TaxTMI 
TaxTMI 
TaxTMI 
2024 (10) TMI 991
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessment was revised by the PCIT, on the ground that the case was selected for complete scrutiny under CASS with one of the reasons being 'Suspicious sale transactions in shares and exempt long term capital gains shown in the return (Penny stock tab in ITS)", and the investigations were conducted by Directorate of Investigation, Kolkatta which unearth an organized racket/syndicate of accommodation entry providers for generating fictitious long term capital gains and its manipulations on a very large scale with respect to many listed companies which included the name of GCM Securities Limited, and the assessee was one of the beneficiary of availing exempt long term capital gains u/s 10(38) to the tune of Rs. 49,65,431/- arising out of manipulations and rigging in the shares of GCM Securities Limited to create exempt bogus long term capital gains for beneficiaries. The statements were recorded by the Kolkatta Investigation wing of the persons involved in manipulation of shares of GCM Securities Limited, wherein its was admitted by accommodation entry operators that shares of GCM Securities Limited were manipulated and artificial bogus accommodation entries were facilitated in the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orm (g) Payment were received as per the settlement cycle of the stock exchange (h) No individual person was ever involved in the process of allotment of shares till sale of shares. All the transactions were digitally done 2.2. Thus the assessee contended during revisionary proceedings that the Assessing Officer made complete enquiry and after verification of the records and evidences submitted by the assessee accepted the transaction as genuine and accepted the returned income. Thus, the assessee contended that there is no question of the assessment order is to be treated as erroneous and prejudicial to the interest of Revenue. However, in the show cause notice for revising the assessment Ld. PCIT relies on the report of Director of Investigation, Kolkata, wherein the share of M/s. GCM Securities Ltd. is held as a penny stock and copy of the report as available with the A.O. at the time of finalization of assessment. But, the Ld. A.O. did not confronted the report to the assessee or the facts surrounding the case as the return of the assessee being put under scrutiny on account of reasons of 'Suspicious sale transactions in shares and exempt long term capital gains shown in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the assessee during the course of assessment proceedings as well as in the Revision proceedings. 4.1 Ld. Counsel drawn our attention to the reply filed by the assessee vide letter dated 24.07.2018 wherein details of shares invested by the assessee, Contract note for buying and selling of shares through stock broker, allotment of GCM Securities Ltd shares under IPO, relevant payments made to bank accounts, etc. which were filed in the Paper Book from Page Nos. 4 to 54 of the Paper Book. Ld. Counsel further drawn our attention to the reply filed by the assessee vide letter dated 03.10.2017 relating to GCM Securities Ltd. shares and Akshar Chem (India) Ltd. shares as follows: "3. GCM Security: The assessee has applied the shares in an IPO of the company and she was allotted 6000 shares @ 20/- per share. The following details are being submitted: (i) Copy of allotment letter dated 04.04.2013 of the registrar M/s. Purva Sharegistry (India) Pvt. Ltd. showing allotment of 6000 shares in IPO. (ii) Copy of HDFC Bank Statements for March 2013 showing payment of Rs. 1,20,000/- being purchase price of 6000 share @ 20/- per share. (iii) Copy of demat statement from HDFC Bank Ltd. s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e. However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs. 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating: "Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s. Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs. 19,39,60,866/-, is directed to be deleted....
