TaxTMI 
TaxTMI 
2024 (8) TMI 866
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....oker at Rs. 8,10,053.00. 3. The appellant craves leave to add, alter, amend or delete any grounds either before or in the course of hearing of appeal. 3. The brief facts are that assessee is an individual deriving income from salary, house property, and also during the relevant assessment year she has also declared long term capital gains from sale of shares. The return of income for the A.Y. 2014-15 was filed on 16/07/2014 declaring total income of Rs. 8,52,990/- In the return of income assessee has claimed long term capital gain of Rs. 2,58,25,245/- which was claimed as exempt u/s. 10(38) of the Act from sale of shares of Sunrise Asian Ltd. The assessee in the calendar year 2011 had purchased 55,000 shares of M/s Conart Traders Ltd. from Santoshima Tradelinks Ltd. on 27/11/2011 for Rs. 11,00,000/-. The payment of Rs. 11,00,000/- was made through account payee cheque drawn on Tamilnadu Mercantile Bank Ltd. The assessee received debit note on 28/11/2011 from M/s. Santoshima Tradelinks Ltd of Rs. 11,00,000/- and the said shares were de-materialized on 22/01/2012. Under the scheme of amalgamation entered into between Santoshima Tradelinks Ltd., and Conart Traders Ltd, the....
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.... are only two employees in the office including one peon and there was only one old computer kept in the office. No books of accounts were kept and maintained in that office. Thus, it appeared that this company had an office at Mumbai which was maintained for receiving letters and mails. Accordingly, he deduced that Sunrise Asian Ltd. is bogus / paper company and Shri Vipul Vidur Bhatt is operator of the company. 5. Later on, the investigation wing of the department from the search conducted u/s 132(1) found that, Shri Vipul Vidhur Bhatt is an established entry operator who is involved in the activity / business of providing bogus accommodation entries to the various beneficiaries for commission from the scrips of Sunrise Asian Ltd. He controlled, managed and operated as many as 347 bogus entities including Sunrise Asian Ltd. for providing various bogus accommodation entries to the various beneficiaries. In the course of search taken in his case, statement was recorded u/s. 132(4) on 09/02/2016 wherein Shri Vipul Vidur Bhatt had accepted that he is involved in providing bogus accommodation entries of the following natures- (i) Bogus Long Term Capital Gain / Short Term C....
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....he amalgamation of two companies with Sunrise Asian Limited viz (1) M/s Santoshima Tradelink Limited and (1) Conart Traders limited Thereafter the beneficiaries of bogus LTCG accommodation entries were allotted shares of (1) Santoshima Tradelink Limited (Formerly known as M/s Santoshima Lease Finance and Investment (India) Limited) and (ii) M/s Conart Traders Limited on preferential basis and thereafter share holders of these companies were allotted shares of M/s Sunrise Asian Limited in swap ratio of 11 Once this amalgamation was done the price of the shares of M/s Sunrise Asian Limited was rigged and increased through circular trading Once the price of the shares was increased to a desired level the beneficiaries of bogus LTCG were asked to sell the shares of M/s Sunrise Asian Limited For doing the same unaccounted cash was taken from the routed into the accounts of some beneficiaries and the same was companies/firms/individuals managed and controlled by me and thereafter the routed funds were used to purchase the shares of M/s Sunrise Asian Limited held by the beneficiaries of bogus LTCG Q:26 Please give the list of the entities for whom accommodation entry of bogus LTC....
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....Hiren Shah and Shi Jitendra Joshi. Q.32 Please explain what happened after the shares were allotted to the beneficiaries of LTCG Ans. Sir some of the beneficiaries were allotted the shares of Sunrise Asian Limited itself in 2011-12 and the others were allotted the shares of Santoshima Tradelink Limited M/s Santoshima Lease Finance and Investment (India) Limited) and M/s. Conart Traders Limited The suspension in the trading was revoked in August 2011 Thereafter, since October, 2012 the price of the shares of Sunrise Asian Limited started rising This price rise in the shares of Sunrise Asian Limited was managed by Shri Hiren Shah. He used to purchase/sell the shares of Sunrise Asian Limited through the entities maintained and controlled by him The price was rigged through circular trading whereby the entities of Hiren Shah used to place the purchase order and then one of our entities used to sell the shares. The purchase orders were usually put near the circuit limit so as to gain maximum price rise in a day Sometimes the outside parties used to place purchase orders early in the morning and we used to release 10-15 shares during the day to those outside parties to ....
