TMI Blog2023 (12) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... ct evidence or circumstantial evidence to support the conclusions drawn by the AO. There is not even any allegation that the Assessee had any unaccounted income or any undisclosed source of income. Facts as emanating from material on record demonstrate that the conduct of the Assessee in the present case does not fit into the modus operandi as stated in the report of Investigation Wing, Kolkata. Assessee has offered to tax Short Term Capital Gains and speculative profit earned on 25/07/2007 earned on sale of Share of the Company in the return for the Assessment Year 2008-09. The aforesaid gains/profits were accepted without questioning the genuineness of the transactions. During the course of hearing that the Learned Authorised Representative stated that 34,401 shares of the Company are lying unsold till date. This was not disputed by the Revenue. As pointed out by the Learned Authorised Representative, in case the cost of the shares held is written off, then the short terms capital gains offered to tax would be more than overall profits made from purchase/sale of shares of the Company by the Assessee. Thus we hold that addition made by AO u/s 68 of the Act cannot be sus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gain earned is Rs. 9,91,813/-; The addition is bad, illegal, void and against the provision of law; 3.2 The Hon'ble CIT(A)-NFAC failed to appreciate that the transaction of purchase and sale of shares as carried out by the appellant was genuine transaction and not bogus entry as alleged; 3.3 The Hon'ble CIT(A)-NFAC failed to appreciate that the Appellant was not confronted with the material, evidences, etc. which were relied upon by the AO while framing the assessment; It is submitted that in the facts and the circumstances of the case, and in law, the assessment so framed be held as bad and illegal, as the same is framed in flagrant breach of the principles of natural justice. 3.4 The Hon'ble CIT(A)-NFAC failed to appreciate that the AO has relied on irrelevant facts, conjectures, surmises and assumptions and is arbitrary; The Hon'ble CIT(A)-NFAC failed to appreciate that there is no evidence on record conclusively proving that the transaction is bogus as alleged. 3.5 The Hon ble CIT(A)-NFAC failed to appreciate that there is no evidence on record conclusively providing that the transaction is bogus as alleged. 3. The rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as short-term capital gains. The Assessee had over the years made investment in shares of listed companies. These investments were of nominal amount spread over many scripts and mutual funds. However the Assessing Officer was not convinced. According to the Assessing Officer the Assessee had made investment of INR 3,38,727/- in the shares of the Company. This was a substantial investment made in a company which did not have financial strength. The Assessing Officer, referring to various judicial precedents, made an addition of INR 16,09,340/- vide assessment order dated 20/12/2016, passed under Section 143(3) reads with Section 147 of the Act. 5. In appeal preferred against the above Assessment Order, the CIT(A) agreed with the Assessing Officer and confirmed the addition on merits vide order, dated 13/01/2023. The CIT(A) also rejected the jurisdictional challenge to initiation proceedings by holding that the reassessment proceedings were validly initiated. 6. Being aggrieved, the Legal Representative of the Assessee are not in appeal before the Tribunal against the order, dated 13/01/2023 passed by CIT(A). 7. The Ld. Authorised Representative, at the outset, stated he d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any was one of the companies identified as penny stock by the Investigation Wing, Kolkata in its report. Detailed inquiry was conducted by the Investigation Wing, Kolkata before returning the finding. The Assessing Officer has returned a finding that substantial investment was made in the share of a penny stock company which did not have any financial strength. The price at which share were traded at stock exchange was manipulated to book bogus gains/losses. Therefore, the addition of INR 16,09,340/- made by the Assessing Officer was rightly sustained by the CIT(A). 9. We have considered the rival submissions and perused the material on record. 10. On perusal of the Assessment Order, we find that some of the findings returned by the Assessing Officer are contrary to the material on record. 11. In paragraph 4.1 of the Assessment Order, the Assessing Officer has recorded as under: 4. Claim of bogus Long term capital gain on sale of shares of M/s Compact Disc Ltd.: 4.1 Facts Involved The assessee was a proprietor of Vinod Textiles and Body Graph Fashions. The assessee has for the year shown receipts from sale of 15,376 shares of M/s Compact Disc Ltd. at Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profit earned as (LTCG/ STCG) Taxed in Assessment Year 50,000 shares were purchased on 16/01/2007 at the cost of INR 8,58,610/- (at the rate of INR 17.17 per Share) 6,000 17-07-2007 2,60,220 1,57,187 STCG 2008-09 15,000 09-08-2007 9,02,550 6,44,967 STCG 2008-09 10,000 11-12-2007 7,48,248 5,76,526 STCG 2008-09 599 12-12-2007 47,060 36,774 STCG 2008-09 5,000 14-12-2007 3,76,367 2,90,507 STCG 2008-09 5,000 17-12-2007 3,93,815 3,07,954 STCG 2008-09 8,401 01-06-2007 4,89,147 3,44,883 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - - - 11.2. Thus, as rightly averred by the Learned Authorised Representative, the Assessee had undertaken 3 purchase transactions and 11 sale transactions during the Financial Years 2006-07, 2007-08 and 2008- 09. The short term capital gains offered to tax in the return of income for the Assessment Year 2008-09 by the Assessee were accepted without casting any doubts about the genuineness of the transactions. 