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TMI Blog2024 (9) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... ith request for condonation of the delay in filing of the present appeals. We observe that the delays in filing of the appeals are time barred by 46 days. The assessee has submitted similar Affidavits for the impugned years under consideration in which it has been submitted that the mother of the Authorized Representative was seriously ill. After prolonged illness she passed away in the last week of October, 2023. The A.R. was busy to perform the religious duties after the demise of his mother. Further, the Counsel for the assessee submitted that the receipt of CIT(A)'s order and thereafter being busy in preparation of filing of time barring returns till 30.11.2023, the appeal against CIT(A)'s order went completely unnoticed. In view of the above and having perused the application duly supported by an Affidavit, we are of the considered view that there exists sufficient cause for not filing the present appeal within the limitation period and therefore, we condone the delay in filing the appeal by the assessee. A.Y. 2011-12:- 3. The assessee has taken the following grounds of appeal: ITA No. 14/Ahd/2024(A.Y. 2011-12) "[I] Addition on account of disallowance of loss in trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not the appellant and since the said burden has not been discharged by Shri Shirish Shah, the disallowance of loss requires to be cancelled/deleted. In view of the above, the impugned addition of Rs. 1,52,20,891/- being loss incurred in trading of shares of Chandni Textile Engineering Industries Ltd. requires to be deleted. The appellant craves leave to add, amend, alter modify or delete any of the above grounds and to submit additional grounds at the time of hearing of the appeal." 4. The brief facts of the case are that the assessee filed a return of income on 28.09.2011 declaring a total loss of Rs. (-)10,08,593. A notice u/s. 148 of the Income Tax Act was issued on 25.03.2015, requiring the assessee to file the return of income within 30 days. The assessee responded on 30.04.2015 stating that the original return should be treated as the return in response to the notice u/s. 148 of the Act. The assessee also requested the "reasons for reopening" the case for A.Y. 2011-12. The reasons for reopening were provided to the assessee on 11.05.2015. The assessee objected to the reopening and the objection was disposed of on 14.09.2015. The assessee filed a writ petition before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anking channels, reflected in Demat accounts, and conducted at prevailing market rates. The assessee requested evidence and cross-examination of SCS, copies of statements, and detailed materials relied upon for such allegations. The assessee sought for evidence supporting the allegation of price manipulation cross-examination of Shirish C. Shah, copies of statements recorded u/s 132(4)/131, Materials/evidences seized and referred to in the reasons recorded and details of shares and payouts alleged to be noted against the assessee's name during the course of assessment proceedings. 6. The assessee's contentions were considered but rejected by the Ld. Assessing Officer. The Ld. Assessing Officer held that transactions in Chandni Textile Engineering Industries Ltd. shares though were at prevailing rates and through banking channels, however, evidence from the search conducted on Shirish Chandrakant Shah showed that he manipulated share prices and volumes via synchronized trading to provide Long Term Capital Gains (LTCG) entries to clients. These trades were linked to groups like Amrapali and Vaswani, with Rajesh Jhaveri acting as an intermediary. The assessee's request fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of time and are well experienced in the field. Therefore, it is not expected from such a prudent investor/traders like assessee group to purchase the shares of these paper companies in huge quantity and incur losses. Therefore, the purchase and sale of shares of above two scripts were clearly made as a part of accommodation entry business of SCS. 5.6 As regards the assessee's request for providing cross-examination of SCS and Shri Damodar Attal, it is pertinent to mention that the issue involved in this case is not decided merely only the basis of statements given by these persons. The issue involved is being decided mainly on the basis of various evidences found during the course of search on SCS to the effect that the trading in the shares of "Chandni" during the relevant period is not genuine, but manipulated through synchronized trading. Cross examination is required only where the addition is made merely on the basis of statement of a third person. In this case, the statement is only of corroboratory to the evidences found. 5.7 In view of the facts discussed above, it is clearly established that the trading in the shares Chandni Textile Engineering Industries L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the companies and their bank accounts. Cheque books and seals of these companies were found and seized. Net banking details were discovered in a diary, and Chandan Singh confirmed that SCS controlled these transactions. Bank accounts of these companies were primarily held with banks in Mumbai's Fort/Kalbadevi area, despite the companies being listed as independent entities with addresses across the country. The analysis revealed that the bank accounts were operated by SCS through dummy directors using signed cheque books or internet banking. Given this evidence, the claim that funds received through account payee cheques were legitimate was rejected by Ld. CIT(Appeals), as these companies were found to be bogus and used for accommodation entries. Additionally, the registered offices of these companies were merely professional arrangements for correspondence. The statement by Damodar Attal, a key employee of Shirish Chandrakant Shah, recorded during a survey on April 9, 2013, revealed that he handled trading on BOLT under SCS's instructions. Attal stated that SCS managed the volume and price of shares through synchronized trading, providing