TaxTMI 
TaxTMI 
2023 (9) TMI 1566
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....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 in the return of Income for AY 2013-14 by way of cla....
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.... 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 treated the entire long term capital gain of Rs. 8,29,88,876/- as bogus and added u/s. 68. First of all, he has referred to the information receive....
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.... 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 upon and gathered those information, rather his observations are flowing from the Interim order dated 04/12/2014 of the SEBI, who has banned these exi....
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....hree 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 the shares was taken by Mr. Rajendra Chaturvedi, husband of the assessee, on behalf of all the members of his family. c. The shares held by the Chaturvedi Family were purchased during March, 2011 and sold during period beginning from August....
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....gh 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 course of impugned assessment proceedings, Shri Rajendra Chaturvedi, husband of the appellant, in response to question no. 10 had stated that he had some knowledge about trading of shares and that he handled the trading/investment in shares/securities on behalf of his family members, including his wife, the appellant, as they have no knowledge ....
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....i 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 business decision for assessee and her family, based on factors such as price movement of the scrip, low risk involved, market information, etc, and not only on the basis of the financial performance of the said company * Moreover, nowhere in his statement recorded u/s 131 of the Act, has Shri Rajendra Chaturvedi ever admitted to being involved in any alleged racket of rigging or manipulation of price....
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....ent 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 providers of the impugned shares for the Chaturvedi family) and Shreenath Commercial and Finance Limited, as all the concerns allegedly have a common promoter i.e. Mr. Giriraj Kishore Agarwal (Page 25 of the Assessment Order) * The Ld. A.O. had reiterated that on verification of trading details of the scrip M/s Shreenath Commercial and Finance Limited, it is seen that the 6 alleged exit providers (refer table on page 23 of the Assessment Order) have purchased sha....
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....ent 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 with respect to their role in the price manipulation in the scrip of Moryo Industries Limited. [Pages 180 through 189 of the Legal Paperbook (Part 2)] * In this regard, it is the appellant's submission that the impugned assessment order was passed on 24.11.2017 i.e. after the above mentioned Final SEBI Order was passed on 21.09.2017 revoking the Interim SEBI Order on which the Ld. A.O. had placed reliance. However, the Ld. A.O. conveniently chose to ignore the same. * Further, there has been no enquiry either by the SEB....
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.... 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 provided to the assessee and also confronted to her husband Mr. Rajendra Chaturvedi * The Ld. A.O. further stated that as per the statement of one Mr. Ritesh Jain, it is 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 (Page 30 of the Assessment Order). [Ld. CIT(A)'s findings on this aspect, which are identical to those of Ld. A.O.'s, are contained in para 5.21 on pages 34 through 40 of Ld. CIT(A)'s Order] Assessee's Submission: * The assessee submits that the 4 alleged share brokers wh....
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....s 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 submitted by a few of the other alleged exit providers, the Ld. A.O. concluded that they have offered meagre income for taxation, have no substantial fixed or current assets, do not have a major employee base, and accordingly, these are paper/bogus entities which are not doing any real business and have been used for providing accommodation entries [Ld. CIT(A)'s findings on this aspect, which are identical to those of Ld. A.O.'s, are contained in para 5.25 and para 5.26 on pages 45 through 46 of the Ld. CIT(A)'s Order] Assessee's Submission: * The persons/entities to whom notice u/s 133(6) of the Act were issued are not known to the assessee or members of her family. The assessee h....
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....turvedi (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. which entry provider sold the shares of Shreenath Commercial and Finance Limited to Veena Chaturvedi. Accordingly, in respect of this aspect, the second report is taken as the base for the purpose of this submission. * The second report makes a reference to the hearing conducted on 14.12.2022, wherein the Hon'ble Bench had requested/directed the Ld. DR to submit a factual report based on evidences/documents available with the AO regarding any information called for from the BSE or other Stock Exchange to arrive at the conclusion that the assessee had purchased penny stock from entry providers and sold the same to exit providers to avail the benefit of bogus LTCG. * In para 6 of the second report, names of 9 persons have been reproduced, who have allegedly s....
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.... 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 second report, the Ld. A.O. has made a reference to the decision of the Hon'ble Calcutta High Court in the case of PCIT vs. Swati Bajaj [ITAT/6/2022]. The decision in the said case takes a different view from that of the other High Courts. It casts the onus of proving the genuineness of the transaction on the assessee. However, with utmost repsect it is submitted that the decision in the case of Swati Bajaj should not be followed for the following reasons: a. There are several decisions of the Hon'ble Jurisdictional High Court of Bombay, which are in favour of the assessee in respect of the issue under consideration. It is a well settled position in law that the decision of the Hon'ble Jurisdictional High Court would have higher precedence value than the decision of the Hon'ble Non-Jurisdictional High Court on the Tribunal. Reliance....
