TaxTMI 
TaxTMI 
2025 (11) TMI 1232
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant on the given email address, but the fact remains that none has appeared on behalf of the appellant. On the previous date i.e. 09.07.2025, when the matter was taken up, none appeared behalf of the assessee. Accordingly, last opportunity was granted for hearing and appeal was listed today, but, none has appeared to argue the appeal. Having regard to all this, the request for adjournment sent for today has been rejected. Consequently, arguments have been advanced by Ld. DR for the department. Learned DR has referred to the assessment order and the impugned order and submitted that both the orders are well reasoned orders, based on the information received by the Investigation Wing, statements recorded, report submitted by SIT, report submitted by SEBI and the material available, and that the assessee having failed to establish her claim as regards the three additions, the appeal deserves to be dismissed. Computation of Income of assesssee by the Assessing Officer 3. As is available from the assessment order dated 29.12.2017, the Assessing Officer computed the income of the assessee as under :- "07. In view of the above discussion and after considering al....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... made certain information public. The information from the Investigation Wing and SEBI led to discovery of the fact that various syndicates had arranged accommodation entries as regards bogus LTCS, bogus STCG, bogus long /short capital loss through trading of shares of penny stocks; that the modus operandi was that investors/beneficiaries held shares of penny stock for one year or so, and then the same used to be sold to one of the shell private limited companies of operators. 7. Further, it is case of the department is that the above facts were confirmed by stake holders i.e. operators/syndicate members/brokers who use to provide accommodation entries. In this regard, statements are stated to have been recorded u/s 133A of the Act, wherein the said stake holders accepted that such penny stock companies were conduit for converting untaxed money brought on record by paying no taxes in the garb of exempted income. It also transpired that M/s Kailash Auto Finance Limited (Scrip Code - 511357) is a penny stock listed company having very small capital base, but its market capitalization was multifold to its capital base. Furthermore, information in respect of trading in this co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h into tax exempt income. In short, it was to be ascertained whether the apparent was real. 3.4. The scrip was thoroughly examined and following facts were noted: 3.4.1. The company history as culled from money control's site is given below: Kailash Auto Finance Limited was incorporated as a Public Limited Company on 14th November 1984, in the name of SHIVAM COMMERCIAL SERVICES LIMITED. contained the Certificate of Commencement of Business on 10.12.1984. It The Company commenced its operations during the year 1986, in the business of Hire-purchase and Lease financing, and has specifically focussed on and specialised in extending finance on hire purchase basis for the commercial transport vehicle industry (mainly TELCOLCVs and HCVs) and to a lesser extent for 2/3 wheelers, jeeps/cars and consumer durables. The Company obtained dealerships of 2/3 wheelers from M/s. Bajaj Auto Limited and Maharashtra Scooters Limited during August 1989. However, these dealerships have been parcelled out to a partnership firm constituted specifically for this purpose with effect from 1.9.92. The name of the Company was also simultaneously change....