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TMI Blog2022 (1) TMI 1258X X X X Extracts X X X X X X X X Extracts X X X X ..... s 103,46,835 u/s 68 on a/c of alleged sham Long Term Capital Gains is made violating principles of natural justice and on basis of vague and generalized show cause notice (19/12/2016) without confronting any back material to assessee thus rendering the entire proceedings a nullity in eyes of law as replied to AO vide letter 20/12/2016. 2.1 That order passed by Ld AO dated 30/12/2016and further order passed by Id CIT A dated 13/02/2018 are bad in law in as much as addition of Rs 103,46,835 is made violating principles of natural justice without confronting any investigation wing report relevant extract, material found by investigation wing etc. which is sufficient to quash the assessment order and order passed by Ld CIT-A. 3. That order passed by Ld AO dated 30/12/2016and further order passed by Id CIT-A dated 13/02/2018 are bad in law in as much as addition of Rs 103,46,835 is made inter-alia on basis of statements, which have no evidentiary value as notably assessee's retort submitted to Ld AO has been completely overlooked and fact that assessee has never done transaction with those persons, and that those statements has no direct nexus with assessee demolish the case set up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence brought on record which can display that assessee herein has inducted certain cash at the time of sale to certain indentified broker/middleman/syndicate member who has in turn introduced certain identified artificial paper company for alleged parking of said cash to buy the shares sold by the assessee which theoretical trail has remained inchoate completely nullifying the entire basis of the addition. 6. That on the facts and in the circumstances of the case and in law, Id AO erred in making subject additions without appreciating that law gives discretion to the assessing officer in applying deeming fictions u/s 68 etc which discretion has not been judiciously exercised in facts are present case as assessee has no economic capacity and source to generate given amount of unaccounted income. Further law requires that additions under said deeming fiction cannot be made sans incriminating material brought on record which is completely lacking in present case. 7. That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the action of Id AO in making addition of Rs 103,46,835 /- without appreciating that basis of findings of the lower author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 68 elc. does not apply to sale of shares iv) To delete the addition of Rs.20,694 v) To restore returned income vi) Any other appropriate relief 4. The assessee is an individual. During the year under consideration, the assessee had filed a return of income on 30.07.2014 declaring a total income of Rs 17,26,593/- for the financial- year 2013-14 relevant to assessment year 2014-15. The case was selected for scrutiny and notice U/s 143(2) of the Act was issued upon the assessee. The assessment proceedings culminated in an order of assessment framed u/s 143(3) of the Act dated 30.12.2016 by Deputy Commissioner of Income Tax Circle-1, Meerut, determining the income of the assessee at Rs.1,20,94,122/- against the returned income of Rs. 17,26,593/- by making addition of Rs. 1,03,67,529/- which includes a sum of Rs. 1,03,46,835/- being the long term capital gain accrued to the assessee which was claimed exempt u/s 10(38) of the Act and also a sum of Rs. 20,694/- being the al leged sum paid to provide accommodation entry. 5. The detailed background of the acquisition of shares in consequent sale is as under: The assessee through stock broker M/s Bonanza Portfolio Ltd. had purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they have provided bogus long term capital gain of M/s Unno Industries to their cl ients. iii) The financial of the penny stock M/s Unno Industries Ltd. and movement of the price is abrupt, unrealistic and not based upon any realistic parameters. iv) The assessee is unaware about the share market but has earned profit of Rs. 1,03,46,835/- by investing very low amount without having any information or knowledge of stock market. v) That all the activities regarding long term capital gain were completed by the broker but it is interesting to note that he do not know the name, address and phone number of broker. vi) The shares sold by the assessee were purchased by six companies and out of six, in respect one company M/s Galore Suppl iers Pvt. Ltd. one Shri. Navneet Kumar Singhania in his statement has admitted that such company is a paper company and has been used to provide accommodation entry. vii) In respect of providing opportunity of cross examination, it has been stated that in the statement recorded on 19.12.2016 assessee was informed about the enquiries made by the income tax department, Kolkata