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2023 (7) TMI 743
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....ssessee is in appeal before this Tribunal raising the following grounds in the case of M/s. Gateway Financial Services Ltd. in I.T.A. No.: 982/KOL/2018: "1) That under the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming addition of a sum of Rs. 16,40,62,615/- holding the same to be the bogus loss claimed by the assessee. The addition, being based on the surmises & conjectures, need to be deleted. 2) That the assessee craves leave to add, alter, amend or withdraw any ground or grounds of appeal before or at the time of hearing." 4. As regards I.T.A. Nos.: 983, 984 & 2068/KOL/2018 since the grounds are similar except the change in figure of the addition, we therefore, reproduce below the grounds of appeal raised in the case of M/s. Nishit Agarwal Beneficiary Trust in I.T.A. No.: 983/KOL/2018: I.T.A. No.: 983/KOL/2018: "1) That under the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming addition of a sum of Rs. 7,54,31,166/- made by the AO for the long term capital gain claimed by the assessee folding the same to be bogus. The addition, being based on the surmises & conjectures, need to ....
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....ng future. Further, ld. AO observed that since there is not a single condition being fulfilled by this company i.e. Blue Circle Services Ltd. to justify the sudden sharp rise and fall of share price, the alleged claim of short term capital loss is bogus. However, while making the disallowance of short term capital loss, ld. AO has mentioned it as addition towards long term capital gain. 7. As regards the remaining three assessees namely M/s. Nishit Agarwal Beneficiary Trust, Pinky Agarwal and Pratik Agarwal Beneficiary Trust the case of the assessee(s) were selected for scrutiny and ld. AO observed that all the three assessees have earned huge amount of long term capital gain claiming exemption u/s 10(38) of the Act from the sale of scrip namely Radford Global Ltd. Respective Assessing Officers while dealing in all these three individual cases mainly relied on the statement of Mr. Praveen Kumar Agarwal on 21.01.2016 before the Investigation Wing. However, the same was retracted on 16.04.2016. Ld. AOs have also referred to the statement of Mr. Soumen Chaudhury, Mr. Ranjeet Gupta and Mr. Chiranjit Mahanta recorded on 10.02.2015 as well as statement of Mr. Amit Singh and Mr. Bal Kr....
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....fault with the Tribunal for not swallowing that story. If that story is found to be unbelievable as the Tribunal has found and in Our opinion, rightly that the decisions remains that the consideration for the sale proceeded from the assessee and therefore, it must be assumed to be his money. It is surprising that the High Court has found fault with the ITO for not examining the wife and the father-in-law of the assessee for proving the Department's case. All that we can say is that the High Court has ignored the facts of life. It is unfortunate that, the High Court has taken a superficial view of the onus that lay on the Department. 7. The learned CIT(A) only got swayed by the issuance of notice by the AO under Section 131 to both the brokers from whom shares were purchased and sold and came to the conclusion that share transactions were genuine overlooking the material gathered by the AO from the statements recorded of broker M/s S.K. Sharma & Co. and the other facts and circumstances that volume of transactions of Jaipur Stock Exchange is only 600 shares and 1000 shares. Payments have been received from the brokers only in instalments over a period of 6-7 mo....
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....he above discussion, I find no infirmity in the orders of the Ld. AO, and I confirm the same, holding the claim of STCL of Rs. 16,40,62,61/- to be bogus. Therefore this ground of appeal stands dismissed." 9. Aggrieved, all the four assessees are now in appeal before this Tribunal. The assessee has filed separate written submissions for all the four appeals but they are almost identical and therefore, we reproduce below the written submission in the case of M/s. Gateway Financial Services Ltd.: "i) Gateway Financial Services Ltd., the appellant is a leading broking house of the country membership of the National Stock Exchange 1994. Gateway Financial Services Ltd is also a member of BSE & NSDL catering to the services of all financial products. The appellant purchased from the market 52,30,616 equity shares of Blue Circle Services Ltd. vide ISIN. INE526K01023 on the rolling market lot basis during the FY 2012-13 on various dates. The total purchase price paid through the bank account for the shares was Rs. 21,76,72,318/-. The evidence of purchase being the copy of SAUDA register is filed on pages nos. 70 to 86 of the paper book filed on 03.02.2023. The evidence of sale o....
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.... Ltd in I.T.A. No. 1429/DEL/2016 passed for the Assessment Year 2012-13 wherein Page-47 of the order it is noted that the statement made by Sri Jagadish Prasad Purohit during search u/s 132(1) on 21.01.2015 was retracted by him by way of an affidavit on 30.01.2015. The Tribunal therefore taking note of the same had proceeded to decide a similar issue in favour of the assessee and dismissed the appeal of the Revenue. In this case, it is pointed out to your Honours that the appellant filed a stricter Affidavit to the department on 18.04.2016 before the assessment proceeding, whereby the appellant had demanded a copy of the statements of the persons relied upon in the assessment and also required for cross-examination of the maker of the statement. Ld. AO neither supplied a copy of the statement requested nor allowed cross-examination of the persons whose statement was relied upon for making the addition. This goes to show that there is no specific information or material adverse to the appellant. However, the assessment having been based on suspicion and surmises is illegal. Further, the Appellant would draw the attention of the court to provisions of section Sec. 142(3) of the Act w....
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....sessee could controvert the statements contained in it by asking for an opportunity to cross-examine the Manager of the Bank concerning the statements made by him." ix) The Hon'ble Calcutta High Court in Eastern Commercial Enterprise, (1994) (Cal) [210 ITR 103] at page-111: Held as under:- Cross-examination is the sine qua non of due process of taking evidence and no adverse inference can be drawn against a party unless the party is put on notice of the case made out against him. He must be supplied with the contents of all such evidence, both oral and documentary so that he can prepare to meet the case against him. This necessarily also postulates that he should cross-examine the witness hostile to him. x) A similar view was also taken by the Hon'ble High Court of Rajasthan in the case of CIT vs. Smt. Sunita Dhadda reported in [2018] 406 ITR 220(Raj) wherein the Hon'ble Court has considered the judgment of the Hon'ble Supreme Court in the case of M/s Andaman timber Industries vs. CCE (supra) and confirmed the view taken by the Tribunal holding that "if the assessee is not provided any opportunity to cross-examine the person who stated to ....
