TaxTMI 
TaxTMI 
2018 (2) TMI 2087
X X X X Extracts X X X X
X X X X Extracts X X X X
....cally on 08.10.2014 admitting total taxable income of Rs.11,88,22,830/-. The return of income was selected for scrutiny by issuance of notice U/s.143(2) of the Act on 28.08.2015. The reason for selecting the case of the assessee for scrutiny was because there was substantial increase in the capital of the assessee during the previous year relevant to the assessment year 2014-15. In the course of scrutiny assessment proceedings it was revealed that the substantial increase in the capital of the assessee was due to the capital gain earned by the assessee which was claimed as exempt U/s.10(38) of the Act. During the relevant previous year the assessee had sold 7,72,000 shares of M/s. PFL Infotech for sale consideration of Rs.34,68,10,572/- and derived long term capital gain of Rs.32,90,96,125/- which was claimed as eligible for exemption U/s.10(38) of the Act. Thereafter a survey was conducted in the business premises of the assessee U/s.133A of the Act on 19.07.2016 because of the peculiar nature of transactions, quantum of exempt income, market information about the manipulation of shares of M/s. PFL Infotech Ltd, the timing of purchase and sale and the corresponding timing of "pump....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not disclosed the name of the person from whom he had received such tip. (xii) Shri Sohanraj Praveen Kumar, the brother of the assessee, by similar transactions booked bogus long term capital gain and claimed exemption U/s.10(38) of the Act amounting to Rs.38 crores during the assessment year 2014-15 by transfer of another illiquid stock of M/s. Risa International Ltd. (xiii) Shri Sohanraj Praveen Kumar had explained that he had received the information about the future increase in the value of share of M/s. Risa International Ltd from Shri Abhinandan Jain. (xiv) It was revealed that Shri Abhinandan Jain was Director in both M/s. PFL Infotech Ltd as well as M/s. Risa International Ltd. (xv) Since Shri Abhinandan Jain was Director in both M/s. PFL Infotech Ltd as well as M/s. Risa International Ltd and since the assessee has not disclosed the name of Shri Abhinandan Jain, the Ld.AO opined that there was collusion between the assessee, assessee's brother and Shri Abhinandan Jain. (xvi) Each and every features as to how penny stocks operates is prevalent in the case of the assessee. (xvii) The entire contract note provided by M/s. B. Lodha Securities Limited, Mumbai relat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y to gain profit on its sale. b) The assessee did not have any intention to hold the shares and earn dividend income. c) The assessee had not received any dividend income during the period of his holding of the shares. d) It is not the case of the assessee that the sale of shares in M/s. PFL Infotech Ltd is incidental but it is a clear case where the purchase of shares was only for the purpose of selling and not to hold it. e) The informant Shri Abhinandan Jain had not stated that the increase in the price of share will be due to the business activity of M/s. PFL Infotech Ltd, therefore it was evident that the intention of the assessee was to decamp with the profit earned by spiking of the shares artificially. f) Since the nature and characteristics of transaction is investment made for earning profit on sale of shares and not for earning dividend income, it was clear that the investment is in the nature of "AFS (available for sale)" as in the case where investments are made by banking institutions. g) On investments made in the nature of "AFS" by the banking institutions CBDT circular No.17 dated 26.11.2008 has instructed to treat the income arising out of sale and pur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are price to increase substantially and thereafter shrink to a low value to the extent of Rs.15 per share. Therefore the decision of the Hon'ble Apex Court in the case Durgaprasad & More reported in 82 ITR 540 applies to the case of the assessee on the theory of human probabilities. s) The assessee's relatives were also indulging in such kind of transactions which are bogus and dubious, in the shares of companies M/s. Gujarat Incatel, M/s. Pace Textile, M/.s Steel Exchange, M/s. Gujarat Capital, M/s. S V Electricals, M/s. PFL Infotech Ltd., M/s. Ken Finance, M/s. Clarus Financial Securities Ltd, M/s. Shantanu Sheorey Aquakult Ltd & M/s. Risa International Ltd., wherein all the shares are illiquid and spiked within short span of time, which even a blue chip company cannot normally achieve. t) Though the assessee has made phenomenal gain from purchase and sale of shares of M/s. PFL Infotech Ltd., he has incurred loss only in few companies such as Danush Technologies, Decolite, Surana Industries etc., which shows that in those transactions the assessee was ditched by operators 4. From the above findings and the opinion arrived at by the Ld.AO, he came to the