TMI Blog2019 (9) TMI 1066X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee : Shri Naresh Jain Ms. Arati Debnath For the Department : Shri D.G. Pansari ORDER PER SHAMIM YAHYA (AM) :- This appeal by the assessee is directed against the order of learned CIT(A) dated 28.1.2019 and pertains to A.Y. 2014-15. 2. The issue raised in appeal reads as under :- 1) That on the facts and circumstances of the case and in law learned CIT(A) erred in rejecting claim of long term capital gain amounting to ₹ 64,25,672/- and denying exemption u/s. 10(38) of the I.T. Act, 1961. 2) That on the facts and circumstances of the case, learned CIT(A) has erred in arbitrarily disallowing commission amounting to ₹ 1,92,770 u/s. 69C. 3. Brief facts of the case are as under :- Facts of the case leading to the disallowance can be gainfully inferred from the Assessing Officer s order which follows :- In this case, the return of income was e-filed on 13.11.2014 declaring total income of ₹ 1,82,92,510/- The return of income was processed u/s. 143(1) of the IT Act, 1961.Thereafter, the case has been se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not even exist at its red office- The notice u/s. 133(6) sent to be company for information has been unserved. The assessee had utterly failed to explain as which concerned directors/key management personnel of M/s. Needful Vincom Pvt. Ltd he contacted for purchase of shares, since the shares had been acquired through private placement. The assessee's contention that the deal was arranged through one of his business acquaintance is also unacceptable as the assessee does not even remember the name of this acquaintance on the purported advice of whom the assessee invested such a huge amount in an unknown company. It is seen that M/s. Needful Vincom Pvt. Ltd has sold 5,00.000 shares to the assessee on 05.10.2012 in return the assessee has sold 1,50,000 shares in FY 2013-14. Normal returns on savings are 7.80% for FY 2012-13 and 18.70% for FY 2013-14 for BSE/Sensex. It is seen that the assessee earned 3800% of returns on investments whereas investments like Sensex, gold, and other riskier investments too returned far below the strong performance of M/s. Kailash Auto Finance Ltd. without having any supporting financial results. The assessee had no reply to this. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an probabilities the inference of whether the transaction was genuine or not, could be drawn, based on preponderance of probability. For this reason, the AO has no hesitation in holding it as unexplained credit and the amount of ₹ 64,25,672/- is hereby assessed u/s. 68 of the Income tax Act, 1961. From the statement of Sri Sunil Dokania, in the answer to Q No. 25 it is observed that commission @ 3% has been charged for providing arranged capital gains to various parties. It is evident that such an arrangement of bogus LTCG would not have been done free of cost. In the absence of any other estimation, the reply of Shri Sunil Dokania may be considered as a reasonable amount of commission. The assessee had no reply to this. Hence, an amount of ₹ 1,92,770/- i.e. 3% of ₹ 64,25,672/- is hereby assessed u/s. 69C of the IT Act, 1961. Upon assessee s appeal learned CIT(A) elaborately considered the issue. Learned CIT(A) found the transaction to be totally bogus. He placed reliance upon Hon'ble Jurisdictional High Court decision in the case of Sanjay Bimal Chand Jain and accordingly he confirmed the addition. We may ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wal was directly involved with him in indulging in share trading and sale purchase of companies, etc. They have accepted that the prices of the shares were rigged to provide benefits to a number of persons like the appellant on commission basis. This establishes the fact that prices of the shares were jacked up which the appellant was well aware of and accordingly he placed the sale order on exchange through his brokers. In the capital market, people do invest obviously for earning money through investment in the stocks of various companies. While investing, every person definitely looks into the balance sheet and other financials of the company and that is why volume of a particular stock whose balance sheet are naturally healthy are very high as compared to the volume of the penny stocks like M/s Panchshul Marketing Ltd., in which the appellant claimed to have made investment. Further, the number of trades in a particular day in case of a penny stock is very limited as compared to other stocks whose balance sheet and financials are healthy. This type of activity of price rigging is normally possible only in such type of stocks where the volume is Jess and numbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that same were devoid of any commercial nature and fell in realm of not being bona fide and, hence, impugned long term capital gain cannot be termed as genuine. v) Analysis of M/s Kailash Auto Ltdrlt is found that while the net worth of M/s Kailash Auto Ltd was 58.14 crore in March 2014, capital work in progress was Rs Nil. The company had turnover of ₹ 20.41 crore, raw material cost ₹ 0 crore, power and fuel cost Nil, employee's cost was ₹ 0.04 Crore, selling and administrative expenses of Nil with excise duty of Rs Nil. Total income in March 2014 was ₹ 25.75 crore and net profit before tax was ₹ 1.22 crore earning per share was ₹ 0.01. viii) Preconceived structured transactions find that on examination : the transactions entered into by the appellant involve series of preconceived steps, the performance of each depends upon the other being carried out. The true nature of such share transactions Jacked commercial contents, being artificially structured transactions, entered into with the sole intent, to evade taxes As an Appellate Authority, the undersigned cannot simply accept the statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 485.65. The shares were sold through another broker, M/s Ashish Stock Broking Private Limited. The proceeds from the aforesaid sale transaction were directly credited by the broker in the Saving Bank Account of the assessee in the Union Bank of India. The Assessing Officer did not accept the case of the assessee that she was entitled to exemption under section 10(38) of the Income Tax Act. The Assessing Officer held that the aforesaid transactions of purchase of two penny stock shares for ₹ 60,000/-, the merger of the companies with a new company and the sale of the shares for Rs. l1,58,930/- fell within the ambit of adventure in the nature of trade and the assessee had profited by ₹ 13,98,9307-. The Assessing Officer, therefore, brought the aforesaid amount to tax under the head 'business income'. 