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....rsistence in trading in the particular scrips, particulars of purchase and sale orders, the volume thereof and proximity of the time between the two which are relevant factors. Therefore methodology adopted by the Department could not be faulted. The holistic approach was required to be made and the test of the preponderance of probability had to be applied in doing so one could not lose sight of the fact that prices of shares of very little-known companies with the insignificant business had arisen steeply within the period of little over a year. The department was not privy to such peculiar trading activities as they appeared to have been done through the various Stock Exchanges and it was only when the assesses claimed long-term capital gain or short-term capital loss that the investigation commenced. The Investigation did not commence from the assessee but commenced from the companies and the persons who were involved in the trading of the shares of these companies, which were all classified as penny-stock companies. The assessees were not named in the report and when the assessee claimed exemption the onus of proof was on the assessee to prove the genuinity. ....
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....s entitled to claim long-term capital gains on the transaction. The court observed that until and unless the initial burden cast upon the assessee was discharged, the onus did not shift to the revenue to prove otherwise. Therefore, until and unless the assessee discharged such burden of proof, the addition made by ld. AO could not be faulted. With due respect, this reasoning of the Court is unconvincing in the light of the submissions made hereinabove. The initial burden cast upon the assessee stands adequately discharged the moment the assessee produces all the documentary evidence of the share transactions as stated above. The so-called initial burden on the assessee, it is submitted with due respect, does not include the burden to prove the genuineness of the rise in share prices on the Stock Exchanges especially when the Stock Exchanges are regulated by a statute (SEBI Act 1992), and a body constituted therein, namely, SEBI. The court observed that merely because the assessee had invested in other bluechip companies and earned profit or incurred loss, that would not validate the tainted transactions. It had been established by the Department that the ....
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....inating statement and the addition in the assessment is based solely and mainly on the basis of such statement, in that eventuality it is incumbent on ld. AO to allow cross examination of the witness. Ld. AO at page-2 of his order has recorded the statement of Sri Jagadish Prasad Purohit during the search proceedings u/s 132(4) carried out at his residence on 21.01.2015 wherein in reply to Question No. 16 he stated that he was involved in providing accommodation entry in the form of long term capital gain to any entity. Further in reply to Question No. 17 he stated that he recommended Sri Bal Krishan Sikaria of 14, N.S. Road, Kolkata for providing accommodation entry in the form of long term capital gain. The statement have been utilised by ld. AO in holding that the short term capital loss incurred by the assessee from the transaction in shares of Blue Circle Services Ltd of Rs. 16,40,62,615/- as bogus. Therefore ld. AO was bound to supply those statements and allow the cross examination of the maker of the statements to the assessee according to the judgement of the Hon'ble Calcutta High Court in Swati Bajaj case as well as in view of the judgments of Hon'ble Sup....
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....rinciples have been ignored by the department. The appellant invested in the shares of the company but there is no reason to doubt the genuineness of the transaction. The addition made by the Ld. AO on account of alleged bogus short term capital loss of Rs. 16,40,62,615/- is not sustainable in law. In the assessment order, no adverse comment or statement was recorded against the share brokers of the appellant and the documents which have been furnished by the appellant have been set out by the AO in his order dated 29.12.2016 in paragraph 3, the AO has noted the explanation given by the appellant as to how the investment was made and going by the investment made by the appellant. Thus, it is submitted that the facts clearly show that the appellant, M/s Gateway Financial Services Ltd is a bona fide investor in stocks and shares. Thus the statements relied upon by ld. AO in making the addition cannot be read against the appellant as they were not confronted by the appellant during the assessment as well not allowed to cross-examine the maker of the statement. If the statement is removed there is no material brought on record by the lower authority based on which addition can....
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.... Patch-2 i.e. 29.01.2013 to 23.07.2013 allegations have been levelled against the remaining 24 notices. The Board observed that the following issues arise for consideration: A. Whether Notices No. 1- 24 (referred to in Table at page 1) acted collectively as a group and contributed 7.77% of the total market positive LTP increase during patch 2 thereby resulting in the false and misleading appearance of trading in the scrip of RGL and contributed to price rise in the scrip of RGL thereby violating the provisions of SEBI Act and PFUTP Regulations as alleged in the SCN? B. Whether Notices No. 25 to 29 (referred to in Table on page 1) sold shares in the market in very small quantities with a manipulative intent to increase the price of the scrip of RGL and thereby violated the provisions of SEBI Act and PFUTP Regulations as alleged in the SCN? C. If the answers to issues A and B are in the affirmative, what directions are required to be issued against the Notices? Thereafter SEBI concluded on Page 100 in Para 69 of the order as follows: "In the present case, the holistic consideration of the factors as discussed in earlier paragraphs....
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....unsel for the assessee as above. We agree therefore, in the light of the factual distinction, that the decision of the Hon'ble Calcutta High Court is not applicable in the present case. 15. In view of the above, we do not find any infirmity in the order of the Ld. CIT (A) deleting the addition made on account of alleged bogus long term capital gains of Rs. 8,90,28,838/-. Accordingly, the grounds of the appeal of the Revenue are dismissed. It is prayed that facts being identical, following the precedent the addition made on account of alleged bogus long term capital gain be deleted in full and the appeals of the assessees are allowed." 10. Though, ld. Counsel for the assessee has filed the written submissions both with regard to the merits of the case as well as the legal issue, however, the arguments were given on the legal issue in full force stating that the basis of the addition was the statement of third persons and the analogy adopted by ld. AO of disallowing the claim of short term capital loss as well as denying the benefit of exemption on long term capital gain was mainly on the basis of statements of various persons referred above in preceding paras. T....
