Tax Management India. Com
                        Law and Practice: A Digital eBook ...

Category of Documents

TMI - Tax Management India. Com
Case Laws Acts Notifications Circulars Classification Forms Manuals SMS News Articles
Highlights
D. Forum
What's New

Share:      

        Home        
 

TMI Blog

Home List
← Previous Next →

2019 (11) TMI 409

..... sale of shares of LD&PL, finding the same as bogus led to denial of exemption u/s.10(38) of the Act. We find when there was no business operation of LD&PL during the period of purchase and sale of shares and astronomical increase of share price of LD&PL which led to returns at 350%, in our opinion, is unjustified. The assessee failed to controvert and put forth any evidence rebutting the investigation report DDIT, Kolkata showing the transactions of purchase and sale of shares are genuine. The suspension imposed by the Bombay Stock Exchange on trading of LD&PL shares from 28-08-2015 is still in force. Therefore, we hold that the assessee is the beneficiary of bogus transactions by accommodation entries provided by the Jamakharchi companies i.e LD&PL, DTPL and brokers KORP SL and GFSL through multiple layering of transactions, in view of the discussion made by us hereinabove, in the facts and circumstances of the case and the decisions relied upon, that the assessee is not entitled to claim exemption u/s.10(38) of the Act. We find no infirmity in the order of CIT(A) and it is justified - Decided against assessee Addition made on account of commission charged - AO .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... d. In response to which, Authorized Representative appeared on behalf of the assessee in the assessment proceedings. 4. In the assessment proceedings, it is noted, while dealing with the issue relating to Capital Gain, the Assessing Officer found that the assessee purchased 25,000 shares of Lifeline Drugs and Pharma Limited for short hereafter as LD&PL for ₹ 15,00,000/- and after conversion the same were become 2,50,000 shares, out of which 43,000 shares were sold which resulted Capital Gain of ₹ 1,04,02,303/-. According to Assessing Officer the Long Term Capital Gain as claimed by the assessee is not natural and it is an arranged one. To elicit truth, the Assessing Officer conducted verification of activities of LD&PL by visiting its website. 5. Further, the AO examined summary of financials of LD&PL and observed that the total number of paid shares was increased by 151 times and there was no material corporate investment to support price rise of its scrip. On examination of trading frequency he was of the opinion that the transactions were conducted in a circular fashion involving the trade frequency, volume generation, contribution to price rise and buyin .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... f LD&PL. The ld. AR submits that the share transactions entered by the assessee are genuine, supported by documentary evidences, giving rise to Capital Gains. The third party statements had no relevance as there was no reference to the assessee or its transactions in said statements. The AO could not demonstrate as to how the assessee had any nexus with any of the alleged share brokers and purchasers. The assessee does not know any such persons or entities, the statements and references made by such persons or entities were general in nature and did not have any reference or nexus to the assessee. He submits that there are many factors having impact on the price of share listed in stock exchange and the said LD&PL had share capital and reserves of ₹ 21.27 croers as on 31-03-2014 and had shown revenue of ₹ 40.85 crores during F.Y. 2013-14. The assessee had nothing to do with the alleged modus operandi as discussed by the Assessing Officer and it had no connection with the persons or entities mentioned by the Kolkata Investigation wing. The assessee did not know and had not dealt with any of the persons and entities alleged to be involved in the above said modus o .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... thereon by selling the same shares at exorbitant price. For analysis of cash trail, he referred to pages 20 and 21 of the AO s order and submitted the cash deposits were credited to the account of DTPL the buyer of shares of assessee and the same were transferred to KORP Securities Ltd for short hereafter as KORP SL. The said KORP SL has been managed by Anuj Agarwal and submitted the said Anuj Agarwal while giving reply to Q. No. 14 to the DDIT (Inv.), Kolkata admitted that the DTPL is being controlled and managed by KORP SL. 13. Further, Shri Jeevan Bachhav, the ld. DR referred to Q. Nos. 15 and 17 and submitted that LD&PL is a paper company which provides accommodation entries, referring to answer to Q. No. 27 and submitted that the Mr.Anuj agarwal admitted that all the companies mentioned therein were using the same address as their registered office and no books of account are maintained. Further, he submits that Shri Soumen Choudhary an employee of GFSL in response to Q. No. 7 replied that GFSL provide Capital Gains/loss entries to various entities thorough different jamakarchi companies and the LD&PL is one of the major scrip dealt by the GFSL for bogus Long Term Capi .