TaxTMI 
TaxTMI 
2024 (2) TMI 881
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....New Delhi and it is observed that the assessee Shri Balkrishna Gajanan Thopte is also involved in transaction of Penny Stock. During the year under consideration i.e. financial year 2013-14, the assessee had sold 88800 shares of SRK Industries Ltd. with Scrip Code - 531307 of total trade value of Rs.1,53,74,978.75 in as many as 92 different Trade ID to various persons. 4. The information also contained that during the course of search proceedings u/s 132 of Income-tax Act, 1961 (in short "Act") in the case of Shri Jai Kishan Poddar, statement on oath of Shri Jai Kishan Poddar was recorded wherein he admitted that he has provided accommodation entries of Long term capital gains/loss to various beneficiaries through various scrips which includes SRK Industries Ltd. From the information it is seen that the assessee has sold 88800 shares of SRK Industries Ltd. for a consideration of Rs. 1,53,74,978/-. In the statement recorded it has been confirmed in answer to Question No. 20 that bogus scrip/penny stock which have been used for providing the accommodation entries of LTCG and LTC Loss to different beneficiaries using brokerage company i.e. through Consortium Capital Pvt Ltd. The deta....
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....es Amount Received 1 08/01/2014 27500 47,92,372 16,163 47,76,209 2 09/01/2014 35700 61,60,842 20,781 61,40,061 3 13/01/2014 25600 44,21,760 14,916 44,06,844 Total 88800 1,53,74,974 51,860 1,53,23,114 Summary of shares transaction during F.Y. 2013-14 from Dalal & Broacha Stock Broking Pvt ltd. and in support of sales of shares, sales bills of LFC Securities Pvt. Ltd. have been filed. 8. Assessing Officer has analysed the details of investigation carried out by the Investigation Wing and discussed the various parameters as Modus operandi, amalgamation of unlisted companies with listed entity preferential allotment of equity shares, allotment of bonus shares, splitting the shares, issuing shares at a premium, transfer of shares through offline trading in his order at Page No. 6 to 20 of the assessment order. 9. Further, Assessing Officer observed that assessee is one of the beneficiary who has claimed long term capital gains of Rs. 1,53,23,114/- during the assessment year 2014-15 by purchasing and selling scrip of SRK Industries Ltd. Assessing Officer observed that assessee purchased and sold shares of SRK Industries Ltd. and the details a....
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....to mention that in order to give effect to the recommendations of the Direct Taxes Enquiry Committee (under the Chairmanship of Justice K.N.Wanchoo, retired Chief Justice of India) the definition of "income" in section 2(24)of the Act was amended with effect from April 1,1972 by the Finance Act, 1972 so as to include within its ambit, winnings from lotteries, cross word puzzles, races including horse races, card games and other games of any sort or from, gambling or betting any form or nature whatsoever. The reason underlying the said amendment was that exemption from tax that was enjoyed in respect of such winnings had provided scope for conversion of "black" money into "white" income." The apex court concluded that "There is no dispute that the amounts were received by the appellant from various race clubs on the basis of winning tickets presented by her. What is disputed is that they were really the winnings of the appellant from the races. This raises the question whether the apparent can be considered as real. As laid down by this Court, apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing au....
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....s of proving that he was not its owner, was on that person. Thus, this principle could be attracted to a set of circumstances that satisfies its conditions and was applicable to taxing proceedings 21. At the cost of repeating it is reiterated that the humongous gains made by the assessee in a penny scrip devoid of any fundamentals defies any logic or human probabilities and therefore cannot be genuine. Here is it also pertinent to mention the objective of such edifice as employed by the assessee. It is evident from the outset that the assessee earned huge Long term Capital gains from these transaction which he claimed as exempt from taxation u/s 10(38). This entire edifice was basically a colourable device to give the colour of genuineness to these transactions through which he was successful in bringing back his own unaccounted cash into his books without the need to pay any taxes. Supreme Court in the case of McDowell vs. CTO has given strong verdict against any such arrangements by stating that "Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods....
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....68. Similar findings were made by the ITAT Mumbai in the case of Arvind M Kariya vs. ACIT (ITA no. 7024/Mum/2010). Reliance is also placed in the case of Somnath Mani vs. ITO (100 TTJ 917) wherein the Chandigarh bench of ITAT held that if facts and circumstances so warrant that it does not accord with the test of human probabilities, transactions have to be held to be non- genuine. 24. In this connection, reliance is also placed on the decision of ITAT Bombay Bench 'B' (ITA No.614/Bom/87 A.Y. 1983-84) in the case of M/s. Mont Blane Properties and Industries Pvt.Ltd., which was upheld by the Hon'ble Supreme court The Hon'ble Tribunal held that the word 'evidence' as used in sec. 143(3) covered circumstantial evidence also. The word 'evidence' as used in sec. 143(3) obviously could not be confined to direct evidence. The word 'evidence' was comprehensive enough to cover the circumstantial evidence also. Under the tax jurisprudence, the word 'evidence had much wider connotations. While the word 'evidence' might Recall the oral and documentary evidences as may be admissible under the Indian Evidence Act, the use of word 'Materia....
