TaxTMI 
TaxTMI 
2025 (9) TMI 698
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....sources during the financial year ending 31/03/2014 relevant to the A.Y.2014-15. 2.2 That theassessee filed return of income for the A.Y 2014-15 on 29/04/2015 declaring a total income of Rs. 8,58,360/-. 2.3 That the case of the assessee was selected through CASS system of ITD for examination of "suspicious sale transaction in sales and exempt long term capital gains shown in return (penny stock tab in ITS)" under the scope complete scrutiny. 2.4 That the statutory notice under section 143(2) of the Act was issued on 26/07/2016 and subsequent notices too under section 143(2) and 142(1) of the Act, 1961 alongwith Questionnaire were issued and served upon the assessee. 2.5 That the Counsel for the Assessee attended the assessment proceedings from time to time and furnished the requisite information. 2.6 That perusal of the computation of income, return of income furnished by the assessee reveals that the assessee has shown exempt income of Rs. 1,04,06,769/- and claimed the same as exempt u/s 10(38) of the Act. 2.7 That as per the details of statement of long term capital gains transaction, tax exempt under section 10(38); the shares of "NCL Research and Financial Ser....
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....th the dummy paper companies that would buy the shares. 2.14 Further it may be mentioned here that the prices of the shares of the penny stock companies were rigged and were raised through circular trading. 2.15 The circular trading was managed by the "operators" of the scrips. An "operator" is a person who was managing the overall affairs of the scheme and he was the one who contacted the entities who wished to take entry of bogus LTCG / STCG in their books and arranged the same through the scrips of penny stock companies. The operator managed many paper / bogus companies and used them to do circular transactions to rig the price of the shares. The shares of these penny stock companies; although listed on exchange, were always closely held and were controlled by the promoter of the penny stock companies and the operators who were arranging for the bogus LTCG/LTC Loss. This was due to the fact that the general public was not interested in the shares of these companies as these companies had no credentials and this helped the operators to keep a control on the price movement of the shares. 2.16 That if beneficiary say, "B" bought 10,000 shares of company "P" @ Rs. 1/- per s....
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..... AO dt. 31/12/2016 it was alleged that as part of adjudication and adjudgement process, that the assessee Shri Krishna Kumar Jalan is one such beneficiaries who had taken entry of Rs. 1,04,06,769/- of LTCG during the F.Y. 2013-14 i.e relevant to the A.Y. 2014-15 the year under consideration and had claimed exemption for LTCG amounting to Rs. 1,04,06,769/- u/s 10 (38) of the Income Tax Act, 1961 by selling shares of "NCL Research and Financial Services Ltd." The assessee had purchased 7,000 shares of "NCL Research and Financial Services Ltd." On 30/04/2012 for a consideration of Rs. 18,07,540/-. 2.20 That during the course of the assessment proceedigns, the assessee's AR furnished written submissions whereby copies of computation statement, Bank Statements, details of Long Term Capital Gain were enclosed. 2.21 That the assessee purchased and sold the shares of "NCL Research and Financial Services Ltd." The details of which are as under: Scrip Purchased NCL Research and Financial Services Ltd. No. of shares purchased 7000 Date of purchase 30-04-2012 Amount paid Rs. 18,07,540/- Broker through whom purchased M/s Geojit BNP Paribas Financial Services....
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.... in the shares of NCL has been banned by BSE w.e.f. 1.1.2015. The whole scheme of event shows that NCL is a penny stock company and the prices of the shares have been manipulated. Please explain why it should not be considered that the shares of NCL have been used to provide entry of bogus Long Term Capital Gain and Short Term Capital Loss." In response to the above question the Chairman & Managing Director of NCL Research and Financial Services Ltd. Sri Vijay Jaydeo Poddar, deposed under oath that NCL is a penny stock company, and the shares of the company had been used to provide entry of bogus Long Term Capital Gain to the preferential allottees. Further to this, Sri Viay Jaydeo Poddar could not answer the following question posed during the course of survey. Q. 55. It is seen that the price of the shares of NCL have risen from Rs. 302 on 7.6.2012 to Rs. 2107 on 9.7.2013. This is a rise of 600% within a span of one year. During this period there has been no corporate announcement by NCL which suggests that the company is undertaking any substantial development activity. The primary source of income during these years has been only the interest income and during....
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....ncial Services Ltd. and Share holders/assessee for such preferential issue? Ans: I am unable to explain the same. Further Mr. Manish Baid is the person who can explain this, who has used the shares of N.C.L.Research and Financial Services Ltd. for providing bogus Long Term Capital Gain. Q. 19 What was the need for issuing preference shares? Please produce the detailed issue documents which were prepared for this preferential issue. Ans: I am unable to explain the same. Further Mr. Manish Baid is the person who can explain this, who has used the shares of N.C.L. Research and Financial Services Ltd. for providing bogus Long Term Capital Gain. Q. 20 How much money was raised through preferential allotment? Ans: I am unable lo explain the same. Further Mr. Manish Baid is the person who can explain this, who has used the shares of N C.L. Research and Financial Services Ltd. for providing bogus Long Term Capital Gain. Q. 21 How was the funds received through the preferential allotment utilized? Ans: I am unable to explain the same. Further Mr. Manish Baid is the person who can explain this, who has used the shares of N.C.L. R....
