TMI Blog2020 (2) TMI 1088X X X X Extracts X X X X X X X X Extracts X X X X ..... vested in the Regulatory Authority cannot be usurped by any other Authority. The power to hold, penalize and act against a company in the event the company is a sham company floated against the laws of the land vests with the Ministry of Corporate Affairs, SEBI and SFIO who can recommend the removal of its name from the Registrar of Companies. For want of any relevant discussion thereon, the order at best proceeds only on presumptions and suspicions. It is seen that this aspect has not been considered in the case of Shri Abhimanyu Soin [ 2018 (4) TMI 1620 - ITAT CHANDIGARH] relied upon by Id. CIT-DR. Accordingly, adjournment application of the Id. AR was rejected and it was deemed appropriate to restore the file back to the CIT(A) with the direction to bring out necessary facts as to whether the specific company in the specific period has been held to be a bogus/sham company by the appropriate Regulatory Authority or not. I am of the view that the facts, evidences and deficiencies noticed are sufficient to justify re-assessment or re-opening in cases where other statutory formalities in regard to re-opening etc. have been fulfilled as suspicions of stock manipulation etc. are d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd, it was deemed appropriate to proceed with the present appeal ex parte qua the assessee appellant on merits after hearing the ld. CIT-DR. 4. The ld. CIT-DR relied upon the consistent orders of the AO and the CIT(A). He was specifically required to make his submissions on the fact whether any order of the appropriate Regulatory Authority i.e. SEBI has been referred to by the tax authorities for holding M/s. UNNO Industries Ltd. as a bogus company. It is seen that in the conclusion drawn in paras 5.13 and 5.14, this aspect has not been addressed. 4.1 It was submitted that on this aspect, he has not noticed any such finding. Reliance was placed on the order stating that the case law available suggests by mere filing of PAN, confirmation etc. it cannot take away the facts that these were accommodation entries, on which the assessee has been heard at length by the tax authorities. 4.2 Reliance was also placed upon the order of Chandigarh Bench in the case of Abhimanyu Soin v. ACIT [IT Appeal No. 951 (Chd.) of 2016, dated 18-4-2018]. Copy of this order was filed in the Court. 4.3 Referring to this order, the ld. CIT-DR was required to address whether any order of the Regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome should not be treated as income from other sources. As discussed in detail in above paragraph it is undoubted that the assessee has brought its unaccounted money through the accommodation entry taken from M/s. UNNO Industries Ltd. In my considered view the Assessing Officer has rightly charged under section 115BBE, on the amount of ₹ 2,56,367/- assessed under section 68. When we refer to an entry of loan transaction as 'fake loan' received from a 'paper company', it invariably means that such entry represents unaccounted money of the person in whose books of account the money has been credited as loan and the lender company is only a conduit for routing the money back to the books of account of that person. However, despite having knowledge of this fact and knowing the techniques and methods used by the assessees for this purpose, it remains a huge challenge for the tax authorities to bring all material facts and evidences on record so as to prove which in his opinion is a fact beyond doubt. In the case of appellant there are no doubt that the assessee has taken accommodation entry from a penny stock company M/s. UNNO Industries Ltd., therefore, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of shares, which are manipulated for bogus long term capital gain. 5.2 The surrender, it is seen was not accepted by the Assessing Officer in view of the fact that Shri Anil Khemka in his statement recorded u/s. 133A by the Investigation Wing in reply to question No. 18 specifically accepted that in Scrip Code 519273 in the case of M/s. UNNO Industries Ltd. the transactions were controlled by him. The entire statement of Shri Khemka, Director of Devshyam Stock Broking Pvt. Ltd. has been extracted in para 6 of the assessment order. 5.3 A perusal of the record further shows that the AO is conscious of the fact that the premier Regulatory Body is SEBI and he has taken note of the fact that SEBI is bound to take action when foul play is noticed. It is also evident from para 9.2 of the assessment order that the Assessing Officer is conscious of the fact that SEBI has asked various Stock Exchanges to suspend trading transactions in certain Scrips. However, the position qua this specific company has not been addressed. For ready reference, the relevant extract is reproduced hereunder: 9. Securities and Stock Exchange Board of India (SEBI) is the premier regulatory body of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n roles, functions and powers. The powers cannot be usurped or encroached upon. No doubt the orders of the Authorities and their impact on the Co-ordinating Authorities has to be respected, the fact remains that the specific powers cannot be usurped. It is well understood that SEBI as an Authority has been constituted to address instances of price rigging, unofficial private placements, non-compliance with the provisions of the Companies Act, allegations of insider trading and other such collusive practices etc. It may not be out of place to make a brief historical reference to put the issue in perspective. As a direct result of emerging frauds and malpractices in the stock market of India, the Indian Financial Market had been rocked by the manipulated erosion of the value of the stock held by general investors. Scandals and scams galore, it was noticed that there was no expert body capable of addressing the grievances of the helpless investors. Securities and Exchange Board of India (SEBI) was established in 1988 as an attempt to redress the position. However, as a non-statutory body, it had been provided with no teeth as it was visualized to be a mere watch dog expected only to o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities market; (ia) calling for information and record from any bank or any other authority or board or corporation established or constituted by or under any Central, State or Provincial Act in respect of any transaction in securities which is under investigation or inquiry by the Board; (j) performing such functions and exercising such powers under the provisions of [ ] the Securities Contracts (Regulation) Act, 1956 (42 of 1956), as may be delegated to it by the Central Government; (k) levying fees or other charges for carrying out the purposes of this section; (l) conducting research for the above purposes; (ia) calling from or furnishing to any such agencies, as may be specified by the Board, such information as may be considered necessary by it for the efficient discharge of its functions; (m) performing such other functions as may be prescribed. (2A) Without prejudice to the provisions contained in sub-section (2), the Board may take measures to undertake inspection of any book, or register, or other document or record of any listed public company or a public company (not being intermediaries referred to in section 12) which intends to get its s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the bank account or accounts or any transaction entered therein, so far as it relates to the proceeds actually involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder shall be allowed to be attached; (f) direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation: Provided that the Board may, without prejudice to the provisions contained in sub-section (2) or sub-section (2A), take any of the measures specified in clause (d) or clause (e) or clause (f), in respect of any listed public company or a public company (not being intermediaries referred to in section 12) which intends to get its securities listed on any recognized stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market: Provided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned. Board to regulate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934); (iii) being a contract of insurance to which the Insurance Act, 1938 (4 of 1938), applies; (iv) providing for any scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (19 of 1952); (v) under which deposits are accepted under section 58A of the Companies Act, 1956 (1 of 1956); (vi) under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society under section 620A of the Companies Act, 1956 (1 of 1956); (vii) failing within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982 (40 of 1982); (viii) under which contributions made are in the nature of subscription to a mutual fund; shall not be a collective investment scheme. [Power to issue directions. 1 IB. Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary,- (i) in the interest of investors, or orderly development of securities market; or (ii) to prevent the affairs of any intermediary or other persons re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documents and record produced under sub-section (2) or sub-section (3) for six months and thereafter shall return the same to any intermediary or any person associated with securities market by whom or on whose behalf the books, registers, other documents and record are produced: Provided that the Investigating Authority may call for any book, register, other document and record if they are needed again: Provided further that if the person on whose behalf the books, registers, other documents and record are produced requires certified copies of the books, registers, other documents and record produced before the Investigating Authority, it shall give certified copies of such books, registers, other documents and record to such person or on whose behalf the books, registers, other documents and record were produced. (5) Any person, directed to make an investigation under sub-section (l), may examine on oath, any manager, managing director, officer and other employee of any intermediary or any person associated with securities market in any manner, in relation to the affairs of his business and may administer an oath accordingly and for that purpose may require any of those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic company (not being the intermediaries specified under section 12) which intends to get its securities listed on any recognised stock exchange unless such company indulges in insider trading or market manipulation. (10) The Investigating Authority shall keep in its custody the books, registers, other documents and record seized under this section for such period not later than the conclusion of the investigation as it considers necessary and thereafter shall return the same to the company or the other body corporate, or, as the case may be, to the managing director or the manager or any other person, from whose custody or power they were seized and inform the Magistrate of such return; Provided that the Investigating Authority may, before returning such books, registers, other documents and record as aforesaid, place identification marks on them or any part thereof. (11) Save as otherwise provided in this section, every search or seizure made under this section shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to searches or seizures made under that Code. Cease and desist proceedings. 1 ID. If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his client, fails to enter into such agreement, he shall be liable to [a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.] I5C. Penalty for failure to redress investors' grievances.- [40] [If any listed company or any person who is registered as an intermediary, after having been called upon by the Board in writing, to redress the grievances of investors, fails to redress such grievances within the time specified by the Board, such company or intermediary shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.] 15D. Penalty for certain defaults in case of mutual funds.- If any person, who is- (a) required under this Act or any rules or regulations made thereunder to obtain a certificate of registration from the Board for sponsoring or carrying on any collective investment scheme, including mutual funds, sponsors or carries on any collective investment scheme, including mutual funds, without obtaining such certificate of registration, he shall be liable to a penalty of one lakh rupees for each day during which he sponsors o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a stock broker under this Act, - (a) fails to issue contract notes in the form and in the manner specified by the stock exchange of which such broker is a member, he shall be liable to a penalty not exceeding five times the amount for which the contract note was required to be issued by that broker; (b) fails to deliver any security or fails to make payment of the amount due to the investor in the manner within the period specified in the regulations, he shall be liable to [48]_[a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.] (c) charges an amount of brokerage which is in excess of the brokerage specified in the regulations, he shall be liable to [49] [a penally of one lakh rupees] or five times the amount of brokerage charged in excess of the specified brokerage, whichever is higher. 15G. Penalty for insider trading. If any insider who,- (i) either on his own behalf or on behalf of any other person, deals in securities of a body corporate listed on any stock exchange on the basis of any unpublished price sensitive information; or (ii) communicates any unpublished price-sensitive information to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case to give evidence or to produce any document which in the opinion of the adjudicating officer, may be useful for or relevant to the subject matter of the inquiry and if, on such inquiry, he is satisfied that the person has failed to comply with the provisions of any of the sections specified in sub-section (1), he may impose such penalty as he thinks fit in accordance with the provisions of any of those sections. 15J. Factors to be taken into account by the adjudicating officer.- While adjudging quantum of penalty under section 15, the adjudicating officer shall have due regard to the following factors, namely: (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; (c) the repetitive nature of the default. 5.6 Thus, it is evident that there can be no confusion on the fact that the primary objective of SEBI as contemplated under the Act is to ensure that the Securities Market in Indian functions in an orderly and transparent manner in order to protect the rights of investors and ensure the safety of their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay. 5.7.3 Its orders can be challenged before the Securities Appellate Tribunal and thereafter directly before the Supreme Court of India. 5.8 The fact that SEBI has been exercising its powers for keeping the Indian Financial Market clean is evident from various reported orders in the Public domain as an illustration; https://www.business-tandardxom/article/markets/sebi-whip-on-shell-firms-blocks-investors-rs-9-000-cr-1170808014691.html is referred to highlight the fact that there was a crackdown against 331 suspected shell companies . An extract of this reporting would show that it was reported that, In a late circular on Monday, market regulator Securities and Exchange Board of India (SEBI) directed stock exchanges to immediately restrict trading in 331 companies identified as shell companies by the Ministry of Corporate Affairs in consultation with the Serious Fraud Investigation Office (SFIO) and the income-tax (I-T) department. This reportage clearly illustrates that SEBI is alive, active and functioning towards its objectives. 5.8.1 The subsequent reporting in the public domain that this action was claimed to be a case of wrong classification by certain compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he performance of the capital market, watching its activity and controlling it keeping its aims and objectives in mind. Empowered by the Act, it is issuing Guidelines, Rules and passing orders, directions compliance directing surveillance etc. It is a fact that guided also by the Ministry of Corporate Affairs in consultation with SFIO, SEBI acting in concert with the Income Tax Department is giving appropriate directions like restricting trading etc. A discussion on this crucial aspect in the orders on these issues qua the specific company i.e. M/s. UNNO Industries Ltd. it is seen is completely missing. At the cost of repetition, it is seen that when the impugned order and the material available on record is seen, there is no discussion on the relevant aspect, namely whether the appropriate Regulatory Authority has passed strictures and regulated the activity of this specific company questioning its trading patterns etc. Reference to this aspect is necessary to conclusively hold that the specific company was a bogus company. Accordingly, in view of this shortcoming evident on the face of the record, the adjournment application is rejected. In the absence of any relevant discussion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial fact, the impugned order is set aside and the matter is restored back to the file of the CIT(A) with the direction to pass a speaking order in accordance with law. Needless to state that the assessee shall be afforded a reasonable opportunity of being heard. Said order was pronounced in the Open Court at the time of hearing itself. 7. In the result, the appeal of the assessee is allowed for statistical purposes. (ITA 1292/CHD/2018 : A.Y. 2015-16) 8. Addressing the facts in 2015-16 assessment year, it is seen that in the facts of the said case, transactions entered into by the assessee herein are with M/s. Golden Legend Finance Leasing Ltd. The tax authorities have brought out in their order that its trading pattern leads to a reasonably strong suspicion of price stocking and manipulations. The following finding of the CIT(A) is under challenge by the assessee in the present proceedings: 5.77 In view of the detailed discussion above, it is held that the appellant has failed to discharge its onus of proving the genuineness and creditworthiness of the above transaction and it is beyond any doubt that transaction was just a cover-up to bring its own unaccounted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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