipur,Appeal No. 292/JP/2017 decided on 06/04/2018 (viii) Pramod Jain v The DCIT, Circle-3. Jaipur. (c) Para 5.3.3- Dhakeshwari Cotton Mill Ltd Vs CIT (261 ITR 775-S.C.) The said case regarding documentary evidences collected placed before the assessee while framing the assessment order. But in case of the assessee no documentary evidence except statement of some persons used against the assessee without having any correlative evidence and without having specific statement against the assessee. Therefore the said judgment is not applicable. (d) Para 5.3.4 Smt Kusum Late Thukral ( 327 ITR 424) (H Court P & H) (e) Para 5.3.5 Nath International Sales and Anr. vs Union of India (AIR 1992 Del 295). These judgments are also neither applicable nor having binding precedent force therefore referred only ornamentally. (f) In para 7.6- The learned Income Tax officer referred the following cases (1) Harsh win chadha VS DCIT (ITA No. 3088 to 3098 & 3107/ Del 2005. (ii) Indian & Eastern News Paper Society VS CIT (119 ITR 976 S.C.) (iii) Dhakeshwari C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r: "Para 19- "In our openion no question of law arose from the order of the Tribunal and therefore the High court was not justified directing the tribunal to State a case and we are further of opinion that the answer by the High court to the given by the High court to the question referred to is unsustainable. We accordingly discharge that answer that question in the affirmative and in favour of the Department" Therefore, it is requested that the ratio of judgment does not create the sach binding precedent as narrated by the Respondent. In para 8.5 to 8.6 some ITAT cases were also referred for following the principle of human probabilities to decide the genuineness. That the genuineness of the transaction on probability basis is depend on nature and circumstances of each transaction. Therefore justification of event should be decided by considering the factors of all possible reasons as a prudent man and the result should be liberally constructed in favour of the person concern unless otherwise apparently proved. (C) Following cases also cited by the Respondent for justification of cooked story - MC Dowell Vs CTO (Para 8.3 if A.O. order) The above judgments are laid dow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ver, notices 1 to 6 (SAL and its whole time directors) had devised an arrangement in collusion with notices 7 to 86, whereby through a combined and collective strategy and had executed series of trades among themselves and had manipulated the price of the scrip during the investigation period," Sebi Adjudicating Officer Soma Majumder said. "The regulator had debarred the notices from accessing securities markets for up to one year for the violations vide order dated 6 September 2021," she noted. By doing so, the notices have violated... PFUTP (Prohibition of Fraudulent and Unfair Trade Practices), the order added. In another order, the regulator has imposed a fine of Rs lakh on two individuals in a case. pertaining to disclosure lapses in the matter of Bronze Trading Ltd (BTL). The amount has to be paid jointly and severally. The order came after Sebi received a report from BSE Ltd regarding circulation of SMS/calls recommending the purchase of BTL scrip providing a target price to be reached by the stock in a time-bound manner for the period July 2016 to December 2016.'' The ld. DR has also relied on following case laws. (i) Ms. Manvi Khandelwal vs ITO (ITA No. 3212/Del/2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se of 5000 shares on 01-04-2012 (ii) The Bill for this transaction was raised by one Santoshima Tradelinks Ltd. on 01-04-2012 (there is an overwriting / cutting) i.e. actual date of purchase is not ascertained i.e. actual date of purchase is not ascertained. (iii) The Santoshima Tradelinks Ltd. was merged with M/s. Sunrise Asian Ltd. The Board of Directors have approved the merger on 9-11-2012 and informed the BSE accordingly. (iv) The assessee has sold all the 5000 shares for Rs.24,23,696/- by 2-08-2013 in one lot. (v) The assessee allegedly earned dRs.23,23,696/- as Long Term Capital Gains on this transaction Besides above observations, the AO went through the reports of Investigation Wing of New Delhi, Mumbai, Kolkata relating to the actions conducted by them in cases of bogus LTCG/STCG/STCL/Loss entry providers and also in cases of beneficiaries of this arrangement. The AO at the time assessment proceedings noted that it was being noticed by the Department for a long time that certain share transactions in penny stock companies were fabricated one with a motive to launder the unaccounted money in form of bogus LTCG/STCG with nil taxes or taxes at nominal rates. There h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....included in these scrips. The assessee had purchased the shares on 01-04-2012. The AO has issued notices u/s 143(2), 142(1) of the Act and show cause dated 13- 12-2016 with copy of part statement of Rakesh Somani, Sanjai Vohra, Anuj Agarwal (PBP 21 to 45). The assessee submitted reply with complete facts and requested for cross examination of the said persons and also requested to provide copy of their complete statements (PBP 46 to 52). It is noted that the assessee requested the AO for cross examination of all such persons but the assessee was not provided opportunity of cross examination holding that at this juncture of time, it is an attempt to delay/ halt the proceedings by assuming the instrument of cross examination as a right. It is understandable that for the sake of natural justice, the assessee can exercise his power to cross examine the evidences gathered against her. Hence, the assessee was deprived off to cross examine the persons whose statements / evidences were obtained against her. Thus the ld. AR submitted that subordinate authorities passed the impugned order against principles of natural justice laid down by the Hon'ble Supreme Court in several cases wherein th....