TaxTMI 
TaxTMI 
2024 (7) TMI 123
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....ving of cloth by the aid of power looms for private parties, contract income; and had declared her income u/s 44AD of the Income Tax Act, 1961 (hereinafter "the Act"). Apart from the above source of income, the AO noted that the assessee had shown income from Capital Gains & other sources and claimed LTCG on sale of shares of the scrip Sunrise Asian as per the following summary: - Sr.No No of shares Sale of Shares Cost of shares LTCG Date Sale Price Date Cost Price 1 Purchase Sun Asian No. of shares 5000 27.11.2011 20.00 Total cost Rs.1,00,000/- 2 08.08.2013 230/- 3 19.07.2013 24,58,733/- 4 03.01.2014 53,057 23,37,135 4. The AO noted from the details submitted by the assessee that assessee had purchased 5000 shares of M/s. Conart Trader's Ltd. @ Rs.20/- per share from M/s. Santoshima Tradelinks Ltd and that payment of the same was made on 18.09.2011 through banking channels. And this company later on merged with M/s. Sunrise Asian Ltd. (hereina....
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....ideration, the assessee has filed her ROI on 28.02.2015 by declaring total income of Rs. 9,91,970/- (Refer page no. 1-3 of PB). Assessee claimed LTCG of Rs. 23,15,537/- (on sale of shares of M/s. Sunrise Asian Ltd. for a total consideration of Rs. 24,59,000/- (Page no.4 of PB). Aggregate LTCG claim was to the tune of Rs. 23,37,135/-. Regarding this claim of LTCG, it is noted that the assessee had purchased the shares of M/s. Conart Traders Ltd., on 18.09.2011 [which company was incorporated in the year 1994]; and the Ld. AR showed us that it had consistent track record of earning profit for recent past years. And book value of shares as per duly audited accounts as at 31.03.2011 works out to approx. Rs. 22/- and corresponding EPS for FY. 2010-11 was Rs. 1.90 and Rs. 0.78 for FY. 2009-10. (Growth rate of 144% in EPS). [Refer Annual Audited Accounts F.Y. 2010-11 (Page no. 50-64 of PB)]. It was brought to our notice that the said company among other business was also in the same line of business in which assessee was familiar i.e. textile and fabric business (page no. 63 of PB) as well as trading in fabrics refer Notes on Accounts (Page no. 52-64 of PB). Later, M/s. Contart Traders am....
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....985000 HDFC 20.7.2013 Sunrise Asian 25.7.2013 2000 494.70 989400 989400 989 13.9.2013 RTGS 754000 HDFC 25.7.2013 Sunrise Asian 11.09.2013 1500 502.75 754125 754125 754 RTGS HDFC 11.9.2013 ACIIN 3.1.2014 10000 5.37 53680230 53680230 54 3.1.2014 6. Before us, the assessee has filed the annual report of M/s Sunrise Asian Ltd as on 31st March 2013 (Refer pg 117 -152) and annual report as on 31st March 2014 and 31st March 2015. (Refer paper book No. II pg. 239-273 of PB). Further, we note that following relevant documents/details were filed before AO vide letter dated 23/09/2016 & 19/12/2016. (Refer page. 22 27 & 38-182 of PB). A. Bank statement for purchase & sale. B. Shar....
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....aking bogus claim of LTCG (as stated in investigation wing report/statement of Shri Vipul Bhat), which material is irrelevant to the facts of the case of assessee because no wrong-doing of assessee or her broker has been found mentioned in the general-statement/information/modus- operandi as noted by AO in the assessment order, and therefore the same cannot be used to draw adverse inference against the claim of LTCG. Further, the Ld. AR pointed out that the assesse had duly intimated about the purchase of shares, which fact was duly disclosed in return of income in prior years and relied on the enclosed demat holding statement of shares and ITR copies. In the light of the aforesaid submission and since there is no evidence to link the alleged entry operators with assessee (Shri Vipul Bhatt) the adverse inference drawn against the assessee is devoid of merits and therefore, the impugned action of Ld. CIT(A) confirming the action of AO is erroneous and need to deleted. The Ld. AR also relied on few case laws to support his contention which will be discussed (infra). 8. Per contra, the Ld. DR supporting the action of AO/Ld. CIT(A) contended that the investigation wing of the depart....
