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2024 (1) TMI 415
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....sentative of the assessee attended and submitted the relevant information as called for. 3. The assessee is an individual and partner in three (3) firms namely Leopold Café & Stores, New York Café, Leos Boulangerie and assessee has derived incomes under the head Salary, Income from Partnership firm, Capital Gains, Other Sources and Agricultural income. During the course of assessment proceedings, Assessing Officer observed that assessee has claimed exempt income of Rs..82,52,616/- on account of Long Term Capital Gain on payment of STT under section 10(38) of the Act. Based on the information available on record, he observed that assessee has sold 7550 shares of Penny Stock "Kappac Pharma" (suspected scrip) during the current assessment year. The sale value of entire Shares was of Rs..52,27,792/- and assessee had purchased the shares of Parixit Gas Company Ltd. in physical form on 09.10.2012 for Rs..83,050/- and demated the same on 10.01.2013 with Balance Equity Broking (India) Private Limited. The assessing officer has observed that Assessee has declared huge profit in this scrip, hence, he is of the opinion that all these transactions are pre-arranged. The Assessi....
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....discussion in the preceding paragraphs, it is concluded that long term capital gains booked by assessee in his books were pre-arranged method to evade taxes and launder money. Following are the findings and the reasons which substantiate the findings. a. Mode of acquisition of the shares: The assessee had purchased 7,550 shares of KAAPAC Pharma Ltd. for Rs 46,700/-. However, it is noticed that the assessee has not purchased of any other scrip in such a huge quantity. b. Sale of shares and unusual rise in the price: The assessee has sold the 7,550 shares for total consideration of Rs. 52,27,792/-, thus, resulting in long term capital gain of Rs 51,81,092/-, which is a 112% increase of the cost price, and, as discussed, the rise in share prices is not holding to any commercial principles and market factors. C. Analysis of transactions: Facts revealed that such trading transactions of purchase and sale of shares are not been effected, for commercial purpose but to create artificial gains, with a view to evade taxes- i. Transactions of shares were not governed by market factors prevalent at relevant time in such trade, but ....
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....69C of the Act to the extent of Rs..1,58,338/- taxable income of the assessee. 8. Aggrieved assessee preferred appeal before the Ld. CIT(A) and raised grounds of appeal and filed detailed written submissions, for the sake of clarity it is reproduced below: - "WRITTEN SUBMISSION: 1) The Ld. Assessing Officer has treated the stock of shares sold by the assesse as penny Stock and treated the sale proceeds as Unexplained Cash Credit without appreciating that the sales were in fact Long Term Capital Gain (LTCG) and Security Transaction Tax (STT) was paid and by virtue of the same the Long Term Capital Gain (LTCG) is exempt under section 10(38) of Income Tax Act, 1961 and all other compliance have been fulfilled. 2) The Ld. Assessing Officer made the addition in the case of the assessee by relaying on general evidences gathered by various enforcement agencies with regard to transaction done and taking at of prices of so called "Penny Stocks". Nowhere in the order of Ld. Assessing Officer has clearly bring out the role of the assesse in the "Modus Operandi" of purchasing bogus capital gains and also failed to bring out the any evidence which substantiate cash....
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.... the years mentioned in this earlier paragraph. The List of Shareholders for the FY 2012-2013, 2013-2014. 10) The prayer before your honour, to consider the additional evidence under Rule 46A of the Income Tax Act, 1962 which were not produce before the Ld. Assessing Officer. Kindly consider the same as an Additional Evidence. 11) Further, we are also enclosing list of various judicial pronouncement of High Courts and Tribunals which are listed below. Udit Kalra vs. ITO (Delhi High Court) s. 10(38) Dogue Capital Gains from Penny Stocks: It is intriguing is that the company had meagre resources and reported consistent losses. The astronomical growth of the value of company's shares naturally excited the suspicions of the Revenue. The company was even directed to be delisted from the stock exchange. The assessee's argument that he was denied the right to cross-examine the individuals whose statements led to the Inquiry and ultimate disallowance of the long term capital gain claim is not relevant in the wake offindings of fact. The Pr Commissioner Of Income Tax ... vs Prem Pal Gandhi C/O KcTower Chd (Punjab /Haryana High Court) ....
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....dhi in ITA No. 18/2017, dated 16-2-2017 (Punj.&Har.); The Tribunal upheld the findings recorded by the CIT(A). It was categorically recorded by the Tribunal that as noticed by the CIT(A), in the remand report the Assessing Officer was not able to contradict the facts regarding purchase of shares and sale thereof. Further, it was recorded that the assessee had sold shares through MTL shares and Stock Broker limited which is a SEBI registered Stock Broker. The payment for sale of shares was received through banking channels. All the documentary evidence being in favour of assessee, the deletion of the addition made by the CIT(A) was upheld by the Tribunal. The findings recorded by the CIT (A) and the Tribunal are pure findings of fact which have not be shown to be illegal, erroneous perverse by the learned counsel for the appellant. He has also not been able to produce any material on record to controvert the said findings. Thus, no Substantial question of law arises. Consequently, finding no merit in the appest by Revenue and the same la dismissed. Dipesh Ramesh Vardhan vs. DCIT (ITAT Mumbai) s. 10(38)/68: Bogus Capital Gains from Penny Stocks: Th....
