TaxTMI 
TaxTMI 
2025 (11) TMI 619
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....ed on same set of facts. Hence, all these appeals were heard together and are being disposed of by this common order for the sake of convenience. 2. The additions relating to estimated commission income relating to trading in shares and handling of cash, made by the AO in all the years under consideration were deleted by Ld CIT(A) and hence the revenue is challenging the orders passed by him. 3. In the cross objections, the assessee has raised certain legal grounds besides supporting the orders passed by Ld CIT(A). 4. The facts relating to the case are discussed in brief. The assessee herein is an Individual and director of a public listed company named M/s Confidence Finance and Trading Ltd (CFTL). The income tax department carried out search and seizure operations on various stock brokers and during the course of search action, it came to light they are manipulating the prices of shares of certain companies in order to generate bogus long term capital gains, which could be given by way of accommodation entries to various beneficiaries. It was noticed that the share prices of M/s Confidence Finance and Trading Ltd have also been manipulated by them. 4.1. It was noticed....
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....h fundamentals etc. The AO has also referred to the statements given by certain operators/exit providers, viz., Shri Chandrakant Babu Mohite, Shri Pradeep Dhanuka (director of Rupak Developers P Ltd, VRP Financial Services P Ltd and Romy Realty P Ltd) and noticed that both the persons are of no means and their name has been used by certain operators. The AO also referred to the statement recorded from the assessee during the course of search and observed that the assessee did not give proper answers to most of the questions. The AO has also observed that the assessee did not give details of allottees of preference shares, board resolution etc in support of the allotment. 8. Accordingly, the AO came to the conclusion that the assessee has earned commission income in providing bogus long term capital gains and short term capital loss/trading loss by using the shares of M/s CFTL. For arriving at the quantum of commission, the AO collected from BSE the details of trading value done in the shares of above said company and estimated commission income @ 2% of the value of trading done in the stock exchange in all the years under consideration. 9. During the course of search action, ....
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....CFTL or the directors of the above said company. Hence, they have discharged the company and assessee by passing following order:- "33. In view of the aforesaid facts and circumstances of this case, since the connection of VRP and CFTL by way of funds transfer could not be established, I am inclined to hold that the Noticee 1 to 5, i.e., the company and its directors were not involved in the manipulation of the price of the scrip as alleged in the SCN." The Notice No.1 to 5, were the above said company, the assessee herein and three more persons. The SEBI investigated whether the funds transferred between various companies were used for buying shares of CFTL with the motive of manipulating prices of shares or not. Finally SEBI noticed that the company and its directors were not involved in the manipulation of prices of shares. (d) that the AO has not identified any cash trail to prove his allegation that the assessee has earned commission in rigging of prices and generating long term capital gains. (e) that the AO has made the addition on the basis of surmises and conjectures, which is not permitted as held by Hon‟ble Supreme Court in the c....
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....terial available with the AO to suspect involvement of the assessee in the alleged rigging or manipulation of prices of shares of above said company. 11. The Ld CIT(A) was convinced with the contentions of the assessee. The Ld CIT(A) noticed that the AO had relied upon statements given by certain persons who were identified as operators and exit providers. The Ld CIT(A) examined their statements and noticed that none of them have named the assessee as a person involved in the manipulation of prices. Further, search officials also did not find any material to prove the case of the AO that the assessee herein is either related to or directly involved in manipulating the scrip of M/s Confidence Finance and Trading Ltd. The Ld CIT(A) further noticed that the AO did not bring any other material on record to conclude that the assessee is involved in the manipulation of price of the shares of above said company. 11.1. The AO had alleged that the assessee did not give cogent replies in the statement taken from him during the course of search u/s 132(4) of the Act. The Ld CIT(A) examined that statement given by the assessee and found that the assessee has given proper replies to vario....
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.... manipulative scheme to manipulate the price of the scrip to benefit the preferential allottees. 11.5. Accordingly, the Ld CIT(A) deleted the addition relating to commission income on traded value of shares of above said company in AY 2013-14 to 2019-20 and also the addition relating to commission income on handling of cash in AY 2016-17 to 2019-20. The revenue is aggrieved. 12. The Ld D.R submitted that the AO has discussed the modus operandi followed by a syndicate for providing bogus long term capital gains. The syndicate involves the operator of the scrip, the promoter of listed company (penny stock company), the share brokers, the exit providers and the beneficiaries of Capital gains. The Ld D.R submitted that the promoters are paid some cash commission and in return, they allow the operator to manage the affairs of the company. The operator issues the shares to the beneficiaries through preferential allotment, manipulates the prices through circuitous and pre-arranged transactions till the prices reach the desired level. Thereafter, the prices fall sharply after the shares are off loaded in the stock exchange and they are used for the benefit of seekers of short term ca....
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....tentions and perused the record. We notice that the assessee herein is a wholetime director in M/s CFTL getting salary from the above said company. It is the allegation of the Income tax department that the prices of shares of above said company are being manipulated or rigged in order to generate bogus long term capital gains, which are given by way of accommodation entries to the beneficiaries. According to the department, the manipulation of prices of shares has been undertaken by a syndicate consisting of operators, share brokers, exit providers, the promoters and persons seeking capital gains. Since, it is stated that the promoters are also involved in rigging of prices, the revenue has taken the view that the assessee, being one of the directors of M/s CFTL is also involved in the rigging/manipulation of prices of shares of above said company. 14.1. We notice that the Ld CIT(A) has recorded a finding that the search officials did not find any material to support the case that the assessee was involved in the alleged manipulation of prices of shares of CFTL. We notice that the AO has also fully placed his reliance on the report of the search officials and he also did not br....
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....ut any supporting material, cannot form the sole basis for an addition in the hands of the assessee. Additionally, no cash was discovered in the appellant's possession during the search, nor has the investigation wing or the AO provided any evidence to substantiate a cash trail. Moreover, the SEBI in its finding held that the appellant is nowhere connected to rigging in the shares of M/s Confidence Finance and Trading Limited. The decision given by the SEBI body after the search and enquiry & proceeding was before the search happened on the appellant. Since there is the specific findings of SEBI in the appellant case, and further, in the appellant's statement recorded during the search proceedings u/s 132(4) of the Act, he has denied all the findings of the investigation department and nothing has been established from the statement of the appellant, I find no basis for upholding the addition made by the AO. Accordingly the addition made by the AO is hereby ALLOWED." 14.4. We noticed earlier that the Ld CIT(A) has addressed each of the reasons given by the AO in order to arrive at the conclusion that the assessee was part of the syndicate that manipulated the prices. The....