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2024 (2) TMI 527
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....me on 03.07.2013 declaring a total income at Rs.. 2,06,32,150/-. The return was processed u/s 143(1) of Income-tax Act, 1961 (in short "Act"). The case was re-opened by issue of notice u/s 148 dated 16.09.2016 and the proceedings were abated. 4. A search & seizure action u/s 132 of the Act was carried out in Welspun group of companies at the premises of the assessee on 30.06.2017. The assessee was also covered under the search. Consequent to the search and seizure action, the case was centralized to the charge of present AO and notice dated 01.08.2018 u/s. 153A of the Act was issued and was duly served on the assessee. In response, assessee filed his return of income on 05.09.2018 declaring total income at Rs.. 2,06,32,150/-. 5. Subsequently, notices under section 143(2) and 142(1) of the Act alongwith detailed questionnaire were issued and served on the assessee. In response, authorised representative of the assessee attended and submitted the relevant information as called for. 6. During the course of the assessment proceedings, with regard to claim of LTCG on sales of shares, Assessing Officer observed that during the search action, based on seized material and evidence....
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....taxed as an unexplained cash credit under section 68 of the Act. 9. In response, assessee filed its submissions vide letter dated 29.11.2019, for the sake of clarity it is reproduced below:- 1. "In this connection, at the outset, it is necessary to bring out the facts of the assessee's case in respect of the exemption claimed u/s 10(38) of the Income Tax Act, 1961. a. It is submitted that your honor has mentioned that the assessee has purchased 40,000 shares of M/s. Turbotech Engineering Ltd. for Rs. 80,000/-, on 22^nd November 2011 and 3,49,549 shares of M/s. Turbotech Engineering Ltd. in F.Y. 2011-12 and F.Y. 2012-13 for Rs. 3,49,549/-. However, we would like to state that, the assessee has purchased 75,000 shares from M/s. Haresh Infrastructure Pvt. Ltd. for Rs. 1,50,000/- on 22.11.2011 and 2,75,000 shares were purchased on 19^th April 2012 @1/- from M/s. Ekta Shares and Securities. Copy of invoices mised by M/s Haresh Infrastructure Pvt. Ltd. and M/s. Ekta Shares and Securities were already submitted to your Honour vide earlier submissions. However, we are again enclosing herewith the same for your Honour's kind perusal and records as per annexure 1....
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....ies, the copy of the ledger account of Nirmal Bang Securities in the books of the assessee and the bank statements wherein the amounts were credited are enclosed herewith for your Honour kind perusal and records as per annexure 6 and annexure 7 respectively. Also, the contract notes issued by the broker for the sale of shares of M/s. Turbotech Engineering Ltd. was already submitted to Your Honour vide earlier submission. However, we are again enclosing herewith the same as per annexure 8. 4. Accordingly, since the holding period from the date of purchase to the date of sale is more than 1 year, gain arising from sale of share is Long Term Capital Gain which is exempt u/s 10 (38) correctly disclosed in Income Tax Return. 5. However, arbitrarily rejecting the above documents and facts brought on record by the assessee, your Honour, has alleged that the information received by you shows that the above transaction carried out through recognized stock exchange is a colourable device and an accommodation entry. Your Honour has further alleged that the rise of stock price has been manipulated by brokers/entry providers merely to accommodate the assessee and provide non g....
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....long term capital gains. In this respect, it is submitted that to prove the above allegation, it is important to establish the cash trail from the assessee to the broker/entry provider. However in the assessee's instant case no such cash payments has ever been made to the brokers/other party as the transaction has been entered in bona fide belief and through authorised stock exchanges in good faith and are further genuine as the payments and receipts has been made through banking channels. 11. Further, we would like to state that, when the sales transactions were entered, the same were entered on recognized stock exchange. Therefore, it is impossible for an investor to know or find out who is the purchaser or to whom the sold equity shares are delivered to. It may be surmise or a conjecture may be drawn with the assessee's case based on circumstantial evidence. However, the facts and documentary evidence placed before your honours substantiate the genuineness of the transactions undertaken by the assessee. 12. Further, as regards your honors contention that the assessee has entered into this transaction for allegedly converting the unaccounted money into g....
