AI Drafter 
TaxTMI 
TaxTMI 
2023 (9) TMI 1566
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....t, the assessee is an individual and promoter of Shreepati Group Builders and Developers, who had filed her return of income for A.Y. 2013-14 at Rs. 63,51,310/- on 28/03/2015. Later on assessee's case was reopened u/s. 147 by issuance of notice u/s. 148 dated 19/10/2016, on the ground that information has been received from Directorate of Investigation Wing of Kolkata that assessee availed LTCG by showing investment in penny stock company in the scrip of M/s. Shreenath Commercial & Finance Ltd. which was claimed as exempt by the assessee u/s. 10(38) amounting to Rs. 7,28,88,736/-. The relevant 'reasons' incorporated in the assessment order reads as under:- "An information has been received from the Directorate of Investigation that an organized racket of generating bogus entries of LTCG in penny stock have been unearthed as a result of investigation carried out throughout the country. As a result of this investigation, 64811 beneficiaries who have taken bogus entries of LTCG amounting to Rs 38,000 crores have been identified. Smt. Veena Chaturvedi having PAN ADCPC8995K who is assessed in this circle has also availed of such an entry of Rs 8,29,88,876/ The same is reflected....
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....owing details and submissions which are summarized hereunder:- a. The shares were not acquired through any preferential allotment; b. Impugned shares were purchased and sold online on the Recognized Stock Exchange; c. The payment of purchase was made and consideration for sale was received through banking channels; d. The transaction of sale and purchase of shares was effected through a reputed Registered Broker; e. STT was duly paid on the impugned transactions f. The assessee or her family has no connection of whatsoever nature with the Promoters of the company, Shreenath Commercial and Finance Limited. 6. Besides this, assessee also submitted following evidences in support of the said transaction:- a. Copy of contract note for purchase and sale of shares of the company b. Copy of Demat Account reflecting receipt and transfer of shares of the company c. Extract of ledger account of Share Broker in assessee's books of accounts d. Bank Statement reflecting payment on purchase and receipt of consideration on sale of shares of the company. 7. The ld. AO after detailed discussion has tr....
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....es have seen phenomenal rise and was constantly traded near the circuit limit so as to avail maximum price raise without hitting and triggering the circuit limit. 7.2 Another important point noted by the ld. AO that, certain enquiries were also done in the case of exit providers who had purchased the shares of M/s. Shree Nath Commercial & Finance Ltd from the Chaturvedi family. The details of these six entities have been reproduced in the assessment order and one such company which he has drawn adverse inference is with regard to Moryo Industries Ltd and other entities also and he noted that SEBI vide its Interim Order dated 04/12/2014 in the case of Moryo Industries Ltd has noted that M/s. Moryo group who had been providing funds to the various companies buying the shares from the allottees, related to one Shri Giriraj Kishore Agarwal who was the common promoter of various entities including M/s. Shree Nath Commercial & Finance Ltd. These entities have received funds from M/s. Moryo Industries Ltd in the form of investment on loans and advances and these funds have been transferred with other entities providing exchange to the allottees. One important fact which he has relied u....
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....not governed by market factors prevalent at relevant time in such trade, but same were product of design and mutual connivance on part of assessee and the operators. * Therefore, it is found that the shares of M/s. Shree Nath Commercial & Finance Ltd were used to provide accommodation entry in terms of LTCG to the beneficiaries. 10. The ld. CIT (A) in his very detail order has confirmed the addition by and large incorporating same details and reasoning given by the ld. AO in the assessment order. 11. Before us ld. Counsel, first of all submitted that, this issue is squarely covered by the decision of the Co-ordinate Bench in the case of assessee's husband Shri Rajendra Chaturvedi and M/s. Pallavi Pandey in ITA No.7124 & 7581/Mum/2019. The facts and circumstances of the assessee's case and the said case were identical, which has been stated to be as under:- a. In both the cases the issue under consideration was addition u/s 68 of the Act of sale proceeds of shares of Shreenath Commercial and Finance Limited, by alleging long term capital gain claimed as exempt u/s 10(38) of the Act on sale of said shares as bogus. b. The decision to purchase and sell....
