TaxTMI 
TaxTMI 
2024 (2) TMI 881
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....ation from Addl. Director General (Systems)-2, 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 ....
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.... follows Sr.No. Date Share Qty Sold Value Commission/ Expenses 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 y....
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....is of incriminating circumstances. The supreme court even took note of the scheme of converting black money into white through the route of lottery winnings etc by stating that "In this context it would be relevant 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 wh....
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.... It was further held by the Hon'ble Apex Court that all that Section 110 of the Evidence Act, 1872 did, was to embody a salutary principle of common law, jurisprudence viz, where a person was found in possessing of anything, the onus 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 str....
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.... methodology of acquiring the Long Term Capital Gains in order to convert her black money into white and by applying the principle of human probabilities added the share sale receipts as other source income of the assessee from unexplained cash credits u/s 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 circumsta....
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....le of natural justice of which appellant complained in this case. 27. In the case of Union of India & Anr. v. P.K.Roy & Ors. it was held that that "the doctrine of natural justice cannot be imprisoned within the strait-jacket of a rigid formula and its application depends upon 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 explaine....
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....of these shares are not based on business results of the companies but same are fluctuated by insider's trading from zero value (negligible price) to very high price and vice versa without any reason or basis to accommodate or generate bogus capital gain or loss. 5.6 That genuineness could validly be tested on the ground or principle of preponderance of human probabilities, which could thus form a valid ground or parameter for 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.....
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....n based on the probabilities of an occurrence to disbelieve the statement made by the assessee, even when advanced with prima facie evidence, the AO may be justified in disbelieving the statement. 5.9 Further reference may be made to another landmark judgment by the Hon'ble Supreme Court in the case of CIT v. Durga Prasad More reported in (1971) 82 ITR 540. The Hon'ble Apex Court observed that it 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&....
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....e were cash deposits in its bank account preceding issue of Cheques in name of assessee for purchase of shares claimed to be sale proceeds of same shares received in advance -Broker could not give details of purchaser of shares-Moreover, shares claimed to have been sold through broker had not been transferred even at time of making enquiry by Assessing Officer and same continued to be registered in name of assessee- In those circumstances, Assessing Officer held that transaction 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 o....
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....he appeal of the appellant on these grounds is dismissed. 6.0 Ground No.5 is directed against the addition of 51,860/- on account of commission paid for getting accommodation entry. The AO has made addition on the ground that, these payments pertain to the transaction of bogus Long term capital gain and the explanation given by the appellant has been rejected. Therefore, as discussed in above Para 5.14, the transaction of LTCG has been arrived as sham transaction, therefore, the expenses are disallowed and the addition made by the AO is confirmed. 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,....
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.... in the nature of trade and the same is taxed under the head " business income". 7.4 The appellant has relied on several case laws as well as by the assessing officer. In this case, the issue is not of the application of any particular case law. The legal propositions being well settled, each case rests on its own facts and the decision in this case has been decided on the basis of the facts and circumstances of the instant case. Therefore, in the case of the appellant, alternatively, the purchase and sale of shares have to be considered as adventure in the nature of trade. 8.0 In the result, appeal of the appellant is 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 submit....
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....gned shares and receipts from the brokers against sale of the said shares are distinctly shown and (d) copy of Bank statement showing amounts received from the said Share Broker in respect shares sold. It is pertinent to note that the AO has not found fault with the documentary evidences produced by the Appellant as regards purchase and sale of shares of SRK and hence the Long Term Capital Gain of Rs.1,53,23,114/- u/s 10(38)cannot be added u/s 68 and termed as bogus by the AO under any circumstances." 17. Further, Ld.AR of the assessee submitted that assessee has transferred 88800 shares of SRK Industries Ltd., and earned Long Term Capital Gain exemption under section 10(38) of the Act. He submitted that 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. 18. Further, he submitted that A....
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....elied on the following case law: - * Smt. Mamta Agarwal v. ITO in ITA No. 1414/Chny/2018 dated 06.12.2018. * Shri Hitendra c. Ghadia v. DCIT in ITA No. 621/MUM/2021 dated 20.03.2023. * Smt Asha Rajendera Gupta v. ACIT in ITA No. 7712/MUM/2019 dated 13.04.2023. 21. Considered the rival submissions and material and various case laws placed on record, we observe that the assessee is not the regular investor and had specifically made the investment in the scrip under consideration. 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 clearly raises several doubt on the purchase and sales transactions recorded in this case. 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 t....