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.... 1961 as the assessee has not incurred any such expenditure." 10. Not convinced with the submissions of the assessee, Assessing Officer rejected the same and analysed the above said share transactions and came to the conclusion with the following observation:- "6.23 Findings and conclusion 6.23.1 The submissions made by the assessee and reply to show cause is considered. The facts of the case, investigations made by various directorates. From the discussion in the preceding paras it is concluded that long term/short 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 substantiates the findings. a. Mode of acquisition of the shares: The assessee has purchased 40,000 shares of M/s Turbotech Engineering Ltd. for Rs 80,000/- in cash. The assessee has not traded in other scrips showing he was not a genuine investor. b. Sale of shares and unusual rise in the price: The assessee has sold the 40,000 shares at the sale consideration of Rs 1,71,91,404/-, thus resulting the long term/short term capital gain totaling Rs 1,71,11,404/-, which is 214 ti....
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....al analysis of the penny stock companies: The networth of the penny stock company is negligible. Even though the networth of the company and the business activity of the company is negligible the share prices have been artificially rigged to unusual high i. Arranged transactions: The transactions entered by the assessee involve the series of preconceived steps, the performance of each of which is depending on the others being carried out. The true nature of such share transactions lacked commercial contents, being artificially structured transactions, entered into with the sole intent, to evade taxes. There are statement of various entry providers, operators, share-brokers and exit-providers in the entire arrangement. 6.23.2 The facts and circumstances of the case, as recorded above, clearly suggest that the revenue cannot take or accept such make- believe transactions, as presented by the assessee. Truth or genuineness of such transactions must prevail over the smoke screen, created by way of pre-meditated series of steps taken by the assessee, with a view to imparting a colour of genuineness and character of commercial nature, to such share transactions. Needles....
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.... case, and without any corroborative or circumstantial evidence/s, cannot be regarded as conclusive. Two, the preponderance of probabilities only denotes the simultaneous existence of several 'facts', each probable in itself, albeit low, so as to cast a serious doubt on the truth of the reported 'facts', which together make up for a bizarre statement, leading to the inference of collusiveness or a device set up to conceal the truth, ie, in the absence of credible and independent evidences" .............. Thus considering the findings of the search/ survey, inquiries conducted in the case of assessee, brokers, operators and the entry providers and the nature of transaction entered into by the assessee the LTCG of Rs 1,71,11,404/- claimed exempt u/s 10(38) of the act treated as non-genuine and the sale consideration received of Rs. 1,71,91,404/- on the penny stock taxed as an unexplained cash credit u/s 68 of IT Act, 1961. Penalty proceedings under section 271(1)(c) of the Act are separately initiated for furnishing inaccurate particulars of income. Further, accommodation entry charges in the form of commission are paid in cash to entry oper....
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....peal: - "1. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in confirming the action of Ld. A.O. in passing the impugned assessment u/s 153A of the Act in the absence of any incriminating material found during the course of search, making the assessment order illegal and without jurisdiction. 2. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the action of ld. AO in making the various additions/ disallowance in the absence of any incriminating material found during the course of search action, as per the grounds contained in the assessment order or otherwise. 3. On the facts and circumstances of the case and in law, Ld.CIT(A) erred in confirming the action of ld. AO in treating the long term capital gains on sale of M/s Turbotech Engineering Ltd. earned by the appellant as non-genuine and bogus transaction as per the grounds stated in the order or otherwise. 4. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the action of ld. AO in making addition of Rs. 1,71,11,404/- by invoking provisions of section 68 of the Income Tax Act, 1961 being the amo....
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.... as under: ii) Re: Purchase of Shares 6. The details of purchase of shares of M/s. Turbotech Engineering Limited made by the assessee is tabulated as under : Date of purchase quantity of share Issue Price (Rs..) Amount 22.11.2011 75,000 2 1,50,000 19.04.2012 2,75,000 1 2,75,000 3,50,000 4,25,000 7. In respect of the above referred shares, part purchase consideration was paid through broker M/s. Ekta Shares & Securities amounting to Rs. 2,75,000/-. The balance consideration of Rs. 1,50,000/- was paid in cash to M/s Haresh Infrastructure Pvt Ltd. Copy of invoice, ledger account and cash receipt duly acknowledged by the seller is placed at page no. 23-32 of the paper book of AY 2013-14. iii) Re: Dematerialization of Shares 8. It is submitted that, the above shares were dematerialized on 08.02.2013 and 30.03.2013 as per the SEBI Rules. In this regard, copy of demat statement of assessee reflecting the above transaction is placed at page no. 57-62 of the paper book of AY 2013-14. iv) Re: Sale of Shares in Feb-March 2014 9. The said shares were sold partly in AY 20....
