TaxTMI 
TaxTMI 
2025 (3) TMI 1980
X X X X Extracts X X X X
X X X X Extracts X X X X
....ry evidence should uphold the LTCG exemption. Consequently, the Assessee requests that the disallowance be set aside and the disputed additions removed. Ground No. 2: Violation of Principles of Natural Justice in Denial of Cross- Examination The CIT(A) violated natural justice by confirming the Assessing Officer's additions without allowing the Assessee to cross-examine the witnesses or access the underlying evidence. The additions were based on unverified third-party statements and an Investigation Wing report, contrary to Section 250(6) of the Income Tax Act, which mandates proper reasoning and a fair opportunity to challenge evidence. Judicial precedents confirm that denying cross-examination renders the assessment unsustainable. Therefore, the Assessee requests deletion of these unverified additions and a remittal for proper investigation. Ground 3: Lack of Nexus, Validity of Exchange-Traded Transactions, and Predetermined Conclusion The AO failed to establish any link or material evidence implicating the assessee beyond a mere investor, with no recorded statements naming the assessee. Relying solely on the Investigation Wing's report....
X X X X Extracts X X X X
X X X X Extracts X X X X
....propriate action. Ultimately, after due deliberations between the assessee and the AO an addition of Rs. 1,34,99,620/- being amount of bogus LTCG claimed u/s. 10(38) of the Act and Rs. 2,69,992/- being amount of commission for arranging bogus LTCG was added back to the total income of the assessee. The assessee being aggrieved with the same preferred an appeal before the Ld. CIT(A), who in turn dismissed the appeal of the assessee on quantum and confirmed the action of the AO. The assessee being further aggrieved with the same preferred the present appeal before us. 3. We have gone through the order of the AO, order of the Ld. CIT(A) and submissions of the assessee alongwith grounds taken before us. As per the report of PDIT(Inv.), Kolkata around 3480 individuals/HUFs have taken accommodation entries of prearranged bogus LTCG/STCL of around 1285 crores in the scrip M/s. TFCIL with the help of syndicate operator, market broker, share broker, entry operators etc. through manipulated merger of paper companies. Some paper companies were amalgamated into M/s. TFCIL and in lieu of one share of such amalgamated companies, 38 shares of M/s. TFCIL were allotted. In such a manner, through....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hell private limited companies of the same syndicate. These facts were duly confirmed by the operators during the search and survey operations. The investigation further revealed that the buyer companies were merely a paper company operated and managed by the syndicate members. There was a syndicate of operators, who deal majorly in the scrips listed on CSE only. 5. There were syndicates of operators who deal in certain identified scrip mostly on CSE. The scrip is of companies which do not do any actual business. They are actually listed paper companies whose shares are known as Pennystocks in stock market parlance. Often these companies are owned by these operators. One syndicate mostly deal in a fixed set of shares. There are many such syndicates dealing in fixed set of penny stocks. The whole business of providing entries of bogus LTCG over the years have become much more organized and with economy of scale in full operation the stake involved have become huge. Before the actual transaction start taking place there are brokers in different towns who contact prospective clients and take paper booking for entries. The commission to be paid to the operators is decided at this st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nown as penny stock and does not do any actual business and was only providing bogus Long Term Capital Gain entries. The relevant portion of the statement of Shri Anil Kumar Khemka dated 14.04.2017 is reproduced below: - Q.18. Please state the nature of business activities of the Twenty First Century (India) Limited and your association with it. Ans. M/s. Twenty First Century (India) Limited is a CSE company controlled and managed by me from 2004. The registered office of the company is my office at 9, Lal Bazar. Mr. Pradeep Kumar Garg MD is my dummy. The other directors are also dummy taken from market. It is an investment company used for providing accommodation entry of unsecured loan, sale of shares etc. The CSE banned this scrip in 2005. That time it was trading on Rs. 290. in 2007, suspension was revoked and due to limits on trading, rise in the price of scrip no significant upward movement was there. Later, in 2011, four paper company was merged into M/s. Twenty First Century (India) Limited, before merger clients/beneficiaries of Pre-arranged Bogus LTCG were allotted shares of M/s. Astha Tradelink Limited, M/s. Highland Dealcom Limited, M/s. Dignity Sup....