9911796707
TMI Blog2024 (7) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... ivate parties, contract income; and had declared her income u/s 44AD of the Income Tax Act, 1961 (hereinafter "the Act"). Apart from the above source of income, the AO noted that the assessee had shown income from Capital Gains & other sources and claimed LTCG on sale of shares of the scrip Sunrise Asian as per the following summary: - Sr.No No of shares Sale of Shares Cost of shares LTCG Date Sale Price Date Cost Price 1 Purchase Sun Asian No. of shares 5000 27.11.2011 20.00 Total cost Rs.1,00,000/- 2 08.08.2013 230/- 3 19.07.2013 24,58,733/- 4 03.01.2014 53,057 23,37,135 4. The AO noted from the details submitted by the assessee that assessee had purchased 5000 shares of M/s. Conart Trader's Ltd. @ Rs.20/- per share from M/s. Santoshima Tradelinks Ltd and that payment of the same was made on 18.09.2011 through banking channels. And this company later on merged with M/s. Sunrise Asian Ltd. (hereinafter referred to as "Sunrise") and as per the scheme of merger under section 391 to 394 of the Companies Act, 1956 and approved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee claimed LTCG of Rs. 23,15,537/- (on sale of shares of M/s. Sunrise Asian Ltd. for a total consideration of Rs. 24,59,000/- (Page no.4 of PB). Aggregate LTCG claim was to the tune of Rs. 23,37,135/-. Regarding this claim of LTCG, it is noted that the assessee had purchased the shares of M/s. Conart Traders Ltd., on 18.09.2011 [which company was incorporated in the year 1994]; and the Ld. AR showed us that it had consistent track record of earning profit for recent past years. And book value of shares as per duly audited accounts as at 31.03.2011 works out to approx. Rs. 22/- and corresponding EPS for FY. 2010-11 was Rs. 1.90 and Rs. 0.78 for FY. 2009-10. (Growth rate of 144% in EPS). [Refer Annual Audited Accounts F.Y. 2010-11 (Page no. 50-64 of PB)]. It was brought to our notice that the said company among other business was also in the same line of business in which assessee was familiar i.e. textile and fabric business (page no. 63 of PB) as well as trading in fabrics refer Notes on Accounts (Page no. 52-64 of PB). Later, M/s. Contart Traders amalgamated with M/s. Sunrise Asian Ltd. pursuant to Hon'ble High Court order dated 22.03.2013 w.e.f. 01.04.2012 (Refer page no. 67- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 754125 754125 754 RTGS HDFC 11.9.2013 ACIIN 3.1.2014 10000 5.37 53680230 53680230 54 3.1.2014 6. Before us, the assessee has filed the annual report of M/s Sunrise Asian Ltd as on 31st March 2013 (Refer pg 117 -152) and annual report as on 31st March 2014 and 31st March 2015. (Refer paper book No. II pg. 239-273 of PB). Further, we note that following relevant documents/details were filed before AO vide letter dated 23/09/2016 & 19/12/2016. (Refer page. 22 27 & 38-182 of PB). A. Bank statement for purchase & sale. B. Share Certificate from Sunrise Asian Ltd 21/02/2013. C. Demate A/c - 31/03/2013 - 31/03/2014. D. Contract Notes from broker.) E. ITR for AY 2012-13 & 2013-14 7. According to Ld. AR, AO didn't find any deficiency in the primary documents filed by the assessee to prove the purchase and sale of shares which resulted in claim of LTCG. Rather, the AO at the fag end of assessment proceedings brought to the notice of assessee the statement of Shri Vipul Bhat on 22/12/2016 and passed the assessment order on 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duly disclosed in return of income in prior years and relied on the enclosed demat holding statement of shares and ITR copies. In the light of the aforesaid submission and since there is no evidence to link the alleged entry operators with assessee (Shri Vipul Bhatt) the adverse inference drawn against the assessee is devoid of merits and therefore, the impugned action of Ld. CIT(A) confirming the action of AO is erroneous and need to deleted. The Ld. AR also relied on few case laws to support his contention which will be discussed (infra). 8. Per contra, the Ld. DR supporting the action of AO/Ld. CIT(A) contended that the investigation wing of the department has identified the scrip of M/s. Sunrise as a penny stock; and the action of assessee entering into synchronized trading of penny stock in active collusion with unscrupulous entry providers like Shri Vipul Bhatt has entered into a scam for converting their black money into white. Drawing our attention to the contents/modus-operandi resorted to by entry-operators for providing for providing bogus LTCG as stated in the investigation report (as noted by AO in the assessment order), the Ld. DR submitted that the AO rightly disbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is a beneficiary of such modus operandi; and according to him, assessee has made bogus claim of LTCG, to convert her unaccounted income to white by bringing it into regular books (accounted income). However, we find that investigation report of department is a general-report, which has not spelled out any wrongdoing on the part of assessee or her broker. Therefore, the reliance made by AO on the general-report of investigation wing cannot be accepted. Likewise, the AO has also referred to the statement given by Shri Vipul Bhatt which also does not contain any direct testimony to incriminate the assessee or her broker (Anand Rathi share and stock broker Ltd) in any wrong-doing [wrongdoing as reported in the investigation report/modus-operandi]; Further, we note that department's case is not that the name of assessee or her broker finds mention in the list of 83 entities/persons identified by SEBI as having acted in concert with M/s. Sunrise and its directors to manipulate the price as given in SEBI order dated 19.12.2014. It is not disputed that no action has been taken by SEBI against the assessee or her broker M/s. Anand Rathi. So the reliance placed by AO on SEBI order wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partmental Representative supported the order passed by the CIT(A) and placed reliance on the order passed by the Assessing Officer. 19. The stand of the Legal Heir, succinctly put, is that the LTCG earned by the Assessee were exempt from tax under Section 10(38) of the Act as the same have arisen on account of transaction of sale of personal investment by the Assessee in normal course. The Assessee has been making investment in shares for many years, purchasing shares as personal investment and selling the same on a price higher that purchase price to earn capital gains which were exempt from tax. There is no evidence to suggest that the Assessee had any transaction/relationship with the Operator, Broker, Exit Provider or persons named in the Investigation Report, SEBI Order and Statements relied upon by the Assessing Officer. The shares have been sold through stock exchange and therefore, the transaction and the LTCG are genuine. 20. On the other hand, the contention of the Revenue is that the transaction of purchase and sale of shares by the Assessee constitute bogus transactions undertaken to take unfair advantage of Section 10(38) of the Act which exempts LTCG from tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en identified as penny stock would lead to an automatic conclusion that everyone holding penny stock is a person acting in concert with persons manipulating the quoted price of penny stock. Had that been the case, SEBI would have been required to penalize all persons undertaking trades with the period during which quoted price was manipulated. Therefore, the fact that the scrip traded is a penny stock coupled with the fact that the trade took place within the period in which quoted price was manipulated would not, by itself, lead to a conclusion that the purchase/sale transaction is bogus in case there are mitigating factors pointing at genuineness of the trade/transaction. 21.4. As rightly contended on behalf of Revenue that the bogus penny stock transactions are structured in a manner that there would be little direct evidence and therefore, the genuineness of such transactions would have to be adjudicated by testing the circumstantial evidence on the touchstone of preponderance of probabilities and by keeping in view the surrounding facts and circumstances of the case. 21.5. The belief regarding the existence of a fact may be founded on a balance of probabilities. A prudent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contain any reference to the aforesaid persons. (ii) Brokers/Sub-Brokers are SEBI registered brokers/sub- brokers through whom penny stock are traded offline and online. We note that in paragraph 7.2 of Assessment Order, a reference has been made to SEBI Order, dated 19/12/2014, passed in the case of First Financial Services Limited wherein it has been stated that (a) the Comfort Group and Mr. Anil Agarwal shared close relationship with First Financial Services Limited, and (b) Comfort Group had also played key role in preferential allotment. As per the Investigation Report, 22 brokers were covered under the investigation. The Assessment Order does not make a reference to any of the aforesaid brokers. However, the aforesaid list of 22 brokers contains the name of Comfort Securities Limited - a company forming part of Comfort Group controlled by Mr. Anil Agarwal. (iii) Operator is person/entity that controls a large number of paper/shell companies which are used for routing cash as well as buying/selling shares during the price rigging period. We note that in paragraph 5.2 of the Assessment Order, Mr. Vipul Vidur Bhat has been identified as Operator for Sunrise Asian on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the price of shares of Sunrise Asian between July 2012 and January 2014. In