TMI Blog2022 (8) TMI 1333X X X X Extracts X X X X X X X X Extracts X X X X ..... ogus. We respectfully agree with the decision of Hon ble Coordinate Bench which is very much applicable to present appeal before us. In view of foregoing discussions at length, we do not find any infirmity in the action of lower authorities in rejecting the capital gain declared by the assessee and treating the same as undisclosed income u/s 68. Hence we confirm the addition made by lower authorities. This issue of assessee, therefore, fails. Addition on the premise that the assessee must have certainly incurred expenditure @ 2% in paying commission / charges to the persons engaged for arranging bogus capital gain - We observe that the amount added by Ld. AO is reasonable and it does not call for any interference by us. Hence no relief is warranted to the assessee in that respect. The addition made by Ld. AO is therefore upheld. This issue of assessee also fails. Appeal of assessee is dismissed. - ITA No.74/Ind/2019 - - - Dated:- 17-8-2022 - MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER Assessee by : Shri Shubhash Jain, AR Revenue by : Shri R. S. Ambedkar and Shri Aditya Shukla, Sr. DR ORDER Per B.M. Biyani, A.M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d interest. In the return, the assessee also declared a long-term capital gain of Rs. 64,58,168/- earned from sale of equity shares of Turbotech Engineering Ltd., exempted u/s 10(38) of the act. The assessee claimed to have purchased 35,000 shares of Turbotech Engineering Ltd. for Rs. 1,77,192/-, sold the same for Rs. 66,35,360/- and thereby earned a whopping capital gain of Rs. 64,58,168/-. Apprehending the capital gain as suspicious, the case was selected for scrutiny under CASS and the statutory notices u/s 143(2) and 142(1) were issued from time to time. During assessment-proceeding, the Ld. AO asked the assessee to prove the capital gain, in response to which the assessee made a detailed submission. Observing that the assessee has made an unrealistic nontaxable capital gain of Rs. 64,58,168/- on a very small investment of just Rs. 1,77,192/- and that too within a short period of just 17 months by indulging in the transactions of what is called penny stock , the Ld. AO completed assessment u/s 143(3) by order dated 22.12.2016 after making a total addition of Rs. 65,87,330/- on two counts, viz. (i) Ld. AO treated the capital gain of Rs. 64,58,168/- as bogus receipt u/s 68 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h M/s Indo Thai Securities Ltd., a SEBI-registered member of Bombay Stock Exchange, Mumbai. The Contract-Notes of sales are placed in the Paper-Book, which demonstrate that the assessee has paid brokerage, service-tax and STT on sales. The sales is made through stock-exchange and the Order No., Trade No., Settlement No. and Trade-timings are duly mentioned in the Contract-Notes. The sale-consideration is received through banking channel and the same is credited in the Bank A/c of assessee. A copy of Bank Statement is also placed in the Paper-Book. 7. During assessment-proceeding, the Ld. AO made following observations: (i) The assessee has earned capital gain from the transactions of shares of Turbotech Engineering Ltd., which falls within the category of a Penny stock as per the information available with the Income-tax Department and this scrip has been used by persons to provide / obtain exempted capital gain u/s 10(38) of the act. (ii) The income-tax department has conducted various searches/surveys/ enquiries on the members of stock-exchanges which have resulted into the unearthing of syndicates of various players involved in providing bogus accommodation entries of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below: 9. Responding to above notice, the assessee filed a detailed reply, the contents of which is noted by Ld. AO in Para No. 8 of the assessment-order. However, the Ld. AO was not satisfied with the submissions of assessee and relying upon following decisions favouring Revenue, the Ld. AO made twinadditions as mentioned in the beginning: (a) M/s Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC) (b) Shammin Varmani, ITA No. 4906/Mum/2011 (c) Ziauddin A. Siddique ITA No. 4699 and 4700/Mum/2011 10. During first appellate proceeding, the assessee submitted a detailed reply to Ld. CIT(A) reiterating almost same submissions as made before Ld. AO but with the support of some more judicial precedents. However, the assessee did not find any favour from the Ld. CIT(A) who confirmed firstly the addition of Rs. 64,58,168/- by concluding as under: 4.6 Hence, it is clear from the above facts, judicial decisions so discussed above and circumstances that it was a sham transaction which cannot stand the test of human probability and therefore, the addition so made by the AO is hereby confirmed and accordingly, these grounds of appeal are dismissed. Secondly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon whom they were conducted. The assessee is not related in any way with those searches/surveys/ enquiries. Further, the findings made in those actions were general and not of the assessee. The Investigation-Report of Investigation Wing, Kolkata of Income-tax Department dated 27.04.2015 [ Investigation- Report ], being relied upon by the authorities, is a general report. It does not include assessee s name. The Investigation-Report does not make any allegation qua the assessee. (vii) Regarding whopping increase in the prices of share purchased and sold by assessee, stock market does not have a predictable behavior. The prices of any share can go up or down and it depends on several factors and not simply the financials of the company. In any case, the assessee is a small-level person and did not have any control over the prices of stocks. (viii) The revenue does not have any evidence to dislodge the transactions of assessee. Revenue is simply relying upon the conjectures, surmises, generalized modus operandi and preponderance of human probabilities as against the specific evidences placed by the assessee on record. Therefore, the approach of revenue is faulty and not valid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Ld. DR by drawing our attention to Page No. 117 of the Paper-Book where an affidavit dated 28.09.2016 filed before Ld. AO, is placed. Ld. AR submitted that in response to the summon issued by Ld. AO u/s 131, the assessee appeared but on the fixed date of hearing, the Ld. AO was not in office due to involvement in carrying out survey and the office of AO informed that new notice of hearing would be issued. Ld. AR submitted that the assessee has, however, filed the aforesaid affidavit to Ld. AO but the Ld. AO has ignored the affidavit. Referring to Point No. 4 of the affidavit, Ld. AR also pointed that the assessee has clearly averred in the affidavit that he purchased shares due to several messages being received on the mobile phones of family-members about good returns. 