conclusion that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t availed the opportunity provided to him for cross examining Shri Aspi Bamanji Vairava and all other persons who had provided adverse evidence against him. (iii) The Ld.AO had not left any gap or lacuna in the investigation undertaken by him. (iv) The assessee had failed to obtain financials and bank accounts of the buyers of the shares to prove that they are creditworthy. (v) The PE ratio of 11,800 at the time of sale of shares by the appellant is disproportionately high which shows that the shares are spiked artificially by scheming operators. (vi) All the case laws relied by the assessee have been counted by the Ld.AO by placing reliance in the decision of the Mumbai Bench of the Tribunal in the case Shamim M. Bharwani cited supra. (vii) The argument of the assessee that all the financial transactions were undertaken through banking channels and the shares were traded in stock exchanges does not have much water to hold. Reliance was placed in the decision of the Hon'ble Jurisdictional Madras High Court in the case CIT vs. Krishnaveni Ammal reported in 158 ITR 826 wherein it was held that "when there were other documentary evidence of corroborative value and same is wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tors. The Ld.AR further argued stating that the Revenue had not brought out any materials to establish that the share prices of the company was rigged. The Ld.AR thereafter argued vehemently stating that the shares of M/s. PFL Infotech Ltd., was traded regularly in the stock market till date and the appropriate government regulatory authorities has not pointed out any irregularities in those shares. Therefore the Ld.AR pleaded that the allegation made by the Department is based on presumptions and assumptions and therefore cannot be sustained in law. Hence it was requested that the addition made by the Ld.Revenue Authorities may be deleted. 7. The Ld.DR on the other hand vehemently argued in support of the orders of the Ld.Revenue Authorities reiterating their findings, views, etc., stated in their respective orders. 8. We have heard the rival submissions and carefully perused the materials produced before us. From the facts of the case the allegation of the Ld.Revenue Authorities can be broadly summarized as under:- (i) The assessee has purchased 17,49,000 shares of the listed company M/s. PFL Infotech Ltd., in July & August 2012 at the minimal rate of Rs.22.38 per share for R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at they have stated, neither they have met the assessee nor they know him and reference was made to another person Shri Bhupesh Rathod. However there is nothing on record to show that Shri Bhupesh Rathod was examined by the Revenue for gathering any adverse inference. The total extent of shares issued by M/s. PFL Infotech Ltd., and what is the nature of the share transactions that are not dealt by the assessee and who are those persons who dealt with those shares are not coming out from the orders of the Ld.Revenue Authorities. The entire extent of shares issued by M/s. PFL Infotech Ltd. is also not before us on record. It is pertinent to mention that the other persons who dealt with the shares of M/s. PFL Infotech Ltd will also stand in the same footing as that of the assessee and the details of those cases are also not before us. It appears that well-known institutions like Royal Bank of Scotland, etc., have also purchased and sold the shares of M/s. PFL Infotech Ltd. However the extent of shares dealt by them is not on record before us to examine and compare the scope of transactions with that of the assessee. Further we find from the order of the Ld.AO in Annexure 'E', that nea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ount trial with respect to the source of amount invested by the so called dubious purchasers of shares from the assessee through stock exchange has not been thoroughly investigated by the Revenue to establish that those buyers are not genuine and they did not have sufficient source to invest in the shares of M/s. PFL Infotech Ltd., purchased from the assessee. Only a passing remark is made by the Revenue on that regard that the buyers of the shares from the assessee were men of meager means but no evidence is brought on record. In fact the need for such finding was dispensed with by the Revenue by merely stating that the funds were routed through layering of accounts and flouting of rules by the bankers not following KYC norms. Though the Ld.AO has explained how the penny stock works, he has not made any finding with corroborative evidence to establish that the assessee's case falls under dealing with penny stock. The Ld.AO had also observed in his order that the assessee had failed to obtain financials and bank accounts of the buyers of the shares from the assessee to prove that they are credit worthy. We do not understand as to how the assessee will be able to get such particular....