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.... 15. Further, the AO has relied upon the SEBI order dated 14.05.2019 passed in the case of certain person to allege that the script has been manipulated. In this regard, it is submitted that the said order has been passed in the case of certain unrelated persons who were doing transaction in the impugned script amongst themselves which were manipulative in nature. It is relevant to point out that there is no allegation of SEBI that all the transactions done in the impugned script is not genuine. 16. Moreover, AO has failed to establish any link between the assessee and the persons barred by SEBI. No negative interference has been passed in respect of assessee or his transactions done in the impugned script. Therefore, such investigation of SEBI has no relevance in assessee's case. 17. Moreover, the assessee also relies on various judicial pronouncements wherein the said order passed by SEBI concerning the company M/s. Turbotech Engineering Limited are forming part of the case law compilation submitted by the assessee. The decisions relied upon by the assessee and the relevant para of the decisions is as follows: a. Decision of Delhi Tribunal in the ....
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..... Moreso, the subsequent orders passed by the SEBI absolving some companies including M/s Turbo Tech Engineering Pvt. Ltd. whose scribes were under suspicion in the absence of any finding of rigging of price diluted the issue." c. Decision of Delhi Tribunal in the case of Smt. Simi Verma V. ITO vide ITA No. 3387/Del/2018 dated 06.11.2018. (Page no 118-123 of case law compilation) "7. I have carefully perused the orders of the authorities below and relevant documentary evidences brought on record. Purchase and sale of shares are documented and exhibited at pages 1 to 8 of the paper book. Sale of shares are carried out in BSE at the prices prevailing in the market which are duly supported by contract notes issued by the broker. The entire transactions have been discarded by the Revenue authorities because the BSE has suspended trading in shares of Turbotech Engineering Pvt Ltd in January 2015. The undisputed fact is that the assessee had sold the shares in the month of July and September 2013, therefore, any action taken in 2015 would not affect the transactions done in 2013. Moreover, neither the SEBI nor the BSE has nullified the transactions done in 2013 in the s....
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....ts were never provided to the assessee. Also, nowhere in the said statements, the name of the assessee has been specified. It is stated that no material was brought on record by the AO to show that the assessee had nexus with any of the individuals whose statements were recorded and relied upon by the AO. It is also pointed out that no opportunity of cross examination was granted to the assessee. 23. In this regard, reliance is placed on the decision of Delhi Tribunal in the case of Smt. Shikha Dhawan v. ITO vides ITA No. 3035/Del/2018 dated 27.06.2018 wherein the statement of Mr. Anil Kumar Khemka has been discussed and it was held that such evidences cannot be held as evidence against the assessee. The said decision is placed at page no. 47-72 of the case law compilation. The relevant para is reproduced as under: "..... The claim of the assessee for sale of shares has been supported by the documentary evidences which have not been rebutted by the authorities below. Whatever inquiry was conducted in the cases of other parties and statement recorded of several persons namely Sh. Anil Khemka, Sh. Sanjay Vohra and Sh. Bidyoot Sarkar as referred in the assessment ord....
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....onour to delete the addition made in the case of the assessee." 15. Further, Ld.AR of the assessee has submitted various documentary evidences in support of the above said transaction and he brought to our notice contract notes of sales of shares, details of cheque issued by stock broker of the assessee towards sales, bank statements in support of the realisation of the sale proceeds and he submitted that the Long Term Capital Gain earned by the assessee is genuine and not an arranged one as alleged by the tax authorities. 16. Further, he submitted that Assessing Officer and Ld. CIT(A) have not 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. 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 inc....