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....igation, Kolkata and further, analyses of the Assessing Officer, Ld. CIT(A) dismissed the appeal filed by the assessee by relying on the decision of Hon'ble Punjab and Haryana High Court in the case of CIT v. Prem Pal Gandhi and decision of Bangalore ITAT in the case of MK Rajeshwari v. ITO [TS - 9007-ITAR - 2018 (Bangalore)], in the case of Poonam Gupta v. DCIT [TS-6399-ITAT-2021 (Bangalore)] and decision of the Hon'ble Supreme Court in the case of Suman Poddar v. ITO (2020) 268 Taxman 320 (SC). 10. Aggrieved assessee is in appeal before us raising following grounds in its appeal: - "1. Addition u/s 68 Rs. 52,27,792/- 1.1 The Learned CIT (A) erred in upholding the addition made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961 on an erroneous basis that the investment made in KAPPAC PHARMA LTD shares and Long Term Capital Gain on share is considered as not explained although all the necessary evidence was filed in the course of proceedings. 1.2 The Learned CIT (A) failed to appreciate that the provision of section 10(38) of the Income Tax Act, 1961 are attracted since the Appellant has offered explanation about the nature and ....
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.... pointed out any discrepancies in the documentary evidences submitted by the assessee. Ld.AR of the assessee submitted that without pointing out any discrepancies in the documentary evidences submitted by the assessee the Assessing Officer has heavily relied on the investigations carried out by the Directorate of Investigation, Kolkata. Ld. AR contravened the findings of the Assessing Officer that KPL had made losses consistently over the past years, the increase of share price was not commensurate with the financial results and the purchase of shares of KPL appeared to be a predetermined action of the assessee leading to earning of Long Term Capital Gain by way of dubious methods. The predetermined action with specific intention is one of the circumstances evidences leading to the conclusion that the Long Term Capital Gain earned is not genuine. Further, assessee has not declared any Short Term Capital Gain or business income or exempt income share transactions in the previous assessment years. In this regard, Ld.AR of the assessee submitted as under: - "The fundamental submission of the Appellant is as follows: a. If some persons connive to rig the prices of sha....
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.... regular investors". e. Therefore, in the absence of any material to show the involvement of the Appellant in the alleged price rigging or that the Appellant was party to any wrong doing in any manner, no addition can be made to Appellant's income. f. The AO/ CIT (A) have relied on alleged general findings of the investigation report of the Directorate of Investigation, Kolkata. Admittedly, even in the said investigation report, the name of the Appellant does not appear. It is not the AO's case also that any role is attributed to the Appellant in the alleged price rigging of the shares of KPL in such investigation. The general findings of the investigation report cannot be used to assail even genuine transactions. No copies thereof were also furnished to the Appellant which is violative of principles of natural justice. Factually incorrect statements made by the AO in the Assessment Order g. The case of the AO is one admittedly based on "circumstantial evidence". The AO has made the following factual errors in the Assessment Order while constructing a case based on circumstantial evidence: Sr.No. Factually incorrect observation / st....
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....92. In default of payment of the monetary penalty, coercive proceedings were adopted against KPL under Attachment Proceeding 5438 of 2019 (04.12.2019) which were vacated by Release Order No. RRD-3/50/2020 dated 09.11.2020. - Order dated 30.04.2019 - pg. 108 to 117 - Attachment Proceeding 5438 of 2019 (04.12.2019) - pg. 118 to 121 - Release Order No. RRD-3/50/2020 dated 09.11.2020-pg. 122 Neither is there any allegation against the Appellant nor has any proceeding been initiated against the Appellant. 3. "The SEBI after thorough investigation in such penny stock cases has certified that such transactions are rigged and are carried out to convert Black money into white" (Para 6.47 pg. 10 of AO order) Same as above. No such alleged order passed by or investigation carried out by SEBI has been brought out by the AO 4. "The assessee had purchased 7,550 shares of KAAPAC Pharma Ltd. "for Rs. 46JOO/-. However, it is noticed that the assessee has not purchased of any other scrip in such a huge quantity" (Para 8.1(a)/ pg. 11 of AO or der) At the outset, the observation that 7,550 is a huge quantity is factually incorrect. The purchase consideration was admitt....