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....o 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." 22. 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 not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these 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 g....
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....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 Act were issued to M/s. Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the 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 entire....
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....IT (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 matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns ITA 125/2020 and connected matters Page 10 of 10 on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come 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 subs....
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....es. We find that in none of those statements, the name of the assessee or the name of the brokers through whom assessee had transacted were mentioned. We also find that there is no mention of any connivance on the part of the assessee with the share broker and stock exchange to launder the unaccounted monies of the assessee and bring it back in the form of sale proceeds of shares and claim exemption u/s 10(38) of the Act for the long term capital gains derived thereon. None of the parties on whom survey actions were conducted were related to assessee or the brokers in any manner whatsoever. We find that the various purchase and sale details together with the supporting evidences were not controverted by the revenue before us. The revenue had not brought on record any adverse order passed by SEBI linking the assessee or her broker with the alleged price rigging and manipulation. Hence there is absolutely no iota of evidence linking the assessee or the registered brokers 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 reprod....
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.... brokers and stock exchange. We find that the ld DR was not specifically able to controvert the documentary evidences filed by the assessee for purchase and sale of shares and various other documents referred to in the Paper Book. The ld DR also filed written submissions wherein he had reiterated the findings of the ld AO. 7.7. We find that the co-ordinate bench of Kolkata Tribunal in ITA No.661/Kol/ 2018 in Shreyans Chopra vs. ACIT dated 25.7.2018 on similar set of facts and circumstances had held as follows:- "IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA 'SMC' BENCH, KOLKATA (Before Sri J. Sudhakar Reddy, Accountant Member) ITA No. 661/Kol/2018 Assessment Year: 2014-15 Shri Shreyans Chopra Appellant 3A, Mangoe Lane Kolkata - 700 001 [PAN : AAAFZ 1337 P] Assistant Commissioner of Income Tax, Circle-36, Kolkata. Respondent Appearances by: Shri Miraj D. Shah A/R, appeared on behalf of the assessee. Shri Satyajit Mandal, Addl. CIT, D/R. appearing on behalf of the Revenue. Date of concluding the hearing : June 28th, 2018 Date of pronouncing the order : July 25th, 2....
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....s the facts and circumstances of the cases of Navneet Agarwal (supra), we delete the addition made u/s 68 of the Act, on account of sale of shares in the case of both the assessees. The consequential addition u/s 69C is also deleted. Accordingly both the appeals of the assessee are allowed. 7. In the result, appeal of the assessee is allowed. Kolkata, the 25th day of July, 2018. Sd/- [J. Sudhakar Reddy] Accountant Member Dated : 25.07.2018 7.8. It would be pertinent to address the case law relied upon by the ld DR before us on the decision of Hon'ble Bombay High Court (Nagpur Bench) in the case of Sanjay Bimalchand Jain vs. Pr.CIT (Nagpur) reported in (2018) 89 taxmann.com 196 (Bombay) dated 10.4.2017 on the impugned issue. From the facts of Sanjay Bimalchand Jain supra, we find that (i) in that case, the broker company through which the shares were sold did not respond to AO's letter regarding the names and address and bank account of the person who purchased the shares sold by the assessee; (ii) Moreover, at the time of acquisition of shares of both the companies by the assessee, the payments were made in cash; (iii) The address of b....
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....ding that the purchase and sale of shares are genuine and therefore, the Assessing Officer was not justified in holding that the amount of Rs. 1,41,08,484/- represented unexplained investment under section 69 of the Income Tax Act, 1961 cannot be faulted. 8. In the result, we see no merit in this Appeal and the same is dismissed with no order as to costs. 7.10. In view of the aforesaid findings in the facts and circumstances of the case and respectfully following the various judicial precedents relied upon hereinabove, we hold that the ld CITA was not justified in upholding the action of the ld AO in bringing the long term capital gains on sale of shares of SRK Industries Ltd in the sum of Rs. 2,26,36,372/- as unexplained income of the assessee treating the same as just an accommodation entry. The ld AO is directed to grant exemption u/s 10(38) of the Act in the sum of Rs. 2,26,36,372/- to the assessee. Accordingly, the ground raised by the assessee is allowed. 8. Both the parties before us agreed that the facts in ITA No. 694/Mum/2018 in the case of Shri Shashikant B Mhatre (HUF) are identical to that of Smt. Geeta Khare supra except with variance in fig....