TaxTMI 
TaxTMI 
2025 (3) TMI 1375
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....re that the assessee had filed his return of income for the year under consideration on 25.09.2013 declaring total income at Rs. 46,78,369/- after claiming deduction under Chapter VI-A for an amount of Rs. 1,24,266/-. The assessee has claimed exemption u/s 10(38) of the LTCG of an amount of Rs. 2,37,10,473/-, out of which the Assessing Officer alleged that an amount of Rs. 59,32,860/- have been claimed in an unacceptable way. The assessment was reopened by the Assessing Officer u/s 147 of the Act since the assessee is found to have entered into suspicious share transactions in the relevant year. Since the scrip 'NCL Research' has been found by the Assessing Officer to be a bogus scrip in the nature of a penny stock being manipulated for the purpose of providing bogus capital gains, he was of the opinion that the assessee was required to be assessed u/s 147 of the Act. Subsequently, Assessing Officer framed assessment u/s. 143(3) r.w.s. 147 of the Act by disallowing Rs. 59,32,860/- u/s 68 of the Act towards the claim of LTCG u/s 10(38) of Act, holding that the impugned gain on sale of shares was liable to be taxed. 4. Aggrieved by the order of the Assessing Officer, the assessee ....
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....ong Term Capital Gains claimed as exempt u/s. 10(38) of the IT Act. 2. The present assessment is a reopened assessment relating to AY 2013-14. The original return of income declaring total income of Rs. 46,78,369 was processed u/s. 143(1). However, a notice u/s. 148 was issued on 26/03/2018, pursuant to which the present assessment came to be framed by making an addition of Rs. 59,52,860 u/s. 68 of the Act and determining the total taxable income at Rs. 1,06,11,229/-. 3. During the year under consideration, the assessee was serving as Joint Managing director of two public companies, viz., Asahi Songwon Colours Limited and Aksharchem India Ltd. The assessee derived income from Salary and also earned investment income by way of Capital Gains, Dividend and Interest. 4. During the course of the re-assessment proceedings, the assessee was served with a copy of the reasons recorded for reopening the assessment, wherein it was stated that as per the information provided by the investigation Department and the statement recorded of the related parties, it was found that the price of the penny stock NCL Research had been artificially manipulated on the stock excha....
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....ted by the Kolkata Directorate, there was a syndicate of operators/exit providers engaged in entry providing business. You have further mentioned that during the course of Departmental investigation the statements of various operators/ share brokers/members were recorded on oath, confirming that certain beneficiaries transacted in this script by way of bogus LTCG and claimed exemption u/s. 10(38). g. I wish to emphatically place on record that in the list of persons alleged to be penny stock operators/exit providers/share brokers/members, whose statements were recorded and the copies of the same was furnished to me in the form of a pen drive, nowhere does my name or the name of my broker Shree Naman Securities & Financial Services Pvt Ltd appear, either directly or indirectly. h. Under the circumstances, I fail to understand as to how there is any basis of forming reason to believe that I had entered into penny stock transactions and claimed the same as exempt income, thereby not offering the same to tax. As has been held by the Hon'ble Supreme Court, the Jurisdictional High Court and several other High Courts and Tribunals, "Suspicion, howsoever strong, cannot ta....
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.... the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under: "Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the assessee that at the time of survey the assessee in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the assessee had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows tha....
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....Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as nongenuine. Consequently denying the claim of short term capital gain (6 of 6) (ITA- 385/2011) made by the assessee before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the assessee ." In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account." (b) Ramprasad Agarwal vs ITO (2018) 100 Taxmann.com 172 (Mum. ITAT) "The Tribunal in the case of MeghraJ Sin....
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....ceived by the assessee were not genuine and were liable to be added as unexplained credit u/s. 68 of the IT Act. It is respectfully submitted that while the assessee has fully discharged his onus in explaining the source and genuineness of the credit of the sale proceeds in his bank account, the learned Assessing Officer has, without leading any cogent evidence against the assessee, mechanically inflicted the addition relying on the provisions of Sec.68, which have no basis or justification for being invoked, as done by the Assessing Officer. 9. The assessee therefore prays in appeal before your Honour to direct the Assessing Officer to delete the entire addition of Rs. 59,32,860/-. The Ld. AR, therefore, urged that the addition made by the Assessing Officer and confirmed by the Ld. CIT(A) be deleted. 7. The Ld. DR, on the other hand, relied on the orders of the authorities below which have been studied extensively and used wherever necessary. 8. Heard both the parties and perused the material available on record. 8.1 On the facts of the case, we find that the assessee has sold shares of 'NCL Research' for Rs. 80,09,060/- through Shree Naman Securities and Fina....