X X X X Extracts X X X X
X X X X Extracts X X X X
....various details has taken a decision which is one of the plausible view taken by him. Therefore without affording the Investigation Report to the assessee, there cannot be any disallowance on this count. Further Ld. PCIT has also relied upon the Investigation Report for making a disallowance u/s. 10(38) of the Act, without furnishing copy to the assessee. Thus the Revisions proceedings initiated is liable to be quashed. 6. Per contra, Ld. CIT-DR Shri H. Phani Raju appearing for the Revenue supported the order passed by the PCIT and requested to uphold the same. Further the Ld. Assessing Officer has not made proper enquiry of the submissions filed by the assessee and simply accepted the claim of exemption u/s. 10(38) of the Act especially in the context of judgment of the Calcutta High Court in the case of Swati Bajaj. Thus the assessment order passed by the Assessing Officer is an erroneous order and prejudicial to the interest of Revenue having not made necessary enquiry about the investment by the assessee in penny stock. 7. We have given our thoughtful consideration and perused the materials available on record. We have observed from the SCN issued by ld. PCIT u/s 263 and the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ta, without considering the report of the investigation wing, Kolkatta, statement of accommodation entry providers accepting that the prices of GCM Securities were manipulated to generate bogus long term capital gains exempt u/s 10(38), not considering the fact that the said company GCM Securities Limited does not have or have meager assets and such an astronomical price rise in its shares is not supported by financials and fundamental of the company, and rather AO just made superficial enquiry by calling the paper trail such as bank statement, contracts notes etc. which is not sufficient in such cases as the Revenue has brought on record incriminating material and onus has once again shifted to the assessee to substantiate its claim that the long term capital gains claimed as exempt are genuine. We have observed from the perusal of the assessment order as well the enquiries conducted by the AO, that the AO never confronted the assessee about the investigations conducted by the Directorate of Investigation, Kolkatta. The AO even did not refer to the assessee about the unearthing of a racket/syndicate by accommodation entry providers in manipulating/rigging the share price of GCM Se....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee through approved brokers is also placed at Page No. 27 of the Paper Book. The Ld. A.O. while framing the assessment considered the above details and thereby passed the assessment order accepting the returned income. During the Revision proceedings, Ld. PCIT also relied upon the Report of Investigation Wing, Kolkata that M/s. GCM Securities Ltd. as a penny stock scrip and the A.O. failed to verify the details. However on specific request made by the assessee, Ld. PCIT has not furnished the same on the ground that it has a confidential document having information about numerous tax-payers and their financial transaction. Without furnishing such a third party document/report to the assessee and invocation of Revision proceedings is not correct in law. 9. 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 docum....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... laid down by the Apex Court, there was nothing wrong in the Revenue's doubt about the genuineness of the transaction, considering the volatile fluctuation in share price of GCM Securities Ltd. 11. It is difficult to get direct information or evidence in respect of manipulative activities of price rigging and accommodation entry which happens with prior meeting of minds between the beneficiary and the stock broker. It was held by the Hon'ble Calcutta High Court in the case of PCIT vs. Swati Bajaj (supra) that a holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, we cannot lose 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. To reproduce from the said order: "69. Thus, the legal principle which can be culled out from the above decision is that to prove the allegations, against the assessee, can be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled and when direct evidence is not av....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tle over a year. The Income-tax department 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 assessee's 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 for several reasons which we have set out in the proceedings paragraphs. To reiterate, the assessee we not named in the report and when the assessee makes the claim for exemption the onus of proof is on the assessee to prove the genuinity. Unfortunately, the assessee's have been harping upon the transactions done by them and by relying upon the documents in their hands to contend that the transactions done were genuine. Unfortunately, the test of genu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cases the burden is heavy as the facts establish that the shares which were traded by the assessee's had phenomenal and fanciful rise in price in a short span of time and more importantly after a period of 17 to 22 months, thereafter has been a steep fall which has led to huge claims of STCL. Therefore, unless and until the assessee discharges such burden of proof, the addition made by the assessing officer cannot be faulted. 76. It was argued that unless there are foundational facts, circumstantial evidence cannot be relied on. This argument does not merit acceptance as wealth of information and facts were on record which is the outcome of the investigation on the companies, stock brokers, entry operators etc. Based on those foundational facts the department has adopted the concept of "working backward" leading to the assessee's. While at that relevant stage the sounding circumstances, the normal human conduct of a prudent investor, the probabilities that may spill over, were all taken into consideration to negative the claim for exception made by the assessee. Therefore, the department was fully justified in taking note of the prevailing circumstances to decide against the ass....