AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 1485
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....hat the Ministry of Corporate Affairs vide letter F.No.03/73/2017-CL-II dated June 2017 to SEBI was categorized as a shell company. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in allowing the short term capital gains earned from scrip of Pro Fin Capital Services Ltd. amounting to Rs. 1,64,68,624/- as genuine, when SEBI had imposed fine on the assessee for disclosure lapses with regard to trading in the shares of Pro Fin Capital Services Ltd. and the observation of the Assessing Officer that, what is apparent cannot be considered as real in the case of the assessee as the assessee had exhibited behavior of associating himself with companies which are engaged in fraudulent booking of LTCG/Loss and STCG. 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in upholding that the Short Term Capital Gains of the assessee were real and genuine without analyzing the incriminating circumstances like the nature of stocks in which the transactions were undertaken by the assessee, even when, the AO in the assessment order had held that the assessee tends to associate hims....
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....short-term capital loss from scrip Trinity Tradelink Ltd. amounting to Rs. 2,25,856/- as genuine without considering the fact that the Ministry of Corporate Affairs vide letter F.No.03/73/2017-CL-II dated June 2017 to SEBI was categorized as a shell company 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in upholding that the Long Term Capital Gain and Short Term Capital Loss of the assessee were real and genuine without analyzing the incriminating circumstances like the nature of stocks in which the transactions were undertaken by the assessee, even when, the AO in the assessment order had held that the assessee tends to associate himself with companies which are engaged in fraudulent booking of LTCG/Loss and STCG, and, therefore, whether what appears to be apparent is real in the case of the assessee, is to be determined, only after analyzing the incriminating circumstances as held by Hon'ble Apex Court in Sumati Dayal vs CIT (214 ITR 801). 4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in holding that the Long-Term Capital Gain and Short Term Capital L....
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....e determined, only after analyzing the incriminating circumstances as held by Hon'ble Apex Court in Sumati Dayal vs CIT (214 ITR 801). 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in holding that the Long-Term Capital Gains of the assessee were real and genuine without analyzing the incriminating circumstances given the dismissal of SLP by Hon'ble Apex Court in SLP (C) No. 21636/2024 in the case of Manoj Jain (HUF) against the order of Hon'ble High Court of Kolkata in GA No. 1/2024 in which the Hon'ble High Court held that no substantial question of law arises in the order passed by ITAT, Kolkata in ITA No. 1782/Kol/2018, and the Hon'ble ITAT in the aforesaid order relying upon the judgement of Hon'ble Kolkata High Court in the case of Swati Bajaj & Others where it was held that the transactions of earning long term capital gains of penny stock companies as bogus based on the test of preponderance of probability gathered from various circumstances like volume from trade, steep rise in price of equity shares not commensurate with the financial of the alleged penny stock companies etc. and dismis....
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....that the Court has held that the assessee has not indulged into taking any accommodation entry and that the gain made through such share transactions are genuine. In the case of Principal Commissioner of Income Tax 3 Mumbai vs Ziauddin A Siddique, ITA No,2012 of 2017, dated 04/03/2022, the Hon'ble Bombay High Court has, thus, held that: "2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ("RFL") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ("STT") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL. 3. Therefore we find nothing perverse in the order of the Tribunal. ....
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....ceived payment from Kolkata Stock Exchange. The cheque received was deposited in respondent's bank account. In view thereof, the CIT[A] found there was no reason to add the capital gains as unexplained cash credit under Section 68 of the Act. The tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The ITAT therefore, in our view, rightly concluded that there was no merit in the appeal. 5. We also find no infirmity in the order passed by the ITAT and no substantial questions of law as proposed in the appeal arises." I further find that the Appellant has also placed reliance on various decisions of Hon'ble ITAT Bombay, wherein, on identical facts relief has been allowed to the assessee. In the case of Mrs Pallavi Mayur Gandhi vs ITO, ITA No.2251/Mum/2022 dated 19/04/2023, the Hon'ble Tribunal has, thus, held as under: "13. We heard the rival contentions assessee has furnished all the details in support o....
