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Smt. Rita Devi, Shri Prahlad Rai Agarwalla, Shri Subodh Agarwalla, Smt. Sarita Devi, Shri Sudhanshu Agarwalla, Shri Subhas Chandra Agarwalla, Shri Avinash Agarwalla, Versus D.C.I.T., Central Circle-VI, Kolkata

2011 (7) TMI 1295 - ITAT KOLKATA

IT(SS)A Nos. 22-26/(Kol) of 2011, IT(SS)A Nos. 27-30/ (Kol) of 2011, IT(SS)A Nos. 31-33/(Kol) of 2011, ITA Nos. 35-38/(Kol) of 2011, ITA Nos. 39-41/(Kol) of 2011, ITA Nos. 42-44/(Kol) of 2011, ITA Nos. 45-47/(Kol)of 2011, ITA Nos. 48-50/(Kol)of 2011 - Dated:- 14-7-2011 - Shri Mahavir Singh, Judicial Member & Sri C.D.Rao, Accountant Member For the Appellant: Shri Ravi Tulsiyan For the Respondent: Sri D.R.Sindhal ORDER Per Bench These twenty eight appeals filed by eight assessees mentioned abo .....

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Devi. 2. The grounds taken in this appeal are as under :- 1. The orders passed by the lower authorities are arbitrary, erroneous, without proper reasons invalid and bad in law. 2.(a) On the facts and in the circumstances of the case, the learned CIT(A) erred in law in upholding initiation of proceedings u/s 153A of the Income-tax Act, 1961, in the case of the appellant when neither the assessment for the year under appeal was pending nor was there any material found during the search in the cas .....

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the A.O. in fully relying on the alleged confessionary statements of third parties without affording the appellant proper opportunity to examine them and in concluding, solely on that basis, that the appellant had shown bogus long-term capital gains in transactions of shares of M/s Globe Stocks and Securities Ltd. by taking accommodation entries and, in that view, in adding back an amount of ₹ 11,11,263/- as undisclosed income of the appellant. 4. On the facts and in the circumstances of t .....

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hat while passing the order u/s 153A of the IT Act in the case of all the assesses for all the impugned assessment years the AO has treated the Long Term Capital gain declared by the assessee for all the assessment years as income from undisclosed sources and again an amount of commission of 2% on the Long term capital gain has also been treated as income from undisclosed sources by observing that :- In this case a search & seizure operation was carried out in different business as well as r .....

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said notices Sri S.K.Kejriwal, A/R of the assessee appeared from time to time explained the return and furnished the required particulars as asked for. The assessee has shown LTCG on sale of 20,500 shares of M/s. Globe Stock & Securities Ltd. at ₹ 10,86,490/-. She suffered LTC loss in case of their family company M/s. Maithan Alloys Ltd. & M/s. The behar Potteries Ltd. thus net LTCG at ₹ 9,59,560/- was shown income of the assessee. The assessee purchases 25000 shares of M/s. .....

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naccounted income of the group is brought back in the books of A/c in the form of bogus LTCG. On verification it was detected that SEBI imposed ban on trading of scrip of M/s. Globe Stock & Securities Ltd. on allegation that this small cap company used to manipulate its share price with the help of group of brokers namely Sunil Kedia and Ashish Stock Brooking by common modus operandi of matched transaction between the above named two brokers who do not submit the required report etc. to the .....

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. Globe Stock & Securities Ltd. namely Sunil Kedia and Ashish Stock Broking Ltd. The brokers had matching transactions between them and had created an artificial market in shares of the company by executing large volume of transactions. It was further observed that the share price of the company increased by 307% from the period from April, 2005 to November, 2005. Subsequently though the ban on trading on the scrip was revoked, the SEBI did not absolve the said two brokers from the charges f .....

