AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (1) TMI 118
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.... facts in making an addition of Rs. 66,28,161/- being sale consideration on sale of shares listed on recognized stock exchange as unexplained credit u/s 68 of the Act. 2.1. That while sustaining the aforesaid addition and denying the exemption learned Commissioner of Income Tax (Appeals) has failed to appreciate that, appellant was owner of equity shares of a listed company which had been held by it for a period exceeding 12 months and the same were sold on recognized stock exchange after payment of STT, resulting into a long term capital gain and therefore the long term capital gain accrued to the assessee on transfer of long term 'capital asset' was not includible in total income of the assessee in view of section 10(38) of the Act. 2.2. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate the evidence tendered by the appellant to support the claim of sale of shares and hence, findings mechanically recorded on borrowed inference in disregard of evidence and based on irrelevant and extraneous considerations are misconceived and, misplaced. 2.3 That the learned Commissioner of Income Tax (Appeals) has confirmed the above addition and denied e....
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....rd and after hearing Ld. DR. Accordingly, the appeal was heard and being disposed of by this order. 3. Briefly stated the facts are such that the assessee-individual filed his return of income on 21.10.2014 declaring a total income of Rs. 28,45,390/- from salary, house-property, business / profession and interest. In the return, the assessee also declared a long-term capital gain of Rs. 66,28,161/- earned from sale of equity shares of Lifeline Drugs and Pharma Ltd. exempted u/s 10(38) of the act. The assessee claimed to have purchased shares of Lifeline Drugs and Pharma Ltd. for Rs. 33,418/-; sold the same for Rs. 66,61,579/- and thereby earned a whopping capital gain of Rs. 66,28,161/-. Apprehending the capital gain as suspicious, the case was selected for scrutiny under CASS and the statutory notices u/s 143(2) and 142(1) were issued from time to time. During assessment-proceeding, the Ld. AO asked the assessee to prove the capital gain, in response to which the assessee made a detailed submission. Observing that the assessee has made an unrealistic non-taxable capital gain of Rs. 66,28,161/- on a very small investment of just Rs. 33,418/- and that too within a short period of j....
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....esults and its financial status. It is also noted that increase in the prices of the share of M/s Lifeline Drugs in just one and half year was approx 19834% is total unrealistic. 4. The assessee has been confronted with all the evidence gathered and the issues mentioned in the foregoing paragraphs at Para 6 of this order. The explanation of the assessee is general in nature that as the transaction is through Stock Exchange and the payment is by cheque, the transactions should be treated as genuine. The background of the scheme given in the beginning of the order clearly shows that both the requirements are in built in the scheme and does not ipso facto prove genuineness of transaction. The SEBI after thorough investigation has certified that such transactions are rigged and are carried out to convert Black money into white. That being so, the credit in the bank account of the assessee cannot be treated as explained and is therefore, liable to be added under section 68 of the Act. The evidence gathered has to be evaluated in the background of what the Hon'ble Supreme Court referred to as the test of preponderance of human probability judged on the basis of surrounding circumst....
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....d out the reality of the recitals made in those documents. " That genuineness could validly be tested on the ground or principle of preponderance of human probabilities, which could thus form a valid ground or parameter for determining. the genuineness, stands since settled by the apex court in Sumati Dayal v. CIT (1995) 214 ITR 801 (SC) wherein the apex court, in declaring the transaction as non-genuine, discarded a host of documentary evidences filed or relied upon by the assessee-appellant. That documentary evidences are not by themselves conclusive, and the truth of the matter or the documents could be determined on the basis of or on the anvil of the surrounding facts and circumstances of the case is well settled, and reliance is placed on the decision in the case of Durga Prasad More 82 ITR 540 (SC). 5. In view of the discussion made above and considering the facts and circumstances of the case, the following facts become manifestly clear:- i. That some unscrupulous operators in the capital market were running a scheme of providing entries of LTCG for a commission. ii) The financial result of the Penny Stocks used for the purpose clearly indicate that its quoted price....
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....In such case there is prima facie, evidence against the assessee, viz. the receipt of money, and if he fails to rebut, the said evidence being un-rebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably" 6. Further, the transaction is found to be not genuine in in view of the following observations and facts: i) The financials of the penny stock Lifeline Drugs and Pharma and movement of the price is abrupt, unrealistic and not based upon any realistic parameters. ii) In the similar circumstances, the honorable Gauhati High Court of CIT Vs Sanghamitra Bharali(361 ITR 481) had held that the capital gains are sham transactions entered only to give colour of genuineness and therefore, held that the capital gain arising out of these transactions cannot be believed as genuine and upheld taxing the said amount as unaccounted income brought into books in the guise of exempted capital gains. iii) That even assuming the purchase as genuine, the sales, given the high rates for such penny stocks, with no real buyers, are bogus. The evidentiary value of payme....