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....the investigation, connected the Assessee in some way or either with these brokers and the persons floating the two companies. It is only, after the Assessee who is supposed to dealing in shares and producing all the details including the DMAT account, the Exchange at Calcutta confirming the transaction, that the Appeal of the Assessee has been rightly allowed. The Tribunal has not merely interfered with the concurrent orders because another use another view was possible. It interfered because it was required to interfere with them as the Commissioner and the Assessing Officer failed to note some relevant and germane material. In these circumstances, he submits that the Appeals do not raise any substantial question of law and deserve to be dismissed. 5. We have perused the concurrent findings and on which heavy reliance is placed by Mr. Sureshkumar. While it is true that the Commissioner extensively referred to the correspondence and the contents of the report of the Investigation carried out in paras 20, 20.1, 20.2 and 21 of his order, what was important and vital for the purpose of the present case was whether the transactions in shares were genuine or sham and bogus. If....
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....A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vitiated by any error of law apparent on the face of the record either. 7. As a result of the above discussion, we do not find any substance in the contention of Mr. Sureshkumar that the Tribunal misdirecte....
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....he given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raiscs any substantial question of law." 15. We notice that the identical allegation of non-genuine long term capital gains generated on sale of M/s Shreenath Commercial & Finance Ltd was examined by the co-ordinate bench in the case of Mr Ripu Sudan Kundra vs. ITO (ITA No.2792/Mum/2018 dated 05-10-2021), wherein it was held as under:- "We have given our anxious thought and consideration to the matter in hand. The AO has disallowed the claim of the assessee based on analysis of the information received from Directorate of Investigation as a result of enquires undertaken by the officers of the Directorate. Based on the said information received, the AO has observed a pattern in the trading in scripts of those companies that has resulted in the claim of short-term capital loss to the assessee. e. Such companies were seen to have little financial credentials, no profitability and no apparent explanation for in prices followed by a steep fall in price of shares. Besides, abrupt rise in price t....
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.... against the assessee were not provided to the assessee. It certainly has incapacitated the assessee from effectively rebutting the same and also from seeking an opportunity for cross examination. When copies of statements relied upon were not provided, when there was no opportunity to cross examine those witnesses whose statements were relied upon by the AO to conclude that the transaction in question was part of penny scam, we have no hesitation in holding that the lower authorities erred in disallowing the claim stating that the assessee failed to provide cogent and convincing reply to the allegations raised. We observe from the record that in identical situation the Coordinate Bench of ITAT in ITA Nos. 4843 & 1228/Mum/2018 for Assessment Year 2013-14 & 2014-15 in the case of Ramprasad Agrawal Vrs. ITO (reported in [2018] 100 taxman.com 172 - Mum Trib) and Kamla Devi S. Doshi vrs. ITO reported in 88 taxmann.com 773 (Mum-Trib) decided the issue in favour of the assessee on merits. From the above decision, it is trite that denial of such crucial rights is a fatal flaw that renders the assessment order a nullity. An assessment purely based on suspicion, surmises and conjectures wit....
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.... Officer and prayed that the impugned order passed by the learned CIT(A) be reversed. He submitted that the transactions are colourable device and corporate vial may be lifted. 7. Per-contra, the learned Authorised Representative for the assessee submitted a detailed synopsis and prayed that the impugned order passed by the learned CIT(A) be upheld. He meticulously took us through the submissions in the Paper Book and harped upon the fact that the clean cheat is extended by Security Exchange Board of India (SEBI). The synopsis is reproduced below for reference:- "Most Respectfully Showeth, Response to the Grounds of Appeal filed by the Appellant - GROUND 1- A. "Whether on the facts and circumstances of the case, the Id. CIT(A) was correct in allowing the short term capital gain of Rs. 3,11,34,325/earned by the assessee as genuine without considering the fact that Ministry of Corporate Affairs published list of companies declared as shell companies and category marked against Iris Media Works Ltd. was SFIC i.e. Serious Fraud investigation Category and against Trinity Tradelink Limited was ASRC." 1. Based on the information received fro....