4.1.3 After appreciation of the above facts, Hon'ble Jurisdictional High Court has held that the authorities below have recorded a clear finding of fact that the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain . According to the Hon'ble Court, the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, not satisfactory. In such case there is prima facie, evidence against the assessee. viz., the receipt of money, and if he fails to rebut, the said evidence being un-rebutted, can be used against him by holding that it was a receipt of an income nature. (b) Hon'ble Supreme Court in case of Kanwar Nativar Singh in their order dated 5th October 2010, in Civil Appeal No.8601 of 2010 arising out of Special Leave Petition (C) No. 10553 of 2008 and in Civil Appeal No.8602 of 2010 arising out of Special Leave Petition (C) No. 10554 of 2008, on the issue of cross examination of the witness has held as under: - 36. On a fair reading of the statute and the Rules suggests that there is no duty of disclosure of all the documents in possession of the Adjudicating Authority before forming an opinion that an inquiry is required to be held info the alleged contraventions by a notice. Even the principles of natural justice and concept of fairness do not require the statute and the Rules to be so read. Any other interpretation may result in defeat of the very object of the Act. Concept of fairness is not a one-way street. The principles of natural justice a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TTJ (Mum)(SB)37, it was held that McDowell is more of an approach to the facts of a particular case than any inviolable rule laid down regarding tax evasion. It is a call to the Courts and Tribunals to expose subterfuges, colourable devices and dubious methods in tax cases. It is a caution administered that lawful dues to the state cannot be withheld under schemes acquired off-the-shelf or through transactions that have no commercial or economic value or by taking certain preordained steps which are calculated to cancel out each other. The approach in such cases must be to take the entire transaction or arrangement as a whole and see if it makes any economic or commercial sense without attaching weight to the steps that go to make up the scheme, each of which may be legally valid. The genuineness of the arrangement has to be viewed not in relation to every step taken. McDowell therefore, did not depart from what-has already been laid down by the Supreme Court earlier except that the law regarding tax evasion was restated in much stronger expressions such as dubious device , subterfuge, colourable transaction , etc. The judgment did not permit the Income Tax Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verly cloaked and if that intention is discovered to be the evasion of taxes, it cannot be given effect to merely because all the steps taken as component parts of the arrangements are legally correct or valid, that the right of the parties to enter into transactions according to their free will and choice has always been protected, the only rider being that both the professed intention and the real intention should be the same, that all commercial arrangements and documents or transactions have to be given effect to even though they result in a deduction of the tax liability, provided that they are genuine, bonafide and not colourable transaction. 4.1.8 At the same time, it is observed that the judicial pronouncements relied upon by the appellant does not help the case of the appellant in view of aforesaid views and observations of the Hon'ble Supreme Court and Jurisdictional High Court, which is binding in nature. 4.1.9 The Order of the Whole Time Director of SEBI vide order SEBI/WTM/MPB/EFD-1 -DRA-1V/32/2017 dated 21/09/2017 states that M/s Kailash Auto Ltd made preferential allotment of its share from 17lh January 2013 after which each shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of the Id. AO is accordingly upheld and the addition of ₹ 64,25,672/- and ₹ 1,92,770/- is confirmed. Thus, the Grounds of Appeal nos. 1 and 2 raised by appellant are Dismissed. Against this order assessee is in appeal before us. We have heard both the counsel and perused the records. Learned Counsel of the assessee submitted that the assessee has submitted all the necessary documentary records. He submitted that in these circumstances the disallowance is based upon surmise and conjecture. He submitted that the decision of Hon'ble Jurisdictional High Court relied upon by learned CIT(A) is not applicable on the facts of the case. Learned Counsel of the assessee placed reliance upon several Tribunal decisions for the proposition that the disallowance is not required in view of the documentary evidence submitted. Per contra learned Departmental Representative submitted that the decision of Hon'ble Jurisdictional High Court in the case of Sanjay Bimal Chand Jain is fully applicable on the facts of the case. He submitted that in no time shares of a little known company has jumped enormously without any economi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act or the provision of the Regulations is concerned. 46. Considering the reversal transactions, quantity, price and time and sale, parties being persistent in number of such trade transactions with huge price variations, it will be too na ve to hold that the transactions are through screen-based trading and hence anonymous. Such conclusion would be overlooking the prior meeting of minds involving synchronization of buy and sell order and not negotiated deals as per the board's circular. The impugned transactions are manipulative/deceptive device to create a desired loss and/or profit. Such synchronized trading is violative of transparent norms of trading in securities. If the findings of SAT are to be sustained, it would have serious repercussions undermining the integrity of the market and the impugned order of SAT is liable to be set aside. On the above additional reasoning also, I agree with the conclusion allowing the appeal preferred by SEBI against the traders. I also agree with the conclusion dismissing the appeal preferred by the SEBI against the brokers. 8. In our considered opinion the ratio emanating from the above case law ..... X X X X Extracts X X X X X X X X Extracts X X X X
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