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.... * It is interesting to note that from October, 2013 the share price fell from a high of Rs. 80 to a price of Rs. 12, a fall of 666% in Six months. 8.3 We have also considered the fact that in the instant case, the assessee has bought 10,000 shares on 02.09.2011 and sold 10,000 shares in packs of 2500 shares on 11.09.2012, 1500 shares on 23.11.2012, 500 shares on 26.11.2012, 2250 shares on 27.11.2012 and 3250 shares in three days of the first week of Dec. 2012. Buying and selling of shares in a concerted way shows a direct connivance between operators and the assessee and proves the entire process is predetermined and synchronized. The company's financials, profit, dividend, earning per share etc. if not sole basis for increase in share price but at least is a paramount fact and in the instant case it is clear that all the criteria has given a go-away. Keeping in view the financials, we have no hesitation to say the scrawny financial parameters cannot command such a high rise of shares in such a small period. Mysterious are ways. In enigmatic ride the assessee has made 400% profit in a span of fat 13 months. This coupled with the investigation conducted by the Income Ta....
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....th movement of stock index. d) SEBI took action against market manipulation involving bogus LTCG entries, with NCL Research being one of the suspect scrips. e) Statements from promoters, brokers, and associated persons confirmed involvement in manipulating NCL Research's stock prices. Copy of such statements were supplied in pen-drive to the appellant. f) The appellant invested in NCL Research, which lacked financial credentials, and claimed LTCG exemption by selling the shares. g) The appellant sold all 10,000 shares immediately after the 12- month holding period to claim the exemption under section 10(38). h) The trades executed by the appellant were part of synchronized trading, indicating coordinated efforts to create bogus LTCG or LTCL. Specifically, the appellant made 14 trades between September and December 2C12, with one buyer party purchasing 888 shares in 6 trades, indicating pre-s rranged/pre- meditated transactions to book fake/look-genuine profits to claim exemption in the guise of LTCG u/s 10(38). i) An in-depth analysis has been made by the AO and elaborately discussed in the assessment order. 5.1 Dur....
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....involvement of other entities in share price manipulation be, the appellant had nothing to do with it. If the appellant's argument is considered correct then it appears that the appellant was at the right place at the right time and the exorbitant gain was his sheer luck. In these arguments, the appellant claimed ignorance of share price manipulation or remained silent regarding the synchronized sale pointed out by the A.O. in detail in the assessment order. The important point that cannot be missed here was income or the capacity of the persons involved who had purchased the shares which were sold by the appellant. For the sake of clarity, the same as listed by the A.O. is reproduced below: Name of company Sale date Pan of BUYERS Income as per ITR 2011-12 2012-13 2013-14 NCL Research 1 1.09.2012 AAECR2957A 9864 15447 125068 NCL Research 11.09.2012 AADCM5866 150211 0 - NCL Research 23.1 1.2012 AARHS2082R NA. . NA NA NCL Research 23.11.2012 AARHS2082R -do- -do- -do- NCL Research 26.11.2012 AAECK0200H 10810 14000 9625 NCL Research 27.11.2012 AAECG6112A Return not fi....
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....d of proof beyond reasonable doubt has no applicability in determination of matters under taxing statutes. It is also well settled that tax authorities are entitled to look into surrounding circumstances to find out the reality of the transaction by applying the test of human probability. It fails the test of human probability when a person, with PAN AAECG6112A whose income is merely around Rs. 3000 to 7500 in past three years indulges in 6 trades even if we don't consider the economic sense of buying such shares at such a high price. It is not the case here that the entire claim of exemption u/s 10(38) on LTCG was disallowed by the AO. It is pertinent to mention that the appellant has claimed exemption on LTCG of Rs. 2.37 Cr arising out of transactions in 8 scrips during the year. The AO on the basis of specific information in this regard and in-depth analysis based on reports and materials available before him, has only disallowed such exemptions on LTCG arising out of transactions in shares of NCL Research. Accordingly, such disallowance can't be attributed to any incorrect facts or misleading conclusions as alleged by the appellant. 5.3 To sum up: Is there pri....