11.3. The Assessment Order does not contain any reference to independent inquiry, if any, conducted by the Assessing Officer and records general modus operandi as stated in the report of Investigation Wing, Kolkata without any specific reference to the fact of the present case in the following manner: 4.2 Modus Operandi: The basic aim of the scheme is to route the unaccounted money of LTCG Beneficiaries into their account/books in the garb of Long Term Capital Gain. This entry of LTCG is taken by selling the shares on the stock exchange and registering the proceeds arising out of the sale of shares into the books as LTCG. For implementing this scheme, shares of some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through banking channel have not been refuted. According to the Assessing Officer till December 2006, the shares of the Company were traded below INR 10 per share and therefore, the quoted price of shares climbed till 17/01/2008. The price and volume movement of the shares of the Company mentioned in paragraph 4.7 of the Assessment Order, reproduced herein below, are for the period between 01/04/2010 and 31/12/2014. 4.7 Till December 2006 the scrip was trading at below Rs 10/- and then it started climbing till 17.01.2008 when it touched 124 and then there was a steady decline till September, 2009 when on 18.09.2009 it touched Rs. 73 per share. This company was having market price of share at around Rs. 78 for the share having face value of Re. 1 in April, 2010. The price was maintained in the range of Rs. 50 to Rs. 78, so that the interested beneficiaries were able to book the long term gains. After that the price was made to fall freely so that interested beneficiaries who had booked at high market price can avail bogus short Term Capital Loss. Thereafter the prices have gone down to merely Rs. 1.56. The daily trading details in shares of the company are given below. The pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.00 0.54 0.56 -0.44 2014-15 NA N.A. N.A. N.A N.A 4.10 Thus it is clear that the networth of the above company is negligible. Even though the net worth of the company and the business activity of the company is negligible the share prices have been artificially rigged by the group of operators to accommodate beneficiaries seeking long term capital gain and losses. No prudent businessman and particularly trader or investor in stock will invest in such penny scrip which is defunct and inoperative. While the observation made in paragraph 4.10 above that the Company had negligible financial strength may hold good for the Financial Year 2010-11 and subsequent financial years, the same cannot be said with respect of Financial Year 2009-10. 11.8. We note that vide, letter dated 08/12/2016, it was contended on behalf of the Assessee that the Assessee had routinely purchased/sold shares on the basis of tips received from friends and relatives. The trades were done through stock market and the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s including the Harshad Mehta scam, Ketan Parekh scam and the recent NSEL scam is indicative of the extent of manipulation that is possible and done on these exchanges which are mostly private entities and are not insulated from other gainful indulgence factors. The market dynamics are simple and are governed by the age old parameters of supply and demand. It cannot be accepted that the value of a scrip shall increase substantially without any financial indications to support and justify the same and with nominal volumes and that as the rate peaks there should be a manifold increase in sellers and buyers It is seen from the movement of the scrips under consideration that it has increased (considerably with minimal volume an also maintained the levels for a substantial time which defies the market dynamics. The main question that emerges is should the said unusual and improbable results and movements be ignored merely as the transactions were done on the stock exchanges. Is it acceptable that the movements cannot be manipulated 4.14 It is not the case of this office whether purchase of shares through preferential placement did actually took place or shares were sold on the exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer on the basis of the findings of the Investigation Wing, Kolkata as well as the analysis of price and volume movement. However, nothing has been brought on record by the Assessing Officer to support the conclusion in respect of the transaction undertaken by the Assessee. The addition has been made on the basis of conjecture and surmises. The Assessing Officer has failed to point out any defect or infirmity in the documents/explanation given by the Assessee. The Assessment Order is silent about the brokers and exit providers involved. There is no reference to any inquiry having been conducted by the Assessing Officer. There is no direct evidence or circumstantial evidence to support the conclusions drawn by the Assessing Officer. There is not even any allegation that the Assessee had any unaccounted income or any undisclosed source of income. Further, in our view, the facts as emanating from material on record demonstrate that the conduct of the Assessee in the present case does not fit into the modus operandi as stated in the report of Investigation Wing, Kolkata. The Assessee has offered to tax Short Term Capital Gains and speculative profit earned on 25/07/2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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