TaxTMI 
TaxTMI 
2018 (3) TMI 2075
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....partner in M/s. Diamond Creations, filed his return of income for the assessment year 2014-15 electronically on 08.11.2014 admitting total income of Rs. 2,69,06,500/-. Thereafter the case was selected for scrutiny under CASS and notice U/s. 143(2) of the Act was issued and served on the assessee on 29.08.2015. During the course of scrutiny assessment it was noticed by the Ld.AO that the assessee had made huge gains from trading in shares of M/s. Risa International Ltd. Further based on market information, survey was conducted at the business premises of the assessee on 19.07.2016 and statements were also recorded. In the course of scrutiny assessment proceedings it was revealed that the substantial increase in the capital of the assessee was due to the capital gain earned by the assessee which was claimed as exempt from tax U/s. 10(38) of the Act. It was further observed that the assessee had acquired 7,50,000 shares of M/s. Risa International Ltd., by way of preferential allotment in the month of August 2012 for a consideration of Rs.75,00,000 at Rs.10 per share. These shares were initially in paper form and subsequently converted in to de-materialized form. Thereafter the assesse....
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....nished statement before the Revenue which forms part of the assessment order in Annexure 'C'. vii. The shares of M/s. Risa International Ltd., and certain other companies hit lower circuit on 28.03.2016 and thereafter the BSE decided to suspend their trading operation of those companies. viii. All the shares of M/s. Risa International Ltd., were allotted through preferential allotment route. The share prices of M/s. Risa International Ltd., rose to Rs. 177.90 per share during March 2015 and thereafter shrunk to Rs.0.95 on 28.03.2016. This shows that the share transactions of M/s. Risa International Ltd., are fabricated. ix. During the year of investment viz., financial year 2012-13, the net turnover reported by the company was minimal. But the stock prices shot out from Rs.0.10 per share to Rs.5.45 per share without any basis. This is highly improbable during the normal course unless shares are spiked artificially. x. M/s. Risa International Ltd.'s shares were suspended from trading in BSE for not complying with the listing agreement. It was also penalized for not submitting its share holding pattern on corporate governance report. ....
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....hat the relationship managers in most of the banks in order to achieve their target for opening new bank accounts encourage such activities without following KYC norms. Thus the gross violation in banking practice had helped in large scale tax evasion. xix. The assessee had purchased the shares of M/s. Risa International Ltd., at the rate of Rs. 10 per share and thereafter sold the shares at Rs.600 per share. The increase in the price of the shares was without any scientific basis and there was no necessity to purchase the shares at Rs.10 per share which was worthless unless the same was for booking profit under the guise of sale of shares for deriving benefit U/s. 10(38) of the Act. xx. All the investors who purchased the shares of M/s. Risa International Ltd., from the assessee did not possess the resources to invest and even otherwise they were party to manipulate transactions. xxi. The transactions made by the assessee was unbelievable and the decision of the Hon'ble Apex Court in the case Durgaprasad & more reported in 82 ITR 540 and Sumathi Dayal Vs. CIT reported in 214 ITR 801 is applicable to the facts of the case of the assessee. xxi....
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.... The assessee has failed to discharge his onus in proving the fact and substantiating that the transaction adheres to natural course of event and human conduct. (vi) No adequate reason is provided to explain the fluctuations of the price of the shares. (vii) The shares of M/s. Risa International Ltd., were not ordinarily traded in the market and was bought and sold with the connivance of operators. (viii) Merely because the financial transactions are routed through banking channels and the share transactions were through stock exchanges the same does not confer authenticity to the transaction. Genuineness of the transaction has to be conclusively proved in all parameters. Reliance was placed in the case CIT vs. P. Mohanakala & other reported in 291 ITR 278. (ix) When all adverse factors are viewed holistically there cannot be even an iota of doubt in classifying the transactions as manipulations. The nature of transactions points out that the profit in the hands of the assessee is actually his unexplained income which is reverted back to him in the guise of exempt income. Heavy reliance was placed in the decision of the Mumbai Bench of the Tribun....
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.... no illegality attached to the transaction by making such investment. There is also no bar on the assessee as to how he should exploit gain from his investment that is either by way of sale of the shares or by earning dividend income. He further submitted that the entire shares acquired was based on the order of the Hon'ble High Court of Bombay dated 29.06.2012 in CP No.288/2012 and therefore the allegation of the Department that the assessee got shares by preferential allotment does not lead any negative inference. Further the shares were sold in the open share market through regulated stock exchange and the sale proceeds were realized through proper banking channel. He further argued stating that the assessee (black money holder) approached operators to convert black money into white money is totally baseless because there is no evidence to establish the same other than the mere statements of few individuals against the share of M/s. Risa International Ltd., and not the assessee. Moreover no evidence was produced by the Revenue to show that the assessee had advanced cash to the buyers of the shares from him. Further no evidence was produced by the Revenue to establish that th....