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vider paper companies along with entry operator list of M/s Twenty First Century (India) Limited as given in annexure "x" and explain. Ans. Yes, I confirm and affirm that these paper companies has been used for providing exist to beneficiaries of Pre-arranged Bogus LTCG. The unaccounted cash of beneficiaries was channelled through a web of concerns to these concerns for the counter payment on CBE platform for the purchase of shares of M/s Twenty First Century (India) Limited 033. How the order was managed on CSE platform through share brokers explain. Ans. They open the new accounts of out beneficiaries with these brokers for this purpose like in this case with Kailash Prasad Dhywala and Sajendra Mookim. Similarly, there was accounts of exist provider paper companies with these brokers. So, it was kind of synchronized trading of the shares. Relevant portion of the statement of Shri Pradeep Kr. Garg, MD & dummy directors of M/s. Twenty First Century (India) Limited is being reproduced below: Q. 8. Please explain the nature of business done by you. Ans. I work as dummy director in jamma-Kharchi/Shell companies of Shri Anil Kumar Khemkaa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lieve his/her story as a valid event. The false claims of the Assessee cannot sustain before the test of "Human Probabilities". The "Human Probability Tests" were laid down by the Hon'ble Supreme Court of India for the first time in the case of CIT Vs. Durga Prasad More (1971) 82 ITR 540 (SC) and followed in the case of Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC). The information received from investigation wing and statement of Shri Anil Kumar Khemka supplied to the assessee clearly explains the modus operandi of this bogus transaction. The case laws cited by the assessee in his defense also do not help him being distinguishable on the facts of this case. In the present case, the assessee had claimed LTCG of Rs. 5,79,283/- from Twenty First Century (India) Limited, and this is only providing accommodation entries for the reasons given in detail in the above paras. In this regard assessee further filed submission on 09/12/2019 which is as under: - "1. Assessee had paid total consideration of Rs. 2,80,000/- in respect of allotment of shares and later on these were sold on respective (dates can be evident from contract notes, enclosed) for Rs. 86,05,364/-, earn....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... compliance of notice issued u/s. 148 of the I.T. Act, 1961, assessee has not disclosed his true and fair income for the year under consideration. As A/R of the assessee has also shown disagreement for notice issued u/s 142(1) and also filed application dated 25/11/2019 for cross examination of evidences. In this regard a summon u/s 131 of the I.T. Act, 1961 cross examination of evidences. In this regard a summon us 131 of the I.T. Act, 1961 was issued on 06.12.2019 through ITBA portal to the assessee to personally attend on 09.12.2019 for cross examination of evidence. In response to the same assessee did not attend for cross examination on 09.12.2019. In this regard an air ticket of the assessee of departure to Dubai on 03.12.2019 and arrival at Jaipur on 30.12.2019 was submitted by the assessee on 09/12/2019 through ITBA portal. This shows that after making application for cross examination assessee knowingly departed abroad till 30.12.2019 for whole month without availing himself opportunity of being heard and cross examining the evidence as the case is getting time barred on 31.12.2019. In view of the facts mentioned above it seems that assessee has nothing to say in this rega....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, the prices of this scrip were rigged to a large scale, through a network of operators, stock brokers and exit providers. The AO in this regard had referred to the detailed investigation carried out by DGIT (Inv.) Kolkata, which also includes the investee company and its group companies. The company, on sale of which the assessee has received windfall gains and it has been concluded by them that these transactions were manipulated and were done with a view to earn tax exempted income. Accordingly, the AO treated the long-term capital gains as bogus and added the same in the hands of the assessee. The assessee raised various objections about this addition, but the same are not tenable in view of the facts and modus operandi discussed above. 12. The basic aim of this was to route the unaccounted money of long-term capital gain beneficiaries into their account books in the garb of long-term capital gain. This nature of long-term capital gain was taken by selling the shares on the stock exchange and registering the process arising out of the sale of shares into the books of accounts for implementing this scheme shares of some penny stock companies were used. In this scheme the sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of [2022] 139 taxmann.com 352 (Cal.) PCIT vs. Swati Bajaj, Where the Hon'ble court held as under: "The report submitted by the Investigation department could not be thrown out on the grounds urged on behalf of the assessees. The assessees 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, 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 informed to consider as to the bonafideness and genuineness of the claims of LTCG/LTCL of the respective assessees qua the findings which emanated during the investigation conducted on the individuals who dealt with the penny stocks. Therefore, the assessments have commenced by the Assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot available, it is the duty of the Court to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded so as to reach a reasonable conclusion and the test would be what inferential process that a reasonable/prudent man would apply to arrive at a conclusion. Further proximity and time and prior meeting of minds is also a very important factor especially when the income tax department has been able to point out that there