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....he shares for more than one year Q.38 What is the need for providing artificial volume and which are the shares in which such activity has been done by you? Ans Sir, the artificial volume helps in giving a legal face to the trades done in a penny stock By creating artificial volume it is shown that the shares are widely traded whereas in realty there are no genuine traders in the shares. I did volumes in Sunrise Asian limited and have also in some other shares. Q.54 Please inform, have you earned any commission income for the accommodation entries arranged by you? Ans Sir for the entries of unsecured loans I received a cash commission at the rate of 1% of the quantum of entry In the case of LTCG the cash commission was around 4% of the amount of the LTCG entry. This cash commission of 4% was distributed equally between myself, Hiren Shah and Jitendra Joshi. 7. AO further noted that the price of share of Sunrise Asian Limited sky rocketed without having any profit, EBIDTA margin, EPS, bonus, dividend etc. Despite none of the essential parameters for increase of price, the share price of Sunrise Asian Limited increased more than 100 times. There....
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....o Rs. 419.75 and it further escalated to Rs. 596.25/-. Such rise in share price of Sunrise Asian Ltd. was not in consonance with the financials of the company. He further noted that though in the statement u/s. 132(4) recorded by the Investigation Wing Shri Vipul Vidur Bhatt has confirmed his role in providing bogus long term capital gains as entry / exit provider by floating entry / exit provider companies. However, later on, he retracted from his statement by simple affidavit without any evidences. He has referred to certain decisions that such kind of retraction by way of an affidavit cannot be relied upon and has no sanctity. He also referred to search carried out by SEBI and inquiry wherein it was found that there was a manipulation of share price in the scrip of Sunrise Asian Ltd for the period 16/10/2012 to 30/09/2015 and with such observation, violations of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 were committed by certain entities. He also referred to certain modus operandi as an Investigation Wing and also other judgments in his order including Judgment of Hon'ble Delhi High Court in the case....
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....the authorities regulating the stock exchange. Thirdly, genuineness of transactions on the ground of market price cannot be disregarded without establishing the direct involvement of the appellant and involvement of unaccounted income and cash of the appellant. Kindly note that no inquiry of any nature was conducted by the AO. The company had net worth of Rs. 46 crores and the total assets of about Rs. 166.38 crores and a turnover of Rs. 26 crores, a credibility that could not be ignored. There was substantial rise in the top line and also the profits of the company Sunrise Asian Limited. 3. The step of acquiring stake in a Public Limited company incurring loss, merger of three entities, substantial increase in share capital of listed company & convenient share allotment at the time of merger are the circumstantial evidences that the operators/promoters are determined to benefit the beneficiaries by arranging LTCG. (Pg. 38 of PB-Para 3.13 of Order) The entire scheme of amalgamation was approved by the High Court on satisfaction of the genuineness of amalgamation. The scheme was approved by the High Court only after consent of th....
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....ord to support his wild allegation. Allegations of conversion unaccounted income into exempted income is made without bringing on record of any proofs to establish that the appellant had or was in possession of such income and had a source for such income and that such alleged income was used in financing the share transactions resulting into tax free Long Term Capital Gains. No inquiry whatsoever was made by AO/CIT(A) to supported there wildest assumption. 8. This entire edifice through which the assessee claimed to have earned huge tax exempt gains within a very short period of span of time fails both genuineness and human probabilities. (Pg. 48 of PB - Para 10.4 of Order) The appellant has had the shares for almost three years which surely was not a short period. The prices have moved over a period of 2 years and the rise of the prices was commensurate with the progress of the company from net worth of 1 crore to 45 crores. Appellant has brought on record overwhelming evidence in support of the genuineness of the transaction and the intentions of the investment behind the transactions and its monitoring by the appellant. Ther....
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....orth of the company rose from about 1 crore rupees to 45 crores. • So there was a forty-five fold increase in net worth and the price of the share has multiplied for about 20 times only. Appellant has brought on record overwhelming evidence in support of the genuineness of the transaction by producing 10 evidences one of which disputed by AO/CIT(A) (Page 54 to 258, 329, 337 to 339, 349 to 359, 388 to 390 of the PB) and (Page 14 & 15 of Factsheet) and the intentions of the investment behind the transactions and its monitoring by the appellant. There was no failure on any count of the appellant. The failure if any was squarely that of the Ld. AO. Extensive investigation was carried out by the Income-tax Department in the cases of key players such as brokers, operators, directors of company and found that price of shares of M/s Sunrise Asian Ltd were manipulated only with the intention of giving benefit of high LTCG without paying any tax to the beneficiaries, including the appellant. (Pg. 315 of PB - Para 4.3.8, pg 18 of Order) None of the above facts were revealed to the appellant nor the appellant was confronted with the alleged statement and....