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....tive, fraudulent and an unfair trade practice in the securities market without there being any direct or indirect manipulation of the price of the securities of the Company. Inote that there is no bar on taking action by SEBI on the basis of a FAR, invoking provisions of PFUTP Regulations, 2003 and other similar provision of SEBI Act, 1992 related to fraud, if, after examination of the matter, including the FAR, SEBI finds that there was impact on the securities market or the price of the scrip, which are ingredients to prove violations of PFUTP Regulations, 2003. I further observe that the definition of fraud as given under Regulation 2(1) (c) and as interpreted by the Hon'ble Supreme Court of India in Securities and Exchange Board of India and Ors v. Kanaiyalal Baldevbhai Patel and Ors. (2017) 15 SCC 753, makes it clear that 'inducement' is required to constitute 'fraud' under PFUTP Regulations 2003 and must be made while 'dealing in securities' and must be made for the purpose 'to induce others to deal in securities'. The allegations made in the SCN does not bring out findings or any facts relating to impact on trading in securities or these e....
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....see without considering the fact that Kolkata Investigation Wing has thoroughly investigated and proven the modus operandi of conversion of unaccounted income to counted one through penny stock by claiming bogus LTCG and STCG Loss." 10. How the case of the appellant is not covered by investigation report of the DDIT Inv Kolkata a. In the instant case of the assessee, the assessee has earned SHORT TERM CAPITAL GAINS and same is offered to tax in its return of income hence report of DDIT Inv Kolkata is not applicable Ab Initio. b. On perusal of the Judgement, it is seen that they have relied upon the investigation report of the DDIT Inv Kolkata wherein the detailed modus operandi has been given in case of penny stock transaction. C. On perusal of the investigation report of the DDIT Inv Kolkata, it is seen that modus operandi explained in the report is not applicable in case of the assessee ab initio. As per the investigation report, the modus operandi stated, the investors has purchased shares at minimal price and then there is sudden rise in the price of the penny scrip which is not in ordinary course and during the price at peak, the investors h....
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.... the case of the assessee is fully distinguishable. iv. Distinction of facts of chapter 6 of the report Details of Jamakharchi companies/ Bogus Clients used for purchasing shares of listed penny stocks for providing Long Term Capital Gain to Beneficiaries. It is submitted that none of the observations referred to in Chapter 6 of the report are directly or indirectly applicable in the case of the assessee. The assessment order dose not refer to any indulgence of the assessee in any of the activities described in Chapter 6 and hence the case of the assessee is fully distinguishable. v. Distinction of facts of chapter 7 of the report - Sample Cash Trail of 1500 Crore Rupees. It is submitted that none of the observations referred to in Chapter 7 of the report are directly or indirectly applicable in the case of the assessee. The assessment order dose not refer to any indulgence of the assessee in any of the activities described in Chapter 7 and hence the case of the assessee is fully distinguishable. vi. Distinction of facts of chapter 8 of the report - SEBI Action & Beneficiary's Covered under search/surveys It is submitted tha....
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....ase that investigation has revealed that the scrip was a penny stock and the capital gain declared was held to be accommodation entries. A broker Basant Periwal & Co. (the said broker) through whom these transactions have been effected had appeared and it was evident that the broker had indulged in price manipulation through synchronized and cross deal in scrip of RFL. SEBI had also passed an order regarding irregularities and synchronized trades carried out in the scrip of RFL by the said broker. In view thereof, respondent's case was reopened under Section 148 of the Act. While allowing the appeal filed by respondent, the CIT[A] deleted the addition made under Section 68 of the Act. The CIT[A] has observed that the A.O. himself has stated that SEBI had conducted independent enquiry in the case of the said broker and in the scrip of RFL through whom respondent had made the said transaction and it was conclusively proved that it was the said broker who had inflated the price of the said scrip in RFL. The CIT[A] also did not find anything wrong in respondent doing only one transaction with the said broker in the scrip of RFL. The CIT[A] came to the conclusion that respondent bro....
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....r of the Tribunal. 4. Mr. Walve placed reliance on a judgement of the Apex Court in Principal Commissioner of Income Tax (Central)- 1 vs. NRA Iron & Steel (P) Ltd (2019) 103 taxmann.com 48 (SC) but that does not help the revenue in as much as the facts in that case were entirely different. 5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law. 6. The appeal is devoid of merits and it is dismissed with no order as to costs." e. Mumbai bench ITAT in case of YOGESH P THAKKAR ITA 1605/Mum/2021 order dated 03.02.2023 "5.14. We find that the Id. DR had relied on the decision of Hon'ble Calcutta High Court in the case of PCIT vs Swati Bajaj reported in 139 taxmann.com 352 which is an elaborate decision rendered after considering various decisions of various High Courts on the subject. In the said decision, it was held that assessee had to establish the genuineness of rise of price of shares within a short perio....