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... adopted by the related parties i.e assessee the beneficiary, LD&PL a paper compnay, DTPL is exit provider, KORP SL and GFSL the brokers, the shares were allotted on preferential terms to the entities connected and related directly to LD&PL. There is no dispute period in which the prices of LD&PL during the period January, 2011 to 2013 trading between ₹ 0.80 per share to ₹ 0.85/- per share and in October, 2014 the prices went up to between ₹ 280/- to ₹ 290/-. It is needless to say the appreciation is about 350 times. We note that the Assessing Officer examined the financials of LD&PL and as rightly pointed out by the ld. DR, the profit of loss account as on 31-03-2013 which is at page 20 clearly shows that LD&PL no revenue was shown from business operation. Therefore, it is clear when the assessee got shares of LD&PL on preferential basis, there was no business activity of LD&PL as clearly evident from the profit and loss account as discussed above, in spite of which purchase of shares of said entity supports the view of AO and CIT-A that it is a predetermined action with a specific intention to derive Long Term Capital Gain by du .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... issued preferential shares of LD&PL though there is no profit business activity of the said company. 20. The assessee beneficiary held the preferential shares from 29-11-2012 to 19-11-2013 in which year the 25,000 shares have become ₹ 2,50,000/- shares by conversion and started selling the said shares from 10-06-2014 to a dummy paper company of the operator and assessee the beneficiary provided unaccounted cash by many layers to the operators. To prove above scheme of method, Shri Jeevan Bachhav, the ld. DR brought our attention to page No. 19 of the Assessing Officer s order and submitted that the paper company the DTPL is the buyer of shares of assessee which were transferred to KORP SL which is managed by Anuj Agarwal. 21. In this regard we note that the DDIT, Kolkata Investigation wing recorded statement of Mr. Soumen Choudhary representing the GFSL in reply to Q. No. 7 at page 32 of AO s order he clearly explained the mode of method share broking activity. He stated that he is an employee of M/s. Gateway Financial Services, the GFSL which is engaged in the business of share broking through the Bombay Stock Exchange platform. It is active in the equity segment. The fi .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... or an agent of the operator to provide cash which can be routed to some other jamakharchi company/entity to buy these shares from the beneficiary. The cash received from the beneficiary is then hand over to the operator through agents are directly. The entry operator then routs and layers back this cash so received into various paper entities that are controlled and managed by him. This paper entities that have received layered money are then used as dummy buyers (counter parties) for buying the rigged/artificially jacked up shares from the beneficiary. When the buyers (counter parties) are ready, then the entry operator intimates the beneficiary to sell specific number of shares at a specific price and a specific time. This ensures that the shares of only the beneficiary as directed by the operator are bought through the dummy buyer. The transactions takes place through stock exchange and brokers and some nominal commission is charged in cash on the net pre-arragneged bogus capital gain accruing to the beneficiary. This pre- arranged bogus capital gain income so earned through rigging of shares is claimed as exempt in the books of the beneficiary. 23. On perusal of the above, we n .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... ivities being carried out by the abovementioned companies. These companies were created for sole purpose of providing accommodation entries in form of long term capital gain to various beneficiaries. Q. 15 Please state who are the directors in Divyadrishti Traders Pvt. Ltd. and Divyadrishti Merchant Pvt. Ltd. Ans. Sir, we have created these companies to provide accommodation entries in the form of LTCG. Sir, Kinkar Bhatcharya and Sukhanta Chatergy are dummy directors in these companies. These are papers companies and having its office address at 163B, M.G. Road, Third Floor, Kolkata-700007. Q. 16 Please provide modus operandi of providing accommodation of long term capital gain. Ans. Various clients used to approach ask to get long term capital gain for the securities holded by them for years. He used to charge brokerage for arranging above transaction. After holding the equity share for more than one year clients used to sell such shares on very higher rates. Such shares are bought from beneficiary clients by our client and also some company controlled and managed by me like M. Distributor Pvt. Ltd, Spark Commondeal Pvt. Ltd., Fare Link Housing Pvt. Ltd., Esquire Pvt. Ltd., Divydr .