AI Drafter 
TaxTMI 
TaxTMI 
2024 (6) TMI 933
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Rs. 31,45,930/-) 2. The CIT(A) has erred in not appreciating the facts that The Lr. AO has given wrong finding as per para 3.1, 5, 6, page 25 para 3.3 to para 3.23 of the order which is perverse on facts and also on law and therefore, the addition made may please be deleted. (Tax Effect Rs. 31,45,930/-) 3. The CIT(A) has erred in not appreciating the facts that the Lr. Assessing Officer has not provided the inquiry papers as well as notice u/s 133(6) referred by him and further no examination / cross examination allowed and therefore, the addition based on so called inquiry is merely based on conjectures, surmises and therefore, addition made is liable to be deleted. (Tax Effect Rs. 31,45,930/-) 4. The Lr. CIT(A) has also erred in not appreciating the facts that the assessee has purchased the shares out of regular source of income of past years and books of accounts has been accepted as such without applying sec. 145 and therefore, the purchase made cannot be doubted on this ground and consequently the addition made may please be deleted. (Tax Effect Rs. 31,45,930/-) 5. The Lr. CIT(A) has also erred in not appreciating the various submissions a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re also subdivided and this proceeds was in respect of sale of 1000 shares. (v) The sale of two shares was effected through share broker Tradebull Securities Pvt. Ltd. and the sale consideration of Rs. 56,54,500/- and Rs. 35,93,767/- was credited to the banks accounts of the assessee with CITI Bank on 03.09.2014 and 04.09.2014 respectively. (vi) The assessee had disclosed LTCG of Rs. 73,29,100/- on the sale of these two shares which was claimed exempt under Section 10(38) of the Act. (vii) The payment of purchase price of shares Rs. 1,18,703/- in cash even though the assessee was having operational bank account raised suspicion about the genuineness of the transactions. (viii) The AO found that the companies LDPL & MARL were not having good financial track record. Further, both these companies were penny stock companies which were utilized to arrange accommodation entries to the interested beneficiaries. The price of shares of LDPL and MARL were put on artificial rise and fall in a pre-arranged manner. The AO reproduced a chart of price fluctuation of shares of LDPL & MARL for the period from 01.04.2013 to 2nd September, 2014 in the assessment or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T(A) upheld the addition as made by the AO. He passed a detailed order and apart from the decisions as quoted in the assessment order the ld. CIT(A) also relied upon the decision of Mumbai ITAT in the case of ITO vs. Shamim Bharwani (68 taxmann.com 65) and the decision of Ahmedabad ITAT in the case of Pavankumar M Sanghvi vs. ITO (81 taxmann.com 308). Submission of the assessee 7. Shri Ketan Shah, Ld. AR of the assessee submitted that the purchase and sale transactions were all supported by proper documentary evidences and there was no reason to doubt the genuineness of the transactions. He submitted that there was no dispute to the fact that assessee had purchased the share of LDPL and MARL in support of which the contract note of broker M/s. Vijay Bhagwandas & Co. was furnished and the source of this investment was also explained. The Ld. AR explained that the assessee was having surplus cash balance which was utilized for making payment for purchase of shares and that off market purchase of shares was an accepted mode of acquisition. He submitted that the genuineness of the purchase of shares was not doubted by the AO and no disallowance was made on account of the purchase....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... DCIT vs. Saurabh Mittal in ITA No. 16/Jp/2018 x. Mrs. Neeta Bothra vs. ITO, [2022] 137 taxmann.com 463 (Chennai- Trib.) xi. PCIT vs. Champalal Gopiram Agarwal, [2023] 155 taxmann.com 66 (Gujarat) xii. Atulbhai Amritlal Mehta vs. DCIT, [2023] 150 taxmann.com 90 (Ahmedabad - Trib.) 9. The Ld. AR further submitted that SEBI had suspended the trading of shares of these two companies after the purchase and sale transactions in the shares was completed by the assessee and that the assessee was never aware of the fact that scrips were in the nature of penny stock companies. He contended that in the investigation report carried out by the Calcutta Directorate as well as in the statements recorded by different persons the name of the assessee never appeared and there was no specific allegation against the assessee that he had entered into an accommodation entry. The Ld. AR submitted that assessee was a regular investors in shares and this was not the only transaction carried out by the assessee. He assailed the invocation of provisions of Section 68 of the Act by the AO and submitted that this provision was not at all attracted as the AO had not added the enti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ugh stock exchange on which STT was paid, the payment was received through banking channel and the exemption of LTCG was rightly claimed. Where the issue of LTCG is involved, not only the sale of shares but the genuineness of the purchases also has to be examined. In the mechanism of capital gains computation what is relevant is not only the sale of shares but also the purchase of shares. Therefore, the genuineness of the entire transaction of acquisition as well as sale of shares has to be looked into as a whole. One can't adopt a dissecting approach by accepting the sale of shares as genuine without examining the genuineness of purchase of the shares. The AO had casted aspersion on purchase of shares while doubting the genuineness of the entire transaction. The contention of the assessee that the purchases were not doubted as no disallowance on account of purchase was made can't be accepted. The AO in the assessment order had specifically pointed question mark on the purchase transactions. 13. The primary facts of this case not under dispute. The assessee has contended that it was a regular investor in shares and that the transactions giving rise to LTCG were not one off trans....