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.... Commercial and Finance Limited. The Ld. A.O. has also observed that the said company had raised funds by way of preferential allotment in two rounds and that the graphs, depict that phenomenal price rise has occurred in the shares of the said company after the date of preferential allotment (Pages 20 through 22 of the Assessment Order). * The Ld. A.O. has further stated that the shares were issued on preferential basis on F-Y. 2010-11 and immediately they were split and prices were rigged from Rs. 25.4/- on 01.04.2011 to approximately Rs. 500/- (Page 21 of the Assessment Order) * On the above basis the Ld. A.O. has alleged that the financials, business profile, trading volume and correlation with SENSEX on the stock exchange, did not justify the increase in the share price of the company and that the share prices were manipulated and rigged by the operators. [Ld. CIT(A)'s findings on this aspect, which are identical to those of Ld. A.O.'s, are contained in para 5.8 to para 5.13 on pages 23 through 29 of Ld. CIT(A)'s Order] Assessee's Submission: * In his statement recorded u/s 131 of the Act on 04.05.2016 during the cour....
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....and 21.01.2013 at average rates of Rs. 86/-, Rs. 81 and Rs. 79 respectively. The shares were sold ONLINE on the Recognised Stock Exchange through reputed registered share broker i.e. RBK Share Broking Limited. (Para 4 on Page 33 of the Assessment Order) * In his statement recorded u/s 131 of the Act, in response to question no. 22, it was also submitted by Shri Rajendra Chaturvedi that the stock of the company was not monitored periodically eithe by him or by his family members, but it was only when funds were required that the price of the scrip was checked and the decision to sell the scrip was taken. (Page 11 to 12 of the Assessment Order) * Accordingly, the assessee's shares of Shreenath Commercial and Finance Limited were sold on 16.01.2013, 18.01.2013 and 21.01.2013 at average rates of Rs. 86/-, Rs. 81 and Rs. 791- respectively through recognised stock exchange at prevailing market prices. The shares of Shreenath Commercial and Finance Limited held by other members of the assessee's family were also sold during a similar period * Therefore, the decision of purchase and sale of shares of Shreenath Commercial and Finance Limited was purely a b....
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....e said company do not support price movement of the impugned shares has no bearing on the assessee. B. Role of alleged exit providers to Chaturvedi family and SEBI Order Ld. A.O.'s Contention * In para 2.3 of the assessment order, the Ld. A.O. has discussed about the role of alleged exit providers for shares of Shreenath Commercial and Finance Limited to the assessee and her family. (Pages 23 through 26 of the Assessment Order) * The Ld. A.O. has produced a table containing six entries with details of alleged exit providers who have mostly purchased shares of Shreenath Commercial and Finance Limited from the Chaturvedi Family (Pages 23 and 24 of the Assessment Order). * The Ld. A.O. has further mentioned an order passed by SEBI on 04.12.2014 in the case of Moryo Industries Limited vide order no. WTM/RKA/140/ISD/2014, one of the six alleged exit providers of the impugned shares for the Chaturvedi family. On the basis of the said order, the Ld. A.O. has endeavoured to depict a nexus between Moryo Industries Limited, Essar India Limited, Rupak Developers Private Limited, Insight Multitrading Private Limited, (4 of the 6 alleged exit pro....