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.... 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 cannot be ignored on the basis of suspicion and surmises. c. Reliance is also placed on the decision of Hon'ble ITAT, Mumbai in the case of Nishit Rameshchandra Shah (ITA No. 116/Mum/2022), wherein the decision in the case of Swati Bajaj (supra) has been distinguished. [Page 130 to 137 of the Legal Paperbook (Part 2)] f Without prejudice to the above, reliance is also placed on a very recent decision of Hon'ble Jurisdictional High Court of Bombay in the case of PCIT vs Indravadan Jain, HUF Income Tax Appeal No. 454 of 20181, wherein the deletion of capital gains on alleged penny stock u/s 68 of the Act was upheld by the Hon'ble Jurisdictional High Court. When there are conflicting judgements of various High Courts, the Hon'ble Supreme Court in the case of Vegetable Products 188 ITR 192 (SC), had held that the construction that is favourable to the assessee should ....
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....ted 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 Shreenath Commercial & Finance Ltd were very poor during the period when the shares were purchased by the beneficiaries Assessee not acquainted with Sahrs Market and Price movement of scrip not backed by financial performance' above, which are summarised as under: 1. The shares were purchased in March, 2011 when financial performance of the company was good and profits had increased substantially as compared to previous year. 2. The shares held by the assessee were sold in January, 2013 when there was requirement of funds. The shares held by her family were sold during similar period. 3. The decision to purchase and sell the impugned shares was taken by assessee's husband, on behalf of the entire family, which was a purely business decision, based on factors such as price movement of the scrip, low risk involved, market information, etc. and not only on the basis of the financial performance of ....
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..... 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 form of cash trail or specific statement naming the assessee. SEBI has passed an order where various exit providers were held to be indulged in the dubious activity of manipulating the stock price for giving entries to beneficiaries of LTCG/Trading Loss The whole process of rigging value of shares on the stock market was a prearranged and a managed process for booking accommodation entry of bogus LTCG/STCG in garb of sale proceeds on sale of shares 1. There was no preferential allotment of shares in the assessee's case. 2. The shares were purchased and sold on recognised stock exchange at prevailing market prices through reputed brokers. 3. Payment for purchase and sale were made /received through banking channels 4. The assessee had provided all documentary evidences during course of assessment and appellate proceedings. 5. There has been no enquiry by SEBI or any other agency on the assessee or her family members. 6. The assessee or her....
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....ccount 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 noted the various contentions raised by the Assessing Officer and his observations and the counter submissions made by the assessee before the authorities below as well as before us. From the perusal of the statement of Shri Rajendra Chaturvedi, husband of the assessee, it is noted that, he has stated that he had made investments in more than 50 scrips on behalf of himself and his family members and the investment in the shares of M/s. Shreenath Commercial & Finance Ltd. was made by him only on behalf his wife, the assessee. The average purchase rate of the shares was Rs. 20/- per share and average sale rate was between Rs. 79/- to Rs. 86/- per share. He has also stated that the entire shares of purchases through stock exchange by online through registered broker and the shares were purchased when the financial condition of the said company was good and the profits were substantially increased including the turnover which was in several crores. He has also stated that the assessee nor any of the famil....
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.... 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 adverse findings against the said persons with respect to their role in the price manipulation in the scrip of Moryo Industries Limited. Thus, the entire basis and premise of the ld. AO to draw his adverse inference on the basis of interim SEBI order dated 04/12/2014 has no legs to stand. One of the major contentions of the ld. AO was that in the case of exit providers, SEBI has given an adverse remark and all the observation on preliminary investigation by SEBI has been referred and relied upon the AO, therefore, the inference drawn by the ld. AO about the purchase of the scrips by these entities from the assessee, which has now been found by SEBI in its final order that there was no such manipulation by the these entities. In any case, firstly, the said SEBI order has nothing to do with the scrip of M/s. Shreenath Commercial & Finance Ltd. and secondly, the revocation of this order by the SEBI in its final order dated 21/09/2017 itself demolishes the entire foundation of the AO's inference. 21. Apart....
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....tatement 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 there any mention in the statement of Shri Ritesh Jain. In so far as notices u/s. 133(6) issued by the ld. AO to the exit providers and only few of them had replied. The only conclusion which has been drawn by the ld. AO that they had offered a very meager income and do not have any substance. However, in none of the replies which AO has noted, that they have stated that they had any transaction with the assessee. Further, ld. AO has not provided and how these entities were connected with scrip of M/s. Shreenath Commercial & Finance Ltd. and how they were involved in the alleged modus operandi adopted by the accommodation entry provider for bogus capital gain including the assessee, at least there has to be some primafacie or some mention about the assessee or about the scrip from such enquiry so as to draw some kind of adverse inference. 23. In so far as various reports of the ld. AO and ld. CIT (A) by and large are same and ld. AO has stated that nothing new has been brought on record. Though there are decisi....