TMI Blog2020 (4) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... dence to the mere documentary evidences produced by. Further more the honourable Delhi High Court has already decided on identical issue in case of Udita Kalra [ 2019 (4) TMI 834 - DELHI HIGH COURT] and Suman Poddar [ 2019 (9) TMI 1089 - DELHI HIGH COURT] which are against the assessee. Therefore, no merit in the appeal of the assessee and all six grounds of appeal challenging the same addition on different pretext are dismissed. - ITA No. 1230/Del/2019 - - - Dated:- 23-1-2020 - Shri Sudhanshu Srivastava, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : None For the Revenue : Shri Umesh Takyar, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-16, New Delhi dated 26.12.2018 for the Assessment Year 2015-16. 2. The assessee has raised the following grounds of appeal:- 1. That on the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) [here-in-after referred to as Ld. CIT (Appeals)] was not justified and grossly erred in confirming the addition made by the Learned AO of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the scrip, the use of the IPO proceeds of M/s HPC Bio Sciences (P) Ltd etc. The AO also examined the order of Securities Exchange Board of India (SEBI) vide which the Securities and Exchange Regulator held that HPC Bio Sciences (P) Ltd was guilty of price manipulation of the scrip and had jacked-up the rate so as to provide an LTCG entry to its investors. Accordingly, the AO after detailed analysis of the transaction held that the transaction of sale resulting in Long- Term Capital Gains was, in fact, a sham transaction, used as a sophisticated device to launder assessee's black money. He issued summons to the assessee u/s 131 of the act on 30-11-2017 and recorded statement of assessee on 18-12-2017. Assessee s education qualification is 12th standard pass. He named his maternal uncle Shri Vinya Chand Jain along with his broker who advised him to buy these shares. According to him, the HPC Bio science is engaged in the business of food products but he does not know who is the management of that company. He did not make any inquiry before making investments in the company he does not know the address of that company, though he invested through private placement. He does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Limited vii. Verification in regard to exit providers to ascertain identity, genuineness and creditworthiness viii. Statement of the assessee and inferred that the assessee is not at all acquainted with share market. ix. Statements of share brokers and exit entry providers who have categorically stated that shares of HP Bio Sciences (P) Ltd have been used to provide LTCG entries to investors. 5. Thereafter the ld CIT (A) proceeded to discuss various facets of the case and held that assessee has claimed exemption u/s 10(38) on Long-Term Capital Gains (hereinafter referred to as LTCG).'The LTCG resulted from the sale of shares of HPC Bio Sciences (P) Ltd, which showed a whopping increase in price of 1800%. The s a I d all the trappings of a genuine sale, like the contract notes of the broker and Demat account reflecting transaction, the confirmation of the broker, however, gives pause for thought. The shares were allotted through preferential allotment of 2500 shares at ₹ 10 per share and a subsequent allotment of 2500 bonus shares at Nil cost. Therefore, the actual cost of the share to the appellant was ₹ 5 per share. The price of the share against all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 39.10 to ₹ 735.90/- Daily high-low Traded volume (no. of shares) 100 to 259200 iii. Increase in share value not backed by robust financials. An analysis of the financial statements of M/s HPC Bio Sciences (P) Ltd. Showed that Profit After Tax (PAT) and Earning Per Share (EPS) reflected downslide from F.Y. 2010-11 to F.Y. 2013- 14. PAT (IN Rs. Cr.) EPS F. Y. 2010-11 0.0005 0 F. Y. 2011-12 3.05 4.66 F. Y. 2012-13 2.98 3.46 F. Y. 2013-14 1.25 0.77 Balance Sheet as extracted from Annual Report of Company Balance Sheet of M/s HPC Biosciences Limited (Rs. In Crores) Mar 16 Mar 15 Mar 14 Mar 13 Mar 12 Mar 11 Sources of Funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.01 Total current assets 5.37 3.51 1.27 2.83 1.24 0.01 Loans and Advances 17.78 17.77 15.81 11.94 2.46 0.04 Total CA, Loans Advances. 23.15 21.28 17.08 14.77 3.70 0.05 Current Liabilities 0.08 0.05 0.09 0.04 0.00 0.00 Provisions 0.02 0.03 0.01 0.00 0.00 0.00 Total CL Provisions 0.10 0.08 0.10 0.04 0.00 0.00 Net Currents Assets 23.05 21.20 16.98 14.73 3.70 0.05 Total Assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entories of FG, WIP and Stock in Trade. - 0.59 0.15 0.22 - 0.26 0.00 Employee Benefit Expenses 0.21 0.22 0.20 0.27 0.00 Depreciation and Amortization Expenses. 1.38 1.41 1.36 1.33 0.00 Other Expenses 0.50 0.48 0.49 0.46 0.00 Total Expenses 1.51 2.51 2.27 1.79 0.00 Mar 16 Mar 15 Mar 14 Mar 13 Mar 10 Profit/Loss Before Tax 0.50 0.76 1.26 2.98 0.00 Profit/Loss from continuing Operations 0.46 0.71 1.24 2.98 0.