TMI Blog2022 (9) TMI 871X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction is paid to the broker who negotiates the deal - HELD THAT:- When there is no doubt that such transactions involve certain money paid to the operators/arrangers of such fraudulent capital gains, the revenue authorities have reasonably calculated 5% of the sale consideration and accordingly such addition was upheld. In the present case also, admittedly the share transactions were manipulated through entry provider, stockbrokers in order to obtain fraudulent income by rigging share prices and selling them in order to justify the unaccounted income of the assessee and for all these activities the broker is making all the negotiations and arrangements and therefore, there is no doubt that such transactions involves money, paid to entry provider for such fraudulent capital gains and hence disallowance @ 1% is held to be reasonable and we do not find any infirmity with the findings of the ld. CIT(A) on this issue also. The order of the ld. CIT(A) is accordingly upheld on this issue as well. Addition of investment made by the assessee - AO held that the assessee has not been able to prove the source of investment - HELD THAT:- As we do not find any reason to interfere with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to 30-8-2022 at the request of ld. A.R. On 30-8-2022 the ld. A.R again requested for adjournment. The Bench having observed that this matter has been prolonged and several adjournments have been provided to the parties and the matter is still kept pending, therefore, keeping in mind the directions of the Hon ble Supreme Court in the case of Ishwarlal Mali Rathod Vs. Gopal and Ors., in Special Leave Petition (Civil) Nos. 14117-14118 of 2021, order dated 20-09-2021, one last opportunity was given to the assessee and the case was posted for hearing on 01-09-2022. That again on 01-09-2022 the ld. A.R. of the assessee through e-mail correspondence dated 01-09-2022 time 12.18 p.m. submitted that on morning of 01-09-2022 itself he got detected that he is suffering from Covid. However, the ld. A.R. has not furnished any evidence or medical certificate substantiating this plea. Since it was the last opportunity and as per the directions of the Hon ble Supreme Court (supra), the ld. D.R s submissions were recorded and the case was proceeded to be heard on merits based on the entire case records and the orders of the subordinate authorities. Within few minutes of the proceedings, the ld. A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irected that adjournments should not be granted in a routine manner and mechanically and such grant of adjournment by the Courts should not be a cause for delay in dispensing justice. We are of the considered view that sufficient opportunities were provided to the assessee and the Department in these prolonged litigations in respect of these cases and any further delay in disposing such matters would ultimately result in hindrance of justice and would act as a defiance to the directions given by the Hon ble Supreme Court (supra) and we can never be a party to such an act and therefore, in this factual background and observations since on 01-09-2022 being the last opportunity given in this case, the submissions of the ld. D.R are recorded and both these cases are heard on merits. ITA No. 813/PUN/2018 for A.Y. 2014-15 : Dineshkumar R. Tulsyan: 3. The grounds of appeal are as follows: On facts and circumstances of the case and in law, 1. The learned Income Tax Officer, Ward 1(5), Nashik has erred in making aggregate additions of Rs. 1,02,13,881/- and the learned Commissioner of Income Tax(Appeals)-1, Nashik has erred in confirming the same. 2. The learned Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on sale of shares (Inputs from Investigation Wing). The issue before the A.O was to examine the claim for exemption of Rs. 1,00,97,902/- u/s 10(38) of the Act on sale of securities of M/s. Mishka Finance and Trading Pvt. Ltd. (hereinafter referred to as Mishka ). The assessee had purchased shares of Pyramid Trading Ltd., in physical form which was subsequently changed to Mishka Finance Ltd. The shares were purchased by preferential mode @ Rs. 6 per share for an amount of Rs. 15,000/- on 15-06-2012 from Mr. Vijay Kumar Jain. The bogus shares in the ratio of 1:27 were issued on 05-02-2013 and in lieu of 2500 shares, 17500 bonus shares were issued resulting in total quantity of 20,000 equity shares. The stock was split on 16-01-2014 from face value of Rs. 10 to Rs. 1 and the total shares were converted to 2,00,000/-. These shares were sold between 19-02-2014 to 18-03-2014 at a price varying between Rs. 50.25 to 50.95 resulting in sale consideration of Rs. 1,01,12,902/-. In the return, the assessee has claimed exemption u/s 10(38) of Rs. 1,00,97,902/- (Rs. 1,01,12,902/- (-) Rs. 15,000/-) on account of capital gains. This fact is emerging at pages 11 and 12 of the assessment order. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f financing investing and investment in trading and incurred a loss of Rs. 12 lakhs during F.Y. 2011-12 and earned a profit of Rs. 12 lakhs during F.Y 2012-13. Further, from the annual report of Mishka for F.Y. 2012-13 it is observed that for financial year ended 2012 the earning per shares ( EPS ) of Mishka was Rs. (-)2.4 and for the financial year ended on March 31, 2013, the EPS was Rs. 0.12. This company does not have any business and does not have fixed assets of plant and machinery. Most of the assets are either investments or loans and advances which have been given to entities existing on paper. That on page 17 of the assessment order, the A.O has discussed how the manipulation in the share prices is done to artificially jack up the price of Mishka by the entry operator. The A.O also made enquiries u/s 133(6) and sent letter dated on 01-09-2016 to the Managing Director of Mishka but the same was returned back by the postal authorities with the remark unclaimed, return to sender . Another letter dated 06-10-2016 was again sent but no reply was received as is evident from page 29 of the assessment order. The A.O also made enquiries from Roongta rising Stock Pvt. Ltd. Surat s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were sold after the price was manipulated, were purchased by Abhisit Basu and Pradip Dey who are dummy Directors of the paper company operated by Anil Kumar Khemka. The A.O analysed financial statements of these companies and noticed that these companies do not have any assets and have no net worth. It was also noticed that the above mentioned paper companies were operated by Khemka who had employed various dummy Directors namely Abhiset Basu, Pradip Dey, etc. who were persons of no means and were employees of Anil Kumar Khemka. The A.O proceeded to deny the claim of exemption u/s 10(38) on the basis of the following observations:- The transaction of allotment of share is an off market transaction and not carried through a recognized Exchange. SEBI vide circular no. SMDRP/Policy/CIT-21/99, dated 14.09.1999 banned all negotiated deals including cross deals and all such deals are required to be executed only on the screens of exchanges in the price and order matching mechanism of the exchange just like any other normal trade. Thus the transactions are illegal and not in conformity with regulatory guidelines. The assessee is not able to explain how the shares were given to hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price manipulation. Thereafter, the ld. CIT(A) observed that there is no doubt about the modus operandi of the penny stock in general and about the fact that the assessee is a beneficiary of bogus long term capital gain on penny stock. The CIT(A) further observed that the ld. A.O has dealt with all the relevant issues in the assessment order through necessary enquiry and investigation and thereafter, he referred to the investigation done by SEBI in its report No. WTM/RKA/ISD/30/2015 DATED 17-04-2015 which is also available on the website of SEBI. It was further stated that scrip of M/s. Mishka Finance and Trading Ltd. was investigated by SEBI pursuant to huge rise in the traded volume and price of the shares. On pursuant to stock split, the face value of the shares was reduced from Rs. 10 to Rs. 1 per share on 16-01-2014. From February 14, 2013 to February 14, 2014, the scrip price of Mishka opened at Rs. 5.50 and rose to Rs. 49.90 adjusted to share split with average volume of 390 shares. Thereafter, the ld. CIT(A) reproduced the investigation conducted by SEBI as follows: 17. The transactions wherein the entities of Exit Providers bought most of the shares sold by the Prefere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held by the ld. CIT(A) that in the entire modus operandi the companies with the help of brokers have given colour of genuineness to the sham transactions by first putting the shares on Dmat, then routing the transaction through stock exchange, paying STT and making payments by cheque at the time of sale. Only when the corporate veil is lifted, the modus operandi of how share price was manipulated by circular trading with the help of paper companies to bring in circulation of the unaccounted money in the form of long term capital gain without paying any taxes and claiming deduction u/s 10(38) was discovered and unearthed. The ld. CIT(A) has also referred to various judgments wherein the share transactions and corresponding Capital gains were considered to be bogus. (i) Chandan Gupta Vs. CIT (2015) 54 taxmann.com 10 ( P H) : (ii) Usha Chandresh Shah Vs. ITGO (2014-TIOL)-1459-ITAT-MUM) (iii) Zakirullah Chaudhary ITA No. 669/PUN/2012 (Pune Tribunal) order dated 18-02-2014. It is also pertinent to mention that in Zakirullah Chaudhary (supra) s case the assessee has admitted the income arising from capital gains to buy peace of mind. Subsequently, he retracted from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er manipulation and rigging of the price of the shares, the assessee has received total consideration of Rs. 1,00,97,902/-. It is also relevant that there is a report of the Investigation Wing, Kolkata who had conducted search and seizure action at the premises of the entry operators who were involved in providing entries for bogus long term capital gains and in this report itself, it was found that the prices of various listed companies including Mishka in which the assessee has traded the prices of shares were manipulated and the unaccounted money of the investors which were routed through the share transactions resulting in bogus long term capital gain and claiming exemption under the provisions of the Act. It is also noted that Investigation Wing, Kolkata had passed on the information to Investigation Wing, Nashik, who had conducted