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....panies, though, she was summoned u/s 131 of the LT. Act, 1961 to ascertain whether she possess any knowledge about shares" (Para 8.1(e)/ pg. 12 of AO order) The Appellant had proper knowledge in the shares she invested and she has duly informed the AO that the investment was made on the basis of oral advice. No further question questions were asked by the AO in this regard. There was not even a single question which the Appellant failed to answer. The AO did not point out any question which the Appellant has failed to answer properly. The statement of the Appellant was recorded and a perusal of the said statement would reveal the same. Despite repeated requests during the scrutiny proceedings, the AO has failed to hand over a copy of the said statement to the Appellant 7. "The money trial of transactions was also examined and, in a large number of transactions trial right from cash deposit account to the beneficiaries account was unearthed." (Para 5.37 pg. 3 of AO order) Admittedly, no such alleged cash trail has been unearthed in the case of the Appellant. In fact, it is not even the case of the AO that such cash trail was attempted to be established in the case of ....
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.... Appellant has dealt in a penny stock, the Appellant is a party to the alleged price rigging and bogus transaction without appreciating that the Appellant was not a party to the alleged price rigging and bogus transaction. The Appellant, being a shareholder, had sold the shares on the stock exchange to book his gains without being party to any such wrongdoing. The price was available to all shareholders to sell on the stock market. j) The CIT (A) has wrongly observed that the Appellant has not been able to rebut the findings of the AO and that the Appellant has made general statements. In fact, the CIT (A) failed to appreciate that there was no material to link the Appellant to the alleged price rigging and the allegations of the AO were general statements. k) The judgements relied on by the CIT (A), in para 6.5 to 6.7/ pg. 9 & 10 of CIT (A)'s order are clearly distinguishable: a. MK Rajeshwari (ITAT Bangalore) (pg. 133 to 148 of paperbook) - In this case, the scrip involved was of M/s Mahavir Advanced Remedies Ltd. and the assessee in this case contended that she purchased the shares from the Managing Director of this company and the ITAT found discr....
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.... Yogesh Kumar Dalmia v. ACIT (ITA No. 774-75/Kol/2018, dated 9 August 2019). 14. On the other hand, Ld. DR relied on the order of the lower authorities. Further, Ld. DR submitted as under: - a. The Department has not accepted the purchase of the shares as genuine. b. The company, M/s Kappac Pharma Limited ("KPL"), was a loss making company and did not report any sales. The price chart of the scrip shows a bell curve which was typical of a 'penny stock'. C. That KPL was a 'penny stock' and there were illegal dealings in it was a proven fact. Therefore, the Appellant cannot be treated as an innocent investor. The fact that Appellant has dealt in this penny stock and has purchased the shares in cash is sufficient to treat the long term capital gains as bogus on the basis of preponderance of probabilities. d. The obtaining of long term capital gains was a transaction that involved "forgery" and "criminal activity" since contract notes are bogus. This case ought to be treated differently from a case where an assessee simply makes a wrongful claim and claims excess deduction or claims deduction of personal expenditure. 15. In the ....
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....ative is visible in the price chart of Zomato Limited also. The arguments on behalf of the Department fail to factor in the speculative nature of prices and that the prices also depend demand-supply factors. 6) Rejoinder to argument in para 3(c) above - This argument is contrary to the law laid down by the jurisdictional High Court in the case of CIT v. Shyam R. Pawar [2015] 229 Taxman 256 (Bom.) (pg. 206 to 210 of paperbook - 1) holding that "something more was required which would connect the Assessee to the transactions". No statement has been made by any person naming the Appellant as having been involved in availing bogus long term capital gains entry. No material has been found by the Investigation Department which relates to the Appellant's alleged involvement. Also, no such material has been provided to the Appellant. These factual aspects were not disputed by the learned Departmental Representative. Furthermore, no adverse inference can be drawn against the Appellant for purchasing the shares in cash since "there is no law which prohibits the purchase of shares in cash". This was held by the Delhi bench of the Tribunal in para 17 of its judgment the c....
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....e assessee by placing evidence, there is a finding in this judgement that the "Revenue has brought sufficient material on record to demonstrate that unaccounted money was introduced in the books of accounts". However, all these factors are ex facie absent in the present case. b. Suman Poddar (pg. 152 to 159 of paperbook 1) - In this case, the Delhi HC reproduced the observations of the Tribunal in para 11 of Tribunal's judgement (@pg. 157 of paperbook 1). A perusal of the same makes it clear that the assessee was not aware about its own stockbroker through whom the transaction was carried out. The Tribunal also found the fact that the assessee did not venture to involve himself in any other transaction despite steep profits as a relevant factor. Furthermore, in that case, "there was specific confirmation with the Revenue that the assessee has indulged in non-genuine and bogus capital gains" and that "Investigation Wing had also conducted enquiries which proved that the assessee is also one of the beneficiaries of the transactions". These factors are completely absent in the case of the Appellant. 9. Viewed from any angle, the judgments' in th....
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.... has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. We observe that the Hon'ble Bombay High Court in the case of Pr. CIT v. Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04.03.2022 held as under: - "1. The following question of law is proposed: "Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in deleting the addition of Rs. 1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs. 1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961?" 2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a find....
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....ination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453. 9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips. 10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter. 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s....
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....e learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that "There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels." The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material tha....