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....G1634L) ITA No. 982/Kol/ 2018 PCIT (C)-2, Kol STCL of Rs. 16,40,62,615/- from script Blue Circle Services Ltd. 2 M/s. Nishit Agarwal Beneficiary Trust (PAN: AABTN3350K) ITA No.983/Kol/2018 PCIT (C)-2, Kol LTCG of Rs. 7,54,31,166/-as claimed as exempt u/s. 10(38) on script Rad Ford Global 3 Pinky Agarwal (PAN: ACGPA7438L) ITA No.984/Kol/2018 PCIT-9, Kol LTCG of Rs. 7,89,94,398/- as claimed as exempt u/s. 10(38) on script Rad Ford Global 4 Pratik Agarwal Beneficiary Trust (PAN: AABTP7516K) ITA No.2068/Kol/2018 PCIT (C)-2, Kol LTCG of 7,59,14,352/- as claimed as exempt u/s. 10(38) on script Rad Ford Global The Ld. A/R of the assessee had argued on the issues of all the four cases advancing points in favour of grounds of appeal taken and thereafter the Hon'ble Bench asked the undersigned to counter argue. In the course of hearing, the undersigned heavily relied on the orders of the A.O. and the Ld. CIT(A) in all the cases with a special and resounding mention of judgment of PCIT vs. Swati Bajaj and Ors. Reported in 446 ITR 56 (Cal) (2022), dealing with issue of claim of bogus capital gain on penny stock, holdin....
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....een Kr. Agarwal, the entry operator who had deposed before the I.T. Authorities of having arranged bogus share capital gain on penny stocks, has retracted from his statement at a later date. Any retraction of statement does not resolutely vitiate the substance in the orders of the A.O. and Ld. CIT(A). Purportedly, Sri Praveen Kr. Agarwal was arrested by the CBI as appearing in a Section of Press Report the headlines of which in Hindi reads CBI arrests the jama-kharchi operator(s) involved in 60 thousand crore scam in Kolkata in connection with another case, and charge-sheeted on 7th April 2016. (Copy of the press report enclosed as Annexure-C) The action of the Agency clearly indicates his involvement in such malpractices and thus any retraction of statement from his side takes a back seat. (3) The Ld. A/R had also submitted that the Ld. CIT(A) had mistakenly stated that there was an amalgamation in the case of Rad Ford Global whereas the case was not so. It is submitted that this argument is too feeble to feature in the larger aspect of things. Accordingly, where the statement of affairs and modus operandi of the aforesaid four....
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....s not established' 1.1. Prior to this, in Para-57 of its order, SEBI has observed that no circumstances have been brought out which suggests that the intra-group buyers and sellers had a prior meeting of minds and in furtherance thereof they executed the trades. [Emphasis provided] 2. It may be pertinent to mention that out of the four cases under consideration, M/s Gateway Financial Services Ltd., in which the addition was on account of bogus short term capital loss and the share scrip involved was also different, is not covered by the above quoted order of SEBI. 3. The Ld. A/R also relied on the order of Hon'ble ITAT Ahmedabad dated 11-012023 in the case of Ward-3(3)(2) Ahmedabad v. M/S Gokuldham Enterprises LLP where the ITAT deleted the addition on account of bogus LTCG by observing inter alia as under: Para 11. A perusal of this show cause notice reveals that except for mentioning the fact that the shares have been sold at a very high price, there is no discussion as to how the price was found to be unreasonable. There is no discussion of the financials of the scrip dealt with by the assessee; there is no absolutely no basis establish....
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....ion is squarely applicable to the present case. The CIT (A)'s order deleting the addition of Rs. 8,90,28,838/- in the present case is fortified by the said decision of the ITAT. As for the decision of the Hon'ble Calcutta High Court in the case of Swati Bajaj (supra), the Ld. Counsel for the assessee has rightly distinguished the same on facts pointing out that in those case there was no reference to any order of SEBI in the scrips traded in. That accordingly the Hon'ble High Court had dealt with the issue on merits referring to the financials of the scrips not supporting the high prices at which it were sold and accordingly holding that the assessee in such circumstances was required to establish the genuineness of the transaction. The Ld. DR was unable to controvert the factual distinction pointed out by the Ld. Counsel for the assessee as above. We agree therefore, in the light of the factual distinction, that the decision of the Hon'ble Calcutta High Court is not applicable in the present case. 15. In view of the above, we do not find any infirmity in the order of the Ld. CIT (A) deleting the addition made on account of alleged bogus long term capital gain....
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....re was a scam which resulted in price manipulation and generation of income by way of bogus LTCG/STCL. 5. The decision of Hon'ble Calcutta High Court in Swati Bajaj, [2022] 139 taxmann.com 352 (Calcutta) is in favour of revenue on identical facts as in the present case. In the said decision, with regard to the prior meeting of minds before execution of the transactions leading to the generation of disproportionately high LTCG, the Hon'ble court observed in Para-73 as under: 73. It is very rare and difficult to get direct information or evidence with regard to the prior meeting of minds of the persons involved in the manipulative activities of price rigging and insider trading. We can draw a parallel in cases of adulteration of food stuff more than often action is initiated under the relevant Act after the adulteration takes place, the users of adulterated products get affected etc. Therefore, a holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, we cannot loose sight of the fact that the shares of very little known companies with in-significant business had a steep rise in the share prices ....
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....it is the assessees duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. The assesses cannot be heard to say that their claim has to be examined only based upon the documents produced by them namely bank details, the purchase/sell documents, the details of the D-Mat Account etc. The assesses have lost sight of an important fact that when a claim is made for LTCG or STCL, the onus is on the assessee to prove that credit worthiness of the companies whose shares the assessee has dealt with, the genuineness of the price rise which is undoubtedly alarming that to within a short span of time. [Emphasis provided] 5.1. Thus, the Hon'ble court acknowledged the difficulties in getting direct proof of the prior meeting of minds of the persons involved in manipulative transactions and held that onus was cast on the each individual assessee, who has to establish that the price rise was genuine and consequently he/she/it is entitled to claim LTCG/STCL on such transaction. 6. As pointed out in Para-4 above, in the cases under cons....
