TaxTMI 
TaxTMI 
TaxTMI 
2024 (10) TMI 1081
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....tailed report from the investigation Wing, the AO has brought out the circumstances of evidence is in the assessment order wherein the AO has detected the abnormal price rise in the penny stock script of should be chemicals and investment Ltd with having strong financial status ii. Whether on the facts and circumstances of the case and in law, the learned CIT (A) erred in allowing the assessee's appeal without appreciating the facts and that in the assessment order the AO has established the facts that the assessee could not explain about the huge long-term capital gain transaction and was also ignorant about the financials of the company in which she invested. 3. Brief facts of the case shows that assessee is an individual, filed her return of income declaring a total income of Rs. 956,480/- on 31/1/2015. The return of income was not picked up for scrutiny. Subsequently after obtaining the prior approval of The Joint Commissioner of Income Tax, range 28 (3), Mumbai on 22/9/2016 notice under section 148 of The Income Tax Act was issued on 22/9/2016. The assessee filed her return of income on 21/6/2017 in response to that notice. As per the request of the assessee, copy of t....
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....year 2014-15, details of which are given below. Serial number Script code Script name Quantity sold Trade account Total of sale value (in rupees) 1 512311 Surabhi Chemicals & I 6,25,000 517 3,68,93,925 Assessee is one of the beneficiaries of the penny share price manipulation and has participated in that this process to avoid tax liability by generation of long-term capital gain and claiming exemption under section 10 (38). In view of the above, it is proposed for approval of your good self for assessing the income of the assessee under section 147 of the income tax act, 1961 by issuing notice under section 148 of the income tax act 1961, if deemed fit." 5. During assessment proceedings, the learned assessing officer issued notice under section 142 (1) of the act and statement on oath of Mrs. Seema Parasmal Soni [ Assessee] and Sri Lalit Shantilal Jain [brother-in-law of the assessee] were recorded under section 131 of the act. The learned assessing officer found that assessee has earned long-term capital gain claimed exempt under section 10 (38) of the act of Rs. 22,652,350/- on sale of shares of Surabhi Chemicals &Investments Limited. Assessee has also....
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....are. Total purchase price of 4000 share his return at Rs. 11,00,000 whereas the assessee has furnished bill of Rs. 10 lakhs. d. He further found that the price of the above company which was having a market price of share of Rs. 0.57 in October 2012 reached at Rs. 81 in March 2014. He gave a pictorial graph of rise in the share price and further has also extracted the day wise trade in the above company. Based on this, he held that it is evident from the chart that how the price was rigged from August 2012 to September 2013 with very few trades and volume to take up the script to the level of the price of that where exit can be provided to the beneficiaries of bogus long-term capital gain. e. He further referred to the increase of share price and held that it does not commensurate with the financial results of that company. According to him that company had net worth between Rs. 150,000,00 to Rs. 32 crores during last five years and company had turnover between Rs Nil to Rs 2.22 crores and employee cost between Rs. 0.04 crore Rs. 0.06 crores. He further noted that the Bombay stock exchanges suspended the trade in the above company from 1/....
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....hemicals & Investments to show that company has changed its name and who are the directors of that company with their DIN. xviii. Computation of long-term capital gain xix. Computation of short-term capital gain 7. The learned assessing officer after considering the explanation of the assessee held that there are exit providers in case of the assessee and her family members. The learned assessing officer noted that however due to paucity of time further enquiries could not be completed and therefore based on the above facts, he held that it is established beyond doubt that the several exit providers entities were working for the whole scheme of providing accommodation entry of exempt long-term capital gain. He further considered several judicial precedents relied upon by the assessee and further relied upon several judicial precedents held that the sale consideration of Rs. 23,652,350/- shown by the assessee and sale consideration received for the sale of above shares is an unexplained cash credit and therefore addition under section 68 of the income tax act was made. He further assumed a commission at the rate of 5% of the long-term capital gain amounting to Rs. 1,1....
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....te limited from whom the share assessee has purchased has been restrained from trading in shares for six months. vii. The call data records obtained from the Mahanagar Telephone Nigam Ltd of the assessee and her relatives show that neither the assessee nor any of his relative had any incoming/outgoing calls made from or to Sarvottam advisory private limited from whom assessee has claimed to have made the purchases of the share and therefore the purchase of share is bogus. viii. The learned CIT-A deleted the addition merely based on the judicial precedents and submission made by the assessee and therefore the order of the learned CIT-A is not sustainable. 12. The learned authorised representative submitted a paper book containing 88 pages. It was submitted that assessee has claimed long-term capital gain exempt under section 10 (38) of the act on sale of shares of Surabhi chemical and investment Ltd. The shares were purchased on 27/3/2012 in quantity of 4000 shares for Rs. 10 lakhs. Further on 23/8/2012 the company issued bonus shares of 36,000 shares and further the shares of the company were split resulting into total acquisition of 4 lakhs shares for a cost of Rs. ....