has been a unnatural rise in the price of the scrips of very little known companies. Furthermore, in all the cases, there were minimum of two brokers who have been involved in the transaction. It would be very difficult to gather direct proof of the meeting of minds of those brokers or sub-brokers or middlemen or entry operators and therefore, the test to be applied is the test of preponderance of probabilities to ascertain as to whether there has been violation of the provisions of the Income-tax Act. In such a circumstance, the conclusion has to be gathered from various circumstances like the volume from trade, period of persistence in trading in the particular scrips, particulars of buy an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on, it is the assessee who has to establish that the price rise was genuine and consequently they are entitled to claim LTCG on their transaction. Until and unless the initial burden cast upon the assessee is discharged, the onus does not shift to the revenue to prove otherwise. It is incorrect to argue that the assessees have been called upon to prove the negative in fact, it is the assessees duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. The assessees cannot be heard to say that their claim has to be examined only based upon the documents produced by them namely bank details, the purchase/sell documents, the details of the D-Mat Account etc. The assessees have lost sight of an important fact that when a claim is made for LTCG or STCL, the onus is on the assessee to prove that credit worthiness of the companies whose shares the assessee has dealt with, the genuineness of the price rise which is undoubtedly alarming that to within a short span of time. [Para 73] While it may be true that assessees could have been regular ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....estigation which was done and the report been circulated and therefore at that stage that the officer had to take note of such report to put the assessee on notice and commenced an enquiry by calling upon the assessee to justify the genuineness of the claim of LTCG/STCL. The Assessing Officer turned a blind eye to the project investigation which was carried out by the revenue. The Assessing Officer lost sight of the fact that the enquiry did not commence from that of the assessee and more particularly the name of the assessee did not feature in the investigation report. Therefore the Assessing Officer was bound to cause an enquiry by calling upon the assessee to explain and justify the genuineness of the claim for exemption made by them. If the assessee has not established the genuinity at the 'other end' the Assessing Officer would have no other operation except making the addition under section 68. In these cases the Assessing Officers missed an important point as to what is the nature of enquiry which he is required to do. The Assessing Officer merely went by the submission that the stock broker is a public sector company. Unfortunately this is not the manner in which th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the rise of the prices of the shares was artificially done by the adopting manipulative practices. Consequently whatever resultant benefits which accrue from out of such manipulative practices are also to be treated as tainted. However, the assessee had opportunity to prove that there was no manipulation at the other end and whatever gains the assessee has reaped was not tainted. This has not been proved or established by any of the assessee. Therefore, the Assessing Officers were well justified in coming to a conclusion that the so called explanation offered by the assessee was not to their satisfaction. Thus, the assessee having not proved the genuineness of the claim, the creditworthiness of the companies in which they had invested and the identity of the persons to whom the transactions were done, have to necessarily fail. In such factual scenario, the Assessing Officers as well as the Commissioner (Appeals) have adopted an inferential process which is found to be a process which would be followed by a reasonable and prudent person. The Assessing Officers and the Commissioner (Appeals) have culled out proximate facts in each of the cases, took into consideration the surrounding....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the case. Though the assessee has received the amounts by way of account payee cheques, the transactions cannot be treated as genuine in the presence of the overwhelming evidences put forward by the Revenue. The fact that in spite of earning such steep profits, the assessee never ventured to involve himself in any other transaction with the broker cannot be a mere coincidence of lack of interest. Reliance is placed on the judgment in the case of Nipun Builders and Developers Pvt. Ltd. (supra), where it was held that it is the duty of the Tribunal to scratch the surface and probe the documentary evidence in depth, in the light of the conduct of assessee and other surrounding circumstances in order to see whether the assessee is liable to the provisions of section 68 or not. In the case of NR Portfolio, it was held that the genuineness and credibility are deeper and obtrusive. Similarly, the bank statements provided by the assessee to prove the genuineness of the transactions cannot be considered in view of the judgment of Hon'ble court in the case of Pratham Telecom India Pvt. Ltd., wherein, it was stated that bank statement is not sufficient enough to discharge the burden. ....