TaxTMI 
TaxTMI 
2025 (12) TMI 788
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..... 4. Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 02.08.2014 declaring total income of Rs. 7,28,260/- after claiming an amount of Rs. 1,00,97,902/- as exempt income u/s 10(38) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') being the long term capital gain on sale of listed shares on which STT was paid. The case was selected for scrutiny through CASS. Accordingly, statutory notice u/s 143(2) of the Act was issued and served on the assessee. Subsequently, notice u/s 142(1) of the Act along with a questionnaire was issued to the assessee calling for certain information in response to which the assessee filed the requisite details before the Assessing Officer from time to time. 5. During the course of assessment proceedings the Assessing Officer noted that the assessee has purchased 2500 shares of M/s. Pyramid Trading & Finance Ltd on 15.06.2012 @ Rs. 6/- per share for Rs. 15,000/-. Thereafter the company has issued bonus shares in the ratio of 1:7 on 05.02.2013 making the total holding of 20000 equity shares by the assessee. Again the shares were split on 16.01.2014 with ratio of 1:10 by renamin....
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....ontended that the long term capital gains are genuine and correct and legitimate deduction has been claimed u/s 10(38) on the purchase/sale of shares of Mishka. The Assessing Officer noted that the admission was voluntary and the assessee has not denied or disapproved on merits the evidences/allegations shown by the department to prove that the assessee and his wife have taken accommodation entries of bogus Long Term Capita Gains. 8. The Assessing Officer discussed the modus operandi of bogus long term capital gains and explained in the order how the "operator" of a scrip, managed the price of the scrip by maintaining a complex nexus of paper entities. He noted that Shri Vijay Kumar Jain was the initial promoter of the company and SEBI in its order No.WTM/RKA/SD/30/2015 dated 17.04.2015 [order passed u/s 11(1), 11(4) and 11B of the SEBI Act, 1992 and section 12A of the Securities Contracts (Regulation) Act, 1956] has clearly held that Shri Vijay Kumar Jain has been involved in the manipulation of the share price of this listed company and has manipulated so as to utilize this scrip to arrange entry of bogus long term capital gains and has subsequently restrained Shri Vijay Kumar....
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....ng the share brokers and entry operators which were recorded during the course of investigation by the Investigation Wing, who have admitted in their statements that they were dealing in penny stocks including the shares of Mishka which was jacked up through cartel of interlinked companies controlled and managed by entry operators for the purpose of providing accommodation entries of bogus long term capital gain. 10. The Assessing Officer also wrote to Bombay Stock Exchange and National Stock Exchange and called for the trade data with regard to purchase and sale of shares made by the assessee. On an analysis of the trade data he observed that 8 paper companies with address at 32, Baranasi Ghosh Streeet and 23/1, Principal Khudiram Bose Road whose common directors were Abhiset Basu and Pradi Dey and they have purchased the shares from the assessee. He observed that during investigation it was revealed that the above mentioned companies, who purchased the shares for giving exit, were operated and managed by the entry provider Shri Anil Kumar Khemka and are existing only on papers for the purpose of providing accommodation entry. The Assessing Officer also referred to the statemen....
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....ies through dummy companies. * Mishka is a penny stock company and has financial and trading pattern of providing accommodation entry by allotting shares to beneficiaries through preferential allotment, splitting the share, increasing the market price through paper companies. 11. In appeal the Ld. CIT(A) upheld the action of the Assessing Officer. 12. Aggrieved with such order of the Ld. CIT(A) the assessee is in appeal before the Tribunal by raising the following grounds: 1. The learned Income Tax Officer, Ward 1(5), Nashik has erred in making aggregate additions of Rs. 1,02,13,881/- and the learned Commissioner of Income Tax (Appeals)-1, Nashik has erred in confirming the same. 2. The learned Income Tax Officer, Ward 1(5), Nashik, has erred in not considering the fact that the assessee has complied with the provisions of sub section (38) of section 10 and treating long term capital gain as taxable and the learned Commissioner of Income Tax (Appeals)-1, Nashik has erred in confirming the same. 3. The learned Income Tax Officer, Ward 1(5), Nashik, has erred in making addition of Rs. 1,00,97,902/- under section 68 of the Act and the learned ....