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....s & reports of investigation directorates of the department, the financials of the company the scrips of which were traded i.e. NCL Research, the capability of the buyers as evidenced by analyzing their ITR for 3 years, the price movement of the scrip (i.e. NCL Research), the trade pattern and statements of various operators/entry providers/stock brokers. In light of these facts, I find no merit in the contention raised by the appellant. The addition made by the A.O. is accordingly upheld." 8.5 Reliance is being placed on the following judgments based on which we could conveniently arrive at a decision that the transactions entered by the assessee are not genuine so as to make him eligible for claim u/s 10(38) of the Income-tax Act, 1961. (i) Sumati Dayal v. CIT - (1995) 214 ITR 801 (SC) (ii) Durga Parsad More - 82 ITR 540 (SC) (iii) Mc. Dowell & Co. Ltd. - 154 ITR 148 (SC) (iv) Govinda Rajulu Mudaliar v. (1958) 34 ITR 807 (SC) (v) Sreelekha Banerjee & othrs. V. CIT (1963) 49 ITR 112 (SC) (vi) Kalekhan Mohammed Hanif v. CIT (1963) 50 ITR 1 (SC) (vii) CIT v. Biju Patnaik (1986) 160 ITR 674 (SC) 8.6 Further referenc....
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....e Supreme Court pointed out that violation of any and every procedural provision cannot be said to automatically vitiate the domestic enquiry held against the delinquent employee or the order passed by the disciplinary authority except in cases falling under no notice, no opportunity and no hearing categories. Further it was held that if no prejudice is established to have resulted from such violation of procedural provisions no interference is called for, against the ultimate orders. The test laid down was whether the person has received a fair hearing considering all things as the ultimate test is always the test of prejudice or the test of fair hearing as. Further the Hon'ble Supreme Court pointed out a distinction between a case of no opportunity and a case of no adequate opportunity and while examining the latter case, it was held that the violation has to be examined from the stand point of prejudice, in other words the Court or the tribunal has to see whether in the totality of the circumstances, the delinquent officer/employee did or did not have a fair hearing and the orders to be made shall depend upon the answers to the said query. Further it was held that there may ....
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....essee by not furnishing the investigation report in its entirety nor making the persons available for cross examination as admitted by the department in substantial number of cases the assessee's have not been specifically indicted by those persons from whom statements have been recorded. 59. We are conscious of the fact that there may be exceptions however nothing has been brought before us to show that there was an exception in any of these appeals heard by us. In a few cases the assessee has been made known of the statement of the Director of the penny stock company or the stock broker, entry operator despite which those assessee's could not make any headway. While on this issue, we need to consider as to whether and under what circumstances the right of cross examination can be demanded as a vested right. In Kishanlal Agarwalla, the Hon'ble Division Bench of this Court pointed out that no natural justice requires that there should be a kind of formal cross examination as it is a procedural justice, governed by the rules and regulations. Further it was held that so long as the party charged has a fair and reasonable opportunity would receive, comment and criticize t....
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....ise is taking place. We understand that SEBI has a strong IT infrastructure which can generate red flag for such instances. Such red flags could be built upon trading volumes, entities which contribute to trading volume financial background of firms through their annual returns and any other indicators SEBI may develop. We believe that with effective and timely monitoring by SEBI a significant number of such instances can be checked in time. Once such instances are detected, SEBI should invariably share this information with CBDT and FIU. Barring such entities from securities market would not be of strong deterrence in itself. In case it is established, the stock platforms have been misused for taking LTCG benefits, prosecution should invariably be launched and relevant sections of SEBI Act. Section 12A read with section 24 of the Securities Exchange Board of India Act 1992 are predicate offences. Enforcement Directorate should then be informed to take action under Prevention of Money Laundering Act for the predicate offences. 64. From the above it is seen that there is a discussion about the "modus operandi" adopted and the SIT opines that there is an ur....
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....ereafter the assessments have been completed. Nothing prevented the assessee from mentioning that unless and until the report is furnished and the statements are provided, they would not in a position to take part in the inquiry which is being conducted by the assessing officer in scrutiny assessment under Section 143(3) of the Act. The assessee were conscious of the fact that they have not been named in the report, therefore made a vague and bold statement that the non-furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee. If the report was available in the public domain as has been downloaded and produced before us by the learned standing counsel for the revenue, nothing prevented the assesses who are ably defended by Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defence. Therefore, the based on such general statements of violation of principles of natural justice the assessee's have not made out any case. 66. While on this issue, it is important to take note of the decision in T. Takano. I....
