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2016 (10) TMI 316 - ITAT MUMBAI

2016 (10) TMI 316 - ITAT MUMBAI - TM - Validity of reopening of assessment - purchase and sale of shares as bogus - Held that:- There is a conclusive and final finding of fact that purchases of shares were bogus and sham as was held by the Revenue in the assessment year 2005-06 which has not been dislodged so far as the assessee accepted the said findings which became conclusive, thus the facts in the instant case are distinguishable as against the relied upon case of the assessee in Smt Aarti M .....

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uing notice u/s 143(2) of the Act and framing detailed scrutiny u/s 143(3) of the Act instead chose to process the return u/s 143(1) of the Act without scrutiny will not entitle the assessee to get the well reasoned assessment orders and appellate orders of the learned CIT(A) dislodged in the absence of the cogent material and evidences to demolish the findings of the authorities below. The Revenue in the case of the assessee’s brother has also declared the purchase and sale of shares as bogus b .....

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r The Assessee : Shri Vishwas V. Mehendale For The Assessee : Shri B.S. Bist (D.R.) ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee, being ITA No. 995/Mum/2012, is directed against the appellate order dated 25th November, 2011 passed by learned Commissioner of Income Tax (Appeals)- 35 Mumbai (hereinafter called the CIT(A) ), for the assessment year 2006-07, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 29th December, 2009 .....

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t prejudice to one another; 1. On the facts and circumstances of the case and in law, Hon. Commissioner of Income-tax(Appeals) has erred in confirming the re-opening the assessment based on the information from Addl. CIT(Inv), which was relevant to AY-2007-08 and not for the AY-2006- 07. 2. On the facts and circumstances of the case and in law, Hon. Commissioner of Income-tax (Appeals) has erred in confirming the computation of Appellant's Taxable Income at ₹ 5,59,360/- as against Appe .....

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nsaction has also been charged to security transaction tax. 3. The Brief facts of the case are that assessee is engaged in the business of running a fast food and juice centre in Iraniwadi in Kandivali (W) under the name and style of Bhagvwati Juice Centre. Specific information was received from Addl. CIT (Inv.) , Unit-V , Mumbai that the assessee is indulging in nongenuine and bogus capital gains from the transactions of purchase and sale of shares of M/s Shiv Om Investment & Consultancy Lt .....

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0 per share to the various persons. It was also mentioned that assessee has purchased 4000 shares of M/s Shiv Om Investments on 11th May, 2004 for a consideration of ₹ 4,080/- and out of the same, 1000 shares were sold on 16th May, 2006 and 2500 shares were sold on 27th January, 2006 for a total consideration of ₹ 6,89,750/-. Thus, the Revenue has reason to believe that income chargeable to tax has escaped assessment in the case of the assessee and the assessment was re-opened by iss .....

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ged shares were claimed to be purchased by the assessee was completed on 24th December, 2009 u/s 143(3) r.w.s. 147 of the Act wherein it was clearly proved that the assessee s claim of purchase of alleged 4000 shares of M/s Shiv Om Investments and Consultancy Limited on 11th May, 2004 for a consideration of ₹ 4,080/- was bogus and was only a paper transaction. The relevant portion of the assessment order dated 24.12.2009 passed by the AO u/s 143(3) r.w.s. 147 of the Act for the assessment .....

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and out of the same, 1000 shares were sold on 16.05.2006 and 2500 shares were sold on 27.1.2006 for a total consideration of ₹ 6,89,750/-. From this, it is quite apparent that assessee has purchased the alleged share for ₹ 4 per share in May'2004 and sold the same for ₹ 197 per share in January'2006 (i.e. 2500 shares were sold on 27.01.2006 for ₹ 197/- per share) which means that the value of the scrip has gone to 49 times of its purchase within a short period ti .....

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see has enclosed a copy of bill issued by M/s Badri Prasad & Sons, dated 11.05.2004. On going through the said broker bill, it is clearly seen that the vital columns in the said broker bill such as Order No., Trade No. & Trade Time were left blank. Without these details, this bill cannot be held as genuine. This clearly fortifies information received in the case of the assessee that said bill issued M/s Badri Prasad & Sons is nothing but a bogus bill. 5.2 In view of the same, vide th .....

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above shares along with mode/proof of payment. 5.3 In reply to the above, assessee's AR has submitted that investment in the shares of Shiv Om Investments and Consultancy Ltd. was made by the assessee in 2004 on the basis of advice given by his well-wisher. Further with regard to mode of payment, he has submitted that the purchase of these shares have been made in cash. However, no proof of such cash payment was substantiate with any kind of documentary evidences. 5.6 In view of the above di .....