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....e Assessing Officer is basically on the basis of the statement of the assessee recorded during the course of survey in the case of Laxmivilas Buildcon Ltd where he was a director, report of the Investigation Wing, Kolkata and the SEBI report. 17. The Ld. Counsel for the assessee referring to the final report of SEBI, which came after completion of the assessment submitted that all the 104 names appearing in the report have been cleared by the SEBI. 18. Referring to the decision of Hon'ble Gujarat High Court in the case of PCIT vs. M/s. Gokuldham Enterprise LLP vide Tax Appeal No.427 of 2023 order dated 28.08.2023, he submitted that the Hon'ble High Court in the said decision has dismissed the appeal filed by the Revenue against the order of the Tribunal upholding the order of the CIT(A) accepting the claim of exemption u/s 10(38) of the Act in respect of long term capital gain of Rs. 8,90,28,838/- by the assessee on account of sale of shares of Mishka Finance and Trading Ltd during the assessment year 2014-15. 19. Referring to the decision of Hon'ble Gujarat High Court in the case of PCIT vs. Neelu Mahansaria vide Tax Appeal No.683 of 2024 order dated 25.03.202....
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....dl.CIT as well as the Assessing Officer the assessee had repeatedly stated that the name of the assessee does not appear anywhere in the so-called statement recorded by the Investigation Wing, Kolkata from various operators, brokers, middlemen, etc. Referring to pages 5 to 8 of the order of SEBI it was categorically stated that the name of the assessee does not figure in the list of 104 entities. 24. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Chirag Tejprakash Dangi vs. ITO vide ITA No.3256/Mum/2022 order dated 20.02.2024 for assessment year 2014-15, he submitted that the Tribunal in the said decision has deleted the long term capital gain of Rs. 1.45 crores claimed as exempt u/s 10(38) of the Act where the addition was made on the basis of report of the Investigation Wing, Kolkata. In the said report the Investigation Wing, Kolkata had also given the modus operandi adopted in manipulation of prices of certain shares and generation of bogus capital gains. The Tribunal, relying on various decisions of Hon'ble Jurisdictional High Court, has deleted the addition on the ground that the long term capital gain declared by the assessee cannot be do....
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....cordingly submitted that the order of the Ld. CIT(A) be upheld. 28. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case rejected the claim of exemption u/s 10(38) of the Act amounting to Rs. 1,01,12,902/- on account of sale of shares of Mishka Finance and Trading Company on the ground that the allotment of shares is an off market transaction and not carried out through recognized stock exchange and the assessee during the course of survey had admitted such bogus long term capital gain and had offered to pay the due taxes. Further, SEBI vide circular No.SMDRP/Policy/CIT-21/99, dated 14.09.1999 banned all negotiated deals including cross deals and all such deals are required to be executed only on the screens of exhcnages in the price and order matching mechanism of the exchange just like any other normal trade. We find the Ld. CIT(A) upheld the action of the Assessing Officer. It is the submission of the Ld. Counsel for the assessee that although he ....
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.... of Rs. 8,90,25,838/- earned by the assessee are that they related to 1805700 shares of one Mishka Fiannce and Trading Limited ('MFTL' for short) sold by the assessee during the year for a value of Rs. 9,12,18,266/-. 3.3 The SEBI had passed an interim order in relation to this scrip by 'MFTL' holding that preferential allottees and promoters related entities had, with the aid of exit providers, misused the exchange mechanism to exit at a higher price in order to book illegitimate gains with no payment of tax as long term capital gain, as long term capital gain is exempt under section 10(38) of the Act. 3.4 The Principal CIT(A) and the Tribunal found that the SEBI report based on which the Assessing Officer had made additions was an interim report and in the final report there was no adverse finding. The SEBI in the final report had not made any adverse findings. 4. While reversing the order of the Assessing Officer, the CIT(A) observed as under: "The final report of SEBI has come out on 05.10.2017 wherein it has clearly stated in Para 7 of their report that: "Upon completion of investigation by SEBI, it is noted that ther....