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....to the earnings and business of the company. The fact of purchase was duly declared in the balance sheet filed with return of income for earlier years. Further, when assessee was allotted shares of Sunrise Asian Ltd post amalgamation, it was a listed company of the Bombay Stock Exchange and sold all the shares through recognised stock exchange electronically on payment of STT and other charges through registered broker. Thus, the credit appeared in the books of accounts were on account of sale of shares only. He further submitted that, in the statement of Shri Vipul Vidur Bhatt, nowhere the name of the assessee is mentioned nor anywhere it has been found that share transactions were not genuine. He has nowhere alleged of any bogus transaction with the assessee. Even the SEBI has not proceeded against assessee or her broker nor have they been charged or fined by the SEBI. Further, no material belonging to assessee was found in the course of search of Shri Vipul Vidhur Bhatt. He further submitted that the assessee at any point of time before passing of ld. AO was ever informed nor was asked to show cause about the statement of Shri Vipul Vidhur Bhatt, neither assessee was given any o....
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....ellant also submits that the AO had failed to examine a) Santoshima Tradelink Ltd (Santoshima), b) Registered Brokers, c) their AO, d) their bankers e) Depositories (DP) and f) Others before disbelieving the evidences furnished by them and the facts stated by the appellant. • Your honour's kind attention is drawn to the following decisions wherein it had been held that assessment made without furnishing the material used against the assessee must be quashed. It was held that the assessee must be furnished with the copies of such material and should be given an opportunity to explain his case and rebut the findings of the Income Tax Department. In P. Shreelekha Bannerjee, 49 ITR 112 (SC), the court held that the enquiry must be conducted in accordance with the rules of natural justice and all the material for and against the assessee must be shown to him and an opportunity must be given to him to rebutt the findings and to present his case. The Madras High Court in V. Datchinanurthy and another, 149 ITR 341 confirmed the above findings. Please also see the decision in the case of Dilipkumar Kalicharan, 52 ITD 310 and Colonisers, 41 ITD 57 (Hyd)(SB). Please see the d....
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....ee towards the sale of 55000 shares of M/S. CONART TRADERS LID & Rs. 20 per share (Pg. 339 of PB) • The copy of the statement of A/c of Tamilnad Mercantile Bank Ltd. recording the payment of Rs. 11,00,000.00 to M/s. Santoshima Trade Link Ltd by payee's A/c cheque on 07.09.2011. (Pg. 330 to 334 of PB) • An application dated 27.11.2011 for Share Transfer in the name of the assessee. (Pg. 420 to 423 of PB) • Copy of the Share Certificate No. 426 recording the transfer of shares in the name of the assessee on the back side. (Pg. 337 to 338 of PB) • The copy of Acknowledgment issued by TMB Demat services of receipt of 55000 shares to be dematerialized in the name of the assessee. (Pg. 340 of PB) • Copy of the Statement of Account of the assessee under DP ID 303069 showing the demat of 55000 shares of Conart Traders Ltd on 23.02.2013 which were transferred on 28.06.2013 under Sunrise Asian Ltd in pursuance of scheme Amalgamation. (Pg. 388 to 389 of FB) • Copy of statement of A/c of Tamilnad Mercantile Bank Ltd disclosing the transfer of 55000 shares in the name of the CM Karvy Stock Broking Ltd a registered....
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....eted by the Tribunal. Thereafter, he has reiterated his submissions in various forms regarding prices of the shares, dematerialization, transaction done through recognised stock exchange and addition has been made by the ld. AO merely on presumptions and certain findings of the ld. AO are misleading. His main contention was that no opportunity was afforded to the assessee to produce the material and to cross examine. 15. On the other hand, ld. DR on behalf of the Revenue after referring to various observations of the ld. AO and ld. CIT (A), submitted that here in this case SEBI has passed an order wherein it has found that the share price of Sunrise Asian Limited was manipulated and the trading of said scrip was banned by the SEBI. The copy of adjudication order and the final order passed by SEBI dated 06/09/2021 and 17/06/2022 has been filed before us. Thus, he submitted that now in view of the order of the SEBI wherein all the allegations which have been made by the ld. AO has been found to be correct, then there cannot be any different view to hold that share transaction of sale of shares of Sunrise Asian Ltd is not bogus or it was not part of any rocket of accommodation entr....