14. In response, the Ld. DR continued his insistence that the assessee has made non-compliance of the summon issued by Ld. AO u/s 131. Ld. DR contested that the affidavit nowhere contains any averment of the assessee to the effect that it was filed in compliance to the summon u/s 131 or that the Ld. AO was not available on the date of hearing fixed by summon and his office conveyed to fix a new date of hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract below the relevant paragraphs of decision: 21. Further we observe that in the case of Govind Harinarayan Agrawal HUF, Manish Govind Agrawal HUF alleged issue of gain from share is from sale of equity shares of Turbotech. Similar type of issue of the alleged bogus of Long Term Capital Gain from sale of shares of Turbotech came up before the Co-ordinate Bench held in the case of Swati Luthra wherein the Co-ordinate Bench has decided in favour of the assessee allowing both the grounds raised on merits as well as legal observing as follows:- 12. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. We find that the transactions of the assessee of purchase of shares of M/s Esteem Bio and M/s Turbotech., holding of the shares for more than one year and the sale of shares through a registered share broker in a recognized Stock Exchange and payment of Securities Transaction Tax thereon, all were supported by documentary evidences which were placed before the lower authorities. The Revenue could not point out any specific defect with regards to the documents so submitted by assessee. In our considered view, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to be allowed as they have entered into the transactions of purchase and sales duly supported by the documents which have not found to be incorrect. The conditions provided u/s 10(38) of the Act have been fulfilled by the assessee(s) namely Shivnarayan Sharma, Sapan Shaw, Prayank Jain, Govind Harinarayan Agrawal (HUF) and Manish Govind Agrawal (HUF) as they have sold the equity shares held in Demat account and transactions performed on a recognised stock exchange through registered broker at the price appearing on the exchange portal and at the point of time of sale of equity shares, companies were not marked as shell companies by SEBI and nor the trading of these scrips were suspended. The assessee also deserves to succeed on the legal ground as no opportunity was awarded to cross examination the third person which were allegedly found to be providing accommodation entries and therefore no addition was called for in the hands of the assessee without providing opportunity of cross examination in view of the ratio laid down by Hon'ble Apex Court in the case of Andaman Timber Industries vs. CCE 281 CTR 241 (SC) that not allowing the assessee to cross examine the witnesses by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgments in support of this contention wherein under similar facts of the case it was held that the AO was not justified in refusing to allow the benefit under section 10(38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act. We note that in order to create a tax liability in a case of this nature, the AO has to prove and establish the cash trail and the allegations, particularly in respect of the appellant, which is yet to be proved in the instant case. Similar view has been pronounced by Hon ble Delhi High Court in the case of Pr. CIT vs Jatin Investment (P) Ltd. (2017 (2) TMI 342 - DELHI HIGH COURT) wherein it was observed A transaction cannot be treated as fraudulent if the appellant has furnished the documentary proof and proved the identity of the purchaser and no discrepancy is found. The AO has to exercise his powers u/s 131 133(6) of the Act to verify the genuineness of the claim and cannot proceed on surmises. In the case of CIT vs. Lavanya Land Pvt Ltd (Income Tax Appeal No. 72 of 2014, Income Tax Appeal No. 114, 122, 124, 225, 226, 423, 425, 426 of 2014) the Hon ble Bombay High Court ruled that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acted below: 69. Thus, the legal principle which can be culled out from the above decision is that to prove the allegations, against the assessee, can be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled and when direct evidence is not available, it is the duty of the Court to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded so as to reach a reasonable conclusion and the test would be what inferential process that a reasonable/prudent man would apply to arrive at a conclusion. Further proximity and time and prior meeting of minds is also a very important factor especially when the income tax department has been able to point out that there has been a unnatural rise in the price of the scrips of very little known companies. Furthermore, in all the cases, there were minimum of two brokers who have been involved in the transaction. It would be very difficult to gather direct proof of the meeting of minds of those brokers or sub-brokers or middlemen or entry operators and therefore, the test t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to in Chintalapati S. Raju as could be seen in paragraph 30 of the said judgment. Therefore, we hold that the law laid down in K.R. Ajmera continues to be good law. 72. In the light of the above discussion, the only conclusion that can be arrived at is that the opinion can be formed and the decision can be taken by taking note of the surrounding circumstances which had been elaborated upon in K.R. Ajmera. 