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....amount of Rs. 1,04.06,769/- as unexplained credit found in the books of account, and add u/s. 68 to the income returned. You are requested to show cause as to why the exemption claimed u/s. 10(38) towards Long Term Capital Gains, be denied and why it should not be added u/s. 68 to the income returned. Your reply should reach the undersigned on or before 21.2.2016 failing which it will be construed that you do not have any explanation to offer in this regard and the assessment will be completed as proposed above without any further notice ". 2.26 That in response to the above show cause notice the assessee furnished reply on 21/12/2016 which in sum and substance is as under: " (1) The long term capital gain of Rs. 1,04,06,769/- is claimed as exempt u/s 10(38) of the Act. (2) The statement give by Mr. Vijay Jaydeo Poddar Chairman & Managing Director of the NCL Research and Financial Services Ltd is not binding on the claim made of Long Term Capital gain for the AY 2013-14. (3) The statement recorded from the Chairman and other directors may kindly be provided to me if it affects my claim of long term capital gain. Ialso request that the persons who have ....
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....nature that as the transaction is through stock exchange and the payment is by cheque, the transaction should be treated as genuine. 2.35 That the premises drawn up supra shows that the transaction ipsofacto does not prove genuineness. The SEBI after thorough investigation has certified that such transactions are rigged and are carried out to convert the black money into white. Credit in the bank account of the assessee cannot be treated as explained and is liable to be added under section 68 of the Act. 2.36 That the assessee had miserably failed to discharge the onus and therefore the only inescapable conclusion that like thousand other individuals the assessee has also taken entry of bogus LTCG by paying unaccounted income. The burden of proof within the meaning of Section 68 is not discharged by the assessee. The assessee has failed to discharge proof that claim of LTCG as exempt u/s 10(38) 2.37 The summation of facts are 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 quot....
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....e 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 an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably." 2.38 The transactions is found to be not genuine in view of following: (i) The financials of the penny stock NCL Research and Finance and movement of the price is abrupt, unrealistic and not based upon any realistic parameters. The history of investment in shares made by the assessee also generally reveals that he has not been dealing in shares on a regular basis. It has also been found that entries of LTCG have also been taken by other members of the assessee family. (ii) The purchase of these shares were claimed to be through off market deals and not through Stock Exchange and the shares were not entered in D'mat account even upto one week before they were actually sold and the sale is through stock exchange. The assessee has furnished the acc....
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....ITR 674 (SC) (ix) CIT v. P. Mohanakala & Others (2007) 291 ITR 278 (SC) 2.40 The Ld. AO has recorded as under in the assessment order dated 31/12/2016 : After going through the whole gamut of Purchase and Sale of Shares, it can safely be understood that the Transactions of Purchase and Sale of Shares and earning of Long Term Capital Gains are not Genuine on the following points:- i. Investigation Report of the Investigation Wing of the Income Tax Department: The Investigation Wing of the Department carried on a number of Search & Seizure and Survey operations on a large number of Companies including that on M/S NCL Research and Financial Services Ltd. whose shares were purchased by the assessee . It was clearly evident from the examination of the seized/ impounded documents that a number of shell/penny stock companies were involved in rigging the prices of shares. The assessee was required to comment on the outcome of the investigation carried on by the Investigation Wing of the Department. All the reports, including the statements recorded on oaih wore shown 10 the assessee, wherein the Chairperson. Managing Director aiifl other Directors of the Compa....
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....AASPH1425L), Sh. Anil Khemka, has accepted, on oath before the Investigation Wing of- Income Tax Department at Kolkata during enquiries that they have rigged the prices of NCL Research Ltd. and" provided accommodation entries to various clients of bogus LTCG on commission basis. iv. Admissions by the Operators of the Companies through their Statements on Oath recorded during the course of Survey Operations: During the course of Search & Seizure and Survey operations on a large number of Companies, statements on oath were recorded, the Operators of the Companies through their Statements on Oath recorded during the course of Survey Operations have admitted of the fact of rigging of prices of shares and act of providing of accommodation entries in the grab of Long Term Capital Gains. The assessee was required to comment on the outcome of the investigation carried on by the Investigation Wing of the Department. However, the assessee commented "that she has got nothing to do with this report since her name is nowhere in the report." v. Admissions by the Brokers through their Statements on Oath recorded during the course of Survey Operations: During the course of Search....
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....abnormal trend of rigging of prices of the shares of M/s NCL Research Ltd. xi. Ignorance of the assessee regarding exact Nature of Business of the Companies involved in Rigging: The assessee has shown ignorance regarding exact nature of business of the Companies, M/s NCL Research and Financial Services Ltd. xii. Low and Negative Financial Statistics of the Companies involved in Rigging: No Knowledge of Business; Negligible or Very Low Profits; Investments; Assets; The Financial Statistics i.e. Profits, Investments. Assets, Earning Per Share (EPS) of the companies are negative, very low, which affirm the suspicious activities of the Company. How a person will buy the shares of a company, when there are negative or very low profits, HPS, Assets. Investments. xiii. No Prominent Name/Brand, Product or Innovation of the Company: The company whose shares were purchased by the assessee was 'neither a name/Brand worth mentioning, nor any of the products was known to the assessee. The scrip Ms NCI, Research and Financial Services Ltd invested is merely Shell/Penny Stock Company with no business activities whatsoever. The shares are purchased at lower levels an....