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Price rise in the scrip Period 03.04.2013 31.12.2014 Price variation (based on closing price) ₹ 45.25/- to ₹ 757.50/- Further the company had not made any announcement regarding their business or any other corporate action, which could impact the market sentiment and trigger increase in share price. Thus, the sharp rise in the price of these scrips during the examination period was not supported by fundamentals or any other genuine factor. v. Current Status of share and financials of a company The current share price of the scrip (as retrieved on 17.11.2018) continues to be low and less than the manipulated price of ₹ 564.5 and ₹ 444 in July 2014. A screenshot of the closing share price on 16.11.2018 as retrieved from website of ET markets (.https://economictimes.indiatimes.com/hpc-biosciencestd/ stocks/companyid-44679.cms) is reproduced below. At ₹ 31.45 this value is incidentally less than even issue price of ₹ 35 of the IPO and nowhere near the stratospheric highs it touched in April-July 2014. The trading volume is 1,08,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntiate claim. ix. He thereafter proceeded to conclude his order holding that it is clear that based on certain prima facie indicators that the LTCG from the sale of the share of M/s HPS Bio sciences (P) Ltd were not what they apparently seemed, evidences were gathered by the Securities and exchange regulator as well as the Investigation wing and Assessing officer of the Income Tax department. The Regulator's interim report as well as the order of the Securities Exchange Board has established without an iota of doubt that promoters /Directors of M/s HPC Bio Sciences (P) Ltd in collusion with preferential share allottees/pre-IPO allottees/LTCG entry seekers jacked-up the price of the share through a pre- meditated devise that would benefit the preferential allottees as well as other investors who were seeking LTCG entries to reduce tax and launder black money. The Board in it 2017 order as reproduced in the foregoing paras categorically holds the company as well as its preferential allottees, pre-IPO purchasers and LTCG entry seekers colluded to evade tax, launder black money and defraud the securities market through manipulation of share price. x. He also dealt with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He referred to several judicial precedents and held that the reference to those judgments and principles enunciated therein clearly reflects the stance of the Courts towards cross-examination. Although, cross-examination is important, formal cross-examination is not mandatory especially if adequate opportunity to rebut the case has been allowed to the assessee. In the instant case, an examination of the assessment records was made by him and it was noted that all evidences/information used against the assessee and available with AO was confronted to the assessee. Several opportunities were accorded in the interest of justice and the claim that the addition was illegal or void as no cross-examination was allowed has no locus standi. He therefore held that as adequate opportunity was accorded to assessee concern, no grievance has been caused to the appellant. He therefore held that there is no violation of natural justice as the addition has been made after due opportunity was accorded to appellant. All documents in the possession of the Department were also confronted to the appellant. xiii. With respect to the claim of the assessee that AO has not disproved the evidences filed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs. From the statement recorded of the assessee, the original allotment was in preferential allotment. Assessee does not know any of the promoter of that company, despite this assessee got 2500 shares of that company at ₹ 10 each and immediately thereafter the bonus in the ratio of one share for one share held. Surprisingly, assessee HUF and another HUF of the same family entered into similar transaction with the same company and earned astronomical return within a short span of time of one year and three months. The lower authorities analyzed the financials of the company whose shares were invested into, they do not speak anything except that the whole transaction are sham. That company has a meager turnover and minuscule profit. The regulators conducted the enquiry and found that the price of this company has been rigged. They also found that the route was preferential allotment of individual allottees and three different cooperates. The regulator also found the exit providers, the persons who funded the IPO, and the evidence of rigging of the price. All these culminated into an order dated 23 January 2017 by SEBI . The report of the investigation wing of the income tax dep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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