X X X X Extracts X X X X
X X X X Extracts X X X X
....saction. Neither the assessee nor the broker have explained the reason for carrying out the transactions in off market manner which is ordinarily not permissible and subject to certain legal constraints under Security Contract (Regulation) Act, 1956. Further, the reason for payment for purchase of these shares in cash has also not been explained. There is no evidence for cash payment so as to confirm the actual date of transaction. It is also found that the cash payment for the purchase of shares was not made in one go but was staggered on different dates. From the ledger account of the broker M/s. Vijay Bhagwandas & Co. in the books of the assessee for the period 01/04/2013 to 31/03/2014, the cash payment was found in the following manner: Date Particulars Vch Type Debit Credit 1/4/2013 To Lifeline drugs & pharma ltd Sale of 5000 Journal 78353.00 26/06/2013 To Mahavir Advanced Remedies Ltd - Sale of 2150 Shares 40559.00 1/4/2013 by cash received receipt 19000.00 1/4/2013 by cash received receipt 19000.00 3/4/2013 by cash received receipt ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... event of purchase of shares. The purchase of the shares were close to the date of their dematerialization, which was orchestrated to the preceding year by creating evidence of off market transactions and by payment of purchase price of shares in cash, which cannot be verified with any independence evidence. This was ostensibly done to prolong the period of holding so as to claim the gain as LTCG. Considering these facts and the sequence of events the AO had rightly raised question mark on the genuineness of LTCG claim of the assessee. 17. The genuineness of transactions can be tested on the principle of preponderance of human probability as settled by the Hon'ble Apex Court in the case of Smt. Sumati Dayal vs. CIT, (1995) 214 ITR 801 (SC). The documentary evidences in themselves, cannot be held as conclusive evidence of the transaction. When someone is deliberately entering into a transaction in shares of penny stock company, it is obvious that all the documentary evidences will be in order. After all, one has to establish the transactions with reference to the documentary evidences so as to claim the benefit of exemption of LTCG available under the Act. Therefore, while examin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e in order to pay the STT and give it a colour of LTCG which is exempt u/s. 10(38) of the Act. 19. The department had conducted detailed enquiries in the organized racket of bogus LTCG transactions which were claimed exempt from tax. During the course of investigation the transactions in BSE listed penny stocks, which were used for generating bogus LTCG, were verified. The SEBI had suspended the trading of shares of LDPL & MARL. It is immaterial that such suspension was after completion of trading in shares by the assessee. The suspension by SEBI reflects the dubious nature of the transactions, which can't be ignored and which was pursuant to manipulation / abrupt movement in the price of these security as noticed by BSE. The AO has analyzed the price movement of these share during the period from 1st April, 2013 to 2nd September, 2014 in the assessment order from which it is evident that there was continuous manipulation of the price of these shares. The volume of trade in these shares was mostly in single digit and the price of LDPL was progressively increased from Rs. 36.1 as on 1st April, 13 to high of Rs. 584.35 on 12th November, 2013 and on the next day i.e. 14th November,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....td 26,21,97,061 SMC Global Securities Ltd 1,88,05,018 KORP Securities Ltd 1,86,56,81,200 Millenium Stock broking Pvt Ltd 5,30,88,497 Stock Broker Bogus LTCG M/s Mahavir Ad. Remedies The Calcutta Stock Exchange Ltd 64,84,43,212 Anand Rathi Share & Stock Brokers Ltd 24,89,45,625 Religare Securities Ltd 2,17,96,692 21. The surrounding circumstances that the shares of LDPL & MARL were utilized for generating huge bogus LTCG having total trade value of above proportion, as revealed in the investigation carried out by the Department, puts a question mark on the genuineness of the transactions carried out by the assessee. The statement of the share brokers of Kolkata who were involved in providing accommodation entries through Jamakarchi/shell Companies also casts a serious doubt on the genuineness of the transactions. They had categorically admitted to have provided accommodation entries through multilayered transactions and trading in the shares of LDPL & MARL. Though the assessee was nowhere indicted in their statements the fact that accommodation entries were provided by dealing in shares of LDPL & MARL, stands established. 22. The as....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to how they were prejudiced on account of non-furnishing of the investigation report in its entirety, failure to produce the persons from whom the statements were recorded for being cross examined would cause prejudice to the assessee as nowhere in the report the names of the assessees feature. The investigation report states that the investigation has not commenced from the individuals but it has commenced who had dealt with the penny stocks, concept of working backwards. This is a very significant factor to be remembered. Therefore, there has been absolute anonymity of the assessee in the process of investigation. The endeavour of the department is to examine the "modus operandi" adopted and in that process now seek to identify the assessees who have benefited on account of such "modus operandi". Therefore, considering the factual scenario no prejudice has been established to the assessee by not furnishing the investigation report in its entirety nor making the persons available for cross examination as admitted by the department in substantial number of cases the assessees have not been specifically indicted by those persons from whom statements have been recorded." As the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere minimum of two brokers who have been involved in the transaction. It would be very difficult to gather direct proof of the meeting of minds of those brokers or sub-brokers or middlemen or entry operators and therefore, the test to be applied is the test of preponderance of probabilities to ascertain as to whether there has been violation of the provisions of the Income-tax Act. In such a circumstance, the conclusion has to be gathered from various circumstances like the volume from trade, period of persistence in trading in the particular scrips, particulars of buy and sell orders and the volume thereof and proximity of time between the two which are relevant factors. Therefore, in our considered view the methodology adopted by the department cannot be faulted. ............... 72. In the light of the above discussion, the only conclusion that can be arrived at is that the opinion can be formed and the decision can be taken by taking note of the surrounding circumstances which had been elaborated upon in Kishore R. Ajmera (supra). 73. It is very rare and difficult to get direct information or evidence with regard to the prior meeting of minds of the pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns or assumptions. The assessee does not and cannot dispute the fact that the shares of the companies which they have dealt with were insignificant in value prior to their trading. If such is the situation, it is the assessee who has to establish that the price rise was genuine and consequently they are entitled to claim LTCG on their transaction. Until and unless the initial burden cast upon the assessee is discharged, the onus does not shift to the revenue to prove otherwise. It is incorrect to argue that the assessees have been called upon to prove the negative in fact, it is the assessees duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. The assesses cannot be heard to say that their claim has to be examined only based upon the documents produced by them namely bank details, the purchase/sell documents, the details of the D-Mat Account etc. The assesses have lost sight of an important fact that when a claim is made for LTCG or STCL, the onus is on the assessee to prove that credit worthiness of the companies whose shares the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the AO in the course of assessment were not explained by the assessee and the thrust was always on the documentary evidence of the transactions. The documentary evidences cannot be relied upon and treated as conclusive in view of various unanswered questions as already discussed earlier and the dubious nature of transactions. The surrounding circumstances of the transactions establish that the transactions entered into by the assessee were not genuine. The assessee had not discharged its onus against the overwhelming adverse evidences that has been brought on record by the Revenue authorities. 27. The thrust of the assessee's argument is that the sale consideration was received by cheque on which STT was paid and, therefore, the LTCG earned was genuine. This cannot be accepted in view of multiple adverse evidences collected by the Revenue and the assessee cannot be treated as a passive beneficiary of the transactions. The Hon'ble Supreme Court held in the case of Security And Exchange Board of India vs. Rakhi Traders Pvt. Ltd., (supra) that in trade transactions with huge price variations of the transactions, it will be too naïve to hold that the transactions were throu....