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....e or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. 2.41 In summation facts and circumstances discussed (supra) it is concluded that the assessee has routed his unaccounted money in garb of LTCG amounting to Rs. 1,04,06,769/- and claimed exemption u/s 10(38) of the Income Tax Act, 1961. The transaction were sham transactions and aimed only to bring unaccounted money in the guise of exempted LTCG and paper work has been got up & done merely to give a colour of authenticity to the transaction and by creating a façade of legitimate transactions. Therefore total amount of Rs. 1,04,06,769/- is added under section 68 of the Income Tax Act, 1961. 2.42 The income of the assessee by assessment order dt. 31/12/2016 was recomputed as follows : Income returned by Assessee Rs. 8,58,360/- Add: Unexplained Credit u/s 68 Rs. 1,04,06,769/- Income Assessed Rs. 1,12,65,329/- 3. The assessee being aggrieved by the assessment order dt. 31/12/2016 for A.Y. 2014-15 prefers first appeal before Ld. CIT(A) who by the impugned order has however sustained the aforesaid addition of Rs. 1,04,06,769/-; in 1st Appeal No. 11....
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.... Company from an unreliable and unproved source i.e. moneyconlrul.corn. As such, the addition to income made on this account for unexplained credit under section 68 of the Income - Tax Act ignoring the facts, evidence and cogent reasons may kindly be deleted and cancelled. Ground of Appeal No. 4 The Commissioner of Income - lax (Appeals) erred in confirming the position taken by the Assessing Officer in invoking section 68 of the Income - Tax Act and treating the entire consideration on sale of shares amounting to Rs. 1,22,14,309/- as income as the same was the basis for claim of exemption on Long Term Capital Gains under section 10(38) of the Income - Tax Act. This confirmation of the Assessment Order was done by disregarding the facts, ^evidence and reasons and by giving credence to suspicion and presumptions in total defiance of natural justice in as much as neither the information and evidence collected behind the back of the Appellant were shared nor any cross-examination was allowed or facilitated. As such, the addition to income made on this account for unexplained credit under section 68 of the Income - Tax Act may kindly be deleted and cancelled. ....
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.... provided the details of transactions, the broker through which the same was purchased and sold same has been detailed in the assessment order. The transaction was through the Registered Brokers, had been properly accounted for in the books of accounts and was through proper channel. It was contended vehemently that once the assessee has discharged his onus by providing the authenticated true documents and details in support of the transaction of purchase and sale of shares, the onus shifts to the Assessing Officer to prove that the content on basis of cogent evidence and reasons are wrong and that the income from sales of shares is unaccounted income. This onus has not been discharged by the Department of Income Tax at both levels. The theory of Department of Income Tax on penny stock is a generalized theory which is expounded by Investigation Wing of Income Tax Department at Kolkata. Since the entire order is based on such report of lower authorities same gets vitiated and shows non application of mind. The exercise of power is not judicious and not independent. 5.7 Yet another sheet anchor of the argument of Ld. AR was that rejection of claim by Ld. AO under section 10(38) of....
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.... of the above mentioned person made any mention of the assessee. No adverse inference can be drawn on this basis. 5.12 The Ld. AR brought to our notice that the transaction relating to the securities both buy and sell were done through by the assessee through a broker. The broker was not confronted with the assessee by Tax Department nor by SEBI. However the Ld. AR candidly said that Ld AO mentions that SEBI has held the scrip of "NCL Research and Financial Services Ltd. " under surveillance measure and later on suspended the sale of scrip on 07/01/2015 (page 15 para 2.3.2 paper book volume I) 5.13 The Ld. AR has contended before us that surveillance by SEBI is not a determinative factors for transactions of buy and sell of scrip of "NCL Research & Financial Services Ltd." to be dubbed as bogus and not genuine. There is total absence of a conclusive final report of SEBI. Further "NCL Research & Financial Services Ltd." was put under survillance by SEBI on 07/01/2015 which pertains to the A.Y. 2015-16 and not for the A.Y. 201415 which is under consideration, in present appeal. Hence Department contention that for aforesaid this reason the share transaction by the assessee was ....
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....quity shares under consideration were through banking channels and were genuine. It has been adequately recognised that the said genuine share transactions did suffer Securities 'Transaction Tax and Brokerage etc. and the same cannot be held as bogus. Having said that the learned Commissioner of Income - Tax (Appeals) ignored the fact that the Assessing Officer made the addition solely on the basis of the so-called unsubstantiated and nonspecific Investigation Report of Kolkata Investigation Wing of the Income - Tax Department. The Assessing Officer's observation that the said company NCL Research and Financial Services Ltd. was a Penny Stock Company, and that it was improbable for its stock price to increase was an unsubstantiated sweeping observation and therefore was misplaced and misleading. 5.19 The Ld. AR placed reliance on several case laws which in sum and substance speaks that assumptions, presumptions, pure guess, suspicion, conjectures, surmises, have no role in assessment. In admissible material, irrelevant material have no place. Reliance was placed on Supreme Court decisions in case of Dhirajlal GirddhariLal V. CIT (1954) 26 ITR 736(SC) and Dhakeshwari Cott....