bogus accommodation entries for capital ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares by resorting to synchronized trading to provide accommodation entries to his clients against receipt of cash. Shri Shirish C. Shah had provided accommodation entries on shares of Chandni Textile Engineering to members through Rajesh Jhaveri as an intermediary. It was also seen from the trade data of scrips that the name of the members/entties of Rajesh Jhaveri Group appears as counterparty to the trades carried out by members of these group. While providing such accommodation entries, the company controlled by Shri Shirish C. Shah/intermediaries like Rajesh Jhaveri & his group concerns purchase/sell shares of these scrips as part of synchronized trading and incur share trading loss/share trading profit, in such process. The main person of the group Shri Rajesh N. Jhaveri and other entities/family members were mainly engaged in the business of trading share, securities, derivatives etc. over a period of time and were well experienced in the field. Therefore, it is not expected from such a prudent investor/traders like appellant to purchase the shares of these paper companies in huge quantity and i incur loss. Thus, it can be concluded that the purchase and sale of shares of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and therefore, had the assessee held the shares of Chandni textiles any further, the assessee would have incurred further losses and, therefore, it was with a view to minimise these losses that the assessee had sold shares of Chandni textiles at a loss. Finally, the counsel for the assessee submitted that the case of the assessee is directly covered in favour of the assessee by the decision of Ahmedabad Tribunal in the case of Jhaveri Trading and Investment Private Limited in ITA number 399 and 400/Ahd/2023 vide order dated 13-06-2024, in which this issue has been decided in favour of the assessee, wherein sale of shares of Chandni textiles was involved. 9. In response, D.R. relied upon the observations made by the assessing officer and Ld. CIT(Appeals) in their respective orders. The D.R. submitted that both the assessing officer in Ld. CIT(Appeals) have highlighted in detail the modus operandi in which an organized modus operation was taking place and SCS was systematically providing accommodation entries in the form of bogus profits/losses in respect of penny stock companies to various persons. SCS in a statement before the tax authorities had categorically admitted to provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew that the tax authorities have unearthed an organised operation by SCS where has been providing bogus accommodation entries to various parties for a commission. The assessing officer observed that the assessee, for the impugned years under consideration before us, have systematically obtained losses in respect of three entities viz. Chandni textiles, Prraneta Industries and Gujarat Meditech Ltd. Accordingly, we observe that this is not a one-off case where the assessee has inadvertently incurred losses on sale of a shell entity, having no business whatsoever. For the impugned years under consideration, the assessee, being in this line of business of stock trading, has systematically incurred losses on sale of three companies, which have no financial standing to set off profits on sale of shares of the entities. The detailed modus operandi unearthed by the tax authorities clearly reveal that SCS has been engaged in systematically providing bogus accommodation entries to various clients, through a systematic operation, involving various persons. Therefore, in the light of these facts, the totality of circumstances need to be looked into, before coming to the conclusion whether it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the purchase and sale of shares in Chandni Textiles Engineering Industries Limited. SCS facilitated the conversion of unaccounted cash into exempt Long Term Capital Gains (LTCG) through synchronized trading, using bank and demat accounts he controlled. Further surveys revealed that SCS managed the volume and price of listed companies' shares through synchronized trading. Various "sauda sheets" were found, detailing the shares bought and sold by SCS, including those of Chandni Textile Engineering Industries Ltd. These transactions were cross-referenced with data from the Bombay Stock Exchange (BSE) and showed that the assessee received Rs. 2,00,43,500/- from selling 250,000 shares of Chandni Textile Engineering Industries Ltd., against the payment of cash. Consequently, it was believed that income amounting to Rs. 2,00,43,500/- had escaped assessment due to the assessee's failure to disclose all necessary facts. The relevant extracts of the "Reason to Believe" is reproduced for ready reference: "Reasons for reopening the Assessment Shailesh S Jhaveri (ADTPJ0210B) - A.Y. 2011-12 A search and survey action was carried out at the residence and offices of Shri Shirish Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. In this file, details of shares purchased and sold by Shirish Chandrakant Shah in the name of various companies managed and controlled by him were recorded. Amongst transactions of purchase and sale of shares of listed companies managed and controlled by him purchase and sale transactions with regard to shares of Chandni Textile Engineering Industries Ltd. have also been found to be recorded. In this sauda sheet the transactions with regard to purchase and sale of shares of Chandni along with the shares of listed companies used for providing "LTCG" entries have also been recorded. The trade date of Chandni, a sreceived from BSE, has been correlated with the data recorded in the "n Navkar bips 30.10.12.xls" sheet. From the entries recorded in "n Navkar bips 30.10.12.xls" it is seen that the assessee has received pay out of Rs. 2,00,43,500/- on sale of 250000 shares of Chandni Textile Engineering Industries Ltd. As recorded in the "n Navkar bips 30.10.12.xls" the payout has been received against payment of cash. In view of the above facts, I have no reason to believe that income amounting to Rs. 2,00,43,500/- chargeable to tax has escaped