TaxTMI 
TaxTMI 
2025 (2) TMI 1708
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.... 3. On the other hand Ld. DR present in the court is ready with the arguments. Therefore we have decided to proceed with the hearing of the case ex-parte. 4. We have heard Ld. DR and perused the material placed on record and orders passed by the revenue authorities. The assessee has challenged the additions made by the AO u/s 68 and 69C of the Act, and in this regard, we have meticulously analyzed the orders passed by the Ld. CIT(A) and found that Ld. CIT(A) has dealt with both the grounds in detail while passing the orders and operative portion of the Ld. CIT(A) is contained in para 6 to 7 which are reproduced herein below: 6. Decision As per records & as tabulated in a preceding para of this order, the appellant was issued multiple online hearing notices requesting to file details supporting her contentions mentioned in the grounds of appeal. He was also granted opportunity of personal hearing through video conferencing on 24/01/2024 at 4.07pm onwards through his AR Hitesh M Shah, CA. After careful perusal of facts on record and submissions of the appellant, the is decided as hereunder. appeal 6.1 Ground no. 1 & 2: These grounds are general ....
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....pesh Ramesh Vardhan Vs DCIT Central Circle-2(2) ITA No 7648/Mum/2019 dated 11.08.2020, Sangeeta Naval Agarwal Vs ITO-25(1)(1) ITA No. 1806/Mum/2022, dated 28.11.2022 6.2.2 The issue of the AO not providing the materials and statement relied upon by him to the appellant and not providing the opportunity of cross-examination of Vipul Vidur Bhat who was held to have provided accommodation entries in case of the impugned scrip, is taken up first. It is also important to note that as mentioned by the AO in assessment order at para 10.2 & 10.3, the appellant was provided copy of statement of Vipul Vidur Bhat. This fact has been admitted by the appellant at page 4 in submissions filed on 26/12/2023 during the appeal proceedings though in an evasive and back-handed manner saying that it was not made available in proper time. However, the fact remains that the appellant has not been able to explain the abnormal price rise of shares of Sunrise Asian Ltd within a short span of time. Notwithstanding such submissions of the appellant, the issue of legal foundation of providing the assessees each and every document relied upon by the AD and the issue of cross-....
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....nation. It was held that if a witness has given directly incriminating statement and the addition in the assessment is based solely or mainly on such statement, in that eventuality it is incumbent on the Assessing Officer to allow cross- examination and adverse evidence and material, relied upon in the order, to reach the finality, should be disclosed to the assessee. It was also held that this rule is not applicable where the material or evidence used is of collateral nature. Also, in case of Amrapali Fincap Ltd [2016] 73 taxmann.com 37 (Gujarat), the assessee had requested the Settlement Commission for cross-examination of one Sirish C Shah (S), accommodation entry provider, whose statements had been relied upon by the Department. Hon'ble Settlement Commission had rejected application of assessee who filed a writ against order of Settlement commission raising denial of cross-examination as one of the contentions. Hon'ble Jurisdictiorial High Court held that since Settlement Commission, besides relying upon statements of 'S' and other witnesses, had also taken into consideration other facts available on record, there was no scope for interference in order of Settle....
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.... report should have been furnished to him, the person from whom the statements were recorded should have been produced for cross examination as admittedly there is nothing to implicate the assessee Smt. Swati Bajaj of insider trading or rigging of share prices. But the allegation against the assessee is that the claim for LTCG/LTCL is bogus. As pointed out by Mr. Rai, learned senior standing counsel, the investigation report is general in nature not assessee specific. Therefore, we are required to see as to whether non-furnishing of the report which according to the revenue is available in the public domain would vitiate the proceedings on the ground that the assessee was put to prejudice. ................................. ................................. the assessees have to specifically point out as to how they were prejudiced on account of non-furnishing of the investigation report in its entirety, failure to produce the persons from whom the statements were recorded for being cross examined would cause prejudice to the assessee as nowhere in the report the names of the assessees feature. The investigation report states that the investigation has not....
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....e not deposed anything against the assessee. The investigation report proceeds on a different perspective commencing from a different point and this has led to the enquiry being conducted by the assessing officer calling upon the assessee to prove the genuineness of the claim of LTCG. ................................. ................................. the report submitted by the investigation department cannot be thrown out on the grounds urged on behalf of the assessees. The assesses have not been shown to be prejudiced on account of non- furnishing of the investigation report or non-production of the persons for cross examination as the assessee has not specifically indicated as to how he was prejudiced, coupled with the fact as admitted by the revenue, the statements do not indict the assessee. That apart, we have noted that the investigation has commenced targeting the individuals who dealt with the penny stocks and after examining the modus seeing the cash trail the report has been submitted recommending the same to be placed before the DGIT (investigation) of all the states of the country. It is thereafter the concerned assessing officers have been ....