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....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." The aforesaid section merely codifies what was the state of law prior to its enactment. Even when the Indian Income-tax Act, 1922, was in force it had been held in all judicial pronouncements that if cash credits are found in the books of account of the assessee and no explanation about the nature and source thereof is given or the explanation is not found satisfactory then the same could be charged to income-tax as income from undisclosed sources. It is not unknown that in order to avoid payment of tax an amount may be credited in the books of account in such a manner which may not disclose its true nature or source thereof. For example, amounts may be credited in the books of account as if they represented sums received from different persons. On plain reading of section 68 it appears that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the Income-tax Officer has the jurisdict....
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....prove a fact and it never shifts, but the onus may shift. As per section 103 of the Evidence Act, Burden is on that person w he wishes the court to believe in the existence of a particular fact. For instance, when a person who says positively that another had notice of a fact but does not adduce evidence to prove that positive fact, the court cannot hold that the other person had such notice, save that other person admits that he had notice. A support for above conclusion can be found in the following legal dictum: In the absence of any direct evidence, the quasi-judicial authorities can base their conclusions on the basis of what are known as notorious facts, bearing in mind the principles of section 144 of the Evidence Act. They can assume that, existence of any fact which they think likely to have happened in the course of normal conduct of public and private business. For this purpose, I rely on the ratio of the following judgments, wherein the doctrine of 'notorious fact' has been taken note of. (i) CWT Vs. Tohtah Industries Ltd. 67 ITR 283, (ii) Malini R Rele Vs. ITO 205 ITR 52 (Mumbai) ITAT Third Member. While analyzing the facts of this case, it is kept in....
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....on made above, the total amount of Rs. 66,28,161/- is added under section 68 of the Income tax Act, 1961. As the assessee has deliberately and willfully concealed its unaccounted income, and furnished inaccurate particulars of such income, the penalty proceedings under section 271(1)(c) are initiated for concealment and furnishing the inaccurate particulars also initiated. Addition: Rs. 66,28,161/- 10. Addition on account of unexplained expenses U/S 69C of Rs. 1,99,847/-: As per the discussion made in the earlier para 3 above, it has been concluded 'that assessee has managed the bogus LTCG transaction to convert the unaccounted money available with him by investment in the penny stock with the help of brokers and claimed exemption u/s 10(38) of the Act. Since, the above transaction was routed through stock broker and stock exchange assessee must have spent some amount for taxes and brokers commission. As per normal business practices such expenses is worked out totaling to 3% of total transaction. The amount so spent @ 3% of total transaction of Rs.6661579/- is worked out at Rs.199847/-. Since, assessee has not disclosed this amount in his return of income, therefore, cons....
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....of the operator at a pre-determined 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 of 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 finally is parked with the dummy paper company that will buy the shares. 4.2.2 The result of the investigation in brief is as under: I. Individuals throughout the country inc1entified who have taken such bogus entries of LTCG amounting to several crores from 2010 to 2014. II. The result of the enquiry was also shared with SEBI and the SEB] after investigating 28 cases have found the allegation to be correct. The balance cases are still being investigated by SEEI. The SEBI has put in surveillance measure the scrip of M/s Lifeline Drugs and Pharma Ltd. III. The beneficiaries were confronted in course of further investigation by the investigation Wing. Almost all of them barring a few have accepted having taken the entries for a commission. A sum of crores has been voluntarily surrendered by such assessees. IV. As per searches/surveys/enquirie....
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....me and earned return of more than 200 times within a short span of period which IS extremely unusual. The shares in which the appellant traded are identified as Penny Shares by Investigation Wing of Kolkata. 4.2.4. The reliance is placed on the following judicial pronouncements:- 1. Sanjay Bimalchand Jain L/H Shantidevi Bimalchand Jain Vs PCIT (ITA No.18/2017 Bombay High Court (Nagpur Bench) The assessee had purchased shares of two penny stocks of Kolkata based companies i.e., 8000 shares at the rate of Rs.5.50 per share on 08.08.2003 and 4000 shares at the rate of Rs.4/per share on 05.08.2003. The assessee sold 2200 shares at an exorbitant rate of Rs.486.55 per share on 07.06.2005 and 800 shares on 20.06.2005 at the rate of Rs. 485.65. The authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth Rs.5/ had jumped to Rs.485/in no time. Addition confirmed. 2. Chandan Gupta Vs CIT [2015J 54 taxmann.com 10 (Punjab & Haryana) / [2015] 229 Taxman 173 Hon'ble Punjab & Haryana/-High Court held that where assessee could not explain receipt of alleged share transactions profits credited in his bank accounts,....
