TMI Blog2021 (11) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... entry providers so as to stage manage accommodation entry of STCL. Material furnished by assessee to substantiate its claim remains unchallenged and uncontroverted. The purchases were neither off-market nor through preferential allotment. Besides, no copy of any report of information received was supplied to the assessee. The assessee was not confronted with any statement or material allegedly detrimental to the assessee arising or culled out of the Investigation report. Thus, the fact remains that the findings of the lower authorities are not based on evidence but on generalizations and probabilities. The AO could not place anything on record, maybe through a process of his own enquiry, to decisively prove that assessee has obtained bogus STCL through his connivance with entry operators / exit providers. The claim of the assessee appears to have been rejected more on the basis of presumption rather than evidence. An assessment purely based on suspicion, surmises and conjectures without any tangible evidence on record against the assessee of any connivance or collusion is unsustainable in law. - Decided in favour of assessee. - ITA No. 2792/MUM/2018 - - - Dated:- 5-10-2021 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rating bogus entries of longterm capital gains which is exempt from tax. The assessing officer discussed elaborately in his order and he confronted the assessee why the short term capital loss should not be disallowed as per the investigation carried out in penny stocks cases. In response assessee has submitted following submissions: a) Our client has purchased and sold the shares through its portfolio manager (i.e. standard chartered securities (India) Ltd.) b) He has neither received any shares though preferential allotment nor any bonus allotment. c) The assessee has not directly dealt with any broker other than Standard Chartered Securities (India) Ltd. d) Considering the above we request your honor the transaction done by our client are genuine in nature and no sham element is involved. Hence, Short Term Capital Loss from the above is to be allowed for set off against the long term capital against based on the provisions of section 71 of the Act. 4. The assessing officer discussed the reasons why he is rejecting the contention of the assessee in his order and completed the assessment under section 143(3) of the Act. The AO fully relying in the investigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Support for the conclusions drawn: Several Judicial pronouncements support this view that when there is no commercial purpose involved in a transaction and the transaction is for primary purpose of tax avoidance. Few such cases are discussed as under: i. Tax planning may be legitimate provided it is within the framework of the law. Colorable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by dubious methods. It is obligation of every citizen to pay the taxes honestly without resorting to subterfuges (M/s. McDowell's Co, Ltd Vs. CTO in 154 ITR 148). ii. There is behind taxation laws as much moral sanction as is behind any other welfare legislation and it is a pretense to say that avoidance of taxation is not unethical and that it stands on no less a moral plane than while considering a device to avoid tax, is not to asks whether the provisions should be constructed literally or liberally nor whether the transaction is not unreal and not prohibited by the statue, but whether the transaction is a device to avoid tax and whether the transaction is such that the judicia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased 4,00,000 shares during the month of January 2013 @₹ 75.05/- per share for a purchase consideration of ₹ 3,00,18,583/- and sold these shares during the month of May 2013 @ ₹ 20,19/- per shares for a total consideration of R$. 80,75,273/- thereby incurring a total loss of ₹ 2,19,43,210/-. 10. As it has been clearly proved from the aforesaid discussion that the trades of above discussed four companies were manipulated to give capital gains/losses to various parties, including the assessee. Thus, the assessee's claim of Short term Capital loss for ₹ 21,23,81,154 out of Total Short Term Capital Loss Re. 23,54,71,343/- in respect of sale of shares of the above discussed companies is hereby disallowed and not allowed to be yet off. 5. Aggrieved, assessee preferred an appeal before CIT (A) and submitted a detailed submission before him in a tabulated format which is reproduced below: 3.5. From the above analysis of the company whose scrips were purchased and sold by the assessee following conclusion was drawn which was rebutted by the appellant. S. No. AO s Contention Our Reply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced as loans and investments. 5. The whole process preferential allotment was a prearranged and a managed process so as to allot preferential shares to beneficiaries of bogus LTCG which could later be sold by them for booking accommodation entry of bogus LTCG/ STCG in the garb 6. The shares were rigged on the stock exchange through manipulation of the stock market. The AO's observation as to the price rigging cannot be the reason for treating genuine LTCG as bogus, in genuine and/or accommodative in nature. This is a free market where the investor does not have any control over price. 