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TMI Blog2024 (3) TMI 1361X X X X Extracts X X X X X X X X Extracts X X X X ..... are doing this business for commission, and that the capital Gain arisen on sale of such shares is arranged and colourful transaction. Investigation wing has summarized these transactions in detailed report and also provided list of company/ scrip which are being used for creating very high profit margin and LTCG which is exempt u/s 10(38) of the Act. These scrip/companies are penny stock companies which are controlled by few persons. One of the scrip is SHREENATH Commercial and Finance limited and it is seen that the assessee is one of the beneficiary who has availed such entry. 3. The case of the assessee was reopened for assessment under section 147 of the Act after obtaining necessary approval. Notice under section 148 of the Act was issued on 15.09.2016 and served on the assessee and a copy of reasons recorded for reopening was provided to the assessee on the request of the assessee. Accordingly, notice under section 143(2) and 142(1) of the Act were issued and served on the assessee. The assessee raised an objection to the reopening of assessment under section 147, the same was rejected by speaking order on 06.10.2017. In response to the notices, