TMI Blog2023 (11) TMI 1243X X X X Extracts X X X X X X X X Extracts X X X X ..... of the stock with huge windfall to the assessee is only a part of the larger picture. We concur with the findings of the AO and while upholding the same, we find the grounds of appeal devoid of any merits and are liable to be dismissed. Grounds of appeal are accordingly dismissed. - HON'BLE JUDGES RAMA KANTA PANDA, VICE PRESIDENT AND K. NARASIMHA CHARY, MEMBER (J) For the Appellant : S. Rama Rao, AR For the Respondents : Sheetal Sarin, DR ORDER K. NARASIMHA CHARY, MEMBER (J) 1. Aggrieved by the order dated 07/01/2019 passed by the learned Commissioner of Income Tax (Appeals)-1, Hyderabad ( Ld. CIT(A) ), in the case of Sri Anirudh Venkata Ragi ( the assessee ) for the assessment year 2015-16, assessee preferred this appeal. 2. Briefly stated relevant facts are that the assessee is an individual, and during the assessment year 2015-16 derived income from long term capital gains to the tune of Rs. 2,60,28,410/-on sale of shares of M/s. Life Line Drugs Pharma Ltd., and filed his return of income on 28/03/2016 admitting an income of Rs. 5,21,200/-after claiming exemption under section 10(38) of the Income Tax Act, 1961 (for short the Act ). Learned Assessing Officer on verificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors and made the addition on the basis of the statement recorded by DDIT(Inv.), Kolkata, but as a matter of fact, there was no allegation against the assessee to be the beneficiary of such accommodation entry operation. Assessee filed the income tax returns, annual accounts along with computation statement, scrip details and contract notes for the financial year 2014-15. 6. Learned CIT(A), however, on a consideration of the facts in the light of the submissions made by the assessee held that the assessee did not submit any details of STT payments nor did the assessee prove as to how the abnormal profits were made on sale of shares within a span of 19 months. Observing that no new submissions were made, learned CIT(A) upheld the findings of the learned Assessing Officer and dismissed the appeal. Hence this appeal by the assessee. 7. It is contended on behalf of the assessee that the assessee utilized the funds for himself and did not remit the amount back showing that the assessee did not act on behalf of anybody to route the untaxed black money back to the main stream. He further submitted that the meaning of penny stock is relevant as what is penny stock is not defined under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s paid through cheque. Further, there was no bar at the relevant point of time on transfer of shares of the company and, therefore, there is no possibility to doubt the genuineness of the shares. He submitted that the share transactions taken place is real and correct. He assailed the veracity of the evidence with the learned Assessing Officer in the shape of a report said to have been received by the learned Assessing Officer from the Deputy Director of Income-Tax (Inv), Kolkata pursuant to the survey under section 133A of the Act at the premises of M/s. Corp Securities Ltd., on that ground that it is questionable. He vehemently contended that the transaction carried out by the assessee is genuine and the learned Assessing Officer and the learned CIT (Appeals) are not correct in holding that the share transaction is not genuine. 11. He further submitted that the learned Assessing Officer and the learned CIT(A) presumed that the transactions entered into by the assessee also are not genuine, but this presumption is not justified as there is no iota of evidence to this effect with the learned Assessing Officer. Adverting to the presumption under section 114 of the Indian Evidence Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , SLP No. 26864/2019, dated 22/11/2019 and SEBI vs. Rakhi Trading P. Ltd., Civil Appeal No. 1969 of 2011, M/s. Dilip Kumar and Company ors. Civil Appeal No. 3327 of 2007, M. Pirai Choodi, 334 ITR 262; Suman Poddar in ITA No. 841/2019, dated 17/09/2019, Udit Kalra in ITA No. 220/2019 and CM No. 10774/2019 (Hon'ble Delhi High Court), Sanjay Bimal Chand Jain (89 taxmann.com 196) (Hon'ble High Court of Bombay), Smt. Tharakumari in ITA No. 128/2019 CMP No. 3353/2019 (Hon'ble High Court of Madras); decisions of Co-ordinate Benches of the Tribunal in Suman Poddar in ITA No. 1006/Del/2019, Krishna Devi in ITA No. 6356/Del/2019, dated 04/01/2022, M/s. Vidya Reddy in ITA No. 2016/Chny/2017, Pooja Ajmani (106 taxmann.com 65), Raj Kumar B. Agarwal others in ITA Nos. 1648 to 1652/Pun/2015, Sanjay Bimal Chand Jain in ITA No. 61/Nag/2013, M/s. Pankaj Kumar Agarwal sons (HUF) and other in ITA Nos. 1413 to 1420/Chny/2018, M/s. Shamim M. Bharwani (69 taxmann.com 65), Shri Abhimanyu Soin in ITA No. 951/Chd/2016, Udit Kalra in ITA No. 6717/Del/2017, Smt. M.K. Rajeshwari 99 taxmann.com 339, Shri Sanat Kumar vs. ACIT in ITA No. 1881/Del./2018, for the assessment year 2014-15 by order dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and an independent entity? how the financial capacity of the share applicant to invest funds is proved? how the source of funds from which the high share premium was invested is dealt with by the assessee? why the investor companies had applied for shares of the Assessee Company at a high premium? in case the field enquiry conducted by the AO revealed that the investor companies were found to be non-existent, and the onus to establish the identity of the investor companies, was not discharged by the assessee? whether the assessee discharged their legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO? whether the assessee discharged the onus to establish the credit worthiness of the investor companies? did the assessee do anything more than mere mention of the income tax file number of an investor to discharge the onus under Section 68 of the Act? did the assessee do anything more than