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 0.2 0.02 0.39 0.67 0.86 1.41 Provsions and Contingencies 0 0.05 0.11 0 0 Depreciation And Amortisation Expenses 0.03 0.01 0 0 0 0 0.03 0.03 0.03 0.05 Other Expenses 0.3 0.88 0.62 0.31 0.17 0.13 0.72 0.6 0.87 1.66 Total Expenses 33.7 59.69 19.21 0.33 0.42 0.24 2.25 2.12 2.15 3.36 Profit/Loss Before Exceptional, ExtraOrdinary Items And Tax 0.05 2.73 1.21 0.01 0.19 0.13 1.32 1.82 0.74 -0.65 Profit/Loss Before Tax 0.05 2.73 1.21 0.01 -0.19 0.13 1.32 1.82 0.74 -0.65 Tax Expenses- Continued Operations 0 0 0 0 0 0 0 0 0 0 Current Tax 0.02 0.94 0.37 0 0 0.02 0.22 0.11 0.37 0 Deferred Tax 0 0 0 0 0.02 0.27 -0.12 -0.2 0 0 Total Tax Expenses 0.02 0.95 0.37 0 0.02 0.3 0.09 -0.08 0.38 0.01 Profit/Loss After Tax And Before ExtraOrdinary Items 0.03 1.79 0.84 0.01 -0.21 -0.17 1.23 1.9 0.36 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es 63.41 64.56 61.55 57.98 0.82 ASSETS NON-CURRENT ASSETS Tangible Assets 0.03 0.07 0 0 0 Fixed Assets 0.03 0.07 0 0 0 Non-Current Investments 3.91 3.52 7.25 31.43 0 Deferred Tax Assets [Net] 0.04 0.03 0.04 0.04 0.04 Long Term Loans And Advances 2.82 3.55 0 0 0 Total Non-Current Assets 6.8 7.17 7.28 31.47 0.04 CURRENT ASSETS Inventories 0 2.17 5.33 0 0 Cash And Cash Equivalents 1.08 1.16 1.25 0.11 0 Short Term Loans And Advances 55.52 54.06 47.67 26.41 0.78 Total Current Assets 56.61 57.39 54.26 26.52 0.78 Total Assets 63.41 64.56 61.55 57.98 0.82 OTHER ADDITIONAL INFORMATION CONTINGENT LIABILITIES, COMMITMENTS Contingent Liabilities 0.7 0.88 0.88 0.88 0.88 CIF VALUE OF IMPORTS EXPENDITURE IN FOREIG....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 0.06 0.33 0.2 0 0 Total Non-Current Assets 0.07 0.36 1.29 1.09 1.18 CURRENT ASSETS Inventories 0 0.45 0.45 1.48 2.01 Trade Receivables 0.16 0.15 0.91 0.64 0.56 Cash And Cash Equivalents 0.01 0.04 0.16 0.22 0.53 Short Term Loans And Advances 1.37 1.47 1.31 1.04 1.2 OtherCurrentAssets 0.18 0 0 0 0 Total Current Assets 1.73 2.11 2.83 3.38 4.3 Total Assets 1.8 2.46 4.13 4.47 5.49 OTHER ADDITIONAL INFORMATION CONTINGENT LIABILITIES, COMMITMENTS Contingent Liabilities 0.88 1.6 1.6 1.6 0.65 CIF VALUE OF IMPORTS EXPENDITURE IN FOREIGN EXCHANGE REMITTANCES IN FOREIGN CURRENCIES FOR DIVIDENDS Dividend Remittance In Foreign Currency - - - - - EARNINGS IN FOREIGN EXCHANGE FOB Value Of Goods - - ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....10 3.9 1992 1993 Equity Share 7 0.6 600000 10 0.6 1991 1992 Equity Share 7 0.6 600000 10 0.6 Clearly there is nothing worthwhile to mention on the front of assets and net worth of the company as well, to conclude that it could command such high premiums. It was also found that during the period of astronomical rise of shares price of the scrip there was no corporate announcement or big order or any such news which could result into such frenzy in the scrip price. The price of scrip in the secondary market mainly depends upon the EPS, the business health of a company or some new development in the company which promises bright future for the shareholders. In the instant case there were no such factors. Further, the financial ratios of the Scrip are also not promising and cited as under: Mar '16 Mar '15 Mar '14 Mar '13 Mar '12 Investment Valuation Ratios Face Value 1 1 1 1 10 Dividend Per Share -- -- -- -- -- Operating Profit Per Share (Rs) 0 0.05 0.02 0 -0.57 Net Operating....