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....s of violation of principles of natural justice the assessees have not made out any case. ................................. ................................. It is equally not in dispute that whatever information which was required to be made known to the assessee has been informed to the assessee by the assessing officer by issuance of a notice to each of the assesses to which they have responded by submitting their replies. Therefore, in the absence of any prejudice caused to the assessee on account of non-furnishing of the entire report, the assessees cannot be a heard to say that there has been violation of principles of natural justice and their right to defend themselves was in any manner affected. At this juncture, it would be of much relevance to refer to the decision in K. R. Ajmera (supra). The question of law which arose for consideration before the Hon'ble Supreme Court was as to what is the degree of proof required to hold brokers/sub-brokers liable for fraudulent/manipulative practices under the SEBI Regulations and for violating the code of conduct of the SEBI (Stocks brokers and Sub-brokers) Regulations. It was pointed out that the cod....
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....could be between two brokers/sub-brokers engaged in the buy and sell transactions. Further it was pointed out that when over a period of time such transactions have been made between the same set of brokers or a group of brokers a conclusion can be a reasonable reached that there is a concerted effort on the part of the brokers concerned to indulge in synchronized trade the consequences of which is large volumes of fictitious trading resulting in unnatural rise in hiking the price/value of the scrips. In the said case, it was argued that on a screen-based trading the identity of the second party to be a client or the broker is not known to the first party/client or broker. This argument was rejected as being irrelevant. It was pointed out that the screen-based identity system keeps the identity of the parties anonymous and it will be too naïve to rests the final conclusions on said basis which overlooks a meeting of minds elsewhere. Further it was held that direct proof of such meeting of mind elsewhere would rarely be forth coming and therefore the test is one of the preponderance of probabilities so far as the adjudication of a civil liability arising out of violation of the....
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.... in cases of adulteration of food stuff, more than often action is initiated under the relevant Act after the adulteration takes place, the users of adulterated products get affected etc. Therefore, a holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, we cannot loose 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 Income-tax department 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 al....
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....hort span of time. ................................. ................................. It was argued that unless there are foundational facts, circumstantial evidence cannot be relied on. This argument does not merit acceptance as wealth of information and facts were on record which is the outcome of the investigation on the companies, stock brokers, entry operators etc. Based on those foundational facts the department has adopted the concept of "working backward" leading to the assessees. While at that relevant stage the sounding circumstances, the normal human conduct of a prudent investor, the probabilities that may spill over, were all taken into consideration to negative the claim for exception made by the assessee. Therefore, the department was fully justified in taking note of the prevailing circumstances to decide against the assessees." The above decision has been subsequently followed by Hon'ble High Court in Nand Kishore Agarwala [2022] 143 taxmann.com 402 (Calcutta) and also by Hon'ble ITAT in Hemil Subhashbhai Shah ITA No.1121/Ahd/2018 ITA No.961/Ahd/2019 dated 12/06/2023 regarding the furnishing of report of investigation wi....
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.... The purchase was not made online but it was an off-market transaction. The shares purchased by the appellant were of a closely held company, Conart Traders Ltd and the appellant purchased these 15000 shares from Santoshima Tradelinks Ltd who was stated as the holder of these shares. The payment was made vide cheque. debited from appellant's bank account on 15/09/2011. The appellant furnished copy of debit note dated 28/11/2011 of the broker, share transfer form dated 27/11/2011, share certificate dated 25/11/2011 in the name of Santoshima Tradelinks Ltd & memorandum of transfer of shares to the appellant dated 27/11/2011. The following discrepancies are noted in this purchase transaction: (i) The payment was made on 15/09/2011 but shares were not transferred till 27/11/2011 in the name of the appellant. (ii) The share certificate in the name of Santoshima Tradelinks Ltd is dated 25/11/2011 and it can be inferred that before this date, this entity was not owning the shares of Conart Traders Pvt Ltd and it not clear as to how the appellant could have purchased shares of Conart Traders from Sanstohima in September 2011 when it was not owning such shares in ....
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....cal form & new shares of Sunrise were also not received by him in demat account. It is worth noting that the appellant sold the shares through his own brokerage company, Stochastics Securities Ltd, in which he was a director along with his father and brother. The AO has also brought forward additional fact of Vipul Vidur Bhat, accommodation entry provider, wherein he admitted in statement u/s 132(4) of the Act that he had manipulated transactions of amalgamation of Conart, Sunrise and Santoshima and then rigged share prices of Sunrise Asian to arrange for entries for beneficiaries though accounts of entities controlled trolled by him. 6.2.4 In its order no. WTM/GM/IVD/ID7/13328/2021-22 dated 06/09/2021, SEBI has indicted Vipul Vidur Bhatt and his entities for manipulation of share prices of Sunrise Asian for the period from October 16, 2012 to September 30, 2015. Following paras of SEBI order is worthy of mentioning here: "During the Investigation period, the Hon'ble Bombay High Court vide an Order dated March 22, 2013, had sanctioned the Scheme of Amalgamation of Santoshima Tradelinks Ltd. (First Transferor Company) and Conart Trader's L....