mere filing all the primary evidence in discharge of their onus to prove the identity of the investee? etc. It, therefore, cannot be that if the assessee does the transaction through stock exchange and through banking channels, it does not mean that the matter s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and exemption could be claimed. Assessee never revealed the source of his information about this particulars M/s. Life Line Drugs Pharma Ltd., or its prospects giving hope to him to invest amount in this by purchasing good amount of shares etc. Learned Assessing Officer in the assessment order dealt with the trading pattern of the scrips M/s. Life Line Drugs Pharma Ltd., as stated in BSE and noted the unpredictably high rising of price, supporting the presumption that all is not fair and there is manipulation of this price. It is pertinent to note that SEBI has taken the issue relating to the penny stocks being traded for bogus long term capital gains and the statement of Shri Anuj Agarwal is corroborating the same. 20. Having regard to these facts and circumstances, we are of the considered opinion that the facts involved in this case are similar to the facts involved in the case of PCIT vs. SwatiBajaj [2022] 139 taxmann.com 352 (Calcutta). In that case also, the assessees made investments in the shares of a company, sold said shares and claimed exemption on long term capital gains during relevant assessment year. Learned Assessing Officer received information from the Investigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee to establish creditworthiness of companies and that rise of price of shares within a short period of time was genuine, genuineness could not be established merely on basis of documents like bank details, purchase/sale documents and detail of demat account. Hon'ble Court further held that in absence of satisfactory explanation by assessee, learned Assessing Officer was bound to make additions under section 68 of the Act. 22. For the sake of completeness and ready reference, we deem it just and necessary to reproduce the relevant observations made by the Hon'ble Court hereunder: 49. An investigation is commenced when allegations crops up regarding tax evasion. The Income-tax department was nowhere in the picture when the assessees effected purchase of the shares and subsequently sold the shares well after the period of 12 months. It is only when the assessees, substantially in large numbers, made fanciful claims of LTCG, time had come to examine its genuinity of such claims. While on this issue, it would be relevant to take note of the decision of the Hon'ble Supreme Court in Ram Jethmalani (supra). The matter before the Hon'ble Supreme Court was in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been established to the assessee by not furnishing the investigation report in its entirety nor making the persons available for cross examination as admitted by the department in substantial number of cases the assessees have not been specifically indicted by those persons from whom statements have been recorded. 59. We are conscious of the fact that there may be exceptions however nothing has been brought before us to show that there was an exception in any of these appeals heard by us. In a few cases the assessee has been made known of the statement of the Director of the penny stock company or the stock broker, entry operator despite which those assessees could not make any headway. While on this issue, we need to consider as to whether and under what circumstances the right of cross examination can be demanded as a vested right. In Kishanlal Agarwalla (supra), the Hon'ble Division Bench of this Court pointed out that no natural justice requires that there should be a kind of formal cross examination as it is a procedural justice, governed by the rules and regulations. Further it was held that so long as the party charged has a fair and reasonable opportunity would rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessments have been completed. Nothing prevented the assessee from mentioning that unless and until the report is furnished and the statements are provided, they would not in a position to take part in the inquiry which is being conducted by the assessing officer in scrutiny assessment under section 143(3) of the Act. The assessee were conscious of the fact that they have not been named in the report, therefore made a vague and bold statement that the non-furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee. If the report was available in the public domain as has been downloaded and produced before us by the learned standing counsel for the revenue, nothing prevented the assesses who are ably defended by Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defence. Therefore, the based on such general statements of violation of principles of natural justice the assessees have not made out any case. ... ... ... 69. Thus, the legal principle which can be culled out from the above decision is that to prove t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case relates to Interest Penalty rather than the subject matter at hand. Reliance placed on the case of Kishore R. Ajmera (supra) to show that presumption can be drawn on the basis of immediate and relevant facts is contrary to law already settled by this Court in the case of Chintalapati Srinivasa Raju (supra) where it is held that a reasonable expectation to be in the know of things can only be based on reasonable inference drawn from foundational facts. It has further been held that merely because a person was related to the connected person cannot be itself be a foundational fact to draw an inference. ... ... ... 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue to prove otherwise. It is incorrect to argue that the assessees have been called upon to prove the negative in fact, it is the assessees duty to establish that the rise of the price of shares 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 Co. Ltd. 