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....essees in appeal before us or they are third persons which were found by the Investigation Wing of the Income Tax Department to be engaged in providing accommodation entry in the form of bogus capital gain. Though in the written submissions filed by the assessee arguments have been placed both on the legal issue as well as merits of the case, we will first take up the legal ground raised in the instant bunch of appeals. 14. The legal issue raised is that principles of natural justice have been violated by ld. AO by not providing an opportunity to cross-examine those persons whose statements have been recorded at the back of the assessee and have been used against the assessee(s) and thus, the prayer has been made by the ld. Counsel for the assessee that due to the violation of principles of natural justice the assessment orders are illegal, invalid, bad in law and liable to be quashed. 15. We observe that in the case of assessee namely M/s. Gateway Financial Services Ltd., incurred short term capital loss from purchase and sale of equity shares of Blue Circle Services Ltd. during FY 2013-14. In the said transaction of short term capital loss (in short 'STCL')/long term capita....
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....So far as the remaining three assessees namely M/s. Nishit Agarwal Beneficiary Trust, Pinky Agarwal and Pratik Agarwal Beneficiary Trust apart from the statement of Mr. Praveen Kumar Agarwal taken on 21.01.2016 which stands retracted on 16.04.2016 by way of an affidavit, strong reliance was placed by ld. AO on the statement of Mr. Amit Singh (recorded on 22.12.2015), Mr. Bal Krishan Sikaria (recorded on 04.01.2016), Mr. Soumen Chaudhury, Mr. Ranjeet Gupta and Mr. Chiranjit Mahanta (recorded on 10.02.2015). After referring to these statements, some discussions have been made by ld. AO referring the scrip Radford Global Ltd. as a penny stock. However, now in the case of these three assessee(s) also no opportunity was provided for cross-examination of the persons whose statements have been relied heavily by ld. AO for making the impugned addition. 16. Further, we note that ld. AO relied on the report of the Directorate of Investigation wing Kolkata which found that the broker and promoter through a racket were facilitating various individuals in covering the unaccounted money by providing long-term capital gain in quoted shares which was exempt u/s 10(38) of the Act without any tax....
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....g to controvert the same. 20. We also note that ld. AO has relied on the statements of five persons and the Investigation report. In the instant case an adverse inference against the well documented claim made by the assessee was drawn only on the basis of the statement of five persons. The claim of the assessee that copies of statements of five persons which were relied upon by the Department was not provided to the assessee prior to the completion of assessment could not be controverted by the Revenue. In the above circumstances it is a well settled law that the material which has been gathered behind the back of the assessee cannot be read against the assessee unless the assessee has been confronted with that material and was allowed a reasonable opportunity to rebut the same. 21. So far as the recent judgment of Hon'ble Jurisdictional High Court in the case of Principal CIT Vs Swati Bajaj reported in [2022] 446 ITR 56 (Cal) is concerned, we observe that the Hon'ble High Court at Calcutta in the case of Principal CIT Vs Swati Bajaj [2022] 446 ITR 56 (Cal) at Page 142 of the judgment in the second last paragraph has observed that where a witness has given directly i....
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....ition u/s 68 of the Act. 22. Regarding the report of SEBI report dated 19.12.2014 we find that the said order was revoked by SEBI by the final order dated 20.09.2017 in SEBI/WTM/MPB/EFD-1-DRA-III/ 30 /2017 by observing as under: "Considering the fact that there are no adverse findings against the aforementioned 82 entities with respect to their role in the manipulation of the scrip of Radford, I am of the considered view that the directions issued against them vide interim orders dated December 19, 2014 and November 9, 2015 which were confirmed vide Orders dated October 12, 2015, March 18, 2016 and August 26, 2016 are liable to be revoked. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11(4) and 11B of the SEBI Act, hereby revoke the Confirmatory Orders dated October 12, 2015, March 18, 2016 and August 26, 2016 qua aforesaid 82 entities (paragraph 9 above) with immediate effect." 23. It is well settled that while acting in their quasi-judicial capacity the income tax authorities have to adhere to the principles of natural justice and in t....
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.... should be held to be indefeasible right" 27. In the case of Rajiv Arora v. Union of India and Ors. AIR 2009 SC 1100 Hon'ble Supreme Court observed that "effective cross-examination could have been done as regards the correctness or otherwise of the report, if the contents of them were proved. The principles analogous to the provisions of the Indian Evidence Act as also the principles of natural justice demand that the maker of the report should be examined, save and except in cases where the facts are admitted or the witnesses are not available for cross-examination or similar situation. The High Court in its impugned judgment proceeded to consider the issue on a technical plea, namely, no prejudice has been caused to the Appellant by such non-examination. If the basic principles of law have not been complied with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review." 28. The aforesaid decision makes it evident that, not only should the opportunity of cross-examination be made available, but it should be an effective cross examination, so as to meet the requirement of the princi....
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....pportunity to meet it." It was held in that case that "In this case we are of the opinion that the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing." 31. In Suraj Mall Mohta and Co. v. A. V. Visvanatha Sastri reported in (1954) 26 ITR 1 (SC) the Supreme Court has held that "the assessment proceedings before the Income-tax Officer are judicial proceedings and all the incidents of such judicial proceedings have to be observed before any conclusion is arrived at. The assessee has a right to inspect the record and all relevant documents before he is called upon to lead evidence in rebuttal. This right has not been taken away by any express provision of the Income Tax Act." 32. In respect of the report of the Investigation Wing of the Department, the appellant poin....
