TaxTMI 
TaxTMI 
2023 (9) TMI 1725
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....case laws regarding penny stocks and share capital. The Ld. CIT(A) as well as the AO has ignored the fact that the sale of shares (investments) were made out of opening investments and purchases of investment during the year. The AO has not disputed the opening balance and purchases of investment as such. All the sale of investments were through proper banking channels. Further, most of the buyers have confirmed the purchase of shares and the purchase & sale are made in the normal course and Ld. CIT(A) & AO has not pointed out any specific defect in any reply. Assessee has not claimed any exemption or deduction of any nature and hence, the case laws relied upon by the AO &CIT(A) are not applicable in the appellant's case. Hence, the addition made & confirmed by Ld. CIT(A) is merely based upon suspicion which needs to be deleted. 2. That the appellant craves to leave, add, alter, amend or withdraw any ground or grounds of appeal before or at the time of heating." 3. A perusal of the above grounds of appeal would reveal that the sole issue raised by the assessee in this appeal is relating to the addition made by the Assessing Officer and further confirmed by the CIT(A....
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....assessee 3RD FL0OR ROOM NO. 3B ORBIT HOUSE, 1, GARSTIN PLACE, KOLKATA 700001, West Bengal, India Status COMPANY Range/Circle/Ward CENTRAL CIR 2(2), KOLKATA Resident/Resident but not Ordinary resident/Non- resident Resident Date of Hearing 18/03/I2021, 31/03/2021, 10/08/2021, 13/08/2021, 26/09/2021 Section/Sub-section under which assessment is Made 153A Date of order 30/09/2021 ASSESSMENT ORDER The assessee is a company filed its original return of income for the A.Y. 2019-20 on 31.10.2019, declaring a total income of Rs. 5,23,55,230/ -. 2.1 A search and seizure operation u/s 132 of the Income Tax Act, 1961 was conducted at the business, office and residential premises of Rashmi Group of assesses on 24-01-2020. Warrant was drawn in the name of the assessee. The Search and Seizure Operation was also conducted at the premises of the assessee, also where books of accounts including incriminating documents and materials and hard Disks and pen-drives were seized/or impounded. 2.2 Subsequently, notice u/s. 153A of the Income Tax Act, 1961 was issued on 19.02.2021 and was duly served upon the assessee, asking for true and....
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.... accounts in form of unsecured loan/or share capitals by layering this funds through several lavers. The beneficiary group companies, usually hand over this unaccounted cash/fund to various finance brokers and/or entry operators who in turn either deposit this unaccounted cash or fund to give unsecured loan to beneficiaries or utilized this cash for other purposes like refunds of loan of other third party and give accommodation entry of unsecured loan from the higher balance available in their books of accounts. Most probably in this the intermediaries kind of accommodation entry of unaccounted loan unaccounted cash is not deposited in any bank account rather circulation of money happens Over the years in the bank accounts is used to give accommodation entry and the cash is adjusted for refund purposes for other third party The modus operandi is depicted by the diagram as just are companies shown below :- In this connection, the theory of preponderance of human probability as pronounced by the Hon. Apex Court in the cases of CIT v Durga Prasad More Prasad More [1971] 82 ITR 540 and Sumati Dayal v. CIT [1995] 80 Taxman 89/214 ITR 801 (SC) is of utmost importance. The Hon....
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....ct 1961, Penalty proceedings u/s 271AAC is initiated separately in this respect. 3. In view of the documents and clarifications filed as well as discussions made as above, the total income of the assessee is computed asunder: Particulars Amount(Rs.) Total income as per return u/s 153A 5,23,55,228/- Add: Amount received on account of bogus sale of investment u/s 68 of the I T Act 17,05,60,000/- Assessed Income 22,29,15,228/- Assessed Income (R/O u/s 288A) Computation of Book Profit u/s 115JB 22,29,15,230/- Particulars Amount (Rs.) Book Profit as per return (u/s 115JB) Nil Assessed Book Profit u/s (u/s 115JB) Nil CALCULATION OF TAX Rs. Assessed income as discussed above 22,29,15,230/- Income tax thereon : As per income tax computation form enclosed as an integral part of this order 4. Penalty proceedings u/s 271AAC is initiated separately. 5. Assessed as above u/s 153A read with section 143(3) of Income Tax Act, 1961. Tax and interest has been charged as per Income Tax Act. 6. Copy of the order, penalty notice u/s 271AAC and demand notice are issued....
