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TMI Blog2024 (2) TMI 1414X X X X Extracts X X X X X X X X Extracts X X X X ..... and how transaction were 'bogus'. 1.2 That 'reasons' are based on Ld. AO's finding that assessee not having declared any income or loss attributable to the sale of Shares of Shreenath Commercial and Finance Ltd. , an incorrect fact, as capital gain earned, was disclosed in return of income and claimed exemption u/s. 10(38) of the Act. 1.3 That 'reasons' are based on 'general information' without establishing any connection with assessee and without reflecting any wrong doing by assessee. Ground No. 2: 2. Ld. CIT (A) ought to have considered: 2.1 that 'reasons' were vague without disclosing any finding of DGIT(INV)Kolkata, nature of investigation carried, statements recoded etc. in the 'reasons' and no material was disclosed/made available to the assessee. 2.2 That 'reasons 'were just recoded based on DGIT (INV) Kolkata without any verification/enquiry being carried by Ld. AO. Ground No. 3: 3. The Ld. CIT (A) erred in confirming addition of Rs. 51, 48,580/- u/s. 68 in spite of the fact that purchase well as sale of shares is supported by documentary evidences in the form of bill cum contract notes issued o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lter or amend any grounds of appeal at the time of hearing or before. Appellant pray that additions made be deleted and notice u/s. 148 be cancelled. 2. Brief facts of the case are that information was received from O/o DGIT (Inv.) Kolkata (uploaded on ITD) that the appellant received accommodation entry of bogus LTCG of Rs. 42, 04,345/- in F.Y. 2012-13 of a Penny Stock. In the ITR filed on 19.07.2013 for the A.Y. 2013-14, assessee declaring a total income of Rs. 1,23,774/-, the Appellant claimed LTCG of Rs. 42,04,345/- exempted u/s. 10(38) of Act. The penny stock traded in was as under:- F.Y. 2012-13- Shreenath Commercial & Finance Ltd (M/s. SCFL)--Sold- Rs. 51, 48,580/- 3. In the assessment proceedings the AO made a total addition of Rs. 54, 26,811/- which is as follows ● Disallowed the claim of Appellant of LTCG u/s. 10(38) of act of Rs. 42,04,345/- ● Added the sale proceeds, received on sale of shares of M/s. SCFL of Rs. 51, 48,450/- u/s. 68 of Act. ● Added commission paid @ 3% to tune of Rs. 1, 54,457/- to obtain this bogus entry of LTCG u/s. 69C of Act. Aggrieved by the order of the AO assessee preferred an appeal before the Ld. CIT (A)-40 Mumba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... private placement) and off market transaction. These shares have a lock-in period of 1 year as per Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. Another route to acquire the shares is through Amalgamation or merger. In this route, the beneficiaries of LTCG are allotted shares of a private limited company which is subsequently amalgamated with a listed penny stock and the beneficiaries receive shares of the listed penny stock in exchange of the shares of private limited company. The shares in some cases were acquired through stock exchange. These shares were then split and bonus shares were issued to increase the volume. 8.4 Thereafter, the prices of the shares of the penny stock companies are rigged and are raised through circular trading. This is managed by the "operator" of the scrip. An "Operator" is a person who is managing the overall affairs of the scheme and he is the one who contacts the entities who wish to take entry of bogus LTCG/STCL in their books and arranges the same through the scrips of penny stock companies. The Operator manages many paper/bogus companies and uses them to do circular transactions to rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur case records that your main source of income is income from salary from company and income from other source. On perusal of your computation of income statement it is noticed that you had claimed exemption on total LTCG of Rs. 42, 04,345/-. It is pertinent to mention here that M/s. Shreenath Commercial & Finance Ltd is the only script in which you had booked significant Long term Capital Gain i.e. 42,04,345/-. During the F.Y.2010-11 & 11-12 you had purchased shares of M/s. Shreenath Commercial and Finance Ltd of Rs. 9,27,702/- Such huge investment made in one script with some knowledge of share market and advice of third person is suspicious and hence the transaction are seems to be doubtful. The statement of Shri Sanjay Vora, Jaikishan Poddar, Rakesh Somani, Soumen Choudhury, Shri Suresh Kumar Saraf, Shree Kumar Toshniwal, all belongs to Kolkata, recorded u/s. 131/133A of the I.T. Act, wherein they have confirmed that all the transaction of M/s. Shreenath Commercial & Finance Ltd. has been managed by them and their associates and used this company to give accommodation entries to interested beneficiaries seeking long term capital gain and losses. No prudent businessman and pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm capital gain (LTCG) and claim bogus exemption, Assessing Officer was justified in denying exemption under section 10(38) of the Act and treating