73. It is very rare and difficult to get direct information or evidence with regard to the prior meeting of minds of the persons involved in the manipulative activities of price rigging and insider trading. We can draw a parallel in cases of adulteration of food stuff, more than often action is initiated under the relevant Act after the adulteration takes place, the users of adulterated products get affected etc. Therefore, a holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, we cannot loose sight of the fact that the shares of very little known companies with insignificant business had a steep rise in the share prices within the period of little over a year. The Income Tax departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. The assesses cannot be heard to say that their claim has to be examined only based upon the documents produced by them namely bank details, the purchase/sell documents, the details of the D-Mat Account etc. The assesses have lost sight of an important fact that when a claim is made for LTCG or STCL, the onus is on the assessee to prove that credit worthiness of the companies whose shares the assessee has dealt with, the genuineness of the price rise which is undoubtedly alarming that to within a short span of time. The revenue had placed heavy reliance on the decision in McDowell to show that the claim of the assessee is not case of tax planning to be one of the tax avoidance by indulging in dubious methods. Mr. Bagaria had argued the rule in McDowell was considered in Azadi Bachao Andolan and Vodafone International and it is in the manner explained in these decisions the rule in McDowell needs to be applied. From paragraph 138 onwards the Hon'ble Supreme Court considered in detail as to why McDowell and what it says and what it does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escape from the burden cast upon him and unfortunately in these cases the burden is heavy as the facts establish that the shares which were traded by the assessees had phenomenal and fanciful rise in price in a short span of time and more importantly after a period of 17 to 22 months, thereafter has been a steep fall which has led to huge claims of STCL. Therefore, unless and until the assessee discharges such burden of proof, the addition made by the assessing officer cannot be faulted. 76. It was argued that unless there are foundational facts, circumstantial evidence cannot be relied on. This argument does not merit acceptance as wealth of information and facts were on record which is the outcome of the investigation on the companies, stock brokers, entry operators etc. Based on those foundational facts the department has adopted the concept of working backward leading to the assessees. While at that relevant stage the sounding circumstances, the normal human conduct of a prudent investor, the probabilities that may spill over, were all taken into consideration to negative the claim for exception made by the assessee. Therefore, the department was fully justified in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umber of persons in lieu of unaccounted cash. The basic objective of this racket is to convert black money into white without payment of Income Tax. The unaccounted cash of such persons [beneficiaries] is utilized to purchase shares of such companies at a very high artificially inflated market price. This practice is generally called Accommodation Entry Scam, as the activities of such persons are carried out with prime objective of accommodating unaccounted cash of beneficiaries into their regular books of accounts without paying any tax on the same. Some of the listed companies, directly or indirectly owned by operators and whose share prices have been apparently manipulated by the syndicate of operators, which have come to adverse notice of the Income Tax Department, are as under: SL No Script Code Script Name Full Name of Penny Stock 62 504358 Turbo Tech Turbotech Engineering Ltd. Page No. 29 / 33 of the Report: Brief Discussion on all listed Penny Stocks (Scripts) used in Bogus LTCG Scam. As di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in the Demat A/c of assessee on 08.10.2013 i.e. after a period of about 17 months from the date of purchase and just before the date of sale on 10.10.2013 / 17.10.2013. Therefore, the Bench raised a query as to where the shares had gone during the intervening period of 17 months from the date of purchase till the date of sale. In response, the Ld. DR replied that the share were held in the Pool A/c of broker. This makes the doubt even more stronger. As observed earlier the shares are claimed to have been purchased in cash on 04.04.2012. Now, in a situation where the assessee claims to have made purchase in cash, how is this believable that the assessee shall keep those shares in the Pool A/c of the broker and get in his own custody after 17 months? (iv) On a careful perusal of the affidavit filed on page No. 117 / 118 of the Paper-Book, we observe that the assessee has made averments in two points, viz. Point No. 4 and Point No. 4. While in Point No. 4, the assessee is claiming to have purchased shares on the basis of messages of good-return received on the mobiles of family members . But in Point No. 9, the assessee has re-averred that he had purchased and sold shares on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the same as undisclosed income u/s 68. Hence we confirm the addition made by lower authorities. This issue of assessee, therefore, fails. 21. Other issue raised by the assessee is with regard to the addition of Rs. 1,29,162/-. Ld. AO has made this addition on the premise that the assessee must have certainly incurred expenditure @ 2% of Rs. 64,58,168/- in paying commission / charges to the persons engaged for arranging bogus capital gain. We observe that the amount added by Ld. AO is reasonable and it does not call for any interference by us. Hence no relief is warranted to the assessee in that respect. The addition made by Ld. AO is therefore upheld. This issue of assessee also fails. 22. Thus, both of the additions made by Ld. AO are hereby upheld and the issues raised by the assessee fail. However, at this stage we would like to make a note of caution, which though is a known aspect, that every case has its own facts and evidences. This decision is confined to its own set of facts and nothing general should be carried on the basis of this decision. 23. Before parting, we would like to place on record the commendable representation made by counsels of both sides on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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