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....iduals associated with it. Entire operation is shrouded in secrecy. It provides a means to bring backone's own unaccounted money in its accounts at a very cheap rate by paying small amount as commission to the persons involved in these activities. 'Sale of shares' has been found to be used as a colourable device for tax avoidance and for bringing the unaccounted income in the books of accounts / capital A/cs. 5.3(b) In its submission assessee has laid great emphasis on the fact that the payments have been made through banking channels, documents relating to sale of shares were made available to the Assessing Officer and documents necessary for establishing identity of the buyers are also available. The buyers have been filing return of income. Appellant submits that the above mentioned supporting evidence are sufficient to establish the identity of the person who had purchased the shares, their creditworthiness and the genuineness of the transactions. However, there are several judgements, including that of Calcutta High Court in the case of PCIT-5, Kolkata vs. Swati Bajaj, IA No.GA/2/2022 in ITAT/6/2022 dated 14-06-2022 which have held that sale consideration ....
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....ced. Also, sale price was exorbitantly high and logically absurd. Under the circumstances, the Hon'ble ITAT has upheld A.O's action in treating such share transaction as 'sham' and making addition. Taking support from the judgement of Hon'ble Supreme Court in the case of SumatiDayal vs. CIT (1995) 214 ITR 801, it was held that the genuineness of transaction is to be considered on the basis of surrounding circumstances, human probabilities and the conduct of the connected parties. A transaction does not become genuine merely because paper trail has been created. The shares involved in the transaction were neither quoted nor listed in any stock exchange. The purchaser of the shares could not be traced and the sale price was exorbitant and logically absurd. Under the circumstances, Hon'ble ITAT upheld the A.O's action. Similarly, the Hon'ble Courts have upheld A.O.'s action in not allowing exemption u/ s. 10(38) of the I.T. Act, in respect of Long Term Capital Gain wherever it was found that the share prices were manipulated on the stock exchange. There were no real buyers of the shares sold through price manipulation in stock exchanges. In the case....
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....documentary evidence of purchases and sale but according to A.O, assessee failed to substantiate sharp rise in price of shares which was not commensurate with the financial worth of the company. As assessee failed to justify the transaction leading to claim of Long-Term Capital Gain as genuine transaction and also failed to justify manifold increase in price of shares of 'HPC Bio Science Ltd.' despite weak financial of company, it was held that assessee has failed to discharge his burden of proof and explain nature and source of transaction. CIT(A) had confirmed the addition made by the A.O. which was upheld by the ITAT. In another case reported in Sanat Kumar vs. ACIT, Circle- 36(1), New Delhi (2020) 122 taxmann.com 75,the ITAT Delhi upheld A.O.'s action where assessee purchased and sold share of a company which was engaged in providing bogus entries in the form of Long Term Capital Gain and Short Term Capital Gain and assessee failed to prove genuineness of transaction. The Hon'ble ITAT upheld the addition made us 68 in respect of Long Term Capital Gain earned by the assessee on such share transaction. In the case of Sanjay Bimalchand Jain vs. PCIT-1, Nagpur (2018....
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.... the word 'evidence' as used in section 143(3), covered circumstantial evidence also and cannot be confined to direct evidence only, as in tax jurisprudence the word "evidence" has much wider connotation. As is evident in the present case, A.O. has brought a number of circumstantial evidences on record which, when considered collectively, clearly establish that sale of shares is not genuine and it is used as colourable device to route its own unaccounted income. 5.3(f) Appellant has mentioned that share capital of 69.76 crores was raised in A.Y. 2006-07 and these funds were invested in the shares of Private Limited Companies. Return for AY. 2006-07 was taken up for scrutiny and order u/ s. 143(3) was passed. However, while finalizing the order, Assessing Officer did not raise any objection regarding the investments made. Hence, A.O. is not justified in the current year to doubt the sale consideration received on sale of such shares, which have been carried forward since A.Y. 2006-07. I have given careful thought to objection of the appellant. Share prices of the listed equity as well as unlisted equities keep fluctuating for a variety of reasons. Even the blue- chi....