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om reliable sources. Though it appears that such quantum of raise and fall in the price of shares is not normally possible as in the case of M/s. PFL Infotech Ltd., it is essential to bring out some evidence to establish that there is some illegality in the transaction. Conclusions cannot be made merely on the basis of conjectures and surmises. The Ld.AO's grievance that the assessee had failed to obtain financials and bank accounts of the buyers of shares to prove they are credit-worthy is not appreciable, because it is obvious that the assessee cannot get such documents from unknown individuals who have purchased shares through recognized stock exchange. The Ld.AO himself had admitted that the assessee had also made investment in companies such as Danush Technologies, Delolites, Surana Industries, etc., however he has blindly stated in his order without evidence that the operators had ditched the assessee for conducting similar operations while dealing with those shares. It also establishes the fact that the observations of the Ld.AO regarding previous experience of the assessee in trading of shares does not seems to be appropriate. The mere statement of the Ld.AO that the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by cash. The shares belong to penny stock company and there were no real buyers. The operators were acting in benami names or name lenders. The shares traded were of paper companies. The purchases were in physical form, and demated subsequently long after the purchase date, back dated close to the date of sale. From the above, it is evident that facts are not identical to case of the assessee. In the case of the assessee shares are traded through regulated stock exchanges, financial transactions were made through banking channels, there were prominent institutions involved in the purchase and sale of shares, identity of the persons who traded in shares were known etc. Therefore the case relied by the Revenue is not applicable to the case of the assessee. c) The decision of the Hon'ble Apex Court relied by the Revenue in the case CIT vs. Durga Prasad More reported in 82 ITR 540 neither deal with share market transactions or identical to the facts in the case of the assessee. d) Further the decision in the case CIT vs. Mohanakala by the Hon'ble Apex Court reported in 291 ITR 278 is not applicable to the case of the assessee because in that case the issue was with respect to add....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng decisions which apparently support the case of the assessee:- * Bombay High Court in the case of Jamna Devi Aggarwal 236 CTR 32 (2010) * Bombay High Court in the case of Mukesh Ratilal Marolia (2012) 80 CCH 0407 * Gujarat High Court in the case of Maheshchandra G Vakil (2013) 40 Taxman 326 * Ahmedabad ITAT in the case of Mahesh G Vakil ITA No.3104/Ahd./2009 * Kolkata High Court in the case of Emerald Commercial Ltd (2002) 120 Taxman 282 * Kolkata ITAT in the case of Sunita Khemka ITA No.714 to 718/Kol./2011 * Kolkata ITAT in the case of Anil Khemka ITA No.901 to 905/Kol./2009 dated 28/01/2010. In all the above mentioned cases, it has been uniformly held that when the transactions are routed through banking channels and the identity of the seller and the purchasers are established and when the transactions are covered through contract notes, demat accounts which shows transfer in and out of shares then there is no necessity to doubt the genuineness of the transactions. 8.4 From the above it is apparent that the decisions relied by the Ld. Revenue Authorities will not be strictly applicable to the case of the assessee and the decisions cited by the assessee are in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a bogus transaction. The Commissioner (Appeals) took the view that if a company was not available at the given address, it could not conclusively prove that the company was non-existent. The Tribunal took into consideration that the Assessing Officer had not dealt with all the documents placed before him and had simply presumed that the transaction was bogus and held that the purchase contract note, contract note for sales, distinctive numbers of shares purchased and sold, copy of the share certificates and the quotation of shares on the date of purchase and sale were sufficient material to show that the transaction was not bogus but a genuine transaction. On appeal: Held, dismissing the appeal, that there was no material before the Assessing Officer, which could have led to a conclusion that the transaction was a device to camouflage activities to defraud the Revenue. No such presumption could be drawn by the Assessing Officer merely on surmises and conjectures. The Tribunal took into consideration that it was only on the basis of a presumption that the Assessing Officer concluded that the assessee had paid cash and purchased the cheque. In the absence of any cogent material in ....