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....dard of integrity, promptitude and fairness in the conduct of all investment business and shall act with due skill and care and diligence in the conduct of all investment business. The Code also enumerates different shades of duties of stock brokers towards the investor and those duties pertain to high standard of integrity that the stock broker is required to maintain in the conduct of his business. It was further pointed out that it is a fundamental principle of law that prove of an allegation levelled against a person may be in the form of direct substantive evidence or as in many cases such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/ charges made and levelled. It was further held that direct evidence is a more certain basis to come to a conclusion yet in the absence thereof the courts cannot be helpless. It was further pointed out that it is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion theref....
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....gathered from various circumstances like that volume of trade effected; the period of persistence in trading in particular scrips; the particulars of the buy and sell orders, namely, the volume thereof; the proximity of time between the two and such other relevant factors. ..... ..... 71. On a careful reading of the above paragraph will show that the argument by placing reliance on the case of K.R. Ajmera to show that presumption can be drawn on the basis of immediate and relevant facts was contrary to the law already settled by the Hon'ble Supreme Court in Chintalapati S. Raju. Therefore, it would be incorrect to submit that the decision in K.R. Ajmera has been overruled. This position becomes clearer as the decision in K.R. Ajmera was referred to in Chintalapati S. Raju as could be seen in paragraph 30 of the said judgment. Therefore, we hold that the law laid down in K.R. Ajmera continues to be good law. 72. In the light of the above discussion, the only conclusion that can be arrived at is that the opinion can be formed and the decision can be taken by taking note of the surrounding circumstances which had been elaborated upon in K.R. Ajm....
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.... 68 of the Act. Thus, the assessee's cannot be permitted to contend that the assessments were based on surmises and conjectures or presumptions or assumptions. The assessee does not and cannot dispute the fact that the shares of the companies which they have dealt with were insignificant in value prior to their trading. If such is the situation, it is the assessee who has to establish that the price rise was genuine and consequently they are entitled to claim LTCG on their transaction. Until and unless the initial burden cast upon the assessee is discharged, the onus does not shift to the revenue to prove otherwise. It is incorrect to argue that the assessee's have been called upon to prove the negative in fact, it is the assessee's duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. The assesses cannot be heard to say that their claim has to be examined only based upon the documents produced by them namely bank details, the purchase/sell documents, the details of the D-Mat Account etc. The assesses have lost sight of an important fact....
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....olourable devices may or may not be directly but indirectly attributable to the assessee. Therefore, we need not labour much to examine as to how rule in McDowell needs to be applied as we are required to examine the factual scenario from the cases on hand which appear to be quite unique not probably drawn the attention of the courts and the tribunal earlier. 75. While it may be true that M/s. Swati Bajaj, Mr. Girish Tigwani or other assessee's who are before us could have been regular investors, investors could or could not have been privy to the information or modus adopted. In our considered view, what is important is that it is the assessee who has to prove the claim to be genuine in terms of Section 68 of the Act. Therefore, the assessee cannot escape from the burden cast upon him and unfortunately in these cases the burden is heavy as the facts establish that (2015) SCC Online Hyderabad 1021 (1936) AC 1 - House of Lords the shares which were traded by the assessee's had phenomenal and fanciful rise in price in a short span of time and more importantly after a period of 17 to 22 months, thereafter has been a steep fall which has led to huge claims of STCL. Therefore, ....
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....eds of shares received and claimed as exempt u/s. 10(38) was held to be sham transaction because of huge price rise of shares at the time of sale despite the fact that company's profits are negligible and did not support such price rise. 8.11 In the case of Abhimanyu Soin Vs. Asst, CIT, Circle VII, Ludhiana, ITAT, Chandigarh, Bench A, in ITA No. 951/CHD/2016, the Tribunal held as under:- "On consideration of the facts of the case as a whole it cannot be accepted that the assessee can have long term capital gains of Rs. 80,25,291/- within 17 months of buying of shares at Rs. 2,72,000/- a non- descript company incorporated in 2007 which got merged in 2009. This cannot be a case of intelligent investment or a simple tax planning to gain benefit of long term capital gains". 8.12 In the case of Somnath Maini Vs. CIT 306 ITR 414, the Hon'ble Punjab & Haryana High Court, held that claim of genuineness of transactions can be rejected even if the assessee backs the same with evidence which is not trustworthy. Hon'ble Income Tax Appellate Tribunal - Chandigarh, in the case of Assistant Commissioner of Income Tax Vs. Som Nath Maini by placing reliance on the decisio....