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....he current year the shares held as investment by assessee company were sold to shell companies and paper entities which did not have financial wherewithal to purchase those shares and pay huge amount. These entities were not doing any genuine business and they were showing either Nil or very negligible income in their income tax return which was mainly for the purpose of establishing their paper identities through income tax returns. Assessing Officer has pointed out that most of the entities did not own physical assets and did not have any verifiable physical address. Besides, the statements of the entry operators recorded earlier had mentioned the shell companies/entities operated by them and some of such shell entities were found to be involved in purchase and sale of shares and the assessee company and/ or the Rashmi Group being one party to the bilateral transactions. All these evidences combined together do cast onus on the assessee to establish the real identity of the parties which have purchased of the shares sold by the assessee company, their creditworthiness to indulge in huge monetary transaction and the genuineness of the transactions. The Hon'ble Supreme Court in....
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....39;ble Supreme Court in the cases of Sumati Dayal (Supra) and Durga Prasad More (Supra). Shares of unquoted scripts are traded between relatives, business associates or other known persons. Case laws referred by the Hon'ble Supreme Court while deciding the case of Pr. CIT(Central)-I, Kolkata Vs. NRA Iron & Steel Pvt. Ltd. (Supra), clearly point out that only establishing paper identity, or transactions being made through banking channels or mere submission of confirmations by the lenders, are not enough to satisfy the provisions of section 68. As the assessee has failed to satisfy all the basic three ingredients together, viz. identity of the purchasers, capacity of purchasers and genuineness of transactions, sale consideration received on account of pre designed share transactions are hit by provisions of section 68. Hence, addition of Rs. 17,05,60,000/ - is confirmed." 6. We have considered the rival contentions and gone through the record. First we deal with the issue relating to the undated detailed order passed by the Assessing Officer even after the prescribed date of limitation for passing the assessment order for the assessment year under consideration which is other....
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.... decision of Kolkata ITAT dated 29.05.2020 in the case of Bhagwant Merchant Pvt. Ltd. Vs. ITO, ITA No 2614/Kol/2019. The ld. Counsel has cited another decision of Delhi ITAT in the case of Brij Resources Pvt. Ltd. Vs. ITO. ITA No 8835/Del/2019, order dated 07.07.2021, in support of its contentions. In view of these decisions, the ld. Counsel has submitted that sale of investments once recorded in the regular books of account, if added under deeming provisions of the Act, leads to double taxation. 9.1. The ld. Counsel has further submitted that it had sold its investments to various corporate and non-corporate entities. Sale of investments were made in the normal course of conduct of its business. That the Assessee had filed all the details of sale of investments and the bank statements. Buyers were identifiable persons/concerns and assessed to income tax. They had made the payments through proper banking channel and copies of sale bills, other related documents, copy of ITR, copy of audited accounts, copy of relevant bank statements of the buyers were submitted before the AO. There was no cash deposit before payment made by the buyer through their bank accounts. That the buyers ....
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....s accepted the opening investment & purchase of the investment made during the year and the closing investment as on the date of Balance Sheet. He however, surprisingly disputes the sale made during the year. ii. As the AO has accepted the closing investment which means he has accepted the sale, without that closing investment cannot be worked out. Again, making addition to sales leads to double addition of sale amount. Once, suomoto by assessee while working out the capital gain and then by the AO again making addition u/ s 68. iii. AO has ignored the fact out of the total sales of Rs. 17.05 Crores Rs.11.19 Crores (total purchase Rs.66.48 Crores) is out of the purchase of investment made during the year. iv. AO has not rejected the books of a/cs of the assessee and not pointed out any specific defects in assessee's books and replies received u/s 131 from various buyers. v. As the assessment for the year under consideration was complete on the date of search and no material, let alone incriminating material has been found in course of search, no addition can be made under section 68 of the Act. vi. That the purported amount was credi....
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....n be taxed. Similar proposition arises when purchases are accepted as genuine then sales cannot be doubted except the profit element. 9.7. Learned Counsel of the assessee has also cited the following case laws in support of his submission :- 1. ITAT, Kolkata bench in the case of M/s. Majestic Commercial Put. Ltd. I.T.(SS).A. No. 83/Kol/2018 2. ITAT, Kolkata in the case of Adbhut Vinimay Pvt. Ltd. vs. ITO in ITA No. 2404/Kol./2017 3. ITAT New Delhi in the case of Jatin Investments Put. Ltd. vs. Department of Income Tax in ITA No.4325 & 4326/ DEL/ 2009 4. PCIT us, RamniwasRamjivanKasat [2017] 82 taxmann.com 458 (Gujarat) 5. ITAT New Delhi in the case of Brij Resources Put. Ltd. vs. ITO in ITANo.8835/Del/2019 dated 07-07-2021 6. Hon'ble Calcutta High Court in the case of PCIT vs. Rungta Properties P. Ltd. In[2017] 83 taxmann.com 106 (Calcutta) dated 08-05-2017 7. Hon'ble Supreme Court of India in the case of Dhakeshwari Cotton Mills vsCIT[1954] 26 ITR 775 (SC) 8. Hon'ble High Court of Orissa in the case of BansidharOnkarmallus CIT [1953]23 ITR 353 (Orissa) 9. Hon'ble ITAT, Kolkata in th....
