TMI Blog2019 (8) TMI 1429X X X X Extracts X X X X X X X X Extracts X X X X ..... e despite weak financials of the company. Initial investment in the company of unknown credential and subsequent jump in the share prices of such a company, cannot be an accident or windfall but could be possible, because of manipulation in the share prices in a pre-planned manner, as brought on record by the Assessing Officer. In view of the failure on the part of the assessee to discharge his burden of proof and explain nature and source of the transaction, in our opinion, the Ld. CIT(A) has rightly confirmed the addition in dispute - Decided against assessee. - ITA No. 420/Del/2019 - - - Dated:- 20-8-2019 - SHRI O.P. KANT, ACCOUNTANT MEMBER AND SHRI K.N. CHARY, JUDICIAL MEMBER For The Appellant : Shri B.L. Mittal Ankur Mittal, Adv. For The Respondent : Shri N.K. Bansal, Sr. DR ORDER PER O.P. KANT, A.M.: The instant appeal by the assessee is directed against the order dated 30/11/2018 passed by Ld. Commissioner of Incometax (Appeals)-19, New Delhi, [in short the Ld. CIT(A) ] for assessment year 2015-16, raising following grounds: 1. On the facts and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financials i.e. profit declared of the Company. The AO also mentioned the investigation carried out by the Investigation Wing of the Department, where in it was found that the share price of HBC Bioscience Ltd. was manipulated by a group of brokers, directors of the company, entry operators, shell companies etc to generate bogus long term capital gain/loss for providing to entry seekers. In the assessment completed under section 143(3) of the Act, the sale proceeds of ₹ 58,89,195/- received from sale of shares of HPC bioscience Ltd. ( in short HPC bioscience ) were held to be accommodation entry only for converting unaccounted income of the assessee. The Assessing Officer also estimated unexplained commission expenses at the rate of 3% for arranging accommodation entries and made corresponding addition. The Assessing Officer made total addition of ₹ 60,65,870/-. On further appeal, the Ld. CIT(A) upheld the additions relying on various decisions of coordinate benches of the Tribunal. Aggrieved, the assessee is in appeal before the Tribunal raising grounds as reproduced above. 3. Before us, the Ld. counsel of the assessee filed a paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Sanjay Bimalchand Jain L/H Shantidevi Bimalchand Jain Vs. PCIT, ITA No. 18/2017 Bombay High Court (Nagpur Bench); 4. Anip Rastogi Vs. Income Tax Officer (ITA No. 3809/Del/2018) 5. Abhimanyu Soin Vs. Asstt. Commissioner of Income Tax, 2018- TIOL-733-ITAT-CHD; 6. Smt. M.K. Rajeshwari Vs. Income Tax Officer (ITA No.1723/Bang./2018); 7. Chandan Gupta Vs. CIT [2015] 54 taxmann.com 10 (Punjab Haryana)/[2015] 229 Taxman 173; 8. Balbir Chand Maini Vs. CIT [2011] 12 taxmann.com 276 (Punjab Haryana)/[2011] 201 Taxman 94 (Punjab Haryana) (MAG.)/[2012] 340 ITR 161 (Punjab Haryana)/[2012] 247 CTR 468 (Punjab Haryana); 9. Usha Chandresh Shah Vs. Income Tax Officer [2014-TIOL-1459- ITAT-MUM]; 10. Ratnakar M Pujari Vs. Income Tax Officer [2016-TIOL-1746-ITATMUM]; 11. Arvind M Kariya Vs. Asstt. Commissioner of Income Tax (ITA No. 7024/Mum/2010); and 12. ITAT Mumbai in the case of Income Tax Officer Vs. Shamim M. Bharwani (2016) (69 Taxmann.com 65) 5. We have heard the submission of both the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant had stated that she started going for races from the end of 1969 and that she first won Jackpot on 12th Dec., 1969 on the first day she went to races. The appellant also stated that she worked out the combination on the basis of what her husband advised her but she used to add a few horses of her own although she admitted that she did not know anything about the performance of these horses before December, 1969. As regards her husband, the appellant stated that he won once in Calcutta and once in Madras and he had similar wins also. The appellant had also stated that she had not gone to races in 1972. The appellant admitted that she had been buying jackpot tickets of the value of ₹ 2,000, ₹ 1,400 and even tickets for ₹ 3,000 have been bought and that on the first day she won the jackpot she purchased a jackpot combination ticket for approximately ₹ 2,500 and that on 8th Nov., 1970 she had bought two combinations, each for about ₹ 2,000. The appellant also admitted that she had not claimed any loss in races and only winnings were shown and stated that she won similar amounts which were not accounted and the losses were met out of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... winning tickets after the events presumably with unaccounted funds. The Chairman of the Settlement Commission, in his dissenting opinion, has laid emphasis on the fact that the appellant had produced evidence in support of