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.... price when sold. 6. In view of the concurrent findings of the fact recorded by the Principal CIT and confirmed by the Tribunal, no substantial question of law arises. Appeal is accordingly dismissed with no order as to costs. 30. We find the Hon'ble Gujarat High Court in the case of PCIT vs. Neelu Mahansaria (supra) under identical circumstances has dismissed the appeal filed by the Revenue against the order of the Tribunal upholding the order of the CIT(A) allowing the claim of exemption u/s 10(38) of the Act on account of profit on sale of shares of Mishka Finance and Trading Company. The relevant observations of Hon'ble High Court read as under: "7. At the outset, learned Senior Standing Counsel Mr. Karan Sanghani for the appellant submitted that the order dated 18.01.2024 rendered in ITA No.197/SRT/2023 for Assessment Year 2014-2015 by the Tribunal was challenged before this Court by the Revenue by preferring Tax Appeal No.184 of 2024 and this Court (Coram : Hon'ble Mr. Justice Bhargav D. Karia and Hon'ble Mr. Justice Niral R. Mehta) dismissed the appeal filed by the Revenue as under: "5. We have heard learned advocate for the appe....
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.... 12. I find that assessee made sale of shares through BSE and paid security transaction tax and there is no allegation against the share broker through whom assessee has made sales that they were indulging any price manipulation. Therefore, I do not find any justification in treating the LTCG as unexplained cash credit in absence of any cogent evidence. In the result, the addition of undisclosed income under section 68 is deleted. Considering the fact that I have accepted the LTCG by deleting the addition made under section 68, therefore the addition of alleged commission payment is also deleted. This ground of assessee is also allowed." 7. Considering the aforesaid observations and findings recorded by the Tribunal, we notice that the transaction of the assessee was doubted by the authority on the basis of the report of the Investigating Wing, Kolkata. It is pertinent to note at this stage that in furtherance to the aforesaid report, SEBI has undertaken a detailed inquiry against M/s.Mishka Finance & Trading Ltd. and in the said inquiry, vide order dated 5.10.2017, the SEBI has not found any adversarial material of any violation of statute. Over and above, admittedly, th....
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....ied on by the assessee were not subjected to scrutiny by SEBI at all. 10. We notice from the statement recorded by the AO from the assessee u/s 131 of the Act that the assessee herein is a Chartered Accountant. In the statement, the assessee has specifically stated that he is a long term investor, meaning thereby, he would not be watching the share price movements on day to day basis. Hence, we are unable to understand as to how that AO could observe that the assessee herein was ignorant of stock market operations. We also notice that the assessee has (a) purchased these shares by paying consideration through banking channels (b) dematerialized the shares and kept the same in the Demat account. (c) sold the shares through stock exchange platform (d) received the sale consideration through banking channels. Further, the shares have entered and exited the demant account of the assessee. We notice that the AO himself has not found any defect/deficiencies in the evidences furnished by the assessee with regard to purchase and sale of shares. As noticed earlier, the AO has not brought on record any material to show that the assessee w....
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....ced 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 the purchase and sale of shares are reflected in the Assessee's DMAT account, yet they are termed as arranged transactions and projected to be real, then, such conclusion which has been reached by the Commissioner and the Assessing Officer required a deeper scrutiny. It was also revealed during the course of inquiry by the Assessing Officer that the Calcutta Stock Exchange records showed that the shares were purchased for code numbers S003 and R121 of Sagar Trade Pvt Ltd. and Rockey Marketing Pvt. Ltd. respectively. Out of these two, only Rockey Marketing Pvt.Ltd. is listed in the appraisal report and it is stated to be involved in the modus- operandi. It is on this material that he holds that the transactions in sale and purchase of shares are doubtful and not genuine. In relation to Assessee's role in all this, all that the C....