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.... prayed that impugned order should be set aside and addition of Rs. 1,04,05,769/ be deleted under section 68 of the Act. 5.29 Per contra the Ld. DR has gone by the orders of lower authorities i.e Ld. AO & Ld. CIT(A). 6. Observations, Findings & Conclusions 6.1 We now have to adjudge and adjudicate this second appeal basis premises laid down by us. 6.2 We have to decide the legality, validity and the proprietary of the "impugned order" in accordance with the provisions of law. 6.3 We observe that assessee has placed reliance on number of judgements of High Courts, Supreme Courts and Tribunal but not a single judgement was recited and relied upon during the course of hearing before us. To cite legal precedents as binding precedent have become ornamental how especially in pleadings, paper books, synopsis, written submissions etc. The relevant case law which are pari material with present facts and circumstances of case are seldomly relied upon. Tribunals are loaded with precedents. It is not stated that which case law is opt for present facts and circumstances of the case. Parimateria nature of case law is not cited. 6.4 By "impugned Assessment Order" dt. 31/12/2016 ....
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....above financials speaks volumes about financial health of the company. The objection of the assessee on this table of downloaded version of Ld. A is that it is from web page called"http//www.moneycontrol.com" which is not an authentic site. It is required to be noted and appreciated that material information so furnished in the table (supra) are not challenged at all further assessee has failed to demonstrate strong financial fundamentals miserably. We therefore hold that said company "NCL Research & Financial Services Ltd." have weak financial parameters which cannot command such a high price. Poor. Financial health perse has not been disputed by the Assessee in any manner and the rise in prices / astronomical price is just not explained and ignored, an appreoach wholly untenable in law. The assessee is not novice to the security market admittedly. He is an investor alongwith some family members as is recorded by Ld. AO hence it becomes a heavier burden on his part to explain how on paramountal consideration of financials of company, its price rose so much so that he made a "killing" in slightly more than a year's time. The assessee throughout has failed to discharge this elementa....
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....s and perhaps would have a given a lecture to Ld. AO how to earn money quickly in stocks and shares on floor of a exchange. In the instant case the assessee save and except to say that table (supra)j is not downloaded from a good web site has evaded to offer any just explanation. The assessee has even failed to mention that he had a tip which made him buy and sell the "NCL Research and Financial Services Ltd" scrip. 6.12 We are of the considered opinion basis inputs from investigation wing of the Income Tax Department; post purchase and sale of 7000 shares of "NCL Research and Financial Services Ltd." which dates are 30/04/012 the date of purchase and 20/05/2013 to 30/09/2013 the dates of sales, a detailed investigation was carried out which kicked off with a survey operations under section 133A on 27/05/2015 on business premises of "NCL Research and Financial Services Ltd" whereby senior officials of "NCL Research and Financial Services Ltd" were questioned and that all the material details are provided in the Ld. AO assessment order dt. 31/12/2016 (para 4.1, page 6,7,8,&9 of Ld. AO order). It is also recorded at para 4.3 of Ld. AO order that copies of swon depositions of one a....
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....ssed; by virtue of which 'impugned order' becomes vitiated including that of Ld. AO. 6.14 We are of the considered view that Ld. AR arguments that assessee is not impleaded in the investigation report holds no water as it is post "Traded Transaction dated" investigation. Revenue in the present case has been able to secure "Evidence" of artificial rise in penny stocks of "NCL Research and Financial Services Ltd" both by Investigation Wing report of Income Tax Department; trading pattern of scrip, steps taken by SEBI, financials of "NCL Research and Financial Services Ltd" and above all statements on oath of key officials of "NCL Research & Financial Services Ltd." These material evidence coupled with peculiar facts and circumstances i.e trading pattern of scrip of "NCL Research & Financial Services Ltd.", its meteorological rise and falls on flour of exchange etc. are not effectively rebutted, nor explained to demonstrate that both purchases and sale of "NCL Research & Financial Services Ltd." scrips were a market related phenomenon caused by market forces and in the process they made "Killing". While it is true that market sentiments cannot be gaged purely by financials of the s....
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.... in the scrips, ESOP announcements by scrip/company, CSR initiative by scrip/company the list is endless. Unfortunately suffice to say assessee save and except producing papers / documents of purchase / sale transactions of 'NCL' scrip has nothing positive to assert what factors genuinely made them to make "Killing" in stock market. Assessee fails on this score. Revenue is entitled in law to question such transactions and in a given case are also entitled in law to go behind the transactions to see real nature of transactions with a view to ascertain whether it is a real or sham / make believe or not. WE hold that very language of section 10(38) speaks of "any income arising from the transfer of a long term capital asset being an equity share in a company". The concept of STT, stock exchange, international financial centre etc too finds mention in it. Therefore the very nature of transfer of a long term capital asset transaction being an equity share in a company is required in law to be ascertained and inquired into by tax authorities in order to determine whether the claim of the assessee is really genuine or bogus. If after such determination and inquiry if it is found that the ....