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....entry providers, turned on facts. The ITAT was justified in accepting the plea of the Assessee that the failure to adhere the principles of natural justice went to the root of the matter. Also, the CBDT circular that permitted to the Assessee to file revised returns if he omitted to make a claim was also not noticed by the AO." Therefore the Assessing Officer was bound to supply those statements and allow the cross examination of the maker of the statements to the assessee according to the judgement of the Hon'ble Calcutta High Court in Swati Bajaj (supra) case as well as in view of the judgments of Hon'ble Supreme Court in the case of Andaman Timber Industries Vs Commissioner of Central Excise reported in [2016] 38 GSTR 117 (SC), Principal Commissioner of Income Tax (Central) Vs Oriental Power Cables Ltd reported in [2022] 143 taxmann.com 371 (SC), Kishinchand Chellaram (AIR 1980 14 SC 2117) and the Hon'ble Calcutta High Court in the case of Eastern Commercial Enterprise (1994) (Cal) [210 ITR 103]." 34. In view of the above discussion, we notice that so far as the statement of Mr. Praveen Kumar Agarwal is concerned who is the director of one of the group companie....
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....ve, are inclined to hold that there is a violation of principles of natural justice as opportunity of crossexamination of all those persons whose statements though not directly referred to the alleged transactions but the statements having been used by ld. AO to make additions in the hands of the assessee(s) in appeal before us, was not provided to the assessee(s) even though requested during the course of hearing before the AO well as ld. CIT(A). Based on these facts, we find merit in the contention of the ld. Counsel for the assessee that principles of natural justice have been violated in the case of all the four assessees namely M/s. Gateway Financial Services Ltd., M/s. Nishit Agarwal Beneficiary Trust, Pinky Agarwal and Pratik Agarwal Beneficiary Trust. 35. In the preceding paragraphs, we have dealt with the legal issue regarding the matter that since the assessee has not been provided sufficient opportunity to cross examine those persons who were directly related to the assessee company i.e., Gateway Financial Services Ltd., and other assessee(s) even when their statements have been relied heavily by the Assessing Officers to deny the claim of short term capital loss /lon....
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.... increase in the price but subsequently it started decreasing and since the assessee did not want to lose all its capital it sold the equity shares as and when it got the opportunity. Even though, the transactions have been carried out on the recognised stock exchange and well within the rules and regulations provided by the SEBI, we note that in all the alleged statements of the alleged third parties and the report of the investigation Wing there is specifically no indication that whether the assessee was directly involved with the promoters/directors of Blue Circle Services Ltd., for such a steep increase/decrease of the prices. It prima facie seems to be a case where the assessee has made an adventure in the business of trading in equity shares being in the business of share trading and investment and shares brokerage were given past many years. At this juncture when the purchase of equity shares has not been doubted by the revenue authorities, and the claim of the assessee is that it has entered into the purchase and sale transactions in the regular course of business and also considering the fact that it is not the case of earning long-term capital gains for claiming exemption....
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.... Hon'ble Supreme court, thus, has held that once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness of the i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. subscribers, then the AO is duty bound conduct to conduct an independent enquiry to verify the same. Once the assessee having discharged initial burden upon him to furnish the evidences to prove the identity and creditworthiness of the share subsc....
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....down by the hon'ble Supreme Court in the case of "NRA steels" ( Supra ) and by the Calcutta High Court in the case of "Swati Bajaj"(supra). 10.1 The plea of the assessee in this case is that the assessee was bona fide purchaser of the shares in question. That the assessee had duly taken note of the financials and share price movement of the companies before purchasing the shares.The ld. counsel in this respect has referred to the financials of the said companies, the market trend and the reasons to exit as mentioned in the written submissions as reproduced above. firstly referred to the financial details and share price movement of Rutron International Ltd. It has been submitted that Rutron International Ltd. was a listed public company. The assessee company took note of the annual reports. The said company had reported total assets of 17.88 for F.Y 2012-13 and its turnover and proceeds had improved substantially from its previous years. Its income has also increased substantially. It reported net profit of Rs. 0.50 Crores in FY 2012-13 as against Rs. 0.11 Crores in FY 2011-12 implying an increment of 354.54%. The stock even started declaring dividends (Equity Dividend of ....
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....ime. It is notable that the company did not enter/exit at the highest/lowest price and the trades in shares of Comfort were entered into on the basis of the trend visible in the then latest financials of the stock available publicly. 10.3 Regarding the third company, it has been demonstrated that Luminaire Technologies Ltd. ('Luminaire'), was a listed public company at the relevant time. That the shares of Luminaire were purchased in a staggered manner in January and February 2014 in anticipation of trading profits and the same were sold on the 5th of March 2014. The stock of Luminaire was also in a steep fall when the company purchased it. However, the company purchased the stocks only when the price fall was arrested and a trend reversal was visible. However, the favourable technical analysis of the stock, which prompted the company to purchase the stock, did not lead to the anticipated price rise owing to the weak market outlook regarding the stock. The company, having entered the trade to profit in the immediate short term, immediately chose to cut short its losses as the stock price deteriorated further. 10.4 Regarding the decision to trade in the stock of Un....
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....01 Crore in FYE Mar'12; Reported Net Profit of Rs. 1.05 Crore in FYE Mar'13 as against Rs. 0.08 Crore in FYE Mar'12 implying an increment of 1,212.50% and trend reversal). The company, being a prudent trader, did not only rely on the financials of Global to make its decisions in the market. It was also prone to keep tabs on the technical aspects of the stock to pre-empt market movements in it. Envisaging a further fall in the stock prices owing to its interpretation of the deteriorating technical parameters of Global even in the face of robust fundamentals, the company sought to exit its position in the stock completely for the time being. 10.6 It has been further explained that the SEBI has also investigated regarding the allegation of share trading in respect of two companies out of the above mentioned 5 companies. In the case of Rutron, only 14 persons were suspected to be involved in price rigging who were restrained from accessing the security market for a period of 6 months. Neither the assessee nor his share brokers were ever named for restrain from trading in the said scrip. Even, the company itself was not implicated of any wrong doing. Any other person, except th....