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....k Exchange from 15th January, 2013 to 31 August, 2014. * In the above-mentioned Interim SEBI Order, a tenuous connection was drawn between 91 persons/entities comprising of Moryo Industries Limited, Promoters, Directors and Preferential Allottees of Moryo Industries Limited and alleged entities of Moryo Group and on this basis, the said 91 persons/entities were temporarily restrained from buying, selling or dealing in the securities market (Page 16 through 19 of Interim SEBI Order enclosed with the Assessment Order) * It is appellant's submission that the SEBI Order relied upon by the Ld. A.O., was in respect of scrip of Moryo Industries Limited and had no connection with the scrip of Shreenath Commercial and Finance Limited. The said list of 91 persons/entities do not contain the name of either Shreenath Commerical and Finance Limited or the appellant or any members of her family. the asses 0.2 & 3 * Moreover, the said Interim SEBI Order dated 04.12.2014, has been later revoked vide Final Order dated 21 September, 2017 vide Order No. SEBI/WTM/MPB/EFD-1-DRA-IV/32/2017 by holding that there were no adverse findings against the impugned persons/entities....
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....e scrip of Shreenath Commercial and Finance Limited in connivance with alleged beneficiaries of alleged accommodation entries, including the appellant and members of her family. However, this is merely unfounded conjectures and theories of the Ld. A.O. not backed by any cogent reason or tangible evidence. Therefore, Ld. A.O. had failed to show how the appellant or her family members were involved in the concocted modus operandi of alleged exit providers to obtain alleged accommodation entry. C. Role of share brokers Ld. A.O.'s Contention * In para 2.3 of the assessment order, the Ld. A.O. has discussed about the role of share brokers on whom survey actions were conducted by the DIT, Kolkata and who had allegedly accepted their role in the entire scheme of providing accommodation entry of bogus LTCG (Pages 26 through 32 of the Assessment Order) * The Ld. A.O. had also reproduced the relevant extracts of the statements of 4 share brokers who had stated that they had facilitated various paper/bogus entities to trade in shares of Shreenath Commercial and Finance Limited for providing accommodation entry of bogus LTCG. These statements were provid....
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....kers or any alleged activity of the 4 alleged share brokers. Th Ld. A.O. has merely made a weak attempt to link random brokers to the assessee without any cogent proof * Moreover, there is no mention of the assessee or any member of her family in the statements rel upon by the Ld. A.O. None of the brokers have adversely commented about the assessee's family of M/s Shreenath Commercial and Finance Ltd specifically, Therefore, there is no specific material, statement or evidence, wherein the assessee or her family members have been alleged to be involved in any modus operandi of obtaining alleged bogus LTCO. The inferences drawn by the 1. A.O. are on the basis of general statements which is bad in law and has no evidentiary value. D. Enquiries from other alleged exit providers Ld. A.O. Contention * In para 4.10 and para 4.11 of the assessment order, the Ld. A.O. has discussed about enquiries carried out by issuing notices u/s 133(6) of the Act on other alleged exit providers, only a few whom have replied and submitted the requisite details. (Pages 39 through 40 of the Assessment Order) * On verification of financial statements submitte....
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....Factual Report/2022-23), wherein the facts of the assessee's case, enquiries carried out by Ld. A.O. during the course of assessment proceeding by issuing notices u/s 133(6) of the Act to various other alleged exit providers, statement of Mr. Rajendra Chaturvedi (husband of assessee) u/s 131 of the Act, Interim Order of SEBI, dated 04.12.2014, in the case of Moryo Industries Limited were discussed. All these aspects of the case had already been detailed in the impugned assessment order and the assessee's submissions regarding the same have been explained in part (II) of a assessee's submissions and contentions of this submission. * The above report, the Order of the Coordinate Bench of Hon'ble ITAT, Mumbai, in the case of Rajendra Chaturvedi (husband of assessee) has also been mentioned. The assessee's submissions regarding this have been explained in part (1) of a assessee's submissions and contentions of this submission. * The second report, dated 12.01.2023, (Document ID: No.Addl.CIT/CR-8/Factual Report/ITAT/2022-23) and third report, dated 11.01.2023, (Document ID No. DCIT-CC- 8(2)/Factual Report/VC/2022-23), discuss the same issue i.e.....