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....) was justified in confirming the order of the AD by applying the test of human probabilities 5. Ratnakar M Pujari Vs ITO [2016-TIOL-1746-ITATMUM] Where Hon'ble ITAT Mumbai held that a transaction of 'off market purchase of share' for which payments were made in cash and the brokers had issued pre dated contract notes, is liable to be treated as bogus transaction, and hence such cash receipts are liable to be treated as 'unexplained cash receipts' 4.2.5 In view of the above circumstances it is concluded that the transactions were sham transactions and aimed only to bring unaccounted money. Relying on above cited judicial pronouncements, the addition made by the AO amounting to Rs.66,28,161/- is Confirmed. Therefore, the appeal on these grounds is Dismissed. 4.3 Ground No. 3: Through this ground the appellant has challenged the addition of Rs.l,99,847/- on account of commission paid on share accommodation entry. The appellant has taken the share accommodation entry after paying the commission to share brokers and entry operators, who is engaged in the business of providing of accommodation entries. The AO is justified in adopting 3(% - commission of the t....
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....rs and whose share prices have been apparently manipulated by the syndicate of operators, which have come to adverse notice of the Income Tax Department, are as under: SL No Script Code Script Name Full Name of Penny Stock 36 506113 Lifeline Dru Lifeline Drugs & Pharma Ltd. Learned DR also filed a copy the Order passed by the Securities and Exchange Board of India (SEBI) by which the SEBI had suspended operations in the script of Lifeline Drugs & Pharma Ltd., after receiving a reference from Principal Director of Income-tax (Investigation), Kolkata informing that the Lifeline Drugs & Pharma Ltd. was a script which was used to generate Long Term Capital Gain. 9. Then, Ld. DR placed reliance on the decision of Hon'ble High Court of Kolkata in PCIT Vs. Swati Bajaj, ITA No. 06/2022, dated 14.06.2022 decided recently in favour of Revenue. The decision is much detailed; has considered various legal precedents of the Hon'ble Supreme Court and other Courts; has taken into account the Investigation-Report dated 28.04.2015 prepared by Investigation-Wing of Income-tax Department; and considered the issues of cross-examination, human probability etc. Some relevant paragraphs of....
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....e, as the former is not a case of insider trading but that of Fradulent/Manipualtive Trade Practices; and the latter case relates to Interest Penalty rather than the subject matter at hand. Reliance placed on the case of Kishore R. Ajmera (supra) to show that presumption can be drawn on the basis of immediate and relevant facts is contrary to law already settled by this Court in the case of Chintalapati Srinivasa Raju (supra) where it is held that "a reasonable expectation to be in the know of things can only be based on reasonable inference drawn from foundational facts." It has further been held that merely because a person was related to the connected person cannot be itself be a foundational fact to draw an inference." 71. On a careful reading of the above paragraph will show that the argument by placing reliance on the case of K.R. Ajmera to show that presumption can be drawn on the basis of immediate and relevant facts was contrary to the law already settled by the Hon'ble Supreme Court in Chintalapati S. Raju. Therefore, it would be incorrect to submit that the decision in K.R. Ajmera has been overruled. This position becomes clearer as the decision in K.R. Ajmera was ....
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....ully bound to prove the huge LTCG claims to be genuine. In other words if there is information and data available of unreasonable rise in the price of the shares of these penny stock companies over a short period of time of little more than one year, the genuinity of such steep rise in the prices of shares needs to be established and the onus is on the assessee to do so as mandated in Section 68 of the Act. Thus, the assessees cannot be permitted to contend that the assessments were based on surmises and conjectures or presumptions or assumptions. The assessee does not and cannot dispute the fact that the shares of the companies which they have dealt with were insignificant in value prior to their trading. If such is the situation, it is the assessee who has to establish that the price rise was genuine and consequently they are entitled to claim LTCG on their transaction. Until and unless the initial burden cast upon the assessee is discharged, the onus does not shift to the revenue to prove otherwise. It is incorrect to argue that the assessees have been called upon to prove the negative in fact, it is the assessees duty to establish that the rise of the price of shares within a s....
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....hattacharya referred to the decision for the simple reason, to point out that tax planning may be legitimate provided it is within the frame work of law as colourable devices cannot be part of tax planning which cannot be encouraged. Therefore what we are required to see is whether the claim made by the assesees before us are legitimate and whether there was any colourable devices adopted in the process and these colourable devices may or may not be directly but indirectly attributable to the assessee. Therefore, we need not labour much to examine as to how rule in McDowell needs to be applied as we are required to examine the factual scenario from the cases on hand which appear to be quite unique not probably drawn the attention of the courts and the tribunal earlier. 75. While it may be true that M/s. Swati Bajaj, Mr. Girish Tigwani or other assessees who are before us could have been regular investors, investors could or could not have been privy to the information or modus adopted. In our considered view, what is important is that it is the assessee who has to prove the claim to be genuine in terms of Section 68 of the Act. Therefore, the assessee cannot escape from the burde....