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....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.Suresh kumar that the Tribunal misdirected itself and in law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs. 8. Even the additional question cannot be said to be substantial question of law, because it arises in the context of same transactions, dealings, same investigation and same charge or allegation of accommodation of unaccounted money being converted into accounted or regular as such. The relevant details pertaining to the shares were already on record. This question is also a fall out of the issue or question dealt with by the Tribunal and pertaining to the addition of Rs. 25,93,150/-. Barring the figure of loss that is stated to have been taken, no distinguishable feature can be or could be placed on record. For the same reasons, even this additional question cannot be te....
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....he assessee with regard to purchase and sale of shares were not doubted. Under these set of facts, the Hon'ble Bombay High Court held as under: - " .... The CIT(A) came to the conclusion that respondent bought 3000 shares of RFL, on the floor of Kolkatta Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent's bank account has been debited. The shares were also transferred into respondent's Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkatta Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instruction slips and also received payment from Kolkatta Stock Exchage. 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 unexpl....
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....res cannot be assessed as unexplained cash credit u/s 68 of the Act and the long term capital gains declared by the assessee cannot be doubted with. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the impugned additions made by him." 32. We find SEBI vide order dated 05.10.2017 has revoked the directions issued earlier in respect of 104 parties and the name of the assessee does not appear in the list of persons against whom adverse findings have been given. The relevant observations of SEBI read as under: 33. Since in the instant case the assessee has retracted from the statement on the very next day after the statement was recorded u/s 131 of the Act during the course of survey at the premises of Laxmivilas Buildcon Ltd., Nashik in which the assessee is a Director and since the name of the assessee does not appear in the statements recorded by the Investigation Wing, Kolkata from various persons and since SEBI has revoked the directions given earlier, therefore, in view of the above discussion and relying on various decisions cited (supra), we hold that the order of the Ld. CIT(A) upholding the action of the Assessing Officer denying the c....
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....their unaccounted income into accounted one; its Promoters/Directors Exit Providers, Preferential Allottees and the Promoter related entities artificially increased the volume and price of the scrip and misused securities market system for making Onder in the matter of Mishka Finance and Trading limited (formerly known as Pyramid Trading and Finance Limited) Page 1 of 10 Document 2 illegal gains and to convert ill-gotten gains into genuine one to avail LTCG. 3. As the aforesaid activities of Mishka and its Promoters, Directors and suspected entities were prima facie in violation of SEBI Act, 1992 ("SEBI Act") and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ("PFUTP Regulations") SEBI passed an Ad interim ex-parte order dated April 17, 2015 ("interim order") and restrained the following 129 entities including Mishka and its Promoters and Directors from accessing the securities market and further prohibited them from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever, till further directions. Table: 1 SN Name PAN 1 Mishka Finance And Trading Limited AAAC....
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....Sadhna Rani ABHPA9244J 64 Ranidevi Agarwal AGEPA7936K 65 Ravinder Kumar Gupta (Huf) AADHR3405B 66 Brij Bhushan Singhal (Huf) AAAHB6923R 67 Manharlal Narottamdas Shah AAKPS3276J 68 Esha Securities Ltd AAACE2862P 69 Amrit Sales Promotion Pvt Limited AACCA3220D 70 Symphony Merchant Pvt Ltd AADCS5411K Order in the matter of Mishka Finance and Trading limited (formerly known as Pyramid Trading and Finance Limited) Page 3 of 10 Document 4 SN Name PAN 71 Bazigar Trading Private Limited AABCB3052B 72 Rangan Vincom Private Limited AAGCR1715E 73 Ladios Trading Private Limited AACCL3868N 74 Topwell Properties Private Limited AADCT8403C 75 Signet Vinimay Private Limited AAMCS1712Q 76 Sanklap Vincom P Ltd AAMCS1711P 77 Runicha Merchants Private Limited AAECR0580M 78 Winall Vinimay Private Limited Ltd AAACW8004B 79 Spice Merchants Private Limited AAPCS7492G 80 Apex Commotrade Private Limited Ltd AAJCA4459K 81 Skm Travels Private Limited AAICS0688K 82 Scope Vyapar Private Limited AAICS6023N 83 Vibgyor Financial Servicepvt Ltd AAACV8378B 84 Helpful Investment Advisory Private Limited AACCH4303G 85 Function Financial Consul....