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....see. d. Further, there is not a single mention of the said 9 persons in any of the material confronted to the assessee and being relied upon by the Ld. A.O. i.e Interim Order of SEBI dated 04.12.2014 in the case of Moryo Industries Limited, the statements of 4 shares brokers, etc. e. Moreover, there is no allegation or enquiry on the said 9 persons of either being involved in the manipulation or rigging of prices of the impugned shares or being involved in racket of providing alleged accommodation entry of bogus LTCG. f. The Ld. A.O. has merely made a bald statement that the assessee had purchased the impugned shares from the 9 persons without any shred of evidence. g. Without prejudice to the above submissions, even it is accepted that the assessee had purchased the impugned shares from the 9 persons, the Ld. A.O. has not shown as to how this alleged finding of the Ld. A.O. could lead to the conclusion that the assessee is a beneficiary of accommodation entry of bogus LTCG, as there is neither any information nor any evidence of the involvement of the 9 persons in any scheme of providing such accommodation entries. * In para 8 of the se....
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....rom Pages 3 to 4 of Legal Paperbook], as well as the decision of the Hon'ble High Court of Rajasthan in Sumitra Devi 49 Taxmann 37 [Para 11 and 12 from Pages 8 to 9 of Legal Paperbook], which have dealt with the burden of proof on the assessee and the revenue and concluded that without establishing by way of cogent evidence as to how the assessee was in collusion with the alleged operators, transactions on recognised stock exchanges proved with third party documents could not be faulted. c. The said decision calls upon the assess to establish the rationality of a steep rise or fall in the price of shares. Such a rise and fall is a function of a large number of factors over which the assessee neither has control nor is privy to. To expect an assessee to explain the cause for a rise and fall of shares is casting a burden which is virtually impossible to discharge. d. Once the assessee through submission of documents establishes that the transaction is fully supported by third-party evidence, unless the revenue is able to bring on record some document or evidence to establish that the assessee is connected with any wrongdoing/ collusion, the documents submitted c....
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....ily) on 26.08.2020, the notice was given to Shareholders of Proaim Enterprises Limited (formerly Shreenath Commercial and Finance Limited), that 4th September, 2020 is fixed as the Record Date, following the scheme of effectiveness of the Scheme, for the purpose of determining the shares of the company who shall be entitled to receive shares of Banas Finance Limited in lieu of the shares of Proaim Enterprises Limited (formerly Shreenath Commercial and Finance Limited). 15. It was informed that, currently, Banas Finance Limited is listed on the Bombay Stock Exchange with security code 509053, and is actively traded on the said stock exchange. As per the data available on www.besindia.com, as on 02/08/2023, a total deliverable quantity of 56,032 shares of the said scrip, i.e., 'Banas Finance Limited', has been traded on the said date. Accordingly, it was submitted that the shares of are not only listed on the Bombay Stock Exchange but also actively traded. 16. Lastly, with regard to conclusion drawn by the ld. AO and the ld. CIT(A), he has given his submissions in the following manner:- Conclusion of the AO and the ld. CIT(A) Assessee's Submission The financials of....
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....e applied to the assessee without any evidence. Various Exit Providers have confirmed that they have purchased the shares of Shreenath Commercial & Finance Limited to provide entry of bogus LTCG Role of Alleged Exit providers to Chaturvedi Family and SEBI Order' above, which are summarised as under: 1. The shares were purchased and sold ONLINE on Recognised Stock Exchange at prevailing market prices through reputed registered brokers. 2. The 6 alleged exit providers mentioned by the Ld. A.O. are not known the assessee or her family. None of the alleged exit providers have named either the assessee or her any member of her family. 3. The Interim SEBI Order relied upon by the Ld. A.O. is in respect of some other scrip i.e. Moryo Industries Limited and not in respect of the scrip under consideration. 4. There is no mention of the assessee or her family in the said Interim SEBI Order. 5. The Interim SEBI Order relied upon the Ld. A.O. has been revoked. 6. Even any wrong doing by the alleged exit providers on the shares of Shreenath Commercial and Finance Limited has no bearing on the assessee as the Ld. A.O. has not provided any corroborative evidence in the....