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....verse view was taken. That in the specific facts before the hon'ble High Court, it was noted that the price of the scrips showed steep increase during recessive trends and therefore the movement in prices was held to be ingenuine. That the Hon'ble High Court had observed that the onus was on the assessee to establish that the price rise was genuine in light of the fundamentals of the scrip. However, in case of the assessee, the trades were made on the Stock Exchange. There was no adverse statement of assessee's broker. Moreover the Director of the assessee was examined and confronted with the allegations u/s 131 of the Act and he had specifically denied the same. That the assessee has sufficiently demonstrated that the financial results and the fundamentals of the scripswas mirrored in their price movements and therefore it was not a case that the movement in prices was not explained.Evenas demonstrated above, in three (3) out of the five (5) scrips, there were no adverse orders of SEBI regarding any kind of price manipulation. Further in the remaining two scrips, the SEBI upon completion of investigation found specific entities/persons guilty of manipulation. The Ld. Counsel has f....
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....nvert their unaccounted money into tax exempt long-term capital gains and for that purpose, there were certain persons chosen as exit providers who would buy shares when the share prices would be at its peak and those exit providers thereafter would suffer losses on account of fall in the price of the shares. This specific fact on the file shows that the exit providers were already chosen to execute the plan. The motive was to give the benefit of bogus long-term capital gains to various beneficiaries and to make that plan foolproof, the exit providers were already chosen with a pre-determined planning as to at what stage the beneficiaries of bogus long-term capital gains would be given exit. That perhaps was not dependent upon chance exit providers willing to book bogus short-term capital loss. Neither the name of the assessee nor of his share broker is mentioned in the list of exit providers. The circumstances of this case do not suggest of unnatural and unrealistic human conduct. The Assessing Officer in this case has not pointed out any adverse evidence against the assessee. He has simply relied upon the investigation report which is a general investigation report. The Hon'ble C....
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....re not warranted in this case, and the same are accordingly ordered to be deleted." 38. Respectfully following the above decision of this Tribunal in the case of Raigarh Jute & Textile Mills Ltd. vs. ACIT (supra), which is squarely applicable on the facts of the instant case of assessee i.e., M/s. Gateway Financial Services Ltd., we find that the alleged loss has been incurred by the assessee in the regular course of its business. We also note that the statement of various persons recorded by the AO/investigation wing/search team in the course of other proceedings as well as the report of the Kolkata investigation wing, there is no reference to a direct evidence indicating that the transactions in question is in the nature of accommodation entry or for arranging bogus loss. Thus, the addition/disallowance made by the assessee is merely on the basis of preponderance of probabilities. Therefore, in the present case, when the statements and investigation report relied upon by the AO has not been given to the assessee for the purpose of cross-examination as well as rebuttal, we in view of the above decision are inclined to hold that the alleged loss being genuine loss from share tra....
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....ulations, 2003, in the matter of Radford Global Limited and the same is in respect of 29 entities which includes the three assessees in appeal before us, namely, M/s. Nishit Agarwal Beneficiary Trust, Pinky Agarwal and Pratik Agarwal Beneficiary Trust. Though this order contains 111 pages, but the relevant part of the issue under consideration firstly starts from page number 1 to 9 of the said order, wherein brief facts are given about the said case regarding the investigation conducted to the trading and dealings of scrip of Radford Global Limited for the period 27/02/2012 to 24/03/2014 hereinafter referred to as the investigation period. This is the same period during which the assessees have earned long-term capital gains referred in the instant appeals. The para 1 to 9 of the said order of the Whole Time Member of SEBI, reads as follows:- "Under Sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 In Re: Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 In the matter of Radford Global Limited In respect of: S. No. Entity's Name PAN 1 ....
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....13 in the ratio of 5:1. 3. Investigation revealed that during 27/02/2012 - 28/01/2013 (hereinafter referred to as Patch 1) the price of the scrip of RGL opened at Rs. 3.2, reached a high of Rs. 241.35 and closed at Rs. 241.35 i.e. an increase of 7442.19%. Further, during the period 29/01/2013 to 23/07/2013 (hereinafter referred to as Patch 2) the price of the scrip opened at Rs. 49.2, reached a high of Rs. 86 and closed at Rs. 75. 4. The financial results of the company during the period covering Patch 1 and Patch 2 are as follows: (Rs. in million) FY 2011- 12 FY 2012- 13 FY 2013- 14 Net Profit 0.43 4.59 1.80 (Source: BSE Website and Annual Report of RGL) 5. The total shareholding of the company ending FY 2012-13 was 7,03,11,500 shares and the high price during Patch 1 was observed as Rs. 241.35/-. Accordingly, the market capitalization of RGL on the high price day was Rs. 16,96,96,80,525/- (1696.97 crores approx). Therefore, the profit of Rs 45.9 lakhs registered by the company during the FY ending March 31, 2013 did not justify the considerable rise in its scrip's price during patch 1. Further, it was also observ....
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....chandra Shah (Address - B-2, Vishwakarma Society, V.P. Road, Andheri West, Mumbai - 400058 and phone number - 26280622). 10. The summary of order log analysis of the 5 sellers contributing to more than 5% LTP increase, is as under: i. Rajeev Garg contributed Rs. 102.95 (41.76%) of market positive LTP increase in 25 trades for 390 shares. He was a seller in 29 out of 200 trades. All his 25 positive LTP contributing trades were first trades. Further, out of the 25 first trades, there was trade of 1 share executed on 21 trading days. There were 4 trades of Rajeev Garg which did not contribute to positive LTP increase for 160 shares. (Date: 21/09/2012, 14/12/2012 and 2 trades on 10/01/2013). ii. Sangita Pramod Harlalka contributed Rs. 16 (6.49%) of market positive LTP increase in 6 trades for 35 shares. She was the only seller on the days on which she traded and contributed to significant positive LTP increase. iii. Shailesh Lalman Ojha contributed Rs. 15.3 (6.21%) of market positive LTP increase in 4 trades for 18 shares. He was the only seller on the 4 days he traded and contributed to significant positive LTP increase. iv. It was observed....