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....shares of Sunrise Asian Ltd. under section 68 of the Act. The following was also held by Hon'ble ITAT: "It is also the plea of the assessee that the payment for the acquisition of shares was made from the bank account and the shares were dematerialised and credited to the Demat account maintained by the assessee. It was further the submission of the assessee that during the year, the assessee sold the shares through the broker on BSE However, as noted above, not only Sunrise Asian Ltd but the exit providers were also found to be involved in manipulative trade practices by the SEBI. Further, Mr. Vipul Vidur Bhatt in his statement had admitted and confirmed that all the entities controlled and managed by him are mere bogus paper companies and he is involved in providing accommodation entry on a commission basis. Thus, not only Sunrise Asian Ltd but Conart Traders Ltd, whose shares were initially purchased by the assessee in physical form, were found to be belonging to Mr. Vipul Vidur Bhatt in the present case. Accordingly, we find no infirmity in the findings of the AO, which were confirmed by the learned CIT(A) vide impugned order." Similarly, on the basis of c....
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.... we cannot put blinkers in our eyes on these factors and material coming on record and simply because assessee adduced certain documents for purchase and sale of shares does not make the transaction genuine. ................................. ................................. The financials and its credibility have been discussed in detail by the SEBI in its order. This factor definitely creates suspicion about the entire transaction In such cases, it is not necessary that there should be direct evidence available against the assessee or assessee has been specifically found to be beneficiary in any statement or any document. What needs to be seen that immediate and proximate facts and circumstances surrounding the whole event which has been found during the course of investigation by the agencies and specially here in this case SEBI. Here, it is not the case that simply based on some investigation and some statement of a broker that he has dealt in particular scrip for providing accommodation entry is the basis for making the addition. Albeit, the main concerned person who was hand in gloves for manipulating the price of the shares has also stated that he ....
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....ading, ostensibly goes to show that it was nothing but a paper/sham company as trading was among selected few with predetermined exit providers to provide accommodation entry to few beneficiaries, which was revealed from the inquiry and adjudication order of SEBI and this fact was also found by the income tax department in the course of the search conducted on the key entry operator of these shares. At this point it would be relevant to refer and rely upon the ratio and the Hon'ble Calcutta high Court in the case of PCIT vs. Swati Bajaj .................................... .................................... We are not going into details of various judgments wherein additions have been deleted on this scrip of M/s. Sunrise Asian Ltd and statement of Shri Vipul Vidur Bhatt has been discarded on the ground assessee was not given cross examination. We have given our finding based on various other factors and the most crucial one, the order of the SEBI brought on record before us wherein there is detailed investigation and enquiry and finding in the case of M/s Sunrise Asian Ltd. and how various other entities and persons connected with the manipulation ....
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....t in a number of appeals, and has also rejected the claim of the assessees who had transacted in such shares. All these transactions with common modus operandi have been held as bogus by the Hon'ble High Court. This decision also brings out that in such elaborate and complex modus operandi adopted by the entry providers and the beneficiaries, there need not be an actual cash trail in each and every case. The main excerpts from this decision of Hon'ble Calcutta High Court have already been reproduced in this order in a previous paragraph and are not repeated here for the sake of brevity. 6.2.8 The appellant and other parties of such penny stock also put up another defence that their names were not found in the inquiries conducted by the Department in cases of penny stocks but as has been held by Hon'ble Supreme Court in case of Kishore R Ajmera (supra) which was referred to by Hon'ble Calcutta High Court in case of Swati Bajaj & Others (2022) 139 taxmann.com 352(Cal.) as referred in previous paras of this order, screen-based identity system keeps the identity of the parties anonymous in share market transactions and it will be too naïve to rest the fina....