X X X X Extracts X X X X
X X X X Extracts X X X X
....03 28,327.65 -- Profit & Loss Account Ratios Material Cost Composition -- -- -- -- -- Imported Composition of Raw Materials Consumed -- -- -- -- -- Selling Distribution Cost Composition -- -- -- -- -- Expenses as Composition of Total Sales -- - --- -- -- Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit -- -- -- -- Dividend Payout Ratio Cash Profit -- -- -- -- -- Earning Retention Ratio 100 100 100 100 -- Cash Earning Retention Ratio 100 100 100 100 - AdjustedCash Flow Times 5.5 0.08 0.17 32.97 -- Mar '16 Mar '15 Mar '14 Mar '13 Mar '12 Earnings Per Share -- 0.03 0.01 -- -19.17 Book Value 1.02 1.02 0.99 0.98 -3.6 Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Earnings Per Share -18.64 3.23 4.98 0.85 -1.75 Book Value -3.07 -2.61 -5.84 -10.82 -11.68 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... taken in three patches i.e., (a) January 17, 2013 to June 04, 2013 (Patch-1), (b) July 22, 2013 to November 05, 2014 (Patch-2) and (c) November 07, 2014 to December 31, 2015 (Patch -3). The price movement vis-a-vis traded volume in the scrip during this period is illustrated below :- These activities needed examination of several aspects of interconnected transactions These activities needed examination of several aspects of interconnected transactions amongst the large number of entities. As a part of preliminary examination by SEBI, the bank statement of the concerned suspected entities for the relevant period were analysed. The data and information available in public domain such as Ministry of Corporate Affairs ("MCA") website, BSE website and other databases had to gathered and examined. During the course of examination, Kailash Auto, Registrar to Issue and Share Transfer Agent of Kailash Auto, and suspected entities who had been holding shares in concerned private unlisted companies were also asked to provide information relevant to the matter. However, no satisfactory response were provided by these entities. SEBI had also advised BSE to conduct surprise i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....L had issued 187,085,250 equity shares of 1/- each as bonus shares in the ratio of 55 shares for 1 share and further issued 95,200,000 equity shares of 1/- each through private placement. The list of the persons who received bonus shares, and persons who were allotted shares in this private placement amongst others (hereinafter referred to as the "recipients of CPAL shares"). Moreover, it was observed from the balance sheet of Kailash Auto for Financial Year 2011-12, the aforesaid recipients of CPAL shares were its existing shareholders prior to bonus issue as well the private placement. The primary allottees of CPAL were the only shareholders as there was no other issuance of shares after the first private placement and before the bonus issue and second private placement. This implies that the aforesaid recipients of CPAL shares had become shareholders of CPAL on purchase of shares from the primary allottees of CPAL before the bonus issue and second private placement. The bank statement of the primary allottees of CPAL and PML for the period of December 2010 to June 2011 revealed that same funds were being churned among CPAL, PML and their respective primary allo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pt). In this regard, reference may be made to para 3.4.5 of the assessment order, where all details like open price, high price, low price, close price, number of shares, number of trades, total turnover, deliverable quantity and deliverable of percentage quantity to traded quantity. 12. In view of the data available with the Assessing Officer, he was also of the view that the above said script had almost no turnover, no profitablity and even no taxes had been paid. Accordingly, the Assessing Officer was of the view that the scrip was made specifically for the purpose of providing bogus LTCG to beneficiaries. Admission by certain representatives 13. It is pertinent to mentioned that in the course of survey in the case of M/s Anand Rathi Shares and Stock Brokers Ltd. Kokkata, Shri Sanjay Vora S/o Late Dhiraj Lal Vora accepted that he had allowed Shri Deepak Patwari, Shri Parvesh Beria and Ors. to trade without any verification, in view of their old relationship. The Assessing Officer reproduced from page 38 onwards of assessment order, the statement made by Shri Sanjay Vora, in para 3.4.7, the Assessing Officer observed that the assessee was allotted shares by M/s Ritudh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cheques, and that the assessee held shares of the scrip for more than a year and sold the same through recognized share broker and received the sale consideration by account payee cheque, and as such it was a genuine transaction. Assessing Officer rejected the response 19. The Assessing Officer rejected the abovesaid plea put forth on behalf of the assessee, while observing in 3.8 of the assessment order, as under :- " (a) As a nature, every investor wants to buy the share at lower prices & sale the same at higher prices to maximize profits. Moreover, as an inclination towards the profit giving shares, after certain levels on accumulation of profits on such transaction (buy at lower rates and sale at higher levels), whenever the prices comes down, he buys again. Notwithstanding that the prices of the scrip i.e. M/s Kailash Auto Finance Limited has come down significantly after assessee's exit, no transaction of re-purchase has been made only indicate whole practice is a Sham Practice. (b) The particular scrip has been held for one year or so as required under prevailing instructions and after such period and with the connivance of various entities when t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rded by CIT(A) 21. When the matter came up before Learned CIT(A), after going through the material available on record and the relevant decisions, referred to in para 5.3.3 to 5.3.7, he upheld the decision of the Assessing Officer and rejected ground No. 1 to 3 raised by the appellant there. 22. Learned CIT(A), while dealing with the addition made u/s 68 of the Act observed that the appellant had neither offered proper explanation nor supporting evidence in respect of her claim, and as such the Assessing Officer was justified in making said addition u/s 68 of the Act, while holding the appellant liable to pay the consequential tax, while resorting to the provisions of Section 115BBEE of the Act. 23. As is available from record, net worth of the company was negligible. Said company had declared negligible profits. Never any dividend was declared by the said company during last several years. From the average purchase price of shares, when compared with the average price of sale of shares, we find that the percentage of appreciation of said shares is exponential, which creates doubt about the transaction, as the appellant wants us to believe. The representatives of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....TCG/LTCL made by them. In all the assessment orders, substantial portion of the investigation report has been noted in full. A careful reading of the same would show that the assessee has not been named in the report. If such be the case, unless and until the assessee shows and proves that she/he was prejudiced on account of such report/statement mere mentioning that non-furnishing of the report or non-availability of the person for cross examination cannot vitiate the proceedings. The assessees have miserably failed to prove the test of prejudice or that the test of fair hearing has not been satisfied in their individual cases. In all the cases, the assessees have been issued notices under sections 143(2) and 142(1) they have been directed to furnish the documents, the assessee have complied with the directions, appeared before the Assessing Officer and in many cases represented by Advocates/Chartered Accountants, elaborate legal submissions have been made both oral and in writing and thereafter 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 posit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e relevant factors. Therefore, the methodology adopted by the revenue cannot be faulted. [Para 69] A holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, the court cannot lose sight of the fact that the shares of very little known companies with in- significant business had a steep rise in the share prices within the period of little over a year. The revenue was not privy to such peculiar trading activities as they appear to have been done through the various stock exchanges and it is only when the assessees made claim for a LTCG/STCL, the investigation commenced. As pointed out the investigation did not commence from the assessee but had commenced from the companies and the persons who were involved in the trading of the shares of these companies which are all classified as penny stocks companies. Therefore, the argument of the assessee that the copy of the investigation report has not been furnished, the persons from whom statements have been recorded have not been produced for cross examination are all contention which has to necessarily fail. To reiterate, the assessee was not named in the report....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s adopted. What is important is that it is the assessee who has to prove the claim to be genuine in terms of section 68. 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 the shares which were traded by the assessees 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, unless and until the assessee discharges such burden of proof, the addition made by the Assessing Officer cannot be faulted. [Para 75] While proposing to invoke the power under section 263, the question as to whether the Commissioner was justified in invoking the power under section 263 has to be decided based on facts of each case. The assessee cannot be allowed to contend that the language employed in the orders passed by the Commissioner under section 263 does not mention about how the assessments order was erroneous in so far as it is prejudicial to the interest of the revenue. These words or phrases are contained in section 263. Merely because the Commission....