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....I Act, 1992 read with regulations 3(a),(b),(c),(d) and 4(1), 4(2)(a) & (e) of SEBI (PFUTP) Regulations, 2003. Observations regarding Patch 2- (29/01/2013-23/07/2013) (Post-split price rise patch) 13. Investigation revealed that during Patch 2, there were total 85301 trades for 60397726 shares. The price of the scrip opened at Rs. 49.2, reached a high of Rs. 86 and closed at Rs. 75 i.e., an increase of Rs 25.8 (52.44%) during Patch 2. 14. Investigation revealed that a group of 24 connected entities (16 buyers and 8 sellers hereinafter collectively referred to as 'connected group entities') have contributed Rs. 23.35 (7.77%) of market positive LTP increase during Patch 2. The details of the connections of the 24 entities are as follows: CONNECTION TABLE Sn. Client Name and PAN Basis of Connection 1 Dhanleela Investments & Trading Company Ltd. RGL {bank account No. 0311121500 with Kotak Mahindra Bank}, has fund transactions with Dhanleela Investments & Trading Company Ltd. and Pyramid Trading and Finance Ltd. (AAACR1770P) 2 Pyramid Trading and Finance Ltd. presently known as - Mishka Finance and Trading....
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....ncom were observed. 3. From Kingfisher Properties Axis Bank A/c. No.911020032345837, fund transactions with Esquire Enclave, Radison Properties Shivkhori Construction, Natural Housing, Topwell Properties, Apex Commotrade, Runicha Merchants, Spice Merchants and Divyadrishti Merchants were observed. 4. Praveen Kumar Agarwal and Pinky Agarwal are the authorised signatory in the bank account of Nishit Agarwal Beneficiary Trust, Pratik Agarwal Beneficiary Trust and Jupiter Brokerage Services Ltd. 5. Esquire Enclave Pvt. Ltd. bank A/c. No. 911020031723278 (Axis Bank) has fund transactions with Kingfisher Properties Pvt. Ltd. (AAECK3394G), Topwell Properties Pvt. Ltd. (AADCT8403C), Radison Properties Pvt. Ltd. (AAFCR2818B), Shivkhori Construction Private Limited (AAPCS7850L), Limestone Properties Pvt. Ltd. (AACCL0133G), Natural Housing Pvt. Ltd. (AADCN6251G), Praveen Kumar Agarwal (ACSPA4725A, Divyadrishti Traders Pvt. Ltd. (AABCD8146J), Apex Commotrade Pvt. Ltd. (AAJCA4459K) and Jupiter Brokerage Services Ltd. 6. Pinky Agarwal and Praveen Kumar Agarwal are directors in Jupiter Brokerage Services Ltd. Jupiter Brokerage Services (Axis Bank A/c. No.911020047397153,) had received....
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....770550383 fund transactions with Runicha Merchants, Signet Vinimay, Sanklap Vincom, Spice Merchants, Daga Infocom, SKM Travels, Scope Vyapar and Winall Vinimay were observed. 3. Spice Merchants (Kotak Mahindra A/c. 68011001873) has fund transaction with Sanklap Vincom and Rander Corporation 9 Apex Commotrade Pvt. Ltd. (AAJCA4459K) 20 Daga Infocom Pvt. Ltd. (AABCD9604P) Krupa B. Mehta is the Director in Daga Infocom Pvt Ltd and Shefali Investments Pvt Ltd. Daga Infocom has fund transactions with Apex Commotrade & Apex Commotrade has fund transaction with Kingfisher Properties. 21 Devakantha Trading Pvt. Ltd. (AADCD7044B) 1. Devakantha Trading bank A/c. No. 36040200000553 (Bank of Baroda has fund transactions with Shelter Sales Agency, Udbal Mercantile and Amrusha Mercantile. 2. From Shelter Sales Agency Induslnd Bank A/c. No. 200999036626, fund transferred with Spice Merchants was observed 22 Shelter Sales Agency Pvt. Ltd. (AASCS1797F) 23 Udbal Mercantile Pvt. Ltd. (AABCU2648C) 24 Amrusha Mercantile Pvt. Ltd. (AALCA0340D) 15. It is observed that the 16 buyers of connected group entities contributed Rs. 74.85 to net increase in....
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....of violations alleged against the Noticees in these two patches is different, in my view, it would be appropriate to deal with the allegations separately. Taking the above into account and the replies/submissions of the Noticees in response to these allegations, the following issues arise for my consideration: A. Whether Noticees No. 1-24 (referred in Table at page 1) acted collectively as a group and contributed 7.77% of the total market positive LTP increase during patch 2 thereby resulting in false and misleading appearance of trading in the scrip of RGL and contributed to price rise in the scrip of RGL thereby violating the provisions of SEBI Act and PFUTP Regulations as alleged in the SCN? B. Whether Noticees No. 25 to 29 (referred in Table at page 1) sold shares in the market in very small quantities with a manipulative intent to increase the price of the scrip of RGL and thereby violated the provisions of SEBI Act and PFUTP Regulations as alleged in the SCN? C. If the answers to issues A and B are in the affirmative, what directions are required to be issued against the Noticees? A. Whether Noticees No. 1-24 acted collectively as a group a....
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.... 1.9 5 2189 989 11 00 2.9 5 735 72 40 -1.00 200 00 9 2096 417 1051 0.98 10 Signet Vinimay Pvt. Ltd. 1.3 5 9037 11 69 8 1.5 0 360 61 25 -0.15 234 8 3 8653 02 670 0.50 11 Sanklap Vincom Pvt. Ltd. 1.1 0 8926 00 23 3 1.4 0 644 08 18 -0.30 183 50 5 809 842 210 0.47 12 Pyramid Trading & Finance Ltd. 0.6 0 6481 75 49 4 1.0 0 273 08 15 -0.40 710 0 5 613 767 474 0.33 13 SKM Travels Pvt. Ltd. 0.2 5 4940 50 14 2 0.3 5 246 35 6 -0.10 550 0 2 463 915 134 0.12 14 Vibgyor Financial Service Pvt. Ltd. 0.1 0 8200 0 12 0.1 0 800 0 2 0.00 0 0 740 00 10 0.03 15 Bazigar Trading Pvt. Ltd. 0.0 5 3450 0 12 0.0 5 234 7 1 0.00 0 0 321 53 11 0.02 16 Avlokan Dealcom Pvt. Ltd. 0.0 5 3897 06 97 0.4 0 339 44 7 -0.35 155 80 7 340 182 83 0.13 16 Buyers net positive LTP 74. 85 26941 882 43 46 8 116. 00 118....