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.... of LTCG. Per contra Department has proved that there was price rigging, accommodation entry provided, action taken by SEBI, weak financials, and finally the statements of MD and other Directors admitting that scrips prices were rigged and entry provided. We hold that merely because Revenue could not get hold of 'Manish Baid' who was implicated as mastermind person who was brain behind the scam ip so facto does not means that prices were not rigged, there was no circular trading and accommodation entry were not provided for. 6.15 We are of the considered view after examining the material on record that transaction of share transfer right from purchase to sale is a colourable device deliberately created to give a colour of genuineness which is not permissible in law. We gainfully place reliance on the judgment of Hon'ble Supreme court of India in case of Mcdowell Ltd. Vs. CTO reported in 154 ITR 148(SC) which though permits tax planning but not colourable devices to evade taxes and to hood wink the tax authorities. 6.16 We hold that tax exemption claimed of LTCG is on basis of structured deals. The Ld. AO and Ld. CIT(A) have rightly made addition by denying the laim made and h....
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....ured deals no doubt on floor of the exchange. The documents of transactions both buy and sale are mere mask to hid the real nature of transactions. We are of the considered view basis material on record that very initial investment into a unknow credential with weak financials and subsequent jump in the share price is not an accident or wind fall but because of manipulation in price of shares in a pre planned manner by Shri Manish Baid, and Chairman / MD and other Directors of "NCL Research & Financial Services Ltd." scrip. We hold that initial onus lies on assessee to prove how the shares of "NCL Research & Financial Services Ltd." rose so fast and so quick. What are its financial fundamentals, financial analysis of scrip from point of view of stock market depicted by graphs etc. The assessee has failed in this regard. Hence upon failure to give plausible explanation and discharging initial burden of proof the Ld. AO has rightly disapproved the documents of LTCG as not genuine in so far trade transaction which it covers. We therefore hold that price of scrip NCL went up multifold times within a short span without corresponding financials and profits and hence transaction is sha....
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.... owing to bogus nature of transaction by virtue of which prices were rigged and accommodation entry was indeed provided. 6.18 We hold that reply of the assessee during the course of the assessment proceedings are general in nature. The Department has unraveled the truth behind the transactions basis detailed investigation. The general explanation about transaction that everything is through banking channels, DMAT, through broker, etc. ipsofacto does not prove genuineness of transaction. SEBI too after thorough Investigation has certified that such transactions were rigged and are carried out to convert black money into white. We therefore conquer with the findings of Ld. AO and same sustained by CIT(A) that credit in the bank account of the assessee cannot be treated as explained and is therefore liable to be added to income of assessment for tax under section 68 of the Act. In the instant case authorities have rightly followed the dictum of Hon'ble Supreme Court of India that test of preponderance of human probability is required to be judged on the basis of surrounding circumstances. We conquer with the findings that there was indeed a scheme for which there is no doubt indeed....
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....ering the details and facts gathered through its own sources and surveillance system and from the Investigation Wing, passed some orders on the issue of manipulation of share market for providing accommodation entries of bogus LTCG and suspended the share transactions of a number of Companies including that of the above -named Company, The assessee was required to comment on the outcome of the investigation carried on by the Investigation Wing of the Department. iii. Admissions by the Chairpersons, Managing Directors and other Directors of the Companies through their Statements on Oath recorded during the course of Survey Operations: During the course of Search & Seizure and Survey operations on a large number of Companies, including the above named company, statement on oath were recorded,. the Chairpersons, Managing Directors and other Directors of the Companies through their Statements on Oath recorded during the course of Survey Operations have admitted of the fact of rigging of prices of shares and act of providing of accommodation entries in the grab of Long Term Capital Gains. During the course of search/survey operations., the Chairman and Managing Director and oth....
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....iding of accommodation entries in the grab of Long Term Capital Gains. The assessee was required to comment on die outcome of the investigation carried on by the Investigation Wing of the Department. However, the assessee commented "that she has got nothing to do with this report since her name is nowhere in the report." vi. Affirmation/Admission by Sh. Rahul Dev and others i.e. the laymen who were not the part of above-said gamut through their Statements on Oath recorded In the Investigation Wing: There emerged another evidence of rigging of shares from the appearance of Sh. Rahul Dev and others, who aecidently/by ignorance bought the shares of a penny stock company, who went to sell the shares of the company, when the prices were high. They were told that the shares could be sold on high prices by paying money in cash in advance and then only they shall be getting the sale consideration in the bank accounts. The statements of Sh. Rahul Dev and others were also recorded on oath. vii. Recorded Discussion on Black Berry Mobile between Sh. Ritesh Jain, a prominent Broker and Sh. Deepak Patwari, another prominent Broker establishing the modes Operandi of the sham Tra....