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.... orders. The Ld. DR also placed reliance in the various statements recorded from individuals which forms part of the paper book submitted by the Revenue and pleaded that Orders of the Ld. Revenue Authorities may be upheld. 7. We have heard the rival submissions and carefully perused the materials before us. From the facts of the case, the allegations of the Ld. AO can be broadly summarized and analyzed as under :- (i) The observation of the Ld.AO that assessee did not have expertized or experience in share trading activity will not lead to the presumption that the assessee is dealing with penny stock. (ii) Normally in capital building activities of the company which do not enjoy substantial goodwill in the market, private placements are canvassed. Therefore one cannot arrive at a conclusion bluntly that the investment made by the assessee is peculiar. (iii) The allegation of the Revenue that the assessee had invested in the shares of M/s. Risa International Ltd., only to make gain out of sale of those shares and no intention to exploit dividend income does not lead to the presumption that the assessee is indulging in sham transactions. Further classifi....
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....we wonder as to how the assessment can stand only on the basis of statement made by Shri Prasanta Bose. (v) The observation of the Ld.AO regarding the trading activity of shares by assessee was in the nature of trading in penny stock companies is not based on conclusive evidence but only based on the statements of certain individuals like Shri Prasanta Bose. Though the strong needle of suspicion ascends, it is obvious that assessment cannot be made based on mere surmises and conjectures when it adversely affects any individual. (vi) We do not understand as to what adverse inference can be drawn from the observation of the Ld.AO that the entire contract note of M/s. Lodha Securities Ltd., related only to the sale of shares of M/s. Risa International Ltd. (vii) Mr. Prasanta Bose had referred to one person name Shri Hemat Goelka who had induced and motivated him to form companies in order to provide accommodation of bogus profit to the beneficiaries in exchange of commission however the Ld.AO has not summoned Mr. Hemat Goelka and examined him in order to strengthen the statement of Mr. Prasanta Bose or brought to our notice regarding any such evidence. ....
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....ant who is one of the directors in M/s. Risa International Ltd., it is evident that the prices of the shares of M/s. Risa International Ltd., was inflated by Mr. Naresh Jain in connivance with other operators. However no investigation is made on that regard. Further it is evident that preferential allotment of shares in M/s. Risa International Ltd., was made after the approval of the scheme by the Hon'ble Mumbai High Court. Further it is apparent that the entire process was within the ambit of legal parameter because no adverse action is initiated against Shri Abhinandan Jain and if any penal action is taken against him the same is not brought to our notice. Considering these facts even though it is presumed that there is an artificial spiking of shares of M/s. Risa International Ltd., there is no evidence to establish that the assessee had infused his unaccounted income in the garb of gain arising from the sale of the shares of M/s. Risa International Ltd. (xviii) The Ld.AO has observed that the buyers of the shares did not respond to the notice issued U/s. 131 of the Act. It is an admitted fact that the buyers of the shares of M/s. Risa International Ltd., from the a....
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....rom the facts of the case it is apparent that the Ld.AO has not made any investigation other than interrogating few individuals when according to his own finding there were many individuals involved in the manipulative operations. (iv) The Ld.CIT(A)'s reliance in the decision of the Hon'ble Madras High Court in the case CIT vs. Krishnaveni Ammal cited supra is not applicable to the case of the assessee because the details of the entire operations are not thoroughly investigated and conclusions are drawn only on the basis of the statements given by few individuals followed by surmises and conjectures. (v) From the facts of the case it appears that the assessee has complied with all the legal parameters because other than the fact that the share prices increased substantially in a short span of time and the statement of few individuals there is nothing against the assessee which is brought to the notice before us. (vi) The Ld. CIT(A) has further observed that there was no adequate reason to explain the fluctuation in the price of shares of M/s. Risa International Pvt. Ltd. On this regard it is apparent from the paper book page No.248 filed by the Re....
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....ment of Shri Abhinandan Jain in page No.244 of the paper book of the Revenue it is mentioned that "consent letter was obtained from the prospective shareholders" which show that there were other individuals who were also allotted preferential shares. It is also evident from the statement at page No.243 of the paper book of the Revenue that total preferential shares allotted was 3,14,00,000 equity shares at a price of Rs. 10 per share with respect to 49 entities against which the assessee was allotted only 75,00,000 shares. What is the status of the rest of the shareholders is not on record before us. It is pertinent to mention that the other individuals, who dealt with the shares of M/s. Risa International Pvt. Ltd., will also stand in the same footing and the details of those cases are not before us. Further the Ld.AO has predominantly relied on the statement of Shri Abhinandan Suresh Jain dated 20.10.2016, Shri Naresh Manikchand Jain dated 20.10.2016, Shri Hasmukh Bhai Manilal Shah dated 20.10.2016 and few others and letter of Shri Rajeshkumar Dubey dated 26.11.2016 while concluding his assessment order on 27.12.2016. There were no further investigations made on the other individ....