SEBI Order, price rigging period has been divided into four patches and analyzed: Patch 1 - Price Rise : 16/10/2012 to 28/06/2013 Patch 2 - Price Fall : 01/07/2013 to 07/05/2014 Patch 3 - Price Rise : 08/05/2014 to 11/12/2014 Patch 4 - Price Rise : 12/12/2014 to 13/04/2015 Net worth the Sunrise Asian during the period covered by Patch 1 to Patch 4 was negligible. However, despite this the quoted price of the shares was raised artificially (iii) Sale - After one year the Beneficiaries sell penny stocks to book LTCG (which was at the relevant time exempt from tax). At this stage the Beneficiary provides the required amount of cash which is routed through some of the paper companies of the Entry Operator and is finally parked in Exit Operator which buys the penny stock from the Beneficiary by issuance of cheques. The Assessing Officer noted that the Assessee had sold shares of Sunrise Asian during 13th & 14th October, 1st November, and 19th & 24th December, 2013 falling with Patch - 2 above. It is admitted position that the sale proceeds were received through banking channel. In paragraph 6.3 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/-) and copy of share certificate. 25.2 On 27/02/2013, the shares of Conart Traders Limited were converted from physical form to DMAT form and were credited to the DMAT account of the Assessee maintained with Federal Bank. 25.3 On 22/03/2013, the Hon‟ble Bombay High Court approved the scheme of Amalgamation of Santoshima Tradelinks Limited and Conart Traders Limited with Sunrise Asian and as a result, 18,000 shares of Sunrise Asian were acquired by the Assessee for 18,000 shares of Conart Traders Limited held by the Assessee by Merger Method. 25.4 During Patch 1 the quoted price of shares of Sunrise Asian rose tremendously. However, during Patch 1 the Assessee did not sell shares of Sunrise Asian. When the quoted price of shares of Sunrise Asia started to fall in Patch 2, the Assessee sold entire shareholding of 18,000 share in the following 6 trenches after holding the shares for a period of around 19 months: Date Number of shares of Sunrise Asian Sold Sale Value (INR) 14/10/2013 2500 12,66,750 13/10/2023 5500 27,74,174 01/11/2013 2000 9,94,300 03/12/2013 5000 24,62,075 19/12/2013 2500 12,30,000 24/12/2013 500 2,45,300 Total Sale Consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EBI has not taken any action against the beneficiaries and has penalized the persons acting in concert being the Syndicate Members which includes the promoters/directors/key persons of listed companies and brokers/sub-brokers registered with SEBI. 25.8 Further, there is nothing on record to link Pushpanjali Commotrade Private Limited, Kolkatta and Ranisati Dealer Private Limited, Kolkatta with the Assessee or Sunrise Asian. We note the name of these companies do not feature anywhere else except for paragraph 6.3 of the Assessment Order where the Assessing Officer has analyzed cash trail and referred to the Investigation Report in this regard. 25.9 We note that the Assessing Officer and the CIT(A), both, had moved on incorrect premise that the Assessee was not involved in trading of shares or that the Assessee only dealt with script of Sunrise Asian. The Assessee has been registered as a sub-broker affiliated with Mangal Kseshav Securities limited since 2007. During the relevant previous year the Assessee has offered commission income from proprietorship Equity Research & Investment. A copy of the registration certificate, dated 04/05/2007 issued by SEBI showing that the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ist. Mr. Vipul Vidur Bhatt - the operator of the script Sunrise Asian is listed at serial number 37 of the aforesaid list. However, the contention of the Revenue is that during Patch 2 the Assessee had sold shares to Comfort Group Companies (M/s Comfort Securities Limited, & Comfort Fincorp with Mr. Anil Agarwal as key person). The aforesaid list does not contain the name of the aforesaid Comfort Group Companies or Mr. Anil Agarwal. 25.12 We note that as per paragraph 7.31 of the SEBI Order 77 out of the 83 connected entities (Noticee Number 7-89) were counter parties to sale of shares of Sunrise Asian by 1059 entities/allottees for sale value transactions of INR 5,98,90,16,143/- constituting 57.08% of total sale value amount of INR 1049,09,71,861/-. Thus, even as per SEBI all transactions of sale of shares cannot be said to tainted transactions undertaken by parties acting in collusion with the operators, brokers and exit providers. 25.13 The test of human probabilities when applied to the above set of facts tilts the balance in favour of the Assessee. The preponderance is in favour of the Assessee as the circumstantial evidence and surrounding facts do not support the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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