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AT in the case of Anup Kumar Jayaswal in ITA Nos. 1678/Kol./2004 & 1679/Kol/2004 for A.Y. 2001-02. 4) Eastern Commercial Enterprise, (1994) 210 ITR 103 (Cal) 5) C.Vasantilal & Co. (1962) 45 ITR 206 (SC). None of the case laws have ordered to accept the trading result of the scrip banned by SEBI and suspended the concerned brokers on the allegation of manipulating price of the scrip. Hon ble Kolkata High Court in the case of Korlay Trading Co.Ltd. (1998) 232 ITR 820 (Cal) has ordered that .....

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ellip;…question No.6………….. Thus Sri Subhas Chandra Agarwalla has retreated the statement recorded by him u/s 132(4) of the Act in his own fashion without applying for the same before the department. Shri Arun Kumer Khemka one of such broker as well as Direcor of M/s. Globe Stock & Securities Ltd. vide his statement u./s 132(4) recorded in course of search has admitted that he had received cash from Maithan group and sent cheques in the grab of capital gain .....

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totaling ₹ 11,11,263/- was paid by the assessee by cash out of his undisclosed income therefore the said amount of ₹ 11,11,263/- is added back as her income from undisclosed sources. 3.1. On appeal the ld. CIT(A) has confirmed the same after taking into consideration the various submissions made by the assessee. The ld. CIT(A) in order to reach a reasonable conclusion examined the details of share transactions carried out by the assessee and his family members in the case of M/s. Gl .....

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, the assessee and his family members were always a winner. It is totally against the human probabilities and realities of human life . More over the unusual increase share prices of shares of certain companies were verified by SEBI and it was found that the brokers Shri Sunil Kedia and Sri Ashish Stock Broking Pvt. Ltd were mainly involved in jacking up the prices of the scripts in question . Accordingly Shri Sunil Kedia and M/S Ashish Stock Broking Pvt. Ltd were suspended from trading by inter .....

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and Securities Limited (hereinafter referred to as the company) listed on Calcutta Stock Exchange Association Ltd. (CSE), during April 2005 to November 2005. In the wake of such unusual price movement, SEBI conducted a preliminary analysis of trading data in respect of buying, selling, dealing in the shares of such companies and it was inter alia found that the share price of the company increased from ₹ 19.10/- to ₹ 77.65/-. It was further found that two stock brokers namely, Ashis .....

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xecuted similar trades in the shares, of Goenka Business and Finance Limited at CSE during the same period. Thus, it was inter alia observed that the Broker prima fàcie violated the provisions of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as the FUTP Regulations) and the provisions of Securities and Exchange Board of India (Stock Brokers and Sub- Brokers) Regulations .....

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n. The Broker executed matched trades in the shares of the company sufficiently for a longer period, in the process, he allowed his clients substantially in the shares of the company which ultimately resulted in the creation of misleading appearance of trading in the securities market. The said trades also created manipulation in the share price of the company. Various instances of synchronized trades executed by the broker inter alia would prove that the Broker was a necessary party to the tran .....

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r had failed to comply with his duties as expected of a SEBI Registered intermediary and instead became a party to the manipulation in the shares of the company to the detriment of genuine investors. 4.9. In the said orders of SEB1 the modus operandi followed by the borkers to increase the share prices of M/s Globe Stocks & Securities Ltd were illustrated as under- 2.16 Globe Stocks & Securities Ltd. is another of the small cap listed Companies at CSE which witnessed a significant price .....

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50 crore against which the company grossed receipts of ₹ 87 lakh which largely accounted for meeting its expenditure (Rs.33 lakh) and consequently its net profit (PAT) for the year was only ₹ 45 lakh. During the previous year the company had incurred a loss of ₹ 8.58 lakh. The company has an accumulated loss of ₹ 32 lakh at the end of financial year 2004-05. 2.18 As per the latest compliance report obtained from CSE, the company has not submitted the following documents/r .....