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....of Bombay Stock Exchange and proved by contract notes after remitting STT. Thus, proving the event of sales of scrip and it is found that the purchase/sale consideration has passed through banking channel. 10. The AO has disbelieved the claim of the assessee only on the basis of the investigation report of the department which identified the scrip of M/s. Sunrise as a penny stock. And after taking note of the contents of the investigation report (modus operandi) of unscrupulous entry operators, the AO was of the opinion that the assessee is a beneficiary of such modus operandi; and according to him, assessee has made bogus claim of LTCG, to convert her unaccounted income to white by bringing it into regular books (accounted income). However, we find that investigation report of department is a general-report, which has not spelled out any wrongdoing on the part of assessee or her broker. Therefore, the reliance made by AO on the general-report of investigation wing cannot be accepted. Likewise, the AO has also referred to the statement given by Shri Vipul Bhatt which also does not contain any direct testimony to incriminate the assessee or her broker (Anand Rathi share and stock....
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....nfirmity of the primary documents filed by assessee to prove the purchase & sale of the shares. In such a scenario, we rely on the decision of the Tribunal in the case Bhavin Vaghasia (supra) and allow the appeal of the assessee on the same reason as given by this Tribunal in the case of Bhavin Vaghasia (supra) which is reproduced as under: - "18. We have heard both the sides at length. The Learned Authorized Representative for Appellant reiterated the submission made before the Assessing Officer and the CIT(A) while the Learned Departmental Representative supported the order passed by the CIT(A) and placed reliance on the order passed by the Assessing Officer. 19. The stand of the Legal Heir, succinctly put, is that the LTCG earned by the Assessee were exempt from tax under Section 10(38) of the Act as the same have arisen on account of transaction of sale of personal investment by the Assessee in normal course. The Assessee has been making investment in shares for many years, purchasing shares as personal investment and selling the same on a price higher that purchase price to earn capital gains which were exempt from tax. There is no evidence to suggest that th....
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....Securities & Exchange Board of India (SEBI), as a securities market regulator, has passed orders identifying and penalizing persons/concerns acting in concert indulging in price rigging through synchronized trading in shares through stock exchange trades. Therefore, we reject the contention that the mere fact that the sale transaction was undertaken through stock exchange and is supported by proper documentation would, by itself, lead to a conclusion that the transaction is genuine. 21.3. Similarly, we reject the contention of the Revenue that the fact that a script has been identified as penny stock would lead to an automatic conclusion that everyone holding penny stock is a person acting in concert with persons manipulating the quoted price of penny stock. Had that been the case, SEBI would have been required to penalize all persons undertaking trades with the period during which quoted price was manipulated. Therefore, the fact that the scrip traded is a penny stock coupled with the fact that the trade took place within the period in which quoted price was manipulated would not, by itself, lead to a conclusion that the purchase/sale transaction is bogus in case there ar....
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.... of INR 86,12,600/- under Section 68 of the Act by treating the transaction of sale of shares of Sunrise Asian as a bogus penny stock transaction. 22.2 According to the Investigation Report, penny stock transactions generally involved the following persons: (i) Syndicate Members are generally promoters of penny stock companies owing initial share holding in the name of paper companies. We note that in Paragraph 1.2 B of the SEBI Order, the names of persons who were directors on the board of Sunrise Asian during the investigation period (i.e., 16/10/2012 to 30/09/2015) have been set out. The Assessment Order, however, does not contain any reference to the aforesaid persons. (ii) Brokers/Sub-Brokers are SEBI registered brokers/sub- brokers through whom penny stock are traded offline and online. We note that in paragraph 7.2 of Assessment Order, a reference has been made to SEBI Order, dated 19/12/2014, passed in the case of First Financial Services Limited wherein it has been stated that (a) the Comfort Group and Mr. Anil Agarwal shared close relationship with First Financial Services Limited, and (b) Comfort Group had also played key role in prefe....