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...., Demat statement, bank statements, rate publication of Bombay stock exchange, advertisement issued by the seller in newspaper and other documents. Though the assessee had made off market purchase of the shares, but the payment has been made through banking channels and same has not been disputed. Off market purchase of shares is not prohibited. This investment was also disclosed in the balance sheet of the earlier years. The shares were also transferred in the Demat account of the assessee. To the sale the entire sale of shares was made through online mechanism on floor of Bombay stock exchange through/broker M/s LFC securities private limited on making the payment of securities transaction tax, service tax and stem duty et cetera. The shares were also delivered by the assessee through Demat account on sale of the shares. With respect to the statement of the assessee on oath recorded under section 131 of the act it was submitted that assessee has declared the transaction as genuine. He further submitted that the securities and Exchange board of India had not issued any notice to the assessee and has not claimed any adverse charges against the assessee and stockbroker of the assess....
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....e of shares made by the assessee at prevailing market price. Ld AO has not brought any material to show that exit providers do exist in case of the assessee and those are bogus. 15. With respect to the allegation of the learned assessing officer that in response to summons issued under section 131 of the act, assessee could not justify the genuineness of the transaction, he submitted that assessee appeared before the learned assessing officer and categorically confirmed the genuineness of the transaction of purchase and sale of shares and also filed the copies of the contract made, confirmation of stockbroker, purchase bill, payment receipt, share certificate, Demat statement, bank statements, rate publication of Bombay stock exchange and advertisement issued by the seller in the newspaper. He further referred that open offer for buyback of shares and other documents are also submitted before the learned assessing officer. 16. He further submitted that the contention of the learned departmental representative that assessee has purchased the shares at the rate of Rs. 250 per share against the prevailing share price of Rs 2.52 per share is devoid of any merit. He submitted tha....
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....he genuineness of the sale transaction of shares. As the assessing officer could not find any calls received or made to Sarvottam advisory private limited from whom the assessee has purchased shares, incorrectly presumed that the purchase of shares by the assessee is nongenuine. 19. When ld AO has call records of Sarvottam Advisory services Pvt Ltd, that itself proves that that party exist, so issue of notice u/s 133 (6) to that party and its non compliances does not go against the assessee. 20. He further referred to the decision of the honourable jurisdictional High Court and other courts as under: - i. PCIT versus Indravadan Jain HUF (ITA number 454 of 2018) Bombay High Court ii. CIT versus Shyam R Pawar 54 taxmann.com 108 Bombay High Court iii. CIT versus jamnadevi Agarwal 20 taxmann.com 529 Bombay High Court iv. PCIT versus Krishna Devi 126 taxmann.com 80 Delhi High Court v. CIT v Nilesh Jain HUF 163 taxmann.com 229 (MP) vi. PCIT V Ambalal Chimanlal Patel 162 taxmann.com 892 (Gujarat) vii. PCIT versus Kishore Kumar Mohapatra 162 taxmann.com 4 (Orissa) viii. PCIT versus Mahapatra 160 taxmann.com 567 (Orrisa) ix. PCIT versus Renu Agarwal (all about) 153 Taxma....
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....aper book. viii. Subsequently on 23/8/2012 36,000 bonus shares were also credited in the Demat account and further on subdivision of the shares on 13/4/2013 the total 400000 shares were available with the assessee. ix. For the deposit of bonus shares and stock split, the respective corporate action was taken. On 30 July 2012 nine shares for one share held by the assessee was issued at bonus and on 10 April 2013 there was a stock split from the face value of Rs. 10 per share to Rs. 1 per share. Therefore the 40,000 shares after the bonus became 4 lakhs shares available with the assessee. x. These shares were disclosed by the assessee in her balance sheet as at 31st of March 2013 at an investment of Rs. 10 lakhs. xi. The return for assessment year 2013-14 was also filed by the assessee. xii. Subsequently through LFC securities private limited the assessee sold. a) 1,61,500 shares at the rate of Rs. 58.65 per share is on 31 December 2013 resulting into a sale consideration of Rs. 9,464,871 by contract note number 20,512 as per settlement number 1314190. b) Subsequently on 1 January 2014 assessee sold 73,000 shares of the above company at a rate o....
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.... Mr. Lalit Jain who is looking after these affairs Even in response to question number seven &in question number eight she said that she doesn't know about Surabhi chemical and investment Ltd. In the statement of Mr. Lalit Jain in answer to question number eight he submitted that he is doing the share market operation on behalf of the family. He explained that he is doing this activity for the last six-seven years as an investor. In answer to question number 12 also he gave the name of various companies which are held by the family and himself as an investment. With respect to the transaction of Surabhi chemicals and investment Ltd, he submitted that the shares were purchased from Sarvottam Advisory services private limited, transferred in the Demat account of the assessee and thereafter sold and has earned profits. Regarding the decision of purchase of the shares, he submitted that the issue is very old and therefore he is not able to give the name of the person who advised for purchase of the above share. He categorically stated that except Sarvottam advisory services private limited he has not purchased the shares from anybody else. Thereafter the learned assessing officer issue....
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....ade through private placement but was dematerialised and was held in the Demat account for more than 12 months and sale of the share was done through stock exchange and payments were also exchanged by banking mode both for the purchase as well as sales. It was also submitted that each of the purchase and sale of shares was supported by contract notes and hence, the long-term capital gain on was genuine and not bogus. However, the AO did not accept the contention of the appellant and rejected the claim of exemption of long-term capital gain made by the appellant under section 10 (38) of the act and made the addition of the said amount of Rs. 22,652,350/- as unexplained cash credit under section 68 of the act. The AO also made the addition of Rs. 1,182,617/- as commission expense incurred for taking accommodation entry as unexplained expenditure under section 69C of the act. Aggrieved by the said addition, the appellant is in appeal and has raised 04 grounds which are adjudicated as under. 8 Ground number 1 and 2 are relating to rejection of the claim of exemption of long-term capital gain made by the appellant under section 10 (38) of the act and about the addition of t....
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....d not respond to the notices sent by the AO under section 133 (6) of the act. The AO has also given rebuttal of the submissions of the appellant and concluded that the appellant without having any knowledge in shares and securities on such huge appreciation of shares which was to the tune of 2365% of the investment in the company in which the investment was made was not earning any profit but still the stock prices increased which was the result of rigging. 8.2 the AR of the appellant in his written submission dated 28/11/2023 submitted that there are direct judicial decisions of honourable jurisdictional High Court of Bombay and ITA T regarding allowability of long-term capital gain on sale of shares of sewer be chemicals and investment Ltd and similar stocks which were considered as penny stock by the AO. It was submitted that in case of a new spirit Sarkar versus ITO (ITA number 390/M/2020 dated 7/6/21) the long-term capital gain earned on investment made in the scrip of sewer be chemicals and investment Ltd was allowed and the order of the AO and the CIT-A, set-aside. Similar there were two other decisions of ITAT Kolkata in case of Udit Agarwal versus DCIT (ITA number 1839/....
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....se of PCIT versus Rima. No other was (supra) honourable Supreme Court held that when there is no adverse comment from the stock exchange of SEBI with reference to the company who shares were involved in the transactions, such as cannot be called as penny shares and the exemption on capital gains cannot be denied especially quoting the statement of unrelated persons and on the basis of unfounded presumptions. 8.8 in the case of PCIT versus Parasben Kasturchand Kochar, the Gujarat High Court in 130 taxmann.com 176 (Gujarat) held as under: - Xxxxxxx 8.9 I have gone through all these judicial pronouncements which are in favour of the appellant. In all the decisions the judicial view is that if shares are purchased by the appellant for which the appellant provides necessary evidence and the rates at which the sales are purchased and sold are in conformity with the prevailing market rates on the date of purchase/sale, the transaction in question cannot be treated as transactions. If the assessee is able to submit the records of purchase bills, sale beans, Demat statement and discharges the onus of establishing the transaction is to be fair and transparent, the long-term capital ....
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....bsequently Demat. How assessee came to know about the seller who wanted to sell the shares, the assessee submitted the advertisement given by the seller in financial express. Based on the same, the learned assessing officer inquired by looking at the call record of the assessee and his family member and found that no such calls were made to Sarvottam advisory services private limited. When the assessing officer is having the details about the call record of the person who sold the shares to the assessee, wherein the question now remains of failure on the part of the assessee to produce the seller before the assessing officer. In view of such overwhelming evidence of purchase of the shares, we find that existence of the shares in the Demat account of the company cannot be denied or rejected. 29. Now the issue comes with the sales made by the assessee. Undoubtedly the assessee has sold the shares on the electronic exchange platform of Bombay stock exchange through the registered broker. The sale of the shares is time and dated stamp transaction as per the contract notes. The transaction of sale was entered through registered broker. The pay-out has happened on account of settlement ....
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....y was exonerated. 33. Regarding the price of the shares at which assessee purchased those shares are wrongly mentioned at Rs 2.52 per share, the assessee has purchased those shares at the prevailing market price. 34. Several judicial precedents of the honourable High Courts and coordinate benches are relied upon before us, which were not controverted by the learned departmental representative, which were also relied upon before the learned CIT appeal by the assessee, binds us judicially, unless divergent and distinguishing features are pointed out. No such efforts were made before us. 35. Hon. Delhi High Court in the case of Pr. CIT v. Smt Krishna Devi [[2021] 126 taxmann.com 80/279 Taxman 148 (Delhi)] has commented on the scope and applicability of Doctrine of Preponderance of probabilities held that evidence produced by the assessee overpowers the principle of preponderance and observed as follows:- "However, the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent". 36. Even the gr....