such bogus LTCG in penny stock under purview of unexplained cash under section 68 of the Act. 10. The report submitted by the Investigation department could not be thrown out on the grounds urged on behalf of the assessee. The assessee have not been shown to be prejudiced on account of non-furnishing of the investigation report or non-production of the persons for cross examination as the assessee has not specifically indicated as to how he was prejudiced, coupled with the fact as admitted by the revenue; the statements do not indict the assessee. That apart, the investigation has commenced targeting the individuals who dealt with the penny stocks and after examining the modus operandi seeing the cash trail the report has been submitted recommending the same to be placed before the DGIT (Investigation) of all the States of the country. It is thereafter the concerned Assessing Officers have been informed to consider as to the bonafideness and genuineness of the claims of LTCG/LTCL of the respective assessee qua the findings which emana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the totality of the attending facts and circumstances surrounding the allegations/charges made and leveled and when direct evidence is not available, it is the duty of the AO/ CIT (A) and ITAT 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 scrip of very little known companies. Furthermore, in all the cases, there were minimum 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 to be applied is the test of preponderance of probabilities to ascertain as to whether there has been violation of the provisions of the Income-tax Act. In such a circumstance, the conclusion has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r assumptions. The assessee does not and cannot dispute the fact that the shares of the companies which they have dealt with were insignificant in value prior to their trading. If such is the situation, it is the assessee who has to establish that the price rise was genuine and consequently they are entitled to claim LTCG on their transaction. Until and unless the initial burden cast upon the assessee is discharged, the onus does not shift to the revenue to prove otherwise. It is incorrect to argue that the assessee have been called upon to prove the negative in fact, it is the assessee's 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 genuineness and identity. The assessee 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 assessee has 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 the worthiness of the companies whose shares the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for issue of Bonus shares 1,01,57,350 73,27,000 6,53,502 33,91,480 (b) General Reserves - 23,000 Less: Capitalisation for issue of Bonus shares - 23,000 - - (c) Share Premium A/c. 4,96,42,650 4,96,42,650 4,96,42,650 - 4,96,42,650 TOTAL RS. 6,53,502 5,30,34,130 16. As per Schedule II reproduced (supra), the total amount capitalized by the company for issuance of bonus shares amounting to Rs. 6, 71, 50,000/- whereas in balance sheet under Schedule I amount shown is Rs. 5.98 Crores. It reflects a difference of Rs. 73.5 lakhs. This working is here to demonstrate an overall camouflaged state of affairs of the investee company in addition to the reports of the DGIT (Inv.). 17. A glimpse of management discussion and analysis report is as under:- INDUSTRY STRUCTURE AND DEVELOPMENT: The Indian economy has witnessed all round growth in year 2010-11 with increased investment in Financial Market. The finance industry where the company is also involved, major development have been taken place for past few decades in view of the fact that plethora of finance companies have come into existence with various finance products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Investee Company's EPS only 0.06. With such a low/negligible EPS, how the price of shares can be so high? Simply by producing contract note, bank statement, sale note, assessee cannot absolve himself from a duty caste upon him to prove his genuineness. 19. Further to the observations on the Audited Financial statements, in the course of hearing, the Ld.AR was called to explain the reasons and basis for acquisition/ purchases of the shares, it was submitted that the shares are purchased through the stock exchange and has filed a statement explaining the purchase details that the assessee has purchased 30,000 shares on 04.03.2011 as per the contract note issued by M/s. Focus Shares and Securities Pvt Ltd and similarly purchased in small lots of 6,000 shares on 29-03-2011, 500 shares on 1704-2011 as per contract note issued by M/s. Microsec Capital Limited. Further the Ld. AR mentioned that 3,500 shares were purchased but no evidence of contract note was furnished. The assessee has sold 70,000 shares in the financial year 1213, in particular November 2012 to January 2013. Whereas on considering the share holding discussed above it works out to only 40,000 shares. When a query was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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