and he has not made any comment. viii) Assessment proceedings are admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the amounts have been received which are rightfully eligible for exemption u/s 10(38). * The doubting of the revenue authorities is purely on the grounds of suspicion and the statement of people recorded who are unconnected with the transaction. * Further, he relied on the order of the Co-ordinate Bench ITAT Kolkata in the case of Sumaysh Agarawal Vs. ITO, Ward-29(1), Kolkata ITA No.1790/Kol/2018 and argued that the SEBI has exonerated and the final enquiry about the trade of the shares. At this juncture, we would like to clarify that the order of SEBI dealt with the shares of M/s Kailash Auto Finance Ltd. but not with the shares of M/s Unno Industries Ltd. which are involved in this case. Hence the arguments of the Ld.AR cannot be held to be valid in these scrips. * The ld. AR argued that the contentions of the revenue were general in nature and none of the statement nor specific material gathered by the revenue was pertaining to the case of the assessee. The reliance placed by the report of the Investigation Wing, Kolkata is misplaced and much reliance has been placed by the revenue authorities in this report rather than the specifics of the case. * The ld. AR reiterat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record with regard to the purchase of shares sold by the assessee. The shares of Unno Industries Ltd. have been purchased by a company named Galore Suppliers Pvt. Ltd. The subbroker/ entry operator Sh. Navneet Kumar Singhania in the statement recorded on oath u/s 131 of the IT Act on 18.03.2014 undisputedly submitted that the company Galore Suppliers Ltd. has been used for providing accommodation entries. 14. Further, the statement of the assessee has been recorded on oath u/s 131 of the IT Act on 19.12.2016 could not submit any details about the method he transacted in the shares. The entire facts have been specifically confronted to the assessee on 19.12.2016. The assessee could not through any light with regard to the transactions entered with the brokers namely Bonanza Portfolio Ltd. or Zuari Investments Ltd. He could not through light even on Anandlok suppliers and Traders Pvt. Ltd. located at Akola to whom 800 equity shares of Pinnacle Vintrade Pvt. Ltd. have been sold. 15. The entire statement of the assessee recorded by the Assessing Officer on oath u/s 131 on 19.12.2016 is as under: 15.1 The aforesaid statement of the assessee himself corroborates the information an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te to provide LTCG entries. These are generally dormant company with no business and with accumulated losses. ii) A new company which is floated just for the purpose giving LTCG entries. Such new companies are often floated after the initial booking is complete and the capital base is decided keeping in mind the entries to be provided. The entities involved in the transactions. 19. There are three categories of individuals who are involved in the transactions i) Syndicate Members: They are the promoters of the Penny Stock companies who own the initial shareholding mostly in the name of paper companies either in a fresh IPO or purchased from the shareholders of a dormant company. They are usually a group of 4-5 individuals who also referred to as Syndicate Members and are sometimes also referred to as Operators. Their nominees are directors of the Penny Stock companies which is indirectly controlled by them through such dummy directors. The whole operation is managed by them. They get the net commission income from the transactions. Their name however, seldom appears in the actual transactions. ii) The Brokers: They are registered brokers through whom shares are traded both onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are thus manipulated at 20 to 25 times the face value. The investors hold these shares the penny stock listed company which it got as a result of merger for one year (statutory lock-in period for exemption under IT Act) and then sell it to one of the shell private limited companies of the operator. The investor thus makes a LTCG of 25 are more times its original investment. A typical chart of share price verses date and the volume of a 'Penny stock' would see the bel l curve peak as one shown on the left. Snapshot of Basic modus of providing bogus LTCG 22. Merger of Unlisted companies with Listed Entity: This is the most preferred option for the persons willing to operate for the purpose of doing Long Term capital Gains. In case of the mergers with listed companies, the merger petition has to be fi led with concerned stock exchange under clause 24F of the Listing Agreement, which gives its permission to go ahead with the merger scheme in consultation with SEBI. Here the main catch is valuation of shares of the companies. Since the Act provides for the valuation of shares at book value and the same has been approved by the Supreme Court in various decisions which has been di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers is to reduce their cost of acquisition, thereby increasing the quantum of Long Term Capital Gain. For Example, if a person buys the shares of a particular company at a price level of 100 and receives 9 shares as bonus, his cost of acquisition stands to Rs. 10/- per share. 26. Splitting the shares:- It is the most effective way to camouflage the price of shares. The shareholder does not get affected by any of such proceeding adopted by the company except the effect of Corporate Action of NSDL/CDSL thereby releasing old shares and getting the spitted shares in Demat Account. After split of shares the price of shares on the exchange goes down automatically in proportion with the ratio of split and one doesn't see anything adverse happening in the scrip. 27. In the background of the operation, the facts of the instant case have been juxtaposed with regard to the al lotment and subsequent sale. The following facts emerge, * Step 1 - The assessee initially purchased 1,00,000 shares of Empower Ltd. @ Rs.7.28. * Step 2 - 800 shares were sold to M/s Anandlok Suppliers and Traders Pvt. Ltd. situated at Nasik. * Step 3 - In lieu of these 800 shares the assessee gets shares of M/s Pin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating authorities of the SEBI Adjudication Order: EAD-9/VKV/GSS/2020-21/ 9143 Under Section 15-I Of Securities And Exchange Board Of India Act, 1992 Read With Rule 5 Of SEBI (Procedure For Holding Inquiry And Imposing Penalties) Rules, 1995. In respect of: M/s. Bonanza Portfolio Ltd. (CIN No.: U65991DL1993PLC052280) (Stock Broker bearing registration no. INZ000081033) PAN: AAACB0764B 31. Further, the broker M/s Zuari Investments Ltd. has also been found to be involved in various infringements with regard to conduct of business in connivance with other parties which can be found in the Order No. EAD-3/JS/GSS/1400-1402 /2018- 19 September 28, 2018. Thus, it is proved beyond doubt that the brokers and the trade in the scrips are manipulated and hence the assessee cannot absolve himself canvassing that the amounts have been received through cheques and hence nothing can be viewed adversely against him. 32. All these enquiries conclusively proved that the trades have been manipulated and the gains or the losses made by the beneficiaries cannot be said to be genuine. 33. Reliance is also placed on the judgment of Hon'ble Jurisdictional High Court in the case of SEBI Vs CRB Capital mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts on record and the judicial pronouncements. 40. On this issue we hold that preponderance of the evidence is one type of evidentiary standard used in a burden of proof analysis. Under the preponderance standard, the burden of proof is met when the party with the burden convinces the fact finder that there is a greater chance that the claim is true. This is the burden of proof in a civil trial. The theory of "preponderance of probability‟ is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. In situations like this case, one may fall into realm of "preponderance of probability‟ where there are many probable factors, some in favour of the assessee and some may go against the assessee, but the probable factors have to be weighed on material facts so col lected. Prima facie, it may appear to be a case made on preponderance of probabilities but not beyond reasonable doubt. However, in this case a deeper examination of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be genuine. 42. In light of the above facts and material brought on record by the AO and the statement of the assessee himself goes to prove that the case of the AO is not based on any suspicion or surmises. One very important fact which is clearly distinguishable from the judgments relied upon by the ld. Counsel of the assessee that, not only in the case of M/s Unno Industries Ltd. the SEBI has suspended the trading of the shares in BSE but also the two brokers through whom the assessee has purchased shares have been found doing irregularities by the SEBI. Another important fact is that, the Director of one of the company, Galore Suppliers Pvt. Ltd. who has bought the shares of M/s Unno Industries Ltd. from the assessee had categorically admitted that not only the M/s Unno Industries Ltd. was penny stock but also involved in providing accommodation entries in this share. This fact alone demolishes the argument of the ld. Counsel that entire transaction of sale of shares was genuine. 43. Thus, on going through the entire facts and circumstances of the case, it can be concluded based on the following snap shot that transactions entered by the assessee are not genuine. 1. Fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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