survey u/s 133A on the business premises of the assessee and during such survey he has admitted having bogus capital gain through sale of scrip of Mishka. However, he also retracted from this statement and has claimed exemption u/s 10(38) of the Act. The A.O in his order has also examined the balance-sheet of Mishka and has given a categorical findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even confronted with the statement of these entry providers who themselves have admitted that they were engaged in providing such accommodation entries for bogus long term capital gain in lieu of commission in the shares of Mishka in which the assessee has transacted. We also find that thorough investigation has been made by the A.O by even getting informations from the Bombay Stock Exchange and National Stock Exchange regarding purchases and sales of shares made by the assessee. We further find that the transactions of allotment of shares was an off-market transaction and not carried through the recognized exchange. The SEBI vide circular No. SMD/DRP/Policy/CIT(21-99 dated 14-09-1999) banned all negotiated deals including cross deals and all such deals are required to be executed only on the screens of exchanges in the price and order matching mechanism of the exchange just like any other normal trade. Thus, the transactions are illegal and not in conformity with regulatory guidelines. The assessee was also not able to explain how the shares were given to him in Nasik and who had signed the transfer form. The assessee has also admitted of not knowing anything about the company or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances in the cases before us are absolutely identical and similar with the cases adjudicated upon by the Hon ble High Court of Kolkata. The Pune Tribunal in ITA No. 77/PUN/2019 for A.Y. 2015-16 order dated 16-08-2022 in the case of Sarika A. Sanap Vs. ACIT has held in favour of the revenue and against the assessee also taking the guidance from the aforesaid decision of Hon ble Kolkata High Court (supra) with the same parity of reasoning and in same set of facts and circumstances. 11. Having gone through the entire case records and the decisions of the subordinate authorities on the issue we hold that the action of the assessee is nothing but pre-motivated and deliberate conduct done for converting the unaccounted money of the assessee under the guise of long term share transaction and that too without paying requisite tax on the same. This clearly amounts to tax evasion. It is also beyond preponderance of probabilities that the fantastic sale price of a little known shares i.e. Mishka without any economic or financial basis to increase from Rs. 6/- to Rs. 50.25 per share, and likewise whereby the assessee manipulated the capital gain which was bogus and was done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the assessment order and submission of the assessee, it cannot be made out whether the amouynt paid in cash or by cheque. The AO made enquiry from broker Roongta Rising Stock Pvt. Ltd. Surat, as the bill issued by the broker was unsigned and amount was shown as due from the assessee. It was submitted by the broker that he had received the amount in cash on 10-04-2012 and 16-04-2012. It is strange to note that the broker is based in Surat and assessee is in Nashik and in the bill the broker has not charged any commission and the bill also does not bear the mode of receipt and the bill mentions that the amount is due from the assessee. It clearly shows that the bill has not been issued in a normal manner but has been a paper work to show the offline purchase of shares through a broker. As the amount is paid in cash,, the A.O is right in holding that the investment is from unexplained sources. The ground of appeal is therefore, dismissed. 14. Having gone through the aforesaid findings of the subordinate authority, we do not find any reason to interfere with the findings since they have been arrived at by proper examination of facts and verification. The same is upheld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re exempt. Same information was passed on to the Investigation Wing, Nashik, who conducted survey on the business premises of the assessee. During the course of survey, husband of the assessee Mr. Dineshkumar R. Tullsyan admitted that he and his wife had purchased bogus long term capital gain through sale of scrip of Mishka and disclosed the amount of Rs. 1,00,97,902/- in his hands and Rs. 99,63,145/- in the hands of the assessee on account of bogus long term capital gain for A.Y. 2014-15 and exemption u//s 10(38) of the Act. However, his statement was subsequently retracted by him and it was contended that the long term capital gain was genuine and the exemption claimed u/s 10(38) was legitimate on the purchase/sale of shares of Mishka. Thereafter, we find the same trail of investigation by the A.O. as was carried on in respect of husband of the assessee i.e. Dineshkumar R. Tulsyan. It was examined and verified as apparent from the orders of subordinate authorities that Mishka was a penny stock company whose prices of shares were rigged and manipulated by the entry provider and the share broker in order to achieve bogus long term capital gain and later on claim exemption u/s 10(38 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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