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....e note that in the case before us, the Assessee acquired shares of Sunrise Asian under Merger Method. 18000 share of Conart Traders Limited were allotted to the Assessee for consideration of INR 3,60,000/- and under the scheme of merger, whereby Santoshima Tradelink Limited and Conart Traders Limited were merged into Sunrise Asian, the Assessee was allotted 1 share of Sunrise Asian for 1 share of Conart Traders Limited. (ii) Price Rigging - After the purchase of script of penny stock companies by the beneficiaries, the Syndicate Members start rigging the price through brokers. We note that the Assessing Officer has, in Paragraph 5. (II) - „Analysis of Script M/s Sunrise Asian Limited‟, analyzed the movement in the price of shares of Sunrise Asian between July 2012 and January 2014. In SEBI Order, price rigging period has been divided into four patches and analyzed: Patch 1 - Price Rise : 16/10/2012 to 28/06/2013 Patch 2 - Price Fall : 01/07/2013 to 07/05/2014 Patch 3 - Price Rise : 08/05/2014 to 11/12/2014 Patch 4 - Price Rise : 12/12/2014 to 13/04/2015 Net worth the Sunrise Asian during the period covered by Patch 1 to Patch....
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....ficer has identified Mr. Vipul Vidur Bhatt as an Operator. However, there is nothing on record to link the Assessee with Mr. Vipul Vidur Bhatt. The Assessing Officer seems to have drawn inference on the strength of the statement given by the Mr. Vipul Vidur Bhatt to the effect that the beneficiaries of bogus LTCG were allotted shares of Conart Traders Limited on preferential basis in 2011-12. Perusal of material placed on record shows that the Assessee did acquire shares of Conart Traders Limited by way of allotment in 2011-12. The Assessee has made payment of INR 3,60,000/-, through bank account, for allotment of 18,000 shares of Conart Traders Limited on 18/11/2011 and the shares were allotment to the Assessee of 15/01/2012. The Assessee has placed on record copy of relevant extract of bank statement (reflecting payment of INR 3,60,000/-) and copy of share certificate. 25.2 On 27/02/2013, the shares of Conart Traders Limited were converted from physical form to DMAT form and were credited to the DMAT account of the Assessee maintained with Federal Bank. 25.3 On 22/03/2013, the Hon‟ble Bombay High Court approved the scheme of Amalgamation of Santoshima Trad....
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....or penny stock scripts other than Sunrise Asian. The only link between Sunrise Asian and Confort Group seems to be that one of the companies of Comfort Group (i.e. Comfort Securities Ltd.) acted as a Broker facilitating bogus LTCG trades. However, for the Assessee, ITI Financial Services Limited was the broker. Therefore, the sale transactions undertaken by the Assessee cannot be said to have any link with Comfort Securities Ltd. We note that in reply to question no. 26, Mr. Vipul Vidur Bhatt had stated that he will furnish a list on beneficiaries within 10 days. However, no reference to such list has been made in the Assessment Order. It is also not the case of the Revenue that the name of the Assessee finds mention in the list of 83 connected entities/persons identified by SEBI as having acted in concert with Sunrise Asian and its directors to manipulate the price in paragraph 7.31 of SEBI Order. It is pertinent to note that SEBI has not taken any action against the beneficiaries and has penalized the persons acting in concert being the Syndicate Members which includes the promoters/directors/key persons of listed companies and brokers/sub-brokers registered with SEBI. 2....
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.... in single script. 25.10 We note that in paragraph 5.0 (vii) of the order impugned, the CIT(A) has stated that the Appellant being very new to trading in penny stock and the earning of such huge income by a person not known to such type of trading is against human probabilities. This is factually incorrect as the Assessee has been registered as subbroker with SEBI and has been making personal investments since 2007. Further, apart from sale of share of Sunrise Asian, the Assessee had also sold share of other companies during the same period and earned a substantial return which have been accepted by the Revenue as genuine. The detail of the aforesaid sale transactions are as under: Name of Shares Quantity Profit % Gains on Cost Bayer Cropscience Ltd 750 10,60,394 641.21% Natco Pharma Ltd. 600 8,08,972 366.88% 25.11 Further, on perusal of paragraph 7.21 of the SEBI Order, we find that during Patch 2 (01/07/2013 to 07/05/2014) 62 connected entities listed in Table 8 of the SEBI Order had traded amongst themselves. The name of the Assessee does not find any mention in the aforesaid list. Mr. Vipul Vidur Bhatt - the operator of the ....