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....n of the entities is miniscule. In certain cases, it is as less as 10 paise. iv. Not all trades were placed at prices above LTP. In fact majority of the Noticees have submitted that most of their trades were placed at prices equal to or less than LTP. v. Certain Noticees had also traded in other patches but the same has been ignored by SEBI. vi. There are two parties to a trade. If the transaction has been found to be fraudulent and the buyer or seller has been alleged to have violated the provisions of PFUTP Regulations, then the counterparty also has to be proceeded against. vii. There is no charge of synchronized or circular trade. If the parties are connected to each other and have acted as a group, then why it is that there trades were not synchronized. viii. Several Noticees were also charged for prima facie involvement in other cases such as Pine Animation and Mishka Finance. Their trading pattern was similar in those scrips also, but no adverse finding has been recorded against them in those orders and the directions issued against them vide the interim order have been revoked. ix. It is also not a charge in the SCN that....
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....on on the basis that party at one end of a fund transfer / off-market transaction/ common directorship would also know a third person known to the party at the other end, may not hold correct in all situations. Thus, connection between two entities through a common known entities will have to be established with the aid of accompanying circumstances. One salient point in the present case which emerges from a reading of the SCN is that the correlation of the basis of connection such as fund transfer or off-market transaction with the trading in question has not been brought out. On a consideration of the connection table (noted earlier), I find that whilst several Noticees are directly connected to each other, connections amongst certain entities are notably remote. At this point, I find it pertinent to mention that in most of the cases pertaining to the securities market, the basis of connection amongst entities, whether direct or indirect, proximate or remote, would be sufficient to show the linkages amongst them. However, there are several other factors which need to be simultaneously considered before reaching any conclusion such as volume of the trade effected; the period of pe....
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....athered from various circumstances like that volume of the trade effected; the period of persistence in trading in the particular scrip; the particulars of the buy and sell orders, namely, the volume thereof; the proximity of time between the two and such other relevant factors." 57. In light of the above observations of the Hon'ble Court, in absence of any direct evidence to that effect, meeting of minds between the buyer and seller can be proved considering the preponderance of probabilities, which essentially would require assessment of the circumstances such as proximity of placement of orders, repetitive nature of trades, the volume of trades, etc. In the present case, however, no circumstances have been brought out in the SCN to suggest that the intra-group buyers and sellers had a prior meeting of minds and in furtherance thereof they executed the trades which resulted in the positive LTP contribution of 7.77%. 58. In addition to the above, the following facts and circumstances also emerge from the SCN: 58.1. Most of the Noticees have traded beyond the period / patch of examination but the allegations in the SCN have been levelled on a percentage o....
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....re revoked and it has been further held that, the holistic consideration of the factors as discussed in earlier paragraphs does not lead, on the preponderance of probability basis, to the violations as alleged in the show cause notice qua Notices no. 1 to 24. It is also held that there in absence of any direct evidence to the effect meeting of minds between the buyer and seller can be proved considering the preponderance of probabilities, which essentially would require assessment of the circumstances such as proximity of placement of orders, repetitive nature of trades, the volume of trades, etc. It is also observed in the present case that no circumstances have been brought out to suggest that the intra-group buyer had a prior meeting of minds and in furtherance thereof they executed the trades of the alleged transactions. 42. On going through the said order of Whole Time Member of SEBI, we find that though the primary investigation was carried out by the SEBI and show cause notices were issued to the assessee(s) in appeal before us, after detailed examination/investigation and after having considered all the relevant facts and circumstances, a Whole Time Member of SEBI has gi....
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....l order of the SEBI and has also distinguished the facts of the case referring to the judgement of the Hon'ble Jurisdictional High Court in the case of Swati Bajaj (supra) and has confirmed the order of the ld. CIT(A), deleting the addition made on account of alleged bogus Long term capital gains. The relevant finding of the Tribunal, reads as follows:- "Para 11. A perusal of this show cause notice reveals that except for mentioning the fact that the shares have been sold at a very high price, there is no discussion as to how the price was found to be unreasonable. There is no discussion of the financials of the scrip dealt with by the assessee; there is no absolutely no basis established on merits by the AO as to why sale of these shares were at suspiciously high price. In the assessment order, after the show cause, the only discussion is with regard to the interim order of the SEBI indicting the dealings in these shares with several fraudulent charges as reproduced above, and on the basis of this interim SEBI order alone, the AO has rejected all documentary evidences filed by the assessee, as not being of any assistance to the assessee to prove the genuineness of the tra....
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....ealt with the issue on merits referring to the financials of the scrips not supporting the high prices at which it were sold and accordingly holding that the assessee in such circumstances was required to establish the genuineness of the transaction. The Ld. DR was unable to controvert the factual distinction pointed out by the Ld. Counsel for the assessee as above. We agree therefore, in the light of the factual distinction, that the decision of the Hon'ble Calcutta High Court is not applicable in the present case. 15. In view of the above, we do not find any infirmity in the order of the Ld. CIT (A) deleting the addition made on account of alleged bogus long term capital gains of Rs. 8,90,28,838/-. Accordingly, the grounds of the appeal of the Revenue are dismissed." 44. Thus, to conclude we hold that firstly the principles of natural justice have been violated while carrying out the assessment proceedings in the case of the assessee(s) since no opportunity for cross-examination was provided for those persons whose statements have been relied upon by the assessing officer for making the alleged additions. Secondly, there is no direct evidence referred to by the assess....