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... Kinkar Bhatacharya and Sukanta Chatergi are directors. Mr. Rajesh Jain is my part time accountant and looks after the accounts of aforesaid mentioned companies. In fact, the companies are using the address as it registered office, however, no books of accounts are maintained there. 28. On perusal of the above answer of Anuj Agarwal, clearly demonstrates that the above jamakharchi companies like in the present case LD&PL, DTPL, KORP SL and GFSL are created for the purpose of accommodation entries in respect of booking bogus long term capital gain/loss for a prospective beneficiary having no credible financials and economic foundations, which clearly supports the view of both the authorities below in doubting a transaction lead to claim long term capital gain in the hands of assessee the beneficiary, is bogus. In view of the above, we find the reply provided by the DTPL in response to the information called for u/s 133(6) of the Act is contrary to the evidence brought on record by the A.O. from many authorities like BSE, SEBI and the Investigation conducted by the DDIT, Kolkata. Therefore, we give no credence to the information given by the DTPL through e-mail in response to sec .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... ision of Hon ble High Court of Delhi in the case of Suman Poddar, we find that the assessee claimed long term capital gain as exempt income u/s.10(38) of the Act. The AO doubted the said transactions in purchasing the shares of M/s. Cresenta Solutions Ltd. and on examination of details of financials of said company the AO treated the said transaction as bogus and denied the exemption as claimed by the assessee u/s.10(38) of the Act. The CIT(A) confirmed the view of the AO. The ITAT in the Second Appellate proceedings confirmed the order of CIT(A) in denying the exemption claimed by the assessee u/s.10(38) of the Act. The Hon ble High Court of Delhi while dealing with the substantial question of law was pleased to observe, that to gain benefit of long term capital gain at the rate of 491% over a period of five months is beyond human probability and defies business logic of any business enterprise dealing with share transactions. Further, the Hon ble High Court observed that it is the duty of the Tribunal to scratch surface and probe documentary evidence in depth in the light of conduct of assessee and other surrounding circumstances and held the ratio laid down by the Hon ble Suprem .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... onsidered by applying the test of human probabilities taking into consideration the surrounding circumstances and upheld the majority opinion rendered by the Two Members of the Settlement Commission. 34. In the case of M/s. Royal Rich Developers Pvt. Ltd. of Hon ble High Court of Bombay wherein the facts are that the assessee had issued 9,37,500 equity shares at a face value of ₹ 10/- with a premium of ₹ 30/- per share and received ₹ 3.75 crores by way of share application money. The AO examined the source of said receipt and held the said receipt is assessee s unexplained cash credit. The CIT(A) confirmed the view of AO by considering detailed remand report. The Tribunal agreed with the findings of CIT(A). The Hon ble High Court of Bombay observed that the above said entire issue is based on appreciation of evidence and record. The Hon ble High Court agreed with the findings of Assessing Officer that there was no reason or explanation were shown by the assessee therein supporting the high premium being paid by the investors in the absence of any business during the said assessment year. We find the facts and circumstances of the case before the Hon ble High Court .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... was paid for arranging capital gain as payment of such a commission is a common practice. He, therefore, made an addition of ₹ 5,20,115/- (₹ 1,04,02,303/- @ 5%) as unexplained expenditure u/s 69 of the Act. The CIT(A) confirmed the same. 38. In view of the fact that we have countenanced the conclusion of the authorities below in treating the long term capital gain from transfer of shares as bogus, the sequitur is that the assessee did pay commission for arranging the bogus capital gain. However, considering the totality of the facts and circumstances of the instant case, we are of the considered view that the rate of commission be reduced to 2% instead of 5%. Thus, ground No.8 raised by the assessee is partly allowed. 39. Ground No.9 is raised challenging the action of CIT(A) in confirming the addition made on account of set off of interest against professional fee in the facts and circumstances of the case. The assessee claimed set off of interest expenses to the tune of ₹ 5,09,800/- against a professional receipt stated to have been from M/s. Sagar Paridhan Pvt. Ltd. According to the AO, the said receipt is a salary from M/s. Sagar Paridhan Pvt. Ltd. as the asse .....

X X X X X X X

Full Text of the Document

X X X X X X X

 

 

← Previous Next →

 

 

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || Database || Members || Refer Us ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.
|| Blog || Site Map - Recent || Site Map ||