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No. & Trade Time were left blank. 5.7 Further, before proceeding into the case, one has to look into the general modus operandi adopted by the assessees who indulge in converting their unaccounted "cash to accounted form through the route of capital gains. With the exemption/ reduction in tax on capital gains on shares, there is rampant practice of routing the unaccounted cash in the form of long term capital gains and claiming the same as exempt / concessional tax rate. The general mo .....

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s are rigged by the concerned broker to an abnormally high level. (iv) The shares are now sold by the assessee and sale consideration is received. The sale consideration is in fact first paid by the assessee in cash to a trusted confidante of the broker. This cash consideration which is introduced in a banking channel by routing through a number of accounts, finally reaches the accounts of the broker. With this amount, the broker paid the consideration to the assessee. (v) Thus the assessee' .....

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series of off-market transactions created by the broker with vested interest. The share prices are artificially rigged through off market transactions. This hike is not supported by the fundamentals of the company. (d) The assessee uses the services of the broker only for these particular transactions. Also, the assessee otherwise is passive investor or does not invest in other scrips. (e) The assessee has never met the broker and usually claims that the transactions are arranged through a diffe .....

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ing exemption by claiming the same as long term capital gain. (B) NOT IN CONFIRMITY WITH SEBI GUIDELINES: As evident from the above, assessee has purchased the share M/s Shiv Om in physical form and thereafter, the same have been converted into electronic mode. In such case off market transactions, as per SEBI guidelines, a broker cannot issue a brokerage note containing time stamp of stock exchange traded time even though the transactions are not routed through stock exchange and such transacti .....

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The purchase payments were made in cash and not through the normal banking channel therefore the same were non-verifiable from the authentic supporting details such as bank accounts/documents. On one side, assessee is claiming that money is received through banking channel and so transaction is genuine, but what the assessee is not considering that, the starting point, i.e. payments for shares purchased is made through cash and any other mode which is not banking channel, even though assessee wa .....

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he assessee has been hardly active in the stock market. This being the case, the assessee has entered into a sham transaction with the full knowledge of it, so as to convert unaccounted money into accounted money in the guise of capital gains. E) NATURE OF TRANSACTION: The nature of transaction itself looks suspicious from the manner it has been conducted i.e. the abnormal appreciation in the value of shares, the mode of payment for purchase of shares not doing the transaction through the normal .....

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by insider's trading from zero value (negligible price) to very high price and vice versa without any reason or basis to accommodate or generate bogus capital gain or loss. 5.9 In the instant case, all the above features are present in the transaction of shares made by the assessee. Moreover, there is also a specific information that assessee is indulged in nongenuine & bogus capital gain obtained from the transactions of purchase and sale of shares of M/s Shiv Om Investments & Cons .....

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in the assessee s own case for assessment year 2005-06. The A.O. observed that the payments for shares purchased were made through cash and not through banking channel. Thus, the A.O. came to the conclusion that the assessee s claim of receipt of ₹ 4,92,750/- on alleged sale of shares purchased from M/s Shiv Om Investment and Consultancy Limited was not genuine and a fabricated transaction through which the unaccounted money has been converted into accounted money and the same has been tr .....

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sale of shares and the copy or ledger or Badri Prasad & sons (share broker through whom the shares were purchased), The copies of the computation of Income, revised computation of income, Balance sheet and Profit and Loss account and submissions made during assessment proceedings are also enclosed. (ii) The Assessing Officer has relied on the assessment order of A.Y. 2005-06 for proving that the purchase or shares is a sham transaction. The assessment order of A.Y.2005-06 is itself under ap .....

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mpany identified as Penny shares iv) The Assessing Officer appears to have preconceived notions and has twisted and distorted all the facts according to his convenience and in order to prove the same. v) The Assessing Officer has failed to appreciate the fact that the absence of order No. Trade No. and trade time on the contract note/broker bill does not make the transaction an off-market transaction. vi) The Assessing Officer has failed to prove as to how this particular transaction is not in c .....

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gation department has distorted his view and all genuine, simple and practical matters look manipulated. x) The Assessing Officer has erred in stating that the company Shiv Om Investment & Consultancy Ltd. is a penny stock company. If there had been any truth in the statement of the Investigation Department, the company would have been delisted or its shares would have crashed in the market. In actual fact the company is even today listed and as on 11-01-2009 its rate was ₹ 197.34 in t .....

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wing case laws to support his finding: 1. Mc Dowell and Company Limited v. CTO (1985) 154 ITR 148(SC) 2. Phoolchand Bajrang Lal v. ITO (1992) 203 ITR 456 (SC) 3. Consolidated Photo and Finvest Ltd. v. ACIT (Delhi HC) (2006) 151 Taxmann 41 (Delhi) 4. Indo Aden Salt Mfg. & Trading Co. Pvt. Ltd. V. CIT, 159 ITR 624 (SC) 5. Ram Prasad v. ITO (1995) 82 Taxman 199 (All) 6. Consolidated Photo & Finvest Ltd. ACIT (2006) 151 Taxmann 41 (Delhi) 7. Keventer (P.) Ltd. v. DCIT (2004) 89 ITD 347 (Kol. .....

