AI Drafter 
TaxTMI 
TaxTMI 
2024 (10) TMI 1081
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the fact that in this case after receiving a detailed 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....action in penny stock during financial year 2013-14 relevant to assessment 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as purchased one 26/3/2012, 4000 shares of this company from Sarvottam advisory private limited at the rate of Rs. 250 per share. 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 bet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ii. Copy of confirmation of the broker xiv. Receipt of sale consideration through broker by cheques xv. DE mat account where from the shares are transferred. xvi. Bhav Copy to show that shares traded are at market rate. xvii. Master data of Surabhi Chemicals & 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. 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot justify the genuineness of the transaction. v. The assessee had purchased the shares at the rate of Rs. 250 per share against the prevailing price of Rs. 2.52 per share and therefore this itself shows that that transaction of the purchase of the share is bogus. vi. The SEBI order dated 27/1/2021 has held that Sarvottam Advisors private 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 gai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....us directors of the company mentioned therein. It was further the claim of the assessee that assessee is engaged in the investment in shares on long-term basis. The assessee to justify the genuineness of the long-term capital gain filed the documentary evidence such as contract notes, confirmation of SEBI registered stockbrokers, purchase bills, payment receipt, share certificate, 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 sal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....exchange. The assessee is not related to any operators/exit providers and none of them have named the assessee, therefore it does not have any control over the trading activities of third party/unrelated person. The entire consideration on sale of shares had been received from the Bombay stock exchange through SEBI registered/broker and the Bombay stock exchange had confirmed the sale 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 furthe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d therefore the purchase of shares is disbelieved, he submitted that the learned assessing officer has obtained the call record of the assessee and her relatives and matched with the telephone numbers of the promoters, accommodation entry providers and exit providers etc, however could not find any direct or indirect link with the non-genuine person/entity and therefore did not disbelieved the 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 jam....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... share certificate that has registered Folio number of 23 having distinctive number of 716651- 720650 4000 shares were issued and transferred in the name of the assessee on 28/06/2012. vi. The physical share certificate produced at page number 18 wherein the transfer details are available at page number 19 of the paper book. vii. These shares were received in the Demat account of the assessee with Axis bank Ltd in the PID number IN 300484 with client ID 15183850 on 5/7/2012. This Demat account is placed at page number 20 of the paper 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncial year 2013-14 relevant to assessment year 2014 - 15 of Surabhi chemicals and investment Ltd selling 6,25,000 shares having the total sale consideration of Rs. 36,893,925. Based on this notice under section 148 of the act was issued to the assessee. During the assessment proceedings the learned assessing officer issued show cause notice to the assessee to explain the above transaction and issued summons under section 131 of the act to the assessee and to the brother-in-law of the assessee. When assessee was questioned in question number 6 about the said transaction, she submitted that the said transactions are made by his brother-in-law 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 himse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g accommodation entry providers for long-term capital gain which involved entry operators, share brokers and money-launderers. Accordingly, the assessment of the assessee was reopened under section 147 of the act after recording reasons and after obtaining approval of the competent authority. The AO has given the details of transaction entered by the appellant, finding of investigation wing and concluded that the script dealt with by the appellant of sewer of the chemicals and investment Ltd was a penny stock which was used in providing accommodation entries to the beneficiaries. The appellant submitted before the AO that the purchase of the shares was made 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 capit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it general involved in steel trading business and not actively engaged in the share trading. Thereafter, the AO has given the details as to how the price of share of sewer be chemical and investment Ltd increased from Rs. 25.52 to Rs. 81.10 without there being any worthwhile profit earning ability of the said company. The AO is also reproduced the statement of the appellant and brother-in-law Mr Lalit Jain in the assessment order. The AO is also given details about the companies who had sold the shares to the appellant and the companies to move the appellant subsequently sold the shares. The said companies either were not present at the given address or did 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 d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icals and investments Ltd went up substantially cannot be the ground for disallowance of exemption under section 10 (38) of the act in absence of any wooden says of naming the appellant by entry providers, evidence of cash payments for getting the entries all the evidence of rigging of prices of shares in question. 8.6 the AR also has relied upon the following decision of the jurisdictional High Court's and Supreme Court's 1. PCIT versus Renu Agarwal 456 ITR 249 (SC) 2. PCIT versus Indravadan Jain HUf 3. DCIT versus Parasben K Kochar 130 taxmann.com 177 (SC) 4. ITO versus Jamnadev Aggarwal 328 ITR 656 (Bom) 5. CIT versus Shyam R Pawar 229 taxman 256 (Bom) 8.7 in the case 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yee cheque which is also credited in the account of sarvottam advisory private limited. Other than that, the learned assessing officer did not make any enquiry with respect to the purchase of the shares. Maybe, the assessee did not produce that party, but purchase of shares was further confirmed when the identical shares were credited in the Demat account of the assessee. Therefore, purchase of shares could not have been doubted. It is also a fact that ld. AO has made the call details of sarvottam advisory services private Limited, thus, party was in existence at that time. With respect to those shares' sale certificate dated 28/6/2012 was also placed before the learned assessing officer wherein the shares were transferred in the name of the assessee and subsequently 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 deta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....coordinate bench in case of Uday Agarwal and Shashi Bala Bajaj have dealt with this issue. The learned CIT-A relied upon those decisions, which could not be found fault with. 31. The learned CIT-A has also relied on the decisions of the honourable Bombay High Court and other high courts wherein on the identical facts and circumstances such additions are deleted. 32. Securities and Exchange board of India has passed an order against Sarvottam advisory private limited from whom the assessee has purchased shares, however the period of investigation was different then the period in which the assessee has purchased the shares from that party. Even in the subsequent order of the SEBI no penalty was imposed on Sarvottam advisory private limited. Therefore, that party 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....