2022 (3) TMI 829 - ITAT DELHI

Reopening of assessment u/s 147 - Addition u/s 68 - bogus LTCG - bogus share transaction - HELD THAT:- Capital markets regulator SEBI imposed a total penalty of ₹ 40 lakh on five entities and three individuals for indulging in fraudulent trading activities in the scrip of Esteem Bio Organic Food Processing Ltd. An amount of ₹ 5 lakh each has been imposed on them. The entities and individuals are collectively referred to as noticees. An investigation was conducted by the regulator in the shares of Esteem Bio Organic Food Processing during the February 7, 2013 and July 31, 2015 period. As found that a set of connected entities were pushing up the price of the scrip through unusual trades in such a manner so as to make a positive contribution to the Last Traded Price (LTP) and establishing New High Price (NHP).

The observations and finding of fact arrived by the SEBI clearly proves that the scrips of M/s Esteem Bio Organic Food Processing Ltd. where manipulated in stock exchange and fraudulent scheme was deployed by the said company right from year January 2013 during the period which the assessee had entered into the transaction. This fact itself nails the finding of the AO which has discussed in detail and also by the ld. CIT(A). It is immaterial that order of the SEBI came in 2018 because the SEBI has analysed the entire trading of shares from year 2013 and found that not only the prices of the scrips of the said company were rigged but also were involved in fraudulent activities, which led to completely debarred its trading in the stock exchange. This order of SEBI clearly implicates, the entire transaction of purchase and sale of shares and goes to prove that the transaction was not genuine and corroborates the findings of the enquiry conducted by the Income Tax Department.

All these enquiries conclusively proved that the trades have been manipulated and the gains or the losses made by the beneficiaries cannot be said to be genuine.

We hold that the transactions in the present appeal are yet another example of the constant use of the deception of stock market transaction to bring unaccounted money into banking channels. This device of stock transactions of unworthy stocks with no profits continues to plague the legitimate economy of our country. As seen from the facts narrated above, the transactions herein clearly do not inspire confidence as being genuine and are shrouded in mystery, as to why the so-called transactions lead to exorbitant returns which are made tax free.

The Hon’ble Calcutta High Court in the case of CIT Vs Korlav Trading Company Ltd. [1998 (2) TMI 104 - CALCUTTA HIGH COURT] and CIT Vs Precision finance P. Ltd. [1993 (6) TMI 17 - CALCUTTA HIGH COURT] had observed and held that mere filing of confirmation and transaction through the banking channel is not enough to prove the genuineness.

The facts have been examined holistically with reference to enquiries and the entire operation of the stocks, method of investment, regularity of the investments, enquiries conducted by SEBI, evidences produced by the assessee to support the claim. While we examine the enormous evidences, we find that the only evidence submitted by the assessee was that the amounts have been received by cheque and hence the genunity of the transactions have proved beyond doubt.

On going through the entire facts and circumstances of the case, it can be concluded based on the following snap shot that transactions entered by the assessee are not genuine.

A tangible and reliable information has been available with the AO to initiate proceedings u/s 148 of the Act. Proper reasons have been recorded before issue of the notice. The reasons recorded are related to the information received 4. The information received and the reasons recorded pertain to escapement of income.

Assessing Officer had reasons to believe based on the information received which have been duly recorded. Assessing Officer has right jurisdiction to issue the notice and the same has been duly served as per the requirements of the Income Tax Act. There has been live nexus between the information received, reasons to believe and the reasons recorded.

What is required for issue of notices, the prima facie reasons to believe as per the ratio laid down by the Hon’ble Supreme Court. The Hon’ble Apex Court has also held that formation of belief by the Assessing Officer is within the realm of subjective satisfaction.

In the instant case, the approval given u/s 151(1) cannot be faulted in accordance with the judgment of Hon’ble High Court (HP) [2017 (1) TMI 517 - HIMACHAL PRADESH HIGH COURT] wherein it was held that the Court is satisfied that by recording in his own writing the words: “Yes, I am satisfied”, the mandate of Section 151(1) of the Act as far as the approval of the Addl. CIT was concerned, stood fulfilled.There has been an independent application of mind that the Assessing Officer which deciphered from the reasons recorded by the Assessing Officer.

The price of shares has been risen from ₹ 26.50 to ₹ 392.00 (average) any span of 13 months.The company had no profit/ meager profit to demand such price.The assessee is not a regular trader investing in the stock market transactions.

In the entire period of 5 years, there was only highest spurt for the smallest period wherein the sale took place in the entire period between 2010 to 2015 as depicted in the graph above showing typical bell shape.The shares were purchased of market from private party.

No iota of due diligence viz. the advisor, the analysis of fundamentals, the profits, the assets undertaken by the assessee. The order of the SEBI dated13.03.2019 and 22.12.2020 proving the manipulation in trading of the scrips. The undeniable proof of involvement of the broker ISF Securities found by the SEBI.

Order dated 23.12.2020 of Metropolitan Stock Exchange enquiry indicting the involvement of operation in the case of M/s Esteem Bio Organic Food Processing Ltd. Levy of penalty by SEBI in fraudulent trading activities in the scrip of Esteem Bio Organic Food Processing Ltd.

Hence, we find no merit on the arguments of ld. AR on the issue of reopening of the case u/s 148 of the I.T. Act as well as on merits of the issue. In the result, the appeal of the assessee is dismissed. In the result, the appeal of the assessee dismissed.