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appellate orders dated 25.11.2011 passed by the learned CIT(A), the assessee is in appeal before the Tribunal. 8. The ld. Counsel for the assessee submitted that addition of ₹ 4,92,750/- has been made u/s 68 of the Act towards sale of 2500 shares of Shiv Om Investment and Consultancy sold through stock exchange which was treated as unexplained cash credits in the hands of the assessee. The ld. Counsel for the assessee drew our attention to the assessment order and submitted that in the as .....

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been placed vide paper book page 53 to 55 and submitted that no additions were made for purchase although the same were treated as bogus and hence the assessee did not contested the findings of AO by treating the purchase of 4000 shares of Shiv Om Investment and Consultancy Limited as bogus and sham transaction. The ld. Counsel submitted that the assessee has not challenged the said findings as no addition was made by Revenue in the assessment year for 2005-06 on monetary terms and the assessee .....

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mitted that the company is active and the details from the Registrar of Companies , ROC Kolkatta has been filed and placed at paper book page 24 to show that M/s Shiv Om investment and Consultancy Ltd. is an existing company and an active company. The ld. Counsel submitted that the shares were traded through stock exchange. The list of directors are also placed on record. The ld. Counsel drew our attention to paper book page No. 16 to show that the share were purchased from Badri Prasad & So .....

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ri , the learned CIT(A) has dismissed the appeal of the assessee confirming the action of the AO in assessing the said gains as short term capital gains.The said appellate orders of the learned CIT(A) in the case of brother of the assessee is placed in paper book page 64- 69 of paper book. 9. The ld. D.R., on the other hand, submitted that specific information was received that the assessee has indulged in bogus transaction in shares. In the assessment year 2005-06 the transaction for purchase o .....

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crutiny assessment has been made u/s 143(3) of the Act. 10. In the rejoinder, the ld. Counsel for the assessee relied upon the decision of the Hyderabad Bench of this Tribunal in the case of ITO v. Smt. Aarti Mittal reported in [2014] 41 taxmann.com 118 (Hyderabad - Trib).It is the submission of the assessee s counsel that no enquiry has been made by the Revenue with stock exchange. It was submitted that the assessee filed balance sheet of Bhagvati Juice Centre along with the return of income fi .....

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1. We have considered the rival contentions and also perused the material available on record including the case laws cited by the parties. We have observed that no scrutiny assessment has been framed for the impugned assessment year by the Revenue u/s 143(3) of the Act originally, while based on information received from Addl.CIT(Inv.), Unit-V, Mumbai that the assessee is indulging in non-genuine and bogus capital gains from transaction of sale and purchase of shares of M/s Shiv Om Investment a .....

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view is fresh and tangible material which has live link and nexus with the formation of belief that the income of the assessee has escaped assessment , and keeping in view that the original assessment was not framed u/s 143(3) of the Act and no opinion was ever formed by the AO and hence there is no change of opinion keeping in view the ratio of decision of Hon ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers Private Limited (2007) 291 ITR 500(SC), we uphold the re-opening .....

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ssued pre-dated contract notes which even did not have details such as time of contract, trade number , transaction details etc and payments were also made in cash by the assessee against such sham and bogus purchase with the objective of introducing by manipulating tax free exempt long term capital gains u/s 10(38) of the Act leading to escapement of income from taxation , and the said findings of the AO with respect to bogus and sham purchases have become conclusive and final as the assessee h .....

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in consequence thereof the sham and bogus purchases cannot be accepted as genuine. The assessee has explained that the purchases were backed with contract notes of the brokers and payments were made in cash will not be of any help at this stage as the said finding of the AO treating the purchase of shares as sham and bogus in the assessment year 2005-06 has attained finality. Since, purchases are held to be bogus and sham which has attained finality, the sale in consequence thereof whereby payme .....

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existed at that relevant time . It is the allegation of the Revenue that the entire sale and purchase of shares were manipulated by the assessee in collusion with the brokers in order to earn tax free exempt long term capital gains on sales of shares u/s 10(38) of the Act whereby unaccounted cash of the assessee has been introduced in disguise in lieu of sale proceeds of shares. Keeping in view facts and circumstances of the case and as per our discussions and reasoning as set out above, we fin .....

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ld the transactions as genuine in nature and the assessee claim was found to be in order , but in the instant case there is a conclusive and final finding of fact that purchases of shares were bogus and sham as was held by the Revenue in the assessment year 2005-06 which has not been dislodged so far as the assessee accepted the said findings which became conclusive, thus the facts in the instant case are distinguishable as against the relied upon case of the assessee in Smt Aarti Mittal(supra) .....

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