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....isputed fact that assessee has purchased 4,97,500 shares of Shreenath Commercial and Finance Limited from 10/03/2011 to 11/03/2011 in the open market on the Online Trading Portal of the Stock Exchange through registered Broker, RBK Share Broking Limited. One important fact to be noted here that in so far as RBK Share Broking Ltd. is concerned, nothing adverse has been found nor there is an enquiry that the said broker has provided any kind of accommodation entry or was involved in any such dubious transaction. On 22/03/2011 bonus shares were issued at the ratio of 1:1 and accordingly, assessee had held that 9,95,000 shares were sold after almost 2 years from 16/01/2013 to 21/01/2013 for sums aggregating to Rs. 8,29,88,876/-, on which assessee had earned a long-term capital gain of Rs. 7,29,88,736/- which claimed as exempt. Apart from that, all the documentary evidences in the form of contract note for purchase and sale of shares; copy of Demat Account reflecting receipt and transfer of shares; ledger account of Share Broker in assessee's books of accounts and bank statement reflecting payment on purchase and receipt of consideration on sale of shares were filed. We have already....
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.... on the dealings in the scrip of Moryo Industries Limited on noticing huge rise in the traded volumes and price of the said scrip on the Bombay Stock Exchange from 15/01/2013 to 31/08/2014. In the said interim order, a tenuous connection was drawn between 91 persons/entities comprising of Moryo Industries Limited, Promoters, Directors and Preferential Allottees and they were temporarily restrained from buying, selling or dealing in the securities market. The said SEBI order is only in respect of scrip of Moryo Industries Ltd. and nowhere there is any whisper or mention about the scrip of M/s. Shreenath Commercial & Finance Ltd.; nor in the said list of 91 persons/entities, contain the name of either Shreenath Commercial and Finance Limited or the assessee or family members. Thus, per se, the said interim SEBI order does not impinge upon the assessee or the transaction of the scrip of Shreenath Commercial and Finance Limited in the Bombay stock exchange. Moreover, one very important fact which was brought on record before the authorities below that SEBI vide final order dated 21/09/2017 had revoked the earlier interim order dated 04/12/2014 by categorically holding that there are no....
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....no way they were connected to the assessee nor assessee has dealt with them nor is assessee's name figuring anywhere. The assessee had made transaction of purchase and sale of shares through RBK Share Broking Limited against which there is no such enquiry or information that this broking entity was involved in any kind of accommodation entry. Although these brokers have given the list of various scrips in which they have done the trading in shares for providing accommodation entry and one of the scrip mentioned was M/s. Shreenath Commercial & Finance Ltd. As per the statement of Shri Ritesh Jain, it was also alleged that M/s. Manu Stock Broking is a broking house for some of the exit providers related to sale of shares by Chaturvedi Family, however, in his statement there is no mention about the scrip and M/s. Shreenath Commercial & Finance Ltd. The said statement is part of the assessment order and nowhere in the said statement there is any whisper about the said credit or assessee or her family. When his statement was confronted to Mr. Rajendra Chaturvedi, then also in his statement he has not admitted that he had any connection with any of the four alleged share brokers nor ther....
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....y. We note that these shares were purchased through recognised stock exchange through registered broker and were credited in the D-mat account of the assessee. Similarly, the bonus shares were also credited in the said D-mat account held by the assessee. All these purchases of shares were supported by the contract notes issued by the authorised brokers of the stock exchange and the payments were made through banking channels. Thereafter, the assessee sold these shares during the period commencing on 23.08.2012 to 08.02.2013 for a total consideration of Rs 41,48,39,241/- and was received through banking channel thereby making a longterm capital gain of Rs 35,44,38,501/- which was claimed as exempt under section 10(38) of the Act as long term capital gain on sale of shares. We notice that all these transactions were carried out on a recognised stock exchange by the assessee through registered brokers duly evidenced by the contract notes and entries in the D-mat account and the sale and purchase consideration reached through banking channels. The AO has also only relied on the Investigation carried out by the Investigation wing, Kolkata and Mumbal that assessee is a beneficiary of the....