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script, the details of which are given below :- Sl.No. Member Name Total Volume % to Scrip Total 1. Ashish Stock Broking - D498 3533910 31.10 2. Sunil Kedia - D712 3539800 31.25 2.20 A further analysis of the trading data revealed that the above members have matching transactions among themselves. The extent of such transactions is given in the following table: Table 7 : Trading data of two brokers - matched transactions Sl.No. Name of the member Ashish % Sunil Kedia % Sanju Kabra % 1. Ashish St .....

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themselves. 4.10 The above facts and figure makes it crystal clear that the trading volumes in the shares of these companies have invariably been created by a few brokers trading among themselves and through matched transactions (i.e.clients allowed to place simultaneously both buy and sale orders of same quantity at the same price in the selected shares), often executed on a single terminal of the broker. Clearly, the ultimate objective behind the creation of a false market in these shares, wa .....

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t also aiding and abetting the process of legitimizing the gains. 4.11. The submission of the asseesee that it has nothing to do with the role played by certain persons in artificially inflating the price of the share in questions and he/ she was a innocent gainer of the manipulative game played by third parties was considered and found to be unacceptable in the background of the surrounding circumstances . It is a undisputed fact that from the leaking tap a bucket can be filled and not the tank .....

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izing the Capital Gain . It is a established rule that where it is not possible to obtain evidence which conclusively establish the dubious transaction , the case must be dealt with on reasonable probabilities and legal and factual inferences drawn from the proved facts. The Hon ble Supreme Court in the case of Sumati Dayal v.CIT [1995] 214 ITR 810 has held that the genuineness of the transaction is to be determined on the basis of surrounding circumstances, human probabilities and the conduct o .....

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windfall but a meticulously planned shower for which the assessee has paid price more and above the disclosed consideration. Accordingly the conclusion of the AO, that the assessee has made unaccounted expenditure in order to obtain the capital gain is held to be correct. Accordingly the addition of ₹ 11,11,263/- made by the AO is confirmed and ground no 2 & 3 taken by the appellant is dismissed. 3.3. Aggrieved by this the assessee is in appeal before us. 4. At the time of hearing the .....

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a, Director of M/s Globe Stock and Securities Ltd. who reportedly claimed that he arranged accommodation entries in the form of bogus LTCG to the members of Maithan Group which included the assessee. (c) The assessee disclosed Long-term capital gain on the sale of her share of M/s Globe Stock and Securities Ltd. in Asstt. years 2003-04 to 2006-07 and also on the sale of shares of M/s Shree Nidhi Trading Co. Ltd. in Asstt. Years 2007-08. The Ld. A.O. pointed out that the value of shares of these .....

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Ltd. who made matching transactions of high volume among themselves which created an artificial high price of these shares. The Ld. A.O. has claimed in the Asstt. Order that SEBI by its order dt.30.1 1.05 suspended the trading in shares of M/s Globe Stock and Securities Ltd. and also suspended the concerned Brokers viz. Ashish Stock Broking Pvt. Ltd., Sunil Kedia and Sanjoo Kabra. Except the evidences as stated above, the Ld. A.O. has not mentioned any other evidence either direct or circumstan .....

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from undisclosed sources relying on the statements of Sri Arun Khemka and Sri Subhas Chander Agarwala which were subsequently retracted by them. It was also submitted by the A.R. of the assessee that during the course of Search conducted by the Deptt. in her residential / office premises no material whatsoever was found relating to the share transactions or any undisclosed income of any nature. The A.R. of the appellant also pointed out that as per the CBDT Instructions in F No. 286/2/2003/TT(I .....

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ion by Sri Subhas Chander Agarwala, it was pointed out that his statement was retracted and was therefore not valid. Even otherwise, it was claimed that such admission may be applicable in the case of Sri Subhas Chander Agarwala himself but is not at all binding on the assessee. But the Ld. CIT(A) disregarded all these submissions of the A.R. and dismissed the assessee s all the five appeals. The assessee is now in second appeals before the Hon ble Tribunal. 8. The assessee makes the following s .....

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all. Again, Sri Agarwala was not authorized by the assessee to make any admission / confession on her behalf. In the above circumstances, the alleged deposition of Sri Agarwala cannot be used as evidence against the assessee. Even assuming but not admitting that Sri Agarwala made any admission, on a perusal of the orders of the Ld. A.O./CIT(A), it may kindly be seen that Sri Agarwala made an admission in general term - he has not made any specific admission in respect of the assessee. In the abs .....

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un Khemka confirmed that he provided accommodation entries in the form of LTCG to various parties including the family members of Maithan Group on charging commission @ 2%. A copy of the alleged deposition of Sri Khemka was not given to the asessee nor the assesee was given an opportunity to cross-examine him. On this ground alone, the deposition of Sri Khemka cannot be used against the assessee. Secondly, it may please be noted that this deposition of Sri Khernka was recorded not in the course .....

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Hence the deposition recorded u/s.133A has not in the same legal backing as in the case deposition made u/s. 132(4) of the I.T. Act. Even otherwise, as discussed in the Asstt. order / Appellate order Sri Khemka reportedly provided accommodation entries to the members of Maithan Group. This was a general statement and not specific in respect of the assessee. Consequently, the statement of Sri Khemka cannot also be utilized while framing the assessment order of the assessee. It may also be noted t .....

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0. 11 .05. In this case also, a copy of the order was not furnished to the assessee. Again, even assuming but not admitting that SEBI took legal steps against the Share Brokers M/s Ashish Stock Broking Pvt. Ltd., Sunil Kedia and Sanjoo Kabra for manipulation in share prices, unless it is proved that the assessee also conspired with these persons, it cannot be said that she was a party for artificial increase in the prices of the shares. In the Asstt. Order, the Ld. A.O. has nowhere given even a .....

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in the case of DCIT Cir. -8, Kolkata vs M/s Octal Credit Capital Ltd. and three other companies. In these cases, the assessees incurred losses in trading of shares of M/s Bakra Prathistan Ltd. sold through Calcutta Stock Exchange. The Ld. A.O. treated the loss as bogus mainly on the ground that the SEBI suspended the Brokers Promod Kumar Kothari and M/s D.B. & Co. for price rigging and manipulation of shares. But the Ld. CIT(A) allowed the claim of the assessees relying on the documentary e .....

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d. CIT(A) allowing relief to the assessee, the Deptt. filed appeals before the Hon ble Tribunal. While dismissing the Revenue s appeals, the Tribunal observed that the assessees filed detailed reply and evidences and materials before the A.O. supported by copies of purchase bills and Contract notes, copies of relevant transaction statements, copies of bank statements, evidence of payments and the A.O. has not doubted any of the documentary evidences submitted before him by the assessees. The A.O .....

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of her shares by way of Contract notes, Demat Account etc. The purchases / sales were made through banking channels for which bank statements were also furnished beibre the Ld. A.O. Merely because SEBI conducted investigation against the Share Brokers for price manipulation and subsequently suspended them, the Ld. A.O. was not justified in holding that the assessee s share transactions were colourable device to introduce her undisclosed income in the form of LTCG. 10. The assessee also invites .....

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ate of sale of these shares. He therefore treated the LTCG as unexplained cash credits in the hand of the assessee on the ground that the transactions were not genuine and the assessee used colourable device in connivance with the Stock Brokers to introduce his undisclosed income in the guise of share transactions in these shares. But on appeal, the Ld. CIT(A) deleted the additions and accepted the assessee s claim of LTCG on the basis of documentary evidences e.g. Contract notes regarding purch .....

