TaxTMI 
TaxTMI 
2018 (2) TMI 2087
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....e for the assessment year 2014-15 electronically 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....
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....tial profit in a short span of pre-determined time, which prompted him to acquire those shares. However the assessee has 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 p....
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....nking practice had helped in large scale tax evasion. (xxiii) Based on the above findings the Ld.AO opined as follows:- a) From the transaction it was evident that the assessee had invested in the shares only 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 (ava....
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....vested in purchase of shares of M/s. PFL Infotech Ltd., at Rs.450/- per share did not possess the resources to invest. Further the price of the shares nose-dived to Rs.15/- per share within a short span of time which establishes the fact that the transactions are not genuine and dubious. r) There is no scientific reasoning for the share 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 phenom....
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.... the business profit of the assessee U/s.28 of the Act. 5. On appeal the Ld.CIT(A) also gave concurrent finding as that of the Ld.AO in his order and further observed as follows:- (i) Every aspect which determines the genuineness of the transaction was apprised to the assessee however the assessee was not in a position to counter the findings of the Ld.AO in a satisfactory manner. (ii) The assessee had not 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 ci....
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....llotment of shares to black money holder (assessee) also does not have merit because the assessee had acquired the shares from the stock exchange after payment of STT. It was further submitted that the presumption of the Ld.Revenue Authorities that the operator identifies dummy buyers is also baseless because no evidence has been produced by the Department in support of the same. Further there was no evidence to show that the assessee had paid black money in cash to the operators. 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 o....
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....he Ld.Revenue Authorities though have made remarks with respect to spiking of the shares of M/s. PFL Infotech Ltd., the modus-operandi and the manner in which the prices are spiked has not been examined and brought out in their respective Orders. Further the Ld.AO has relied in the statements of few persons such as Shri Aspi Bamanji Vairava, Shri Pankaj Kumar K Shah, Shri Dipti P Shah, in order to arrive at the conclusion that the assessee was dealing with penny stock company. However from the letter written by those persons to the Revenue, it is evident that 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 per....
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....h any illegality. On query, the Ld.DR informed us that there is no criminal case, investigations by enforcement directorate or by CBI pending as on date with respect to the assessee or M/s. PFL Infotech Ltd. Moreover no irregularities are brought out by SEBI or any recognized stock exchange with respect to the trading in shares of M/s. PFL Infotech Ltd., as affirmed by the Ld.AR as well as the Ld.DR before us. Further there is no finding by the Department as to how the assessee might have possessed/acquired such huge black money for conversion. The bank account 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 we....
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....AO has not made any finding with respect to the modus operandi as to how such manipulations were made possible. He has only made a presumption that the transactions are dubious. It is pertinent to mention that the assessee would not be able to explain the entire activities of M/s. PFL Infotech Ltd., or gather internal documents/information because M/s. PFL Infotech Ltd., is a third party as far as the assessee is concerned and he has no control over the company. Further he himself confessed that he indulged in such trading activity based on tips received from 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....
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....s with respect to purchase and sale of shares through recognized and regulated stock exchange. Hence the ratio laid down in the case cannot apply to the case of the assessee. b) The Ld.AO has heavily relied in the decision of the Mumbai Benches of the Tribunal in the case ITO vs. Shamim Bharwani reported in 69 Taxman.com 65 and has extracted the entire order. However it is pertinent to mention that in that case the shares were purchased off the market which was not reported in the recognized stock exchange. The purchase was through back dated contract note and paid 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, ide....
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....h is not trustworthy, even if the Department does not lead any evidence on such an issue." However in the case of the assessee the genuineness of the company M/s. PFL Infotech Ltd. which is a third party and not under the control of the assessee and whose shares assessee had purchased and sold is the issue. Moreover the purchase and sales of shares were made through recognized stock exchange in the open market from unknown and unconnected persons. Therefore the ratio laid down by the Hon'ble High Court would not be strictly applicable in the case of the assessee. 8.3 The assessee has relied in the following 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 71....
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....assessee was false and the transaction was not genuine. In response to a notice under section 148 of the Income-tax Act, 1961, the assessee submitted his reply and furnished evidence in support of his claim of long-term capital gain. The Assessing Officer held that the assessee failed to lead evidence to support his claim of long-term capital gain and considered the amount of Rs.1,74,552 as unexplained credit and it was added in the income of the assessee. The Commissioner (Appeals) deleted the addition holding that the Assessing Officer had not discharged his onus and there was no material or evidence with the Assessing Officer to come to the conclusion that the transaction shown by the assessee was 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 ....