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....us LTCG (reference SEBI order in the above named company's case). xiv. Low or Negligible Earning Per Share(FPS) of the Companies involved in Rigging: The EPS of the company is in negative from the date of purchase to the date of sale. The intention behind investment in purchase of shares of the company by the assessee and the rise in prices of shares of the company with EPS in negative also raise questions. xv. Voluntary Surrender of a number of persons who have shown and claimed Exemption of Income on a/c of Long Term Capital Gains on Transactions of Suspicious Shares of the above said Company: There is a substantial number of assessees all over the country, who have, for buying peace of mind and for avoiding any kind of litigation have surrendered the amounts of capital gains shown earlier as income either in the revised returns of income or disclosed in Income Declaration Scheme. xvi. It is No Denying (hat Such Schemes arc Prevalent in the Market: xvii. General Public not Interested in Buying these Shares: Moreover, these .share were not within the reach of general public during the period of rigging: The shares purchased are such, in whic....
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....ess, stands since settled by the apex court in Sumati Dayal v. CIT(1995)214 ITR 801 (SC) wherein the apex court, in declaring the transaction as non- genuine, discarded a host of documentary evidences filed or relied upon by the assessee - appellant. That documentary evidences are not by themselves conclusive, and the truth of the matter or the documents could be determined on the basis of or on the anvil of the surrounding facts and circumstances of the case is well settled, and reliance is placed on the decision in the case of Durga Prasad More 82 ITR 540(SC). 6.21 We are also in conformity with the findings of Ld. CIT(A) in respect of his following observation: 4.10. In view of the discussion made above and considering the facts and circumstances of the case, the following facts become manifestly clear:- 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 Stock used for the purpose clearly indicate that its quoted price at the peak was the result of rigging. iii) The above mentioned facts have been independently also been confirm....
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....ee & othrs. V. CIT (1963) 49 ITR 112 (SC) (vii) Kalekhan Mohammed Hanif v. CIT (1963) 50 ITR 1 (SC) (viii) CIT v. Biju Patnaik (1986) 160 ITR 674 (SC) (ix) CIT v. P. Mohanakala & Others - (2007) 291 ITR 278(SC) 6.23 We hold ta tassessee has failed to establish that scrip "NCL Research & Financial Services Ltd." was capable to to command high price in stock market. 6.24 We also hold that share transaction documents were created as masks to cover the true nature of transaction. A genuine transaction must be proved to be genuine in all respect meaning thereby from top to bottom and even behind the transaction in order to avail benefit of LTCG. That the onus was on assessee to prove that the transaction leading to claim of LTCG was distinctly genuine transaction indeed and not bogus, premeditated transaction arranged with a view to evade taxes. 6.25 We hold that it was assessee who was asserting a claim that he was indeed engaged in genuine share transactions. We gainfully refer to the judgement of Hon'ble Supreme Court of India in case of Shri Charan Singh Vs. Chandra Bhan Singh AIR 1988 SC 637 wherein Hon'ble Apex Court has clarified that the burde....
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....olvement of 22 Brokers who were covered in the investigation, purchase and sale of price was rigged in 84 company shares. The report further stated that several big brokers like Anand Rathi, Religare and SMC were also involved and all manipulations were done through stock exchanges and several dummy/shell companies bank accounts were utilised and the Department was able to establish full trail of cash to the extent of Rs. 1575 crores. (Para 53 of Hon'ble Kolkata High Court decision). The assessee's contention that investigation report of DGIT(Inv) Kolkata was not furnished to her and cross-examination opportunity was not provided to her was dealt by Hon'ble Kolkata High Court and it was held that these issues will not vitiate proceedings of Revenue nor they are required to be given to assessee because the respective AOs have clearly mentioned the nature of investigation done stating that the investigation was commenced not from assessee's end but the individuals who dealt with these penny stocks were targeted. It is equally true that the assessee could not establish the prejudice caused to them for not giving opportunity to cross-examine them. (Paras 55 to 67 of Ho....
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.... (Del), CIT Vs. Nipun Builders Ltd. 350 ITR 407 and held that mere issuance of cheque and providing bank detail would not be sufficient to discharge the liability of assessee in view of the link between entry providers and incriminating evidence. In this case of Swati Bajaj, Hon'ble Kolkata High Court has mentioned that several assessees who were involved in this penny stock scam all over the country availed Vivad Se Vishwas Scheme, paid taxes and withdrew their appeals pending at various stages at that time. In this case of Swati Bajaj, the Ld. CIT(A) has confirmed the addition made by AO by holding that payments were made through bank, transactions were done through stock exchange and other features are only apparent features and the real feature were manipulated with abnormal price upwards and sudden dip thereafter and held that the transactions would fall within the realm of suspicious and dubious transaction. Thus, the Ld. CIT(A) concludes by holding that considering the facts of the assessee's case and the preponderance of probabilities against the assessee, the entire capital gains demand has to be treated as fictitious and bogus more particularly when ....