the credits in the form of certificates from the racing clubs giving particulars of the crossed cheques for payment of the amounts for winning of Jackpots, etc. The Chairman has rejected the contention regarding lack of expertise in respect of the appellant and has observed that the expertise is the last thing that is necessary for a game of chance and anybody has to go and call for five numbers in a counter and obtain a Jackpot ticket and that books containing information are available which are quite cheap. This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities : The Chairman of the Settlement Commission has emphasised that the appellant did posses the winning ticket which was surrendered to the race club and in return a crossed cheque was obtained. It is, in our view, a neutral circumstance, because if the appellant had purchased the winning ticket ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llotment of bonus shares and share split etc. The Ld. Assessing Officer made a diagrammatic depiction of the transfer of unaccounted cash from the beneficiary to the entry operator and receipt of money by way of cheque from the buyer of the shares, which are shell companies . 5.4.1 After discussing modus operandi of such a racket of generating bogus entries, the Ld. Assessing Officer came to specifics of the scrip of HPC bioscience and pointed out that a very small number of total public shareholding was available in the scrip HPC bioscience , which was 893 in December 2013, 921 in March 2014, 738 in September 2014, 669 in March 2015 and 664 in December 2015. According to the Ld. Assessing Officer only a small number of the pre-decided people traded in the scrip and thus there was a high possibility of controlled pattern of the trading, which was evident from the price rigging and manipulation done by a cartel of brokers, entry operators, promoters and exit providers. The Assessing Officer pointed out that within a period of 16 months from January 2013 , the share price of HPC bioscience jumped 17 times whereas the profit after taxes of the company fallen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. 535217 23-Apr- 14 HPC BIO 44 12000 64.2 770700 AABCL3306N BEGORO BUILDERS PRIVATE LIMITED a 5. 535217 2 8-Apr- 14 HPC BIO 67 12000 63.6 762600 AAFCG2554B GAJGAMINI MERCHANDIS E PRIVATE LIMITED 6. 535217 05- May- 14 HPC BIO 134 9000 58.6 527580 AALCA7880J ANTARYAMI TRADERS PRIVATE LIMITED 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided by the assessee under statement recorded under section 131 of the Act, was found to be incorrect, because the assessee acquired 5000 shares by way of preferential allotment or private placement and not under Initial Public Offer (IPO) of company and balance 5000 by way of bonus shares. In IPO public at large is invited for investment through advertisement in print or other media, which is not in private placement or preferential allotment. Further, the assessee provided the name of the broker for purchase of shares as Adroit Financial, whereas actually shares were purchased directly from the company without involving any broker. 5.4.6 The Assessing Officer further observed that the assessee appeared to be prudent investor in terms of number of shares bought and sold and also the nature of the shares held i.e. wellknown public and private sector companies, however, with regard to the purchase and sale of the shares of HPC bioscience , the assessee displayed a behaviour which appeared to be an outlier in comparison to his normal pattern of investment. According to the Assessing Officer, the number of shares bought, the duration of holding, and date of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation. When the assessee is a regular investor, it is improbable that he will invest in shares of a company having very weak financials. During the statement recorded under section 131 of the Act, in question No. 18, the assessee was asked specifically that whether somebody contacted him for preferential allotment in the company, the assessee replied that nobody contacted. We do not understand as how the assessee came to know about availability of preferential allotment in the shares of the HPC bioscience, without any contact with the company. It could be possible only if the assessee got information from the entry operator(s), whose name, he was not interested in disclosing to the Assessing Officer. It is highly improbable that a person will invest in only one off market transaction (purchase directly from the company) which result in gold mine or a Jackpot to the assessee. Here the assessee has gained ₹ 58,85,847/- against investment of ₹ 50,000/- within a period of around one year, which is more than 100 times gain. 5.4.9 The financials of the company M/s HPC bioscience have been reproduced by the Assessing Officer in the assessment order. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share are not tradeable in market. Thus, it is safely inferred that in the case of preferential allotment by the aforesaid companies, the companies and their promoters/ directors had prior understanding, arrangement and purpose. Further, the off market transactions between the preferential allottees and the pre-IPO transferees in the said company prior to their IPOs demonstrate the connection between the preferential allottees and the pre-IPO transferees. 37. I further note that the entities of the Funding Group and the Trading Group are inter se connected within the respective group as well as , directly or indirectly , with the entities across both the groups, on the basis of common directors, common address, common phone numbers, funding, off market transactions, etc. as discussed in above table 5 and table 11. In this regard, I note that Hon'ble SAT has, in many cases such as Classic Credit Ttd. vs. SEBI (SAT Appeal no. 68/2003, Order dated December 8, 2006), Classic Credit Etd. vs. SEBI (SAT Appeal no. 76/ 2003, Order dated January 9, 2007) and Veronica Financial Services Etd. vs. SEBI (SAT Order dated August 24, 2012), held that connection/relations can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trading Group entities started pushing up the price of the scrip through manipulative trades and increased the prices of the scrips astronomically. e) Trading Group entities consistently and repeatedly placed buy orders at higher prices than LTP in four fundamentally weak newly listed companies. After the expiry of the lockin period, Trading Group entities further purchased shares from preferential allottees and pre IPO transferees at artificially increased prices. f) In the whole process, entities of Trading Group provided a hugely profitable exit to the preferential allottees and pre IPO transferees. g) Consequently, all the preferential allottees and pre IPO transferees have collectively made a profit of ₹ 614crore. h) The funds required for purchase of shares by the Trading Group entities had been provided to them through layering of fund transfers from several entities including the entities of the Funding Group. 40. I observe that, the key to the scheme of operations in this case lies in the preferential allotment of the shares of Eco, Esteem, CNE and HPC, and, thereafter getting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh price and they are found to have been funded by several entities including the entities of the Funding Group. Such trading behaviour belies economic rationale and indicates existence of premeditated arrangement among preferential allottees, pre IPO transferees, Trading Group and Funding Group entities. 43. From the above facts and circumstances, I prima fade find that the preferential allottees, pre IPO transferees acting in concert with Funding Group and Trading Group have used the stock exchange system to artificially increase volume and price of the scrip for making illegal gains and to convert ill-gotten gains into genuine one. However, the whole scheme could not have been possible without the involvement/ connivance of companies and their promoters and directors. 44. The acts and omissions were prima facie for generating fictitious LTCG so as to convert unaccounted income of preferential allottees and pre-IPO transferees into accounted one with no payment of taxes as LTCG is tax exempt under section 10(38) of Income Tax Act, 1961. I prima facie find that the above modus operandi helped the concerned entities to not pay income tax on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered cogent evidence to explain as how the shares in an unknown company with worth ₹ 5 had jumped to ₹ 485 in no time. In view of the facts, the Hon ble Bombay High Court confirmed the addition. 5.10 In the case of M.K. Rajeshwari Vs. ITO (supra), the coordinate bench of the Tribunal has held that while dealing the issue of long-term capital gain accrued to the assessee, one has to examine the financials of the company whose shares were inflated within a short period and after the sharp rise in the price of shares, it again comes down. 5.11 The coordinate bench of the Tribunal in the case of Shamim M. Bharwani (supra) held that where the assessee claimed income earned from sale of shares as exempt under section 10(38), in view of the fact that purchase transaction of said shares was not recorded in the stock exchange and moreover, selling rates were artificially high later on with no real buyers, Assessing Officer rightly rejected assessee s claim and added amount in question to his taxable income under section 68 of the Act. 5.12 In the light of the ratio decidendi of the cases cited above , the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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