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....ding to him, assessee has made bogus claim of LTCG, to convert her unaccounted income to white by bringing it into regular books (accounted income). However, we find that investigation report of department is a general-report, which has not spelled out any wrongdoing on the part of assessee or her broker. Therefore, the reliance made by AO on the general- report of investigation wing cannot be accepted. Likewise, the AO has also referred to the statement given by Shri Vipul Bhatt which also does not contain any direct testimony to incriminate the assessee or her broker (Anand Rathi share and stock broker Ltd) in any wrong-doing [wrongdoing as reported in the investigation report/modus-operandi]; Further, we note that department's case is not that the name of assessee or her broker finds mention in the list of 83 entities/persons identified by SEBI as having acted in concert with M/s. Sunrise and its directors to manipulate the price as given in SEBI order dated 19.12.2014. It is not disputed that no action has been taken by SEBI against the assessee or her broker M/s. Anand Rathi. So the reliance placed by AO on SEBI order without linking it with assessee or her broker is irrel....
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....was correct in upholding that the Short Term Capital Gains of the assesses were real and genuine without analysing the incriminating circumstances like the nature of stocks in which the transactions were undertaken even when the AO in the assessment order had held how the assessee tends to associate himself with companies which are engaged in fraudulent booking of LTCG/loss i.e. preponderance of probability and AO had relied upon the judgement of Hon'ble Supreme Court in Sumati Dayal vs CIT (214 ITR 801). which states that whether apparent is real is to be decided based on incriminating circumstances which are seen in this case." 13. It is humbly submitted that the AO has baselessly claimed that "assessee tends to associate himself with Trinity Tradelink Ltd." however he has failed to provide any evidence of said association. It is humbly reiterated that the assessee is a mere ordinary public retail investor, who is not associated or related to Trinity Tradelink Ltd. in any way whatsoever. 14. Further, the reliance of the revenue on Sumati Dayal vs CIT (214 ITR 801) is misplaced as the said case is beyond the realm of preponderance of probabilities and assumpt....
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..... CITIA) was justified in holding that the Long Term Capital Gains of the assessed were real and genuine without analysing the incriminating circumstances in view of dismissal of SLP by Hon'ble Apex Court in SLP (C) No. 21636/2024 on the issue of bogus capital gains claim in penny stock transaction case and upholding the order of the Hon'ble High Court of Calcutta in which the Hon'ble Court has upheld the decision of Hon'ble ITAT which had relied upon the ratio of the judgement of Hon'ble High Court of Calcutta in Swati Bajaj and others case in which transactions of earning long term capital gains of penny stock companies were held as bogus based on test of preponderance of probability gathered from various circumstances like volume from trade, steep increase in price of the equity shares not commensurate with the financial of the alleged penny stock companies etc" 20. It is further reiterated that all trades undertaken by the assessee in all the 3 scrips were done via - a. Banking channels via accounts declared in Income tax return for payment of consideration to purchase shares and for receiving consideration after sale of shares. b.....
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....d in the investigation report, it is clearly seen that investors has transacted in penny stock either to earn exempt LTCG or bogus LTCL / STCL. Nowhere in the report it is stated that investors have entered into transaction to earn bogus STCG. e. Thus, merely making assumption that since assessee has traded in the penny stock, whatever earned or loss incurred are bogus is bad in law and violation of natural justice to the assessee. f. Further, scrips traded by the assessee in the given financial year are not mentioned in DDIT (Inv) Kolkata report. g. In the judgement of the Swati Bajaj, the hon'ble Court has relied upon investigation report and has accepted the cases where bogus LONG TERM CAPITAL GAINS have been earned. h. Since, the primary facts involved in the case of the assessee are completely distinguishable from the facts involved in the case of Swati Bajaj, the reliance on the judgement of Swati Bajaj shall lead to denial of natural justice to the assessee. i. Accordingly, no reliance can be placed on the judgement of Swati Bajaj & Ors as facts are completely distinguishable and different. It is thus humbly prayed th....