TaxTMI 
TaxTMI 
2023 (6) TMI 1399
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....ome Tax (Appeals)-3 Thane ['the CIT(A)'], erred in disallowing the exemption claimed by the Appellant u/s 10(38) as Long Term Capital Gain and thereby confirming the addition made by the Income Tax Officer, Ward 2(2), Kalyan ('the AO') amounting to Rs. 86,12,600/- u/s 68 of the Act. 1.2 The Hon'ble CIT(A) further erred in: - not giving an opportunity to cross examine - solely relying on the findings of the investigation team and not considering all evidences filed - concluding that the entire transaction was a sham 1.3 In the aforesaid legal and factual matrix, the appellant prays that the AO be directed to allow the exemption u/s 10(38) of Long Term Capital Gain amounting to Rs. .86,12,600/- as claimed." 3. The Assessee has also raised the following additional grounds of appeal, vide letter, dated 02/09/2020: "1. On the facts and circumstances of the case and in law, the Income Tax officer, Ward 2(2), ('the ITO') erred in making the addition under Section 68 of the Income-tax Act, 1961 ('the Act') without obtaining an explanation from the deceased assessee. 2. The Appellant furthe....
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....n 03/09/2015 on account of change of incumbent Assessing Officer, notice under Section 142(1) of the Act was issued calling upon the Assessee to furnish details/information. 9. In response, the Assessee filed letter, dated 22/08/2016 and 01/09/2016, providing various details/information to the Assessing Officer on 05/12/2016. 10. The Assessee passed away on 05/12/2016 and the Legal Heir intimated the fact of death of the Assessee to the Assessing Officer. The Assessing Officer issued summons to the Legal Heir on 22/12/2016 and his statement was recorded under Section 131 of the Act. During the course of recording the statement the Legal Heir was asked to provide explanation regarding the transactions of sale of shares of Sunrise Asian. However the Legal Heir expressed his inability to provide details/explanation. While recording statement of Legal Heir reference was also made by the Assessing Officer to information available with the Assessing Officer and the statements of Mr. Vipul Vidur Bhatt and Mr. Anil Agarwal. 11. On 27/12/2016, the Legal Heir filed letter seeking (a) Annual Information Report wherein sale of shares of Sunrise Asian for consideration of INR. 89,42,20....
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....Officer completed the assessment under Section 143(3) of the Act and passed the Assessment Order in the name of "Late Shri Kanubhai Haribhai Vaghasia (through Legal Heir) Prop. M/s Aries Enterprises. The Assessing Officer assessed income at INR 97,79,700/- after making addition of INR. 86,12,600/- under Section 68 of the Act under Section 68 of the Act denying LTCG exemption of claimed under Section 10(38) of the Act. While framing the assessment as aforesaid, the Assessing Officer relied upon the following: (a) Investigation Report of Directorate of Income Tax (Investigation), Kolkata in the case of "Project Bogus LTCG/STCG through BSE Listed Penny Stock" (For short "the Investigation Report"). (b) Final Order, dated 06/09/2021, of Securities And Exchange Board of India, Mumbai under Section 19 read with Section 11(1), 11(4) and 11B of the Securities And Exchange Board of India Act, 1992 (For short "SEBI Order"). (c) Statement of Mr. Vipul Vidur Bhat, the named Operator of the Script - Sunrise Asian, recorded under Section 132 of the Act by the Investigation Wing, Mumbai. (d) Stand Alone Balance Sheet of Sunrise Asian for the Financial Year 2010....
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....BI relied upon by the Assessing Officer. Further, neither any summon were issued to ITI Financial Services Ltd nor any inquiry was conducted by the Assessing Officer to check the authenticity or otherwise of the transactions undertaken by the Assessee. (v) The Assessee did not have any transaction or relationship with First Financial Services Limited or Comfort Group. (vi) The Assessing Officer was not justified in concluding that the Legal Heir had provided explanation which was unsatisfactory. (vii) The findings returned by the Assessing Officer were incorrect in view of the following - (a) Off - market purchase of shares was not barred under law. The Assessee had made payment for purchase of shares through account payee cheque against issuance of proper allotment letter; (b) Apart from shares of Sunrise Asian, the Assessee had sold shares of other company as well at a price higher than the purchase price and the capital gains arising from the same were accepted; (c) the Assessing Officer had failed to correlate the transaction of sale of shares by the Assessee with the Operators/Brokers named in the reports/order of SEBI and/or Investigation Wing; (d) ....