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....39;ble Delhi High Court's decision of Suman Poddar Vs. PCIT [2019] 112 taxmann.com 329 (Delhi)where it was held that the share transactions were bogus because the company whose shares allegedly purchased were of penny stock and this decision was affirmed by Hon'ble Supreme Court vide 112 taxman.com 330 (SC)(2019). The Hon'ble court has opined that in this type of cases, cross-examination opportunity is not required because statements and other material found in the course of investigation were used as a corroborative material to strengthen the findings of AO. The AO made the addition based on several factors and analysis to prove that there is no genuineness in the transaction and utilised the statements of operators as corroborative evidence only . 6.31 Reliance is placed on the decision of Hon'ble Supreme Court in the case of SEBI Vs. Kishore R. Ajmera (2016) 66 taxman.com 288 for the proposition that direct evidence is not material, and it was held as follows:- "Court has pointed as to the important aspect with regard to the proximity of time between the buy and sell orders, prior meeting of minds, unnatural rise in the prices of the scrips and how the co....
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.... transactions were done through stock exchange and money received through banking channels were considered and then only the exemption u/s. 10(38) was denied because these affairs are all preconceived and arranged affairs which lack genuineness. The same decision was rendered in the case of Sandeep Bhargava Vs. ACIT Delhi, 109 taxman.com 174 (Delh-Trib). 6.36 Shamim M. Bharwani Mumbai Vs. ITO-19(3)(4), Mumbai ITA No. 4906/Mum/2011 (A.Y. 2006-07), Hon'ble Mumbai ITAT : In this case, it was held that, a penny stock company, Eltrol Ltd., exposing the modus operandi adopted by assessee, in the case of such stocks, the price, dehorse any fundamentals or other factor, of paper companies being raked up on the exchange, so as to yield "gain" and then again, equally, without basis, grounded to yield "loss", both of which, i.e., "gain" and "loss" find ready customers or takers. The purpose is to evade tax. The Ld. CIT(A) wrongly dismissed the Revenue's case by glossing over the many attendant facts and incidents, the most vital, and on which we observe complete silence or absence of any explanation, is the absence of any credentials of investor company. It was further held that the do....
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....uire any interference on our part. We accordingly, uphold the action of the Ld. CIT(A) on the issue in dispute and dismiss the grounds raised by the assessee on this issue." 6.38 In the case of Rajkumar B. Agarwal vs. DCIT (ITAT Pune), Bench "B" ITA Nos. 1648 & 1649/PUN/15, it was held as follows :- "The assessee completed paper-trail by producing contract notes for purchase and sale of shares of PIL. Mere furnishing of contract notes etc. does not inspire any confidence in the light of facts. Test of human probability should be applied and apparent should be ignored to unearth the harsh reality (Sumati Dayal 214 ITR 801 (SC) & Durga Prasad More 82 ITR 540 (SC) applied)". 6.39 In the case of Pooja Ajmani Vs. ITO (ITAT Delhi) April 25, 2019 ITA No. 5714/Del/2018, it was held as follows :- "10(38) Bogus Capital Gains From Penny Stocks : u/s. 101 of Evidence Act, 1972, the onus is on the assessee to prove that the LTCG is genuine. The assessee cannot on failure to establish a prima facie case, take advantage of the weakness in the AO's case. The jump in the share price of a company of unknown credentials cannot be an accident or windfall but is possible because....
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.... Rs. 3 to Rs. 55 in a short span of time. Mere payment by cheque does not render a transaction genuine. Capital gain tax was created to operate in a real world and not that of make belief. Facts of the case only lead to the inference that these transactions are not genuine and make believe only to offset the loss incurred on the sale of jewellery declared under VDIS. In the totality of facts and circumstances of this case and material on record, we are of the considered view that the CIT(A) was not justified in deleting the impugned addition We accordingly set aside the order of the CIT(A)and restore that of the AO." 6.43 Chennai ITAT in the case of Rajnish Agarwal in I.T.A.No.1419/CHNY/2018 has held that the penny stock of SRK Industries Ltd. is not having any financial strength of its own and the sale and purchase of these shares were held to be sham and LTCG u/s. 10(38) was denied to the assessee. 6.44 Similarly, in the cases decided by various Tribunals of the country as mentioned below also, have held that the penny stocks without financial fundaments to support the astronomical price rise of hundreds of times within short span of one to two years, are sham transactions ....
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....gical conclusion that can be made from the sequential perusal of the above detailed facts is that the impugned shares were actually purchased by the assessee on given dates as these stand reflected in D'mat account maintained with the HDFC bank. The dividend declared on the same has been received and credited in the assessee's bank account which is further found recorded in the Income-tax return and allowed as exempt by the Assessing Officer. As against this clear documentary evidence in favour of the appellant, the Assessing Officer has merely rejected the contention of purchase on the basis of suspicion arising out of reckless/casual replies given to various questions raised by the Assessing Officer in the assessment proceedings. It is important to appreciate here that the assessee had been subjected to search and seizure proceedings under section 132 of the Income-tax Act, 1961 and the search proceedings did not lead to recovery of any incriminating evidence to show that the transaction of purchase of shares was arranged as suspected by the Assessing Officer. It is also seen that no post-search enquiries on the issue had been conducted in the form of recording the statement ....
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....ee had paid STT on the sale of such shares and this fact has been noted by the learned Commissioner of Income- tax (Appeals) in his order. Further, we find that while making out the addition on account of capital gains the Assessing Officer himself gave credit to the assessee for indexed cost of acquisition to the extent of Rs. 11,67,821 taking the purchase price at Rs. 11,00,000. Further, we find that the assessee had sold shares through MTL shares and Stock Brokers Limited as is noted by the Assessing Officer in reply to question No. 24 which is a SEBI registered stock broker. Furthermore the payment for sale of shares was received through banking channels. All these documentary evidence in favour of the assessee were rejected by the Assessing Officer merely on the basis of some casual replies given by the assessee to the Assessing Officer. However, the fact remains that all the documentary evidence are in favour of the assessee and the learned Commissioner of Income-tax (Appeals) has passed a very reasoned and speaking order and we do not find any infirmity in the same. 6. The findings recorded by the Commissioner of Income-tax (Appeals) and the Tribunal are pure findin....
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....chased and sold the shares in the same assessment years. The Assessing Officer in both the cases added the appreciation to the assessees' income on the suspicion that these were fictitious transactions and that the appreciation actually represented the assessees' income from undisclosed sources. In Hitesh Gandhi's case (supra) also the CIT (Appeals) and the Tribunal held that the Assessing Officer had not produced any evidence whatsoever in support of the suspicion. On the other hand, although the appreciation is very high, the shares were traded on the National Stock Exchange and the payments and receipts were routed through the bank. There was no evidence to indicate for instance that this was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner. 5. In these circumstances, following the judgement in Hitesh Gandhi's case (supra), it must be held that there is no substantial question of law in the present appeal. 6. Question (iv) has been dealt with in detail by the CIT (Appeals) and the Tribunal. Firstly, the documents on which the Assessing Officer relied upon in the appeal were not put to the a....
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....nd other fundamentals of the scrip as a ground to deny LTCG. 6.46 We have also perused the judgment of Hon'ble Bombay High Court in case of CIT Vs. Mukesh Rati Lal Marolia dt. 07/09/2011 in ITA No. 456 of 2007 and we are of the considered view that the facts therein are totally different which we reproduce as below: 1 Whether the ITAT was justified in deleting the amount of Rs. 1,41,08,484/- received by the Assessee on sale of the shares as unexplained investment under section 69 of the Income Tax Act, 1961 is the question raised in this Appeal. 2 The Assessment Year involved here in is A.Y.2001-2002. 3. The Assessee was carrying on business of manufacturing handkerchiefs as the proprietor of Rumal Manufacturing Company. In the Assessment Year in question the Assessee claimed that he had sold the shares of four companies, namely, M/s Alang Industrial Gases Ltd., Mobile Telecommunication Ltd., M/s Rashel Agrotech Ltd. and M/s. Sentil Agrotech Ltd, which were purchased during the year 19992000 and 20002001. The entire sale consideration amounting to Rs. 1,41,08,484/- was utilised for the purchase of a flat at Colaba, Mumbai and accordingly benefit of sec....
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....ore are of the view that the Ld. AR has placed reliance on a case law where the facts are materially different than that of instant case in hand. 6.47 We have also perused the judgment of Hon'ble Calcutta High Court in case of CIT Vs. Carbo Industrial Holding Ltd. reported in (2000) 244 ITR 422 (Cal) (page 63,64,65 & 66 of Paper Book Volume II) wherein too the facts are different from the facts of the present case. The core issue therein was that the broker had not appeared despite summons and it was held that mere non appearance by broker would not disentitle the assessee from claim of loss hence this case is distinguishable from the facts of the present case. 6.48 The assessee has placed reliance on the following case law in sequence: (i) ITO 1(3) Vs. Smt. Renu Aggarwal (ITA No. 204/LKW/2020 for A.Y 201415)(page 244 to 268 of Vol 3 Paper Book). We notice that the Hon'ble ITAT SMC Lucknow Bench was examining the issue whether the sale of shares was a natural phenomena or was an arrangement of dubious design of providing accommodation entry of LTCG. The entire set of facts therein and material evidences are of different type than the peculiar facts and circumstances ....
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....ck money by giving accommodation entry to several players in the market on pan India basis of "NCL Research & Financial Services Ltd." which had a very weak financial fundamentals to command such a high price. The financial fundamentals and other fundamental factors of the scrip, background of the promoters of the scrip, the corporate history and performance of the scrip / company were unraveled and Revenue realized that the exchequer was defrauded by way of LTCG exemption. The transfer of transaction of capital assets when opened must meet the basic parameters of high price due to strong fundamentals including financials, dividend history of the scrip, bonus, the performance of the scrip as a 'corporate entity' in terms of profitability, market sentiments etc as discussed above in preceding paragraphs. We therefore hold that the facts and circumstances of the present case are very peculiar where the Revenue has gone behind the transaction of capital assets to know the real picture of sudden volatility in the prices of the scrip. The present case is therefore required to be adjudge and adjudicated on the given set of facts and evidence. Many authorities have been given in the paper....