TaxTMI 
TaxTMI 
2022 (10) TMI 1278
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....om the sale of equity shares of KGN Enterprise Ltd. for a consideration of Rs. 1,13,87,902/- claimed as exempt in the return of income was bogus and it was actually an accommodation entry. The Assessing Officer accordingly issued a notice under Section 148 of the Act to the assessee on 30.11.2016 after recording the reasons. In reply, a letter was filed by the assessee stating that the return originally filed by her on 16.03.2014 be treated as a return filed in response to notice under Section 148 of the Act. During the course of assessment proceedings, a detailed notice was issued by the Assessing Officer on 07.12.2017 requiring the assessee to show-cause as to why sale consideration of Rs. 1,13,87,902/- from the sale of equity shares of KGN Enterprise Ltd. should not be added to her income being unexplained cash credit under Section 68 of the Act. In reply, the following explanation was offered by the assessee in writing on 18.12.2017:- "With reference to the above as regards your query as to why LTCG of Rs. 1,13,53,982/- from sale of shares of M/s. KGN Enterprise Limited should not be treated as bogus and why the addition u/s. 68 of the Income-tax Act, should not be mad....
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....g- 12 and Sept. - 12. Thus the shares were held by me for more than 1 year o Shares have come in to my demat account and they were sold after being dematerialized o The sale of shares were made Through recognized stock security transaction tax was duly paid. In view of the above, we request your good-self not to treat the transaction as bogus and make addition u/s 68 of the Act as LTCG of Rs. 1,13,53,982/- earned by sales of shares of KGN Enterprise Limited is my genuine long term capital gain under the law and exemption claimed under Section 10(38) of I.T. Act is validly claimed by us." 3. After taking into consideration the submission made by the assessee and the material available on record including the information received from the Investigation Wing of the Income-tax Department as well as the result of inquiries conducted by him, the Assessing Officer recorded his findings/observations on the issue as under:- "i) That some unscrupulous operators in the capital market were running a scheme of providing entries of LTCG for a commission. ii) The financial result of the Penny Stocks used for the purpose clearly indicate that its quo....
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.... and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut, the said evidence being un-rebutted, can be used against him by holding that it was a receipt of en income nature." 4. On the basis of the above findings/observations recorded by him and by relying on the various judicial pronouncements including the decisions of Hon'ble Supreme Court in the case of (i) Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC), (ii) CIT Vs. Durga Prasad More (1971) 82 ITR 540 (SC), (iii) Mc. Dowell & Co. Ltd. vs. CTO (1985) 154 ITR 148 (SC) as well as the decision of Mumbai Bench of this Tribunal in the case of Shamim M. Bharwani (ITA No.4906/Mum/2011 dated 27.03.2015), the Assessing Officer held that KGN Enterprise Ltd. was a paper company and its shares were floated to provide accommodation entries in the form of bogus Long Term Capital Gains so that investors could route their unaccounted money without any tax incidence. He accordingly treated the sale consideration of Rs. 1,13,53,982/- claimed to be received by the assessee from the sale of equity shares ....
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....cond objection of the appellant is that the re-opening cannot be made merely on the basis of information received from DIT(Investigation) and relying on statement recorded and search carried out in the premises of the third party. There is no substance in this contention of the appellant. There is no bar on the AO re- opening assessment based on information received from Investigation Wing of the Department. It is settled law that at the time of re-opening the AO needs to have a reason to believe that income has escaped assessment. Information for having this reason could be from any credible and authentic source. Hence there is no substance in this contention of the appellant. Ratio of judgments relied on by the appellant in support of her contentions is not applicable to the present case as the facts are different. In view of above discussion it is held that there is no infirmity in the action of the AO in re-opening the assessment. Accordingly, this ground of appeal is rejected." 6. The learned CIT(A) also did not find merit in the submission made on behalf of the assessee on the issue of addition made by the Assessing Officer under Section 68 of the Act by treating ....