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.... record by the assessee: Sl No Name of the Script Opening Balance Purchases Sales Closing Balance Amount Amount Amount Amount 1 Bellona Supply Pvt. Ltd. 1,24,57,344 0 1,24,57,344 0 2 P N Jewellers Pvt Ltd 38,45,323 0 38,45,323 0 3 Rozela Tie Up Pvt Ltd 3,64,33,053 0 3,64,33,053 0 4 Rashmi Cement Ltd 0 1,57,32,000 0 1,57,32,000 5 CimmcoVinimay Pvt Ltd 13,32,04,353 53,71,44,701 67,03,49,054 6 Festive Vincom Pvt Ltd 28,01,625 0 0 000 28,01,625 7 GreenHillDealmark Pvt Ltd 26,14,850 0 0 26,14,850 8 SwabhimanCommosales Pvt Ltd 26,15,900 0 0 26,15,900 9 Topline Business Pvt Ltd 41,00,205 0 0 41,00,205 10 VidyaBuildcon Pvt Ltd 0 2,50,00,000 2,50,00,000 0 11 BadrinathMinning Pvt Ltd 59,36,974 75,250 60,12,224 0 12 Sankul Retailers Private Ltd 0 74,49,572 74,49,572 0 13 Alok Financial Services Pvt Ltd 0 8,10,000 8,10,000 0 14 Asankul Cosmetics Pvt Ltd 0 6,55,26,090 6,55,26,090 0 15 Daffodil Plaza Pv....
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.... Simplex Xallolloy 1620-1622 Rs. 78,05,000 24 Others-Non- Corporate Rs. 4,17,35,000 Total Rs. 7,42,20,000 12. Further, according to the ld. Counsel, the only piece of evidence that is there in this case is the statement of Sri Sanjib Patwari who is one of the owners of the Rashmi group and Sri KK Verma is the accountant, recorded u/s 132(4) of the Act which have been relied upon by the Assessing Officer. These statements have been retracted the very next day by furnishing affidavits. Subsequent to retraction, no further cross-examination was conducted of these persons. The ld. Counsel has further submitted that even otherwise the addition made by the Assessing Officer was far more than the alleged disclosure made by these persons in their retracted statements and hence, no cognizance in fact can be taken for the purpose of the addition. 12.1. We find force in the above contentions of the ld. Counsel in the facts and circumstances of the case. As laid down by the various Higher Courts of the country, the retracted statement can not be made sole basis for making the additions. The Jurisdi....
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....sed. The Hon'ble Delhi High Court, after considering the fact and circumstances of the case, while dismissing the appeal of the revenue, observed that though the fact that the assessee may have retracted his statement belatedly, yet, it did not relieve the AO from examining the explanation offered by the assessee with reference to the books of account produced before him. Although, a statement under section 132(4) of the Act carries much greater weight than the statement made under section 133A of the Act, but a retracted statement even under section 132(4) of the Act would require some corroborative material for the AO to proceed to make additions on the basis of such statement. 12.2 In the case of "Basant Bansal vs. ACIT" reported in (2015)63 taxmann.com 199 (Jaipur Trib.), the assessee therein, during the search and seizure action u/s 132 of the Act, offered a summary discloser of income as undisclosed and the department accepted the summary surrender of income and thereafter advance tax for the said surrendered of income was also deposited, but thereafter it was contended by the assessee that the surrender was made under threat or coercion and that no incriminating mater....
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....in retraction of the statement which was done on the very next day by filing affidavits before the Metropolitan Magistrate 12.4. Even the CBDT Letter No.286/2/2003-IT(Inv) dated Oct 3, 2003 in this respect read as under: "To The Chief Commissioners of Income Tax, (Cadre Contra) & All Directors General of Income Tax Inv. Sir, Subject: Confession of additional Income during the course of search & seizure and survey operation - regarding Instances have come to the notice of the Board where assessee have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessee while filing returns of income. In these circumstances, on confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Departmen....