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....e entities nor was assessee found recorded as beneficiary. Thus, such order passed by the ld. AO and confirmed by the ld. CIT (A) cannot be sustained. Decision 18. We have heard rival submissions and also perused the relevant finding given in the impugned orders as well as materials referred to before us. Here in this case, the addition has been made on sale of shares of Sunrise Asian Limited which has been claimed as exempt long term capital gain u/s.10(38). 19. The background of the case has already discussed in the foregoing paragraphs. To adjudicate such cases, what is required to be seen is totality of attending facts, circumstances surrounding the transaction undertaken by the assessee right from the stage of purchase to the sale of the shares and persons and entities involved in whole of the transaction and what are the material and information against such persons. It is not necessary that there would be any direct evidence or information against the assessee. A holistic approach has to be examined based on a test of 'preponderance of probabilities' wherein various factors are to be analysed. The factors which are explained and contended by the assessee and the fac....
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....the ld. DR relying upon the order of the ld. AO and ld. CIT(A) are that: • firstly, assessee had purchased shares of unlisted company which did not have any substantial business or any prospect or credentials so as to attract any prudent person to invest or buy the shares; Assessee had purchased the sahres offline and later on when the said company was amalgamated with M/s. Sunrise Asian Ltd., it was merely scheme adopted for giving accommodation entry because M/s. Sunrise Asian Ltd was found to be bogus / paper entry and Shri Vipul Vidur Bhatt was found to operator of the company in the search conducted by the investigation. • Secondly, in the statement recorded of the Director of the company Shri Kalpesh Manahar Jani categorically admitted that he is neither aware of anything nor or affairs of M/s. Sunrise Asian Ltd nor does he have any link with this company. He also admitted that his cousin brother Shri Vipul Vidur Bhatt has used his name and has appointed him as a dummy director. • Thirdly, during the survey action at the registered office of M/s. Sunrise Asian Ltd. at Mumbai it was found that no work was carried out from office and there....
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.... Rs. 2.63 per share and there was hardly any trade volume. Post 2017 there is no such trading and there is no information about this company in the stock exchange. Thus, this company boomed in stock exchange only for a short period of 2011-12 to 2016-17. The prices got escalated from 07/02/2013 when it closed at Rs. 419.75 from Rs. 60/-, which kept on increasing for a period of two years till it reaches 596.25 and then suddenly it started decreasing and reached to its vanishing point. This bell shaped graph itself shows that there is no substance in the company to justify such a huge rise and fall of the shares especially when there are no factors as brought on record as to why the business of the said company were down or share prices felt too meager sum of Rs. 2/- in the year 2017 and later on wiped out from the stock exchange, in the sense there is no trading at all. This factor itself cast a doubt on the credentials of the scrip of M/s. Sunrise Asian Ltd. This further gets corroborated by the inquiry and investigation by SEBI and the order passed, which is discussed herein below. 25. The most important piece of material which has been brought on record before us is that, SEB....
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....s gravely affected the normal price discovery mechanism in the securities market and resulted in the disruption of market equilibrium and integrity. 7.11 In cases of market manipulation, where direct evidence may not be available, transactions as Indicated above are to be tested for any manipulative intent on the basis of conduct of parties and abnormality of practices. In other words, the requirement is for proving that in a factual matrix, preponderance of probabilities indicate a fraud. In this regard, the observations of Hon'ble Supreme Court of India in SEBI vs. Kishore R. Ajmera (2016) 6 SCC 368 - Judgment dated February 23, 2016, are referred to, wherein it had observed: "It is a fundamental principle of law that proof of an allegation levelled against a person may be in the form of direct substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled. While direct evidence is a more certain basis to come to a conclusion, yet, in the absence thereof the Courts cannot be helpless. It is the judicial duty....