7. Various share brokers whose statements have been recorded and have been discussed in the appraisal have confirmed the fact that the share of companies have been used for providing entry of bogus LTCG/STCG/LOSS. None of the persons have said that they have dealt with the Appellant not they have alleged that the transaction undertaken by him were bogus. Hence, this logic does not find any ground in this case. 6. Ld. CIT(A) considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax-1 Nagpur Another (Income Tax Appeal No. 18/2017]. Though the above case is of S'TCG their Lordship held that the authorities 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 grab of long term capital gain. While so observing, the authoritie sheld that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth ₹ 5/- had jumped to ₹ 485/- in no time. The Income Tax Appellate Tribunal held that the fantastic sale price was not at all possible as there was no economic or financial basis as to how a share worth ₹ 5/- of a little known company would jump from ₹ 5/-to ₹ 485/-. The findings recorded by the authorities are pure findings of facts based on a proper appreciation of the material on record. While recording the said findings, the authorities have followed the tests laid down by the Hon'ble Supreme Court and this Court in several decisions. 5) The appellant has submitted that the appellant has made the investment in share which were purchased in the floor of stock exchange and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that assessee has purchased and sold the scripts online platform based on the prevailing market rate. The assessee has purchased shares directly from reputed share brokers and is no involvement of any preferred allotment or has not dealt in any off-line transactions. She submitted that all the relevant information relating to claim of actual loss was submitted before Assessing Officer and Ld. CIT(A). She submitted that Assessing Officer has relied on investigation carried on by the investigation wing, Kolkata. However, assessee has only bought through portfolio manager and it has no control over management of the scripts. The assessee has incurred actual loss however revenue authorities treated the same under penny stock category and rejected the contention of the assessee. She brought to our notice relevant findings of tax authorities in para 8 of assessment order and para 3.6 of first appellate authority. 9. On the other hand, Ld. DR relied on the findings of Ld. CIT(A) and submitted that it is apparent bogus penny stock transactions. 10. Considered the rival submissions and material on record. We notice that assessee has regularly dealing in purchase and sale of shares and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned companies in that the financial health of all such impugned entities are poor, there is sudden rise of prices in their shares followed by a steep fall, statements recorded of key persons confirms manipulation in prices of stock to provide capital gains/loss to interested parties. Borrowing from the findings of the Investigation Reports, the lower authorities have held the claim as non-genuine, rejecting the submission of the assessee that the investments were made through reputed portfolio manager who takes the call on the basis of market price, future perception of the company and that assessee is thus not directly involved in any transaction of purchase/sale between buyer and seller. The assessee had also placed documentary evidence before the AO in support of the impugned transaction. It is the finding of the Ld.CIT (A) that assessee has not provided any cogent evidence to explain how shares of an unknown company jumps manifold in no time. According to the Ld.CIT (A), the assessee could not give any cogent and convincing reply to the observations of the AO. On the other hand, the assessee is aggrieved in that the AO has erroneously relied on some of the stock transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nchallenged and uncontroverted. The purchases were neither off-market nor through preferential allotment. Besides, no copy of any report of information received was supplied to the assessee. The assessee was not confronted with any statement or material allegedly detrimental to the assessee arising or culled out of the Investigation report. Thus, the fact remains that the findings of the lower authorities are not based on evidence but on generalizations and probabilities. The AO could not place anything on record, maybe through a process of his own enquiry, to decisively prove that assessee has obtained bogus STCL through his connivance with entry operators / exit providers. No such enquiry or investigation is seen carried by the AO other than borrowing information to be used against the assessee from the general report of Investigation Directorate. The claim of the assessee appears to have been rejected more on the basis of presumption rather than evidence. The fact also remains that copies of statements used against the assessee were not provided to the assessee. It certainly has incapacitated the assessee from effectively rebutting the same and also from seeking an opportunity f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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