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....r dated November 10, 2015. Further, the directions issued against Bharat Bagri HUF and Manjuben Sukhdev Pandya were revoked vide Order dated August 26, 2016. 5. The directions against the remaining 126 entities were confirmed vide five separate orders dated October 12, 2015, October 21, 2015, April 13, 2016, July 05, 2016 and August 26, 2016 6. Pursuant to the interim order, SEBI conducted a detailed investigation of the entire scheme employed in the instant matter, connection amongst the debarred entities, funds used for the price manipulation of the scrip of Mishka, etc., so as to ascertain the violation of securities laws. 7. Upon completion of investigation by SEBI, it is noted that there are no adverse findings against the 104 entities mentioned at S. No. 1-104 in Table No. 2 with respect to their role in the price manipulation / prima facie violations for which Interim Order dated April 17, 2015 was passed and subsequently confirmed in the scrip of Mishka, warranting continuation of action under Sections 11B and 11(4) of the SEBI Act for the violation of Order in the matter of Mishka Finance and Trading limited (formerly known as Pyramid Trading and Finance Limite....
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....nidevi Agarwal AGEPA7936K 47 Ravinder Kumar Gupta (Huf) AADHR3405B 48 Esha Securities Ltd AAACE2862P 49 Amrit Sales Promotion Pvt Limited AACCA3220D 50 Symphony Merchant Pvt Ltd AADCS5411K 51 Bazigar Trading Private Limited AABCB3052B 52 Rangan Vincom Private Limited AAGCR1715E 53 Ladios Trading Private Limited AACCL3868N 54 Topwell Properties Private Limited AADCT8403C 55 Signet Vinimay Private Limited AAMCS1712Q 56 Sanklap Vincom P Ltd AAMCS1711P 57 Runicha Merchants Private Limited AAECR0580M 58 Winall Vinimay Private Limited Ltd AAACW8004B 59 Spice Merchants Private Limited AAPCS7492G 60 Apex Commotrade Private Limited Ltd AAJCA4459K 61 Skm Travels Private Limited AAICS0688K 62 Scope Vyapar Private Limited AAICS6023N 63 Vibgyor Financial Servicepvt Ltd AAACV8378B 64 Helpful Investment Advisory Pvt Ltd AACCH4303G 65 Function Financial Consultants Pvt Ltd AABCF5486H 66 Kapeeshwar Vintrade Private Limited AAECK7329P 67 Sinjan Overseas Pvt Ltd AAMCS8721P 68 Wonder Procon Private Limited Wppl AABCW0317N 69 Helot Properties Pvt Ltd AACCH8885R 70 Cheroot Vanijya Pvt Ltd AAECC9285A 71 Sidhiman Vyapaar Private Li....
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....ities mentioned at S. No. 1-104 in Table No. 2 with respect to their role in the price manipulation / prima facie violations for which Interim Order dated April 17, 2015 was passed and subsequently confirmed in the scrip of Mishka warranting continuation of action under Sections 11B and 11(4) of the SEBI Act, I am of the considered view that the directions issued against them vide interim order dated April 17, 2015 which were confirmed vide Orders dated October 12, 2015, October 21, 2015, April 13, 2016, July 05, 2016 and August 26, 2016, are liable to be revoked. Further with regard to 9 entities at S. No. 105 to 113 in in Table No.2, no adverse material was found in the Investigation Report with respect to prima facie violations found against them in Interim Order dated April 17, 2015 (which was subsequently confirmed) but the Investigation Report has brought out violation relating to disclosure under SEBI (Prohibition of Insider Trading) Regulations, 1992 and SEBI (Substantial Acquisition of Shares And Takeovers) Regulations, 2011 warranting Adjudication Proceedings. Therefore directions issued against them vide interim order dated April 17, 2015 which were subsequently confirme....