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 Co. Ltd. (supra) was considered in Azadi Bachao Andolan (supra) and Vodafone I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been privy to the information or modus adopted. In our considered view, what is important is that it is the assessee who has to prove the claim to be genuine in terms of section 68 of the Act. Therefore, the assessee cannot 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. ... ... ... 90. At this juncture it would be relevant to take note of the decision of the High Court of Delhi in Suman Poddar (supra).which was affirmed by the Hon'ble Supreme Court in Suman Poddar (supra):- The first, issue which has been raised by the assessee that it has not been confronted with the statements of various parties relied upon by the Assessing Officer. The assessee has also contended that opportunity of cross-examining those parties/persons was not provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the case Andaman Timbers Industries vs. Commissioner of Central Excise, Kolkata-II reported in 2015 (324) E.L.T. 641 (SC), 2017 (50) S.T.R. 93 (SC), 2016 (15) SCC 785 has held as under: In our opinion right to cross-examine the witness who made adverse report is not an invariable attribute of the requirement of the dictum, audi alteram partem . The principles of natural justice do not require formal cross-examination. Formal cross-examination is a part of procedural justice. It is governed by the rules f evidence, and is the creation of Court, It is a part of legal and statutory justice therefore it cannot be laid down as a general proposition of law that the revenue cannot rely on any evidence which has not been subjected to cross-examination. However, if a witness has given directly incriminating statement and the addition in the assessment is based solely or mainly on the basis of such statement, in that eventuality it is incumbent on the Assessing Officer to allow cross-examination. Adverse evidence and material, relied upon in the order, to reach the finality, should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, were not matching with movement of the share market in general and movement of the other scrips in the same line of the business. The Assessing Officer also pointed out that volume transacted in those companies. The ld. Assessing Officer has pointed out that the assessee could not explain, why it invested in such script without knowing the financial performance of the company. The relevant analysis has been reproduced by the Assessing Officer in Para 3.4 (page 1 J.) of the assessment order. The conclusion of AO has already been reproduced by us in brief facts of the case. The Hon'ble Delhi High Court in the case of Suman Poddar (supra), observed that shares of Cressanda Solutions Ltd. Have been identified by the Bombay Stock Exchange as penny stock used for obtaining bogus Long Term Capital Gain and no evidence of actual sale except contract notes issued by the share broker were produced by the assessee. The Hon'ble High Court accordingly dismissed the appeal of the assessee as no substantial question of law involved. Thus, Tribunal has in depth analyzed balance sheets and profit and loss accounts of Cressanda Solution is Ltd. Which shows that astronomical increase in sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tch surface and probe documentary evidence in depth, in light of conduct of assessee and other surrounding circumstances in order to see whether assessee is liable to provisions of section 68 or not in case of NR Portfolio, obtrusive. Similarly bank statements provided by assessee to prove genuineness of transaction cannot be considered in view of judgment of Hon'ble Court in case of Pratham Telecom India Pvt. Ltd. Wherein it was stated that bank statement is not sufficient enough to discharge burden. Regarding failure to accord opportunity of cross examination, we rely on judgment of Prem Castings Pvt. Ltd. Similarly tribunal in case of Udit Kalra ITA No. 6717/Del/2017 for assessment year 2014-15 has categorically held that when there was specific confirmation with Revenue that assessee has indulged in ITA 841/2019 page 8 of 10 non-genuine and bogus capital gains obtained from transactions of purchase and sale of shares, it can be good reason to treat transactions as bogus difference of case of Udit Kalra attempted by Ld. AR does not add any credence to justify transactions. Investigation Wing has also conducted enquires which proved that assessee is also one of beneficiaries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beyond the pale of common course of natural events, human conduct and public and private business. It is pertinent to note that neither in the past nor in the subsequent years, assessee engaged into any such investment to have a huge windfall. If the assessee been so informative qua the nuances of the share market, he would have certainly undertaken such adventurous activities at least in future by making such investment in the unknown stock. We are, therefore, of the considered view that what is apparent is not real and what is real is not made to appear. Investment in unknown stock by the assessee is not real and all the paper work and routing money through banking channels is only to make it real or legal, but when examined, the whole transaction of sale and purchase of the stock with huge windfall to the assessee is only a part of the larger picture. 24. For the above reasons, we concur with the findings of the learned Assessing Officer and while upholding the same, we find the grounds of appeal devoid of any merits and are liable to be dismissed. Action of the learned CIT(A) is accordingly approved. Grounds of appeal are accordingly dismissed. 25. In the result, appeal of the ..... 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