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....n.com 65 Mumbai Tribunal E bench v. Sanat Kumar vs ACIT, Circle 14(1) Delhi (2020) 122 taxmann.com 75 (Delhi Tribunal E bench) vi. Satish Kishore v ITO ward 47(2) New Delhi (2019) 110 taxmann.com 307 (Delhi Tribunal G bench) 20. Considered the rival submissions and material placed on record, we observe that the assessee is a regular investor as brought to our notice by the Ld AR at page 3 of the paper book, as per the Balance Sheet of the assessee as on 31.03.2013, assessee held shares and Debentures worth of Rs. 26,23,89,205/-. It shows that the assessee is a regular investor and had also made the investment in the scrip under consideration. The AO observed that assessee had made huge profit out of this investment because of this, it makes the script as suspicious and penny stock. We cannot agree to the above observation, merely because of huge profit, it does not make the script a penny stock. Further, it is fact on record that the financials of the company are not commensurate with the purchase and sale price in the market. The assessee has purchased the shares from open market, D-mated the scrips and subsequently sold the same in the stock exchange. It clea....
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....he documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL. 3. Therefore we find nothing perverse in the order of the Tribunal. 4. Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd. but that does not help the revenue in as much as the facts in that case were entirely different. 5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law. 6. The appeal is devoid of merits and it is dismissed with no order as to costs." 21. Further, the Hon'ble Delhi High Court in the case of Pr. CIT v. Smt Krishna Devi in ITA 125/2020 dated 15.01.2021 held as under: - "8. Mr. Hossain argues that in cases relating to LTCG in penny stocks, there may no....
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....d; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the A....
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....vior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual....
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....confronted to the assessee, she was deprived of her right to cross examine the witnesses. Also whatever they have stated in their statement is no gospel truth and cannot be applied blindly to all the persons who have brought the scrips in the entire country. Thus, under these circumstances, atleast some inquiry should have done from these persons, whether they have provided any entry to the assessee, if the request for cross examination was not possible at that stage. Cross examination of a person in whose basis any adverse inference is drawn, then it cannot be primary evidence or material to nail the assessee and simply based on the statement no addition can be made. This has been held so by various courts, and also by Hon'ble Apex Court in the case of M/s Andaman Tiimber Industries vs. CCE (SC) reported in 127 DTR 241 has held as follows: "According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assesse....
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....he Show Cause Notice We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal." 14. That the ld DR during the course of hearing placed heavy reliance on judgment of Hon'ble High Court of Delhi in the case of Udit Kalra vs ITO in ITA No. 220/2019. Relevant extracts of said judgment are extracted as below: "The assessee is aggrieved by the concurrent findings of the tax authorities-including the lower appellate authorities rejecting its claim for a long term capital gain reported by it, to the tune of Rs. 13,33,956/- and Rs. 14,34,501/- in respect of 4,000 shares of M/s Kappac Pharma Ltd. The assessee held those shares for approximately 19 months; the acquisition price was Rs. 12/- per share whereas the market price of the shares at the time of their sale, was Rs. 720/-. It is contended that the assessee was not granted fair opportunity. Mr. Rajesh Mahna, learned counsel appearing for the assessee relied upon the orders of the co-ordinate Bench of the tribunal, in respect of the same company i. e. M/s Kappac Pharma Ltd., andpointed out that the tax authority's approach in this case was entirely erroneous and in....
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....order seems to be passed in year 2015, whereas the appellant had purchased the shares in year 2011 and 2013 and sold them in year 2014. It was evident from this document only that no action has been taken by the SEBI against the company during the period when the appellant holds the shares. Thus, even otherwise, we find that the order of SEBI so relied by ld. AO and CIT (A) is not applicable for the transactions under consideration. In any case as stated above, the SEBI in its subsequent decision has absolved most of the companies including the companies whose scrips are under suspicion, as they were nor found to be rigging the price. This fact alone vitiates the case of revenue. 17. We also find that the Ld. AO has raised objection regarding the cash purchase of shares and that shares were dematerialized few days back only from the date of sale. There is no law which prohibits the purchase of shares in cash, however in the present case, assessee had filed copies of bills of purchase, copy of share certificates and transfer forms etc. before Ld. AO and no adverse inference could be drawn only because the shares were purchased in cash. Regarding Demat of shares, we hold tha....