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them to ascertain the veracity of their different averments at different stages. In the instant case also, the assessee has produced necessary documentary evidences in support of her share transactions by way of Contract notes / bills, bank statements, Demat statement, the genuineness of which have not been disputed by the Ld. A.O. The assessee was also not given copies of deposition recorded from Sri Subhas Chander Agarwala or Sri Arun Khemka nor she was given any opportunity of cross examining .....

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n but these are not enough evidence for holding that the LTCG disclosed by the assessee was not genuine. The Ld. A.O./CIT(A) have also referred to the SEBI s order against the Share Brokers for alleged manipulation in share prices. A similar issue came up in the case of DCIT-vs-M/s Octal Credit Capital Co. Ltd. referred to above. But the Hon ble C bench Kolkata did not accept it as sufficient reason for treating the share transaction as not genuine. The Deptt. also failed to prove that the asses .....

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s income from undisclosed sources in all the five Asstt. Years may kindly be deleted. 4.1. In addition to this he further filed the Calcutta Stock Exchange quotations in respect of all the transactions entered by all the assesses for all the assessment years. 5. On the other hand, the ld. DR appearing on behalf of the Revenue heavily relied on the orders of the revenue authorities and reiterated the findings which were already recorded by us in the preceding paragraphs and contended that the ld. .....

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ta Stock Exchange in respect of Globe Stocks and Securities Ltd. the following information is available. Smt.Rita Devi M/s.Globe Stocks and Securities and Securities Ltd. Date of Transaction Volume Traders Opening Rate High rate Low rate Closing rate 06.2.2002 168350 26 4.85 5.25 4.85 5.00 12.03.2003 216254 101 64.70 75.90 64.70 70.50 20.03.2003 322420 116 60.00 61.45 52.45 52.45 22.03.2003 214009 132 61.00 61.00 52.00 52.00 26.03.2003 192301 27 40.60 47.60 40.60 40.60 08.04.2003 15000 3 30.20 3 .....

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4 30000 10 30.20 30.20 30.00 30.20 24.12.2004 19200 13 30.40 30.55 30.00 30.00 27.12.2004 77000 15 31.00 31.00 30.05 30.05 28.11.2005 21550 17 160.75 160.75 160.40 160.60 16.11.2006 8000 11 159.00 159.00 158.85 158.90 22.11.2006 9400 17 158.95 158.95 158.90 158.95 04.01.2007 9300 14 158.95 159.00 158.95 159.00 M/s. Offshore FInvest Ltd. 31.10.2003 5000 1 3.70 3.70 3.70 3.70 15.12.2004 33500 23 166.80 174.00 165.50 167.00 Shri Prahlad Rai Agarwalla M/s.Globe Stocks and Securities and Securities L .....

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10.50 10.50 10.50 10.50 14.10.2003 39000 13 11.25 11.25 11.25 11.25 22.10.2003 28603 14 12.10 12.10 10.50 12.05 15.10.2004 42001 17 178.00 185.00 170.00 170.00 18.11.2004 35500 13 188.50 189.00 188.50 189.00 19.11.2004 6000 3 178.50 178.50 178.50 178.50 M/s.Shree Nidhi Trading Co.Ltd. 16.11.2004* 81100 17 6.00 6.00 6.00 6.00 16.12.2004* 45850 18 20.00 22.80 19.90 22.80 22.12.2004* 30000 10 30.20 30.20 30.00 30.20 18.12.2006* 13600 18 158.95 159.00 158.95 158.95 21.12.2006* 4700 10 158.95 159.00 .....

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obe Stocks and securities Ltd. only and nowhere they have mentioned in respect of share transactions of M/s.Nidhi Trading Co. Ltd. and M/s. Offshore Finvest Ltd.. But however, in the case of the assesses the revenue has disbelieved the long term capital gain gained by the assessee as well as family members of the assessee. In respect of M/s. Nidhi Trading Ltd. and M/s. Offshore Finvest Ltd along with M/s.Globe Stocks and Securities Ltd. As regarding M/s. Globe Stocks and Securities Ltd. also the .....

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