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....ned in the assessment order that as per information on public domain, flagship companies of KGN group namely KGN Enterprises and KGN Industries are defunct for the last many years. Further, that main promoter Arif Ismail was arrested on 19.11.202 in relation to some corporate fraud. Still the appellant decided to make investment in shares of KGN Enterprises. (ii) Shares are allotted on 09.04.2010 but no payment is made. Only journal entry is passed. (iii) As brought out by the AO in the assessment order, all shares sold by the appellant are bought by a set of people only. In today's scenario where shares are sold on electronic platform how is it possible that only a fixed set of people buy shares sold during a wide range of dates. It is possible only if trades are pre-decided and manipulated. (iv) The appellant is a resident of Bhavnagar, Gujarat. From here the appellant invests in a Vadodara based company. In the normal course this would not raise any suspicion. But here it is a totally non-descript company with hardly any business activity and any significant performance. So it raises suspicion as to why would the appellant invest a huge amount in s....
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.... is in the nature of income, the burden of proving that it is not taxable because it fails within exemption provided by the Act lies upon, the assessee - Parimisetti Seetharamamma's case (supra) al p. 536. But, in view of section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income- lax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source (hereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut, the said evidence being unrequited, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the department cannot, however, act unreasonably- Sreelekha Banerjee's case (supra) at p. 120. 12. The matter has to be considered in the light of human probabilities.... An inference about such a purchase has to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appellant as disclos....
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....only in the light of the face value of the documents sighted before the Tribunal but also in the light of all the surrounding circumstances, preponderance of human probabilities and ground realties. Genuineness is a matter of perception but essentially a call on genuineness of a transaction is to be taken in the light of well settled legal principles. There may be difference in subjective perception on such issues, on the same set of facts, but that cannot be a reason enough for the fact finding authorities to avoid taking subjective calls on these aspects, and remain confined to the findings on the basis of irrefutable evidences... As the things stand now, genuineness of transactions is to be examined in the light of the prevailing ground realities, and that is precisely what I have done." Ratio of all the above judgments is applicable to the facts of the present case. Further, hon'ble Bombay High Court, Nagpur Bench in Income Tax Appeal No. 18/2017 in the case of Sanjay Bimalchand Jain L/H Shantidevi Bimlchand Jain vs Pr. CIT-I, Nagpur & Another has confirmed addition on account of bogus LTCG on penny stock shares. Hon'ble Court has held as follows : ....
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....ee and on a perusal of the orders of the income tax authorities, it appears that there is no scope for interference with the said orders in this appeal. By referring to the aforesaid facts, which are narrated in the earlier part of this order, the authorities found that the assessee had made investment in two unknown companies of which the details were not known to her. It was held that the transaction of sale and purchase of shares of two penny stock companies, the merger of the two companies with another company, viz. Khoobsurat Limited did not qualify an investment and rather it was an adventure in the nature of trade. It was held by all the authorities that the motive of the investment made by the assessee was not to derive income but to earn profit. Both the brokers, i.e. the broker through whom the assessee purchased the shares and the broker through whom the shares were sold, were located at Kolkata and the assessee did not have an inkling as to what was going onin the whole transaction except paying a sum of Rs. 65,000/- in cash for the purchase of shares of the two penny stock companies. The authorities found that though the shares were purchased by the assessee at Rs. 5.5....
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....e to the present case. Further, hon'ble Guwahati High Court in CIT vs. Sanghamitra Bharali (361 ITR 481) has held similar transactions to be bogus and sham. Case laws relied on by the appellant are not applicable to the present case as the same are distinguished on facts. In view of discussion above and relying on the above cited judgments, I uphold the action of the AO in holding the transaction in shares of KGN Enterprises Ltd. as bogus and adding the amount of Rs. 1,13,53,982/- to the income of the appellant u/s 68 of the Act. Accordingly, addition of Rs. 1,13,53,982/- is upheld. This ground of appeal is dismissed." 7. Aggrieved by the order of the learned CIT(A), the assessee has preferred this appeal before the Tribunal on the following grounds:- "1. The Hon'ble CIT(A) has erred in facts and in law in upholding the action of Assessing Officer of reopening of the assessment u/s 147. 2. The Hon'ble CIT(A) has erred in facts and in law in confirming addition of Rs. 1,13,53,982/- on account of LTCG treated as bogus by Assessing Officer invoking the provisions of Section 68." 8. At the time of hearing fixed in this case today, ....