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....by SEBI or any recognized stock exchange with respect to the trading in shares of M/s. Risa International Pvt. Ltd., in the case of the assessee in particular as affirmed by the Ld.AR as well as the Ld.DR before us. Further there is no finding by the Department as to how the assessee might have possessed/acquired such huge black money for conversion. The bank account trial with respect to the source of the amount invested by the so called dubious purchasers of shares from the assessee through stock exchange has not been thoroughly investigated by the Revenue to establish that those buyers are not genuine and they did not have sufficient source to invest in the shares of M/s. Risa International Pvt. Ltd., purchased from the assessee. Only a passing remark is made by the Revenue on that regard that the buyers of the shares from the assessee were men of meager means but no evidence is brought on record. In fact the need for such finding was dispensed with by the Revenue by merely stating that the funds were routed through layering of accounts and flouting of rules by the bankers not following KYC norms. Though the Ld.AO has explained how the penny stock works, he has not made any find....
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....iable, because it is obvious that the assessee cannot get such documents from unknown individuals who have purchased shares through recognized stock exchange. The observation of the Ld.AO that the assessee had purchased the shares only to obtain profit from sale of those shares and had no intention for earning dividend income also does not seem to be appropriate because any investor is at liberty to exploit gain from dealing with their investment in the best possible manner. In the case of the assessee though there is a strong needle of suspicion arising due to the unnatural fluctuation of the price of the shares of M/s. Risa International Pvt. Ltd., no clear cut evidence is brought forth by the Revenue in order to nail the assessee for penal consequence. In these circumstances we do not find any merit in the Order of Ld.AO for making addition in the hands of the assessee U/s.68 of the Act with respect to the Long Term Capital Gain earned by him from the sale of shares of M/s. Risa International Pvt. Ltd., or treating the Long Term Capital Gain earned by the assessee as income from business or denying the benefit of Section 10(38) of the Act, and as well as with the Order of the Ld....
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....R 278 is not applicable to the case of the assessee because in that case the issue was with respect to addition made under the head cash credit U/s. 68 of the Act towards foreign gifts received from one common donor and the evidence indicated that the donor was to receive suitable compensation from the assessee though the money came by way of bank cheques and was paid through the process of banking transactions which was by itself of no consequence. But in the case of the assessee before us the issue is with respect to allotment of shares by the order of the Hon'ble High Court and sale of shares through regulated market such as stock exchange and the watch full eye of SEBI. e) In the case CIT vs. Krishnaveni Ammal reported in 158 ITR 826, the Hon'ble Jurisdictional Madras High Court held that when there was information to effect that Multani Bankers had only indulging in hawala transactions by merely lending their names, the credit entries in the name of the various Multani Bankers appearing in the books of the assessee did not represent genuine transaction because though the assessee had stated that crossed checks are available they were not produced before the Re....
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.... notes, demat accounts which shows transfer in and out of shares then there is no necessity to doubt the genuineness of the transactions. 9.4 From the above it is apparent that the decisions relied by the Ld. Revenue Authorities will not be strictly applicable to the case of the assessee and the decisions cited by the Ld.AR supports the claim of the assessee. 9.5 We do understand the genuine anxiety of the Revenue to tax the assessee due to the various unnatural happening of events, but as a Judicial body our hands are tied due to the lack of material evidence against the activities of the assessee and we cannot step into the shoes of the Revenue by making further investigations and enquiries to tie up the loose ends left out by the Revenue. From the materials produced before us there is nothing on record to establish that the transactions of purchase and sale of shares made by the assessee are dubious other than the fact that the share prices of M/s. Risa International Pvt Ltd., rose substantially without sound backing and the statements of few persons such as Shri Abhinandan Suresh Jain, Shri Naresh Manikchand Jain, Shri Prasanta Bose, Shri Bhupesh Rathode, Shri Hasmukh Bha....
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....his claim of long-term capital gain. The Assessing Officer held that the assessee failed to lead evidence to support his claim of long-term capital gain and considered the amount of Rs.1,74,552 as unexplained credit and it was added in the income of the assessee. The Commissioner (Appeals) deleted the addition holding that the Assessing Officer had not discharged his onus and there was no material or evidence with the Assessing Officer to come to the conclusion that the transaction shown by the assessee was a bogus transaction. The Commissioner (Appeals) took the view that if a company was not available at the given address, it could not conclusively prove that the company was non-existent. The Tribunal took into consideration that the Assessing Officer had not dealt with all the documents placed before him and had simply presumed that the transaction was bogus and held that the purchase contract note, contract note for sales, distinctive numbers of shares purchased and sold, copy of the share certificates and the quotation of shares on the date of purchase and sale were sufficient material to show that the transaction was not bogus but a genuine transaction. On appeal: He....