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....es by the Assessee constitute bogus transactions undertaken to take unfair advantage of Section 10(38) of the Act which exempts LTCG from tax and to bringing into books of the Beneficiary (such as the Assessee) the unaccounted income of such beneficiaries by taking advantage of artificial hike in the quoted price of penny stocks (such as Sunrise Asian) occasion by synchronized trades on stock exchange by the Operator, Syndicate Member, Brokers and Exit Providers in collision with Beneficiaries. The Assessee had acquired shares of Sunrise Asian, a script identified as penny stock in the Investigation Report, in off-market transaction and the same were sold after some time at much higher price during the period identified in SEBI Order as the period within which the quoted price of penny stock - Sunrise Asian was manipulated. The Assessee had deployed a colorable device to introduce unaccounted income as LTCG and therefore, the Assessing Officer was justified in making addition under Section 68 of the Act. 21. We have given thoughtful consideration to the submission made by both the sides, perused the order passed by the CIT(A) and the Assessing Officer and considered the legal po....
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....ing facts and circumstances of the case. 21.5. The belief regarding the existence of a fact may be founded on a balance of probabilities. A prudent person faced with conflicting probabilities concerning a fact-situation would act on the supposition that the fact exists, if on weighing the various probabilities such person finds that the preponderance is in favour of the existence of the particular fact. [Narayan Ganesh Dastane vs Sucheta Narayan Dastane : 1975 AIR 1534 (SC)] 21.6. Therefore, in case of penny stock transaction involving parties identified as tainted Operator, Syndicate Member, Broker, and/or Exit Operator by Investigation Wing, SEBI etc. the preponderance of probability that the transaction undertaken being tainted would be in favour of the Revenue and against an assessee claiming the transaction to be genuine, putting higher onus on such assessee to prove genuineness of the transaction. 21.7. In the case of CIT Vs. Durga Prasad More : 82 ITR 540 (SC) the Hon"ble Supreme Court has observed as under: "13. In stating that .........................Science has not yet invented any instrument to test the reliability of the evidence placed before a....
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....ting cash as well as buying/selling shares during the price rigging period. We note that in paragraph 5.2 of the Assessment Order, Mr. Vipul Vidur Bhat has been identified as Operator for Sunrise Asian on the basis of statement given by Mr. Vipul Vidur Bhatt, to Investigation Wing Mumbai during search proceedings under Section 132 of the Act. In the SEBI Order passed in the case of Sunrise Asian, Mr. Vipul Vidur Bhatt is Noticee No. 26. and was barred from (a) accessing the securities market (b) buying/selling/dealing in shares (whether directly or indirectly) and (c) being otherwise associated with securities market for a period of 6 months. (iv) Beneficiary being entities/persons who have taken benefit of LTCG exemption to bring back unaccounted income as capital receipt/gain. According to the Assessing Officer, in the present case the Assessee is the Beneficiary who has received back the unaccounted income as capital gains receipts. (v) Exit Operator is one who buys the shares from the Beneficiary and pays consideration through banking channel. In paragraph 6.2 of the Assessment Order, the Assessing Officer has concluded that....