assessment within the meaning of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding authority is made conclusive by law." 13. In the case of Satish Kishore v ITO 110 taxmann.com 307 (Delhi - Trib.), the ITAT held that where long-term capital gain on sale of shares by assessee was an arranged affair to convert its own unaccounted money through accommodation entries and assessee failed to prove genuineness of transaction, exemption claimed under section 10(38) on sale of shares had rightly been disallowed. The ITAT made the following relevant observations, while dismissing the appeal of the assessee on this issue: Thus, the contention of the assessee that the transaction leading to long-term capital gains are supported by documents of sale and purchase, bank statement etc., cannot be accepted keeping in view of the facts and circumstances of the case brought on record by the Assessing Officer after proper examination of the material facts and taking into account the corroborating evidences. The onus was on the assessee to prove the transaction leading to claim of long-term capital gain was a genuine transaction. The assessee failed to justify manifold increase in the prices of the shares despite weak financials of the companies. Initial investment in the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olkata and the assessee did not have an inkling as to what was going on in the whole transaction except paying a sum of certain amount in cash for the purchase of shares of the two penny stock companies. The authorities found that though the shares were purchased by the assessee at much lesser amount from the two companies in the year 2003, the assessee was able to sell the shares just within a years time at much higher amount. The broker through whom the shares were sold by the assessee did not respond to the Assessing Officer's letter seeking the names, addresses and the bank accounts of the persons that had purchased the shares sold by the assessee. The authorities have recorded a clear finding of fact that the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. While so observing, the authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth such less value had jumped to much higher amount in no time. The Income Tax Appellate Tribunal held that the fantastic sale price was not at all possible as there was no economic or fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares and retain commission for himself in the process. In this part, we also notice that Rajesh Jhaveri was one of the important players in this process devised by Shirish Chandrakant Shah. There was prima-facie material suggesting Prraneta Industries Limited was one such company utilized by Shirish Chandrakant Shah for such purpose. These details had come on record through statements of various persons recorded by the Revenue authorities through search and survey operations. For example, during the search of Prraneta Industries Limited, the manager of the company - Radheshyam Sharma had stated that there was no business activity in the company and the entire affairs including preparation and maintenance of books of accounts was being done by Shirish Chandrakant Shah. Shri Omprakash Anandilal Khandelwal, the Managing Director of the company had also stated that the company is engaged in providing accommodation entires and no actual business activity is being undertaken. The affairs of the company being managed and controlled by Shirish Chandrakant Shah and the bank accounts of the company are being used to provide accommodation entries. The two more directors of company viz. Jyot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for providing accommodation entries. He hasalso stated the shares of the company are being controlled by Shirish Shah and the same are being used by him so as to provide long term capital gains entries by resorting to synchronized trading. 20. Accordingly, in light of the above facts and observations, it is evident that Prraneta industries was shell entity (has also confirmed by the Gujarat High Court in its observations referred to above), the assessee has not given any justifiable reason as to why the assessee company invested in shares of three bogus/shell entities during the impugned year under consideration. 21. The Calcutta High Court in the case of the PCIT v. Swati Bajaj 2022] 139 taxmann.com 352 (Calcutta)[14-06-2022]held that the genuinity of unreasonable rise in the price of the shares of penny stock over a short period needs to be established, and the onus is on the assessee to do so as mandated in Section 68 of the Act. That onus is not discharged by merely citing the opinions of an expert who issued a buy call on the penny stocks. Nor is it discharged by the assessee being a regular investor who has also earned profits from blue-chip stocks when the claim for long-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount and assessee had not tendered cogent evidence to explain as to how shares in an unknown company had jumped to such higher amount in no time and also failed to provide details of person who purchased said shares, said transactions were attempt to hedge undisclosed income as Long term Capital gain. 24. In the case of Satish Kishore v. ITO (2019) 110 Taxman.com 307 (Delhi Tribunal), the assessee, an individual, filed return of income claiming long-term capital gain on sale of shares as exempt under section 10(38). The Assessing Officer held amount so received as unexplained cash credit under section 68 and made addition on ground that assessee failed to discharge burden of proof and explain nature and source of transaction and huge profit in all shares traded by assessee against human probability. AO held that it was found that assessee failed to justify manifold increase in prices of shares despite weak financials of companies. Further, investigation carried out by Department had brought facts on record that share prices had been manipulated artificially, purchased by a set of accommodation entry provider companies controlled by cartel of brokers, entry operator, etc. Moreover, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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