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....n the nature of the jurisdiction conferred on the administrative authority, upon the character of the rights of the persons affected, the scheme and policy of the statute and other relating circumstances disclosed in a particular case". In the premises, for the reasons aforesaid, there has been in the facts and circumstances of the case, no infraction of any principle of natural justice by the absence of a formal opportunity of oral cross-examination, neither cross- examination nor the opportunity to lead evidence is an integral part of all quasi- judicial adjudications. 28. The detailed analysis of evidences available on record and the case laws quoted above provide enough support against the argument of the assessee regarding assessment being based on mere suspicion or presumption. Considering all above analysis I am of the opinion that the issue could not be satisfactorily explained by the assessee for the As mentioned above that the shares of this penny stock is controlled by a group of people viz promoter/operator/brokers. All purchases of shares were arranged by them on assurance of booking bogus LTCG in favour of the assessee. It is fact and evidence from the statement o....
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.... the ground or principle of preponderance of human probabilities, which could thus form a valid ground or parameter for the determining the genuineness, stands since settled by the apex court in Sumati Dayal (supra) relied upon by the assessing officer, wherein the apex court, in declaring the transaction as non-genuine, discarded a host of documentary evidences filed or relied upon by the appellant. In the case of the appellant, it has failed to satisfy the test of preponderance of human probabilities. In this regard, reliance is placed on the following decision of the Hon'ble Courts viz, a) A Govinda Rajulu Mudaliar v. CIT (1958) 34 ITR 807(SC) b) Sreelekha Banerjee & Othrs v. CIT (1963) 49 ITR 112(SC) c) Kalekhan Mohammed Hanif v. CIT (1963) 50 ITR 1(SC) d) CIT v. Durga Prasad More (1971) 82 ITR 540(SC) e) CIT v. Biju Patnaik (1986) 160 ITR 674(SC) f) CIT vs. P. Mohanakala & Others (2007) 291 ITR 278 (SC) It needs to be appreciated that what is essentially under cloud, and being seriously doubted as to the genuineness, is the gain stated to arise on the transaction. It is the gain which is abnormal. In fact, even assuming that the purchases as genuine, the sale....
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....t is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. The Hon'ble Court also observed that the taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents and the matter has to be considered by applying the test of human probabilities. 5.10 A reference may gainfully be made to the following judicial pronouncement of the Hon'ble Supreme Court. In the case of McDowell & Co. Ltd. v. CTO reported in [1985] 154 ITR 148, the Hon'ble Supreme Court held and observed as under: "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by resorting to dubious methods. It i....
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....ction of sale of shares was an ingenuine transaction and made addition of alleged sale consideration to assessee's income as income from undisclosed sources - Whether on facts, addition made by Assessing Officer was justified- Held, yes iv) Usha Chandresh Shah vs. ITO [2014-TIOL-1459-ITAT-MUM] Where Hon'ble ITAT Mumbai held that in this case the assessee could not produce the copies of share certificates and copies of share transfer forms. The transaction of purchase of shares could not be cross verified. The shares of the company was declared as "Penny Stock" by Stel and the broker Sanju Kabra, through whom the shares were sold by the assessee was indicted form manipulating the prices of penny stock shares. The tax authorities have rightly applied the test of human probabilities to examine the claim of purchase and sale of shares made by the assessee. The CIT (A) was justified in confirming the order of the AO by applying the test of human probabilities v) Ratnakar M Pujari vs. ITO [2016- TIOL-1746-ITAT-MUM] Where Hon'ble ITAT Mumbai held that a transaction of market purchase of share for which payments were made in cash and the brokers had issued pre dated con....
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....onfirmed. 7.0 Without prejudice of the above discussions, alternatively, the nature of purchase and sale of M/s. SRK Industries Ltd (Penny stock) is to be taken as adventure in the nature of trade and the same is discussed as under:- 7.1 As discussed in the above Paras, the appellant has invested in the aforesaid scrip with the intention to make huge profit, after the price of the shares of penny stock companies including M/s. SRK Industries Ltd. are rigged and are raised through circular trading, by the market operators. In fact, the appellant knew about the modus operandi of investment in penny stock companies, therefore, it cannot be considered as investment but basically, it is an adventure in the nature of trade. There are three basic conditions to treat as adventure in the nature of trade. A) Appellant's Conduct: - The appellant had purchased the shares not for the investment purpose but to sell it when it is marketable at the highest profit margin. The reason being that, the appellant has sold the shares when the value of shares is at its peak and also the shares has been invested not for dividend etc. If you see the pattern of purchase and sale of shares, it is ....