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....nnected entities by trading amongst themselves and also the reasoning brought out at paragraphs 7.10-7.13, it is concluded that connected entities listed in the above Table manipulated the price of the scrip by contributing to the price rise and have violated Regulations 3(a)-(d) and Regulations 4(1), 4(2)(a), (e) of PFUTP Regulations, 2003. 7.31 In the instant proceedings, I find that Noticee nos. 1-6 1.e. Sunrise Asian and its Directors, had devised an arrangement whereby 83 connected entities (Noticee nos. 7-89) had manipulated the price of the scrip in four patches of trading during the Investigation period (see also Table III), thereby violating Regulations 3(a)-(d) read with Regulation 4(1) of the PFUTP Regulations, 2003. Further, as stated above, 77 out of the aforementioned 83 connected entities were counterparties to the sale of shares by 1059 entities/allottees at the artificially inflated/manipulated price thereby violating Regulations 3(a)-(d) read with Regulation 4(1), Regulations 4(2)(a) and (e) of the PFUTP Regulations, 2003. It is also noted that during the Financial Years 2013, 2014 and 2015, Sunrise Asian had registered a profit of only Rs. 0.27 Crore, Rs....
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....rately under the provision of Section 15(h) of SEBI Act on all noticees. 28. Now, in light of the fact that an independent agency like SEBI has found that the transaction of M/s. Sunrise Asian Ltd., was manipulative and rigging of the prices by certain entities which included Shri Vipul Vidur Bhatt also and his entities which was controlled by him through which he has provided accommodation entry. This factor alone substantiates and corroborates the initial investigation in the case of Shri Vipul Vidur Bhatt wherein he has admitted that he was providing accommodation entry and has explained the entire modus operandi. Though later on he has refracted his statement by way of an affidavit and assessee's objection was that since he was not allowed to be cross examined, therefore, his statement cannot be relied upon. In such cases, the statement alone is not edifice for making the addition but catena of various factors and circumstances surrounding the transaction as such needs to be taken into account. If the SEBI itself after considering the entire facts and materials on record and investigation and even the submissions of the various persons and entities have found that these pers....
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....ed in purchase and sale of shares acting as exit providers were also rigging all the prices. Thus, without there any cross examination also it cannot be held that Shri Vipul Vidur Bhatt was not involved or his conduct later on found by agencies should be ignored simply because assessee was not allowed cross examination. As stated above, his statement alone is not the entire basis for the addition but there are other catena of factors and circumstances as discussed above including abnormal rise of the price and later on subject to ban by SEBI on this scrip and also later no trading of the shares took place as the price failed to such a low, that post 2017 there has been no trading at all. 30. Even though SEBI has adjudicated this issue post passing of the ld. CIT (A) order, however, now it has been brought on record that the entire trading of the shares in the stock market was only a fraud to provide accommodation entries by these persons to the parties who had approach them to provide accommodation entry. This factor is crucial to induct the assessee also that it is not a simple purchase and sale of shares in a bonafide manner in the open market. Even though, there cannot be any....
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....y them. In all the assessment orders, substantial portion of the investigation report has been noted in full. A careful reading of the same would show that the assessee has not been named in the report. If such be the case, unless and until the assessee shows and proves that she/he was prejudiced on account of such report/statement mere mentioning that non-furnishing of the report or non-availability of the person for cross examination cannot vitiate the proceedings. The assessees have miserably failed to prove the test of prejudice or that the test of fair hearing has not been satisfied in their individual cases. In all the cases, the assessees have been issued notices under sections 143(2) and 142(1) they have been directed to furnish the documents, the assessee have complied with the directions, appeared before the Assessing Officer and in many cases represented by Advocates/Chartered Accountants, elaborate legal submissions have been made both oral and in writing and thereafter the assessments have been completed. Nothing prevented the assessee from mentioning that unless and until the report is furnished and the statements are provided, they would not in a position to take par....
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....ant factors. Therefore, the methodology adopted by the revenue cannot be faulted. [Para 69] • A holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, the court cannot loose sight of the fact that the shares of very little known companies with in-significant business had a steep rise in the share prices within the period of little over a year. The revenue was not privy to such peculiar trading activities as they appear to have been done through the various stock exchanges and it is only when the assessees made claim for a LTCG/STCL, the investigation commenced. As pointed out the investigation did not commence from the assessee but had commenced from the companies and the persons who were involved in the trading of the shares of these companies which are all classified as penny stocks companies. Therefore, the argument of the assessee that the copy of the investigation report has not been furnished, the persons from whom statements have been recorded have not been produced for cross examination are all contention which has to necessarily fail. To reiterate, the assessee was not named in the report ....