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enuinity of the claim for LTCG/STCL and the basis was unhealthy and steep rise of the price of the shares of mostly the paper companies though listed before the stock exchanges their shares were very rarely traded and in the background of these facts the enquiry should have been conducted by the Assessing Officer. Therefore the assumption of jurisdiction under section 263 by the respective Commissioners was fully justified and is shown to be proper exercise of power. The Tribunal while interfering with the orders of the Commissioner once again posed a wrong question to it and failed to approach the matter in the proper perspective considering the backgrounds in which the power was invoked. The Tribunal brushed aside the surrounding circumstances which have led to such assessments or orders under section 263. The manipulative practice adopted by the stock brokers and entry operators was not even adverted to by the Tribunal and the entire matter was dealt within a very superficial manner without dwelling deep into the core of the issue. The Tribunal being the last fact finding authority was required to go deeper into the issue as the matter has manifested large scale scam. Thus, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the assessee, took note of the proximity of the time between the buy and sale operations and also the sudden and steep rise of the price of the shares of the companies when the general market trend was admittedly recessive and thereafter arrived at a conclusion which is a proper conclusion and in the absence of any satisfactory explanation by the assessee, the Assessing Officers were bound to make addition under section 68. [Para 99]" On the issue involved, reference may also be made to decision in Sumati Dayal vs. CIT (214 ITR 801). In the case titled as Suman Poddar v. ITO, (2019) 112 taxmann. Com 330(SC), based on almost similar facts, the assessee was found to have failed to prove that the share transactions are genuine. Therein earnings @ 491% over a priod of 5 months were held to be beyond human probability and defying business logic of any business enterprise dealing with share transactions. In the given facts and circumstances, Hon'ble Apex Court observed that same lent credence to the unreliability of the entire transaction of shares giving rise to such capital gains. Reference may also be made to decision by this Bench in a similar matter titled as Karuna J....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... As noticed above, the appellant has failed to appear or argue the appeal despite ample notices and opportunities. Learned DR has rightly relied on decision by Co-ordinate Bench in Suresh B. Agrawal HUF v. The ITO, ITA No.74/Ahd/2024, decided on 6.1.2025 to point out that the assessee is not interested in pursuing this appeal. Having regard to the material available and the reasons recorded by Ld. CIT(A) we find merit in the contention raised by Learned DR for the department that the assessment order has been rightly upheld. Consequently, there is no merit in the appeal as regards this addition. Another addition of Rs. 1,14,658/- i.e. on the commission paid 26. The other addition made by the Assessing Officer is to the tune of Rs. 1,14,658/- i.e. on the commission paid for acquiring of the above said accommodation entry. In this regard, the Assessing Officer resorted to the provisions of Section 69C of the Act . Said addition came to be made while observing that the material collected in the course of investigation by the Investigation Wing revealed that the beneficiaries were found to have paid commission paying 0.5% to 8%, for the accommodation entries for bogus LT....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessment order passed by the Assessing Officer. Sale of 24 plots of land 30. In para 6.2 of the assessment order, the Assessing Officer also took into consideration that the assessee had sold 24 plots of land in Dadu (Jaipur) for a total consideration of Rs. 35,12,000/- as shown by the assessee herself in the computation of income. Cost of the land was shown as Rs. 33,07,227/-. In this manner the assessee reflected a short term capital gain of Rs. 2,04,773/-. 31. The Assessing Officer observed in para 6.2 of the assessment order that the assessee had purchased agricultural land at Dadu, Jaipur, but she got it converted into residential after seeking permission from the competent authority, and then developed a residential colony/township, known as 'Jyoti Nagar C'. Taking into consideration all this, the Assessing Officer was of the view that the transaction was of the nature of his business, and as such could not be considered as short term capital gain. 32. The Assessing Officer also took into consideration that the Stamp Valuation Authority had assessed the aggregate value of the said land at Rs. 40,53,791/-, whereas, as noticed above, the asse....