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....dly alarming that to within a short span of time. 6.2.9 Reliance is also placed on following decisions of Hon'ble Apex Court and lower courts on the issue of penny stock transactions: (i) Suman Poddar [2019] 112 taxmann.com 330 (SC): In this case, the assessee had purchased 15000 shares of M/s Smartchamps IT and Infra Ltd. (which was merged with M/s Cressanda Solutions Ltd.) through cheque payments in September 2011 (FY 2011-12) directly by filing application for allotment with the company at face value of Rs. 10/- per share. The shares were received in demat account on 05/07/2013 of the assessee and were sold between July to September 2013 earning a gain of about Rs. 75,19,505/- which was claimed by the assessee as exempt LTCG u/s 10(38) of the I.T. Act. AO found that this was a penny stock which had been also mentioned in investigation report of the Department, the share prices had jumped up without any rationale within a period of few months. The assessee had sought to justify the claim and genuineness of transactions stating that the transactions were through banking channels, demat accounts, STT had been paid, the purchase was not questioned in earlier ye....
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....companies, list of their bank accounts in the name of conduits. The said list contains names of companies in which the appellant dealt. Therefore, the findings in the case of Investigation wing corroborate the independent findings of the AO. Therefore, the AO was not required to allow the appellant the opportunity to crossexamine." SLP filed against above decision of Suman Poddar (supra) was dismissed by Hon'ble Supreme Court. It is noted here that facts of case of present appellant are similar to this case. The appellant had purchased shares in off-market transactions via banking channel which were dematerialized subsequently and were sold through a broker on stock exchange platform earning irrational and unexplained gains to her. (ii) Nand Kishore Agarwala [2022] 143 taxmann.com 402 (Calcutta): Where assessee had stage managed transactions of sale of shares with object to plough back his unaccounted income in form of fictitious longterm capital gains (LTCG) and claim bogus exemption under section 10(38), such exemption denied by Assessing Officer by way of treating bogus LTCG in penny stock under purview of unexplained cash under section 68 was just....
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....esent appellant is also similar to this case as he has also sought to defend his claim using the smokescreen of banking channel, demat account and stock exchange platform without explaining as to how he came to know about the financial potential of the impugned scrip when the balance sheets, turnover and past history showed that any prudent investor would not go anywhere near this scrip. (iv) Udit Kalra ITA 220/2019 & CM No. 10774/2019 dated 08/01/2019 (Delhi High Court): The assessee had purchased shares of penny stock Kappac Pharma in off-market transactions at very nominal price. The shares were later received in demat format and sold subsequently on stock exchange. Relying upon the report of Investigation Wing, the fact of off-market purchase, the irrational hike in prices of the scrip within a short span of time had weighed heavily with the Hon'ble High Court who upheld that the transactions were bogus and LTCG claim was denied (v) Sanjay Bimalchand Jain [2018] 89 taxmann.com 196 (Bombay): Where assessee had purchased shares of penny stocks companies at lesser amount and within a year sold such shares at much higher amount and assessee had not tendered co....
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....edit Capital Ltd (in short ACCL) also found its name. Thus, Ld. AO concluded that assessee has introduced/credited capital of Rs 46,97,718/- during the year in his books, the shares of which he explained as proceeds from sale of shares. By holding that the explanation offered by the assesses as unsatisfactory, Ld. AO added the amount of Rs. 46,97,718/- as income being unexplained cash credit u/s. 68 of the Act (taxable @ as provided u/s. 115BBE of the Act) Ld. AO also made an addition of Rs. 1,17,443/- being 2.5% of Rs. 46,97,718/- towards commission for getting bogus short-term capital gain as unexplained expenditure u/s. 69C of the Act Aggrieved, assessee went in appeal before the Ld. CIT(A) who confirmed the addition. Aggrieved, assessee is in appeal before the Tribunal. We find that there are large number of assessees, who have transacted with such kind of equity shares and claimed exemption under section 10(38) of the Act. Apart from this scrip, there are other scrips also in Kolkata, who were found to be penny stock and transactions on papers only. Hon'ble Jurisdictional Calcutta High Court has recently considered this aspect in its judgment in ....
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....er, Hon'ble Tribunal had held under circumstances similar to that of the appellant that "AO has made this addition on the premise that the assessee must have certainly incurred expenditure @ 2% of Rs. 64,58,168/- in paying commission/charges to the persons engaged for arranging bogus capital gain. We observe that the amount added by Ld. AO is reasonable and it does not call for any interference by us." In case of Rohit Agarwal (ITA No.1939/Kol/2018, AY 2014-15, decision dated purchased and sold shares of a company which was engaged in providing bogus entries in form of LTCG and STCG and assessee failed to prove genuineness of transaction, alleged LTCG earned by assessee on such shares was rightly brought to tax under section 68 of the Act. 6.2.10 Therefore, considering the facts and circumstances of the case and respectfully following and relying upon the decision of the Hon'ble Courts as above, I am of the considered view that AO had rightly rejected the claim of the appellant regarding long term capital gains on such sham transactions and adding back gains of Rs. 72,96,366/- to income of the appellant. Ground no. 3 of appeal is hereby dismissed.....