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.... dismissed." 15. Aggrieved assessee is in appeal before us raising following grounds in its appeal: - "1. The Learned Assessing Officer has erred in disallowing LTCG claim of Rs. 1,53,23,114/- u/s 10(38) on sale of shares and treating the same as unexplained cash credit u/s 68. 2. The Learned AO has erred in making addition of Rs.51,860/- u/s69C by alleging that the Appellant has paid commission for arranging the transaction of shares on which LTCG is reported." 16. At the time of hearing, Ld.AR of the assessee submitted as under by highlighting the facts from the statement of facts, for the sake of clarity it is reproduced below: - "i. Purchase of 20000 equity shares of Transcend Commerce Ltd on 07/06/2012 and payment made through account payee cheque NO. 848033 drawn at State Bank of India, Badlapur Branch and same was issued to Maxgain Advisory Pvt Ltd. Company has issued 20000 share of Transcend Commerce Ltd and same was credited on 15/06/2012 in our demat account lying with Dalal and Broacha Stock Broking Pvt. Ltd. ii. On 14/10/2013 with permission from Chennai High court Amalgamation scheme put 222 shares for every 100 shares held of Transcend Commerce Ltd amalgamat....
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....as 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. 18. 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 Investigation Wing of the Department. Ld. AR contravened the findings of the Assessing Officer that increase of share price was not commensurate with the financial results and the purchase of shares of SRK industries Ltd,. 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 ....
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....ase. However, there is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, even though all the characteristics of the penny stock exists in the present case, still the revenue has not brought on record any materials linking the assessee in any dubious transactions relating to entry, price rigging or exit providers. We can only presume that the assessee is one of the beneficiary in this transactions merely an investor, who 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 marke....
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....ese companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the investments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the veracity of the claims of the Respondent and after objective examination 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 ....
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....company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the 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 agr....
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....to he conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order. 14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration. 15. Accordingly, the present appeals are dismissed." 23. Further, the coordinate bench has dealt with the same script of SRK Industries and decided the issues under consideration, the same is produced below: "7. After hearing both the parties and perusing the material on record, we find that the assessee has sold 2,88,600 shares of M/s. S.R.K. Industries Ltd. at Bombay Stock Exchange through broker M/s. Vishesh Capital Pvt. Ltd. dated 16.12.2013 and 10.01.2014. The facts qua the purchase of these shares were already discussed hereinabove. We note that the assessee has filed before the AO the proofs of purchase and sale of these shares, payment through banking channel, receipt of sale consideration into assessee's bank account, sale through registered brokers on stock exchange and D-mat account regarding the entries of purchase and sale of these shares etc. We further note that the....
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....kers to even remotely allege that they were involved in artificial rigging of price of scrips which were dealt by the assessee herein. The statements of various operators were recorded by the ld AO and the same are reproduced in the assessment order. But nowhere in those statements, the name of the assessee or the broker through whom the assessee dealt with regard to sale of shares were even remotely mentioned by those operators. We find from perusal of the assessment order, there is no mention or reference as to whether these statements were even provided to the assessee for his verification and seek for cross examination, if any. Hence it could be safely concluded that these statements were taken behind the back of the assessee and were never put to the assessee for his rebuttal. Hence no evidentiary value could be attached to those statements. We find that the statement was recorded on oath u/s 131 of the Act from the assessee during the course of assessment proceedings by the ld AO, but no questions regarding the statements obtained from entry operators were even put to the assessee by the ld AO. ...... 7.5. We find that the ld AO had observed that the assessee had traded o....
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....of the Revenue. Date of concluding the hearing : June 28th, 2018 Date of pronouncing the order : July 25th, 2018 ORDER Per J. Sudhakar Reddy, AM :- This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals)-10, Kolkata, (hereinafter the Ld. CIT(A)?), dt. 15/02/2018, passed u/s 250 of the Income Tax Act, 1961 (hereinafter the Act?), relating to Assessment Year 2014-15. 2. The assessee is an individual and derives income from business, professional capital gains and other sources. The facts of the case and the issues involved in this appeal are brought out by the Assessing Officer at paragraphs 3 & 4 of the assessment order, which is extracted for ready reference:- ........... 20. Applying the proposition of law laid down in the above judgments to the facts of this case we are bound to consider and rely on the evidence produced by the assessee in support of its claim and base our decision on such evidence and not on suspicion or preponderance of probabilities. No material was brought on record by the AO to controvert the evidence furnished by the assessee. Under these circumstances, we accept the evidence filed by th....
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....estingly the same; (iv) The authorized signatory of both the companies were also the same person; (v) The purchase of shares of both the companies was done by that assessee through broker, GSSL and the address of the said broker was incidentally the address of the two companies. Based on these crucial facts, the Hon'ble Bombay High Court rendered the decision in favour of the revenue. None of these factors were present in the facts of the assessee before us. Hence it could be safely concluded that the decision of Hon'ble Bombay High Court supra is factually distinguishable. 7.9. We find that the Hon'ble Jurisdictional High Court in the case of CIT vs. Mukesh Ratilal Marolia in ITA No. 456 of 2007 dated 7.9.2011 had held as under:- 5. On further appeal, the ITAT by the impugned order allowed the claim of the assessee by recording that the purchase of shares during the year 1999- 2000 and 2000-2001 were duly recorded in the books maintained by the Assessee. The ITAT has recorded a finding that the source of funds for acquisition of the shares was the agricultural income which was duly offered and assessed to tax in those Assessment Years. The Assessee has produced cer....