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....stock from the Beneficiary by issuance of cheques The Assessing Officer noted that the Assessee had sold shares of Sunrise Asian during 13th & 14th October, 1st November, and 19th & 24th December, 2013 falling with Patch - 2 above. It is admitted position that the sale proceeds were received through banking channel. In paragraph 6.3 of the Assessment Order, the Assessing Officer had discussed about cash trail. It has been stated therein that Pushpanjali Commotrade Private Limited, Kolkatta and Ranisati Dealer Private Limited, Kolkatta have helped in managing routing of cash. 23. On the basis of the above, the Assessing Officer concluded that following parties acted in collusion: (a) The Assessee - being the Beneficiary (b) Mr. Vipul Vidur Bhatt - being the Operator (c) Mr. Anil Agarwal and Comfort Group (M/s Comfort Securities Limited, Comfort Fincorp) - being operator, broker and/or exit provider (d) Pushpanjali Commotrade Private Limited, Kolkatta and Ranisati Dealer Private Limited, Kolkatta being companies managing routing of cash 23.1 Assessing Officer further concluded that with the help of the above parties, the Ass....
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....ian. When the quoted price of shares of Sunrise Asia started to fall in Patch 2, the Assessee sold entire shareholding of 18,000 share in the following 6 trenches after holding the shares for a period of around 19 months: Date Number of Shares of Sunrise Asian Sold Sale Value (INR) 14/10/2013 2500 12,66,750 13/10/2023 5500 27,74,174 01/11/2013 2000 9,94,300 03/12/2013 5000 24,62,075 19/12/2013 2500 12,30,000 24/12/2013 500 2,45,300 Total Sale Consideration 89,72,599 Less: Cost of Acquisition 3,60,000 LTCG exempt under Section 10(38) 86,12,600 25.5 All the sale transactions were undertaken through broker ITI Financial services Limited. 25.6 We note that in the Investigation Report the sub-brokers associated with Baba Bhoothnath Trade & Commerce Pvt. Ltd., Madhya Pradesh Stock Exchange Ltd., Religare Securities Ltd., Comfort Securities Ltd., Anand Rathi Share & Stock Brokers Ltd., SMC Global Securities Ltd. and the Calcutta Stock Exchange Ltd. have been identified as brokers/sub-brokers facilitated bogus LTCG transactions of Sunrise Asian. In the Assessment Order the name of Comfort Securities Ltd.....
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....e Assessing Officer and the CIT(A), both, had moved on incorrect premise that the Assessee was not involved in trading of shares or that the Assessee only dealt with script of Sunrise Asian. The Assessee has been registered as a sub-broker affiliated with Mangal Kseshav Securities limited since 2007. During the relevant previous year the Assessee has offered commission income from proprietorship Equity Research & Investment. A copy of the registration certificate, dated 04/05/2007 issued by SEBI showing that the Assessee is registered with SEBI as a sub-broker affiliated with Mangal Kseshav Securities limited has been placed on record. The Assessee has also been making personal investments in share market since 2007. The investments held by the Assessee as on 31/03/2012 were INR 28,47,999/- which stood reduced to INR 19,38,124/- as on 31/03/2014. The details of shares sold during the relevant previous year are as under: Sr. Name of Shares Date of Sale QTY Gain/(Loss) 1 Sun Asian 14/10/2013 2500 1,212,458.83 2 Bayer Cropscience Ltd. 14/10/2013 250 349,553.00 3 Natco Pharma Ltd. 14/10/2013 100 652,250.01 4 Sun Asian ....
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....ntities (Noticee Number 7-89) were counter parties to sale of shares of Sunrise Asian by 1059 entities/allottees for sale value transactions of INR 5,98,90,16,143/- constituting 57.08% of total sale value amount of INR 1049,09,71,861/-. Thus, even as per SEBI all transactions of sale of shares cannot be said to tainted transactions undertaken by parties acting in collusion with the operators, brokers and exit providers. 25.13 The test of human probabilities when applied to the above set of facts tilts the balance in favour of the Assessee. The preponderance is in favour of the Assessee as the circumstantial evidence and surrounding facts do not support the case of the Revenue as explained in hereinabove. There is no direct or indirect evidence linking Comfort Group Companies (i.e., Comfort Fincorp and Comfort Securities Limited), Mr. Anil Agarwal, Pushpanjali Commotrade Private Limited, Kolkatta and Ranisati Dealer Private Limited, Kolkatta with the Assessee. The Assessing Officer and CIT(A) had proceeded with the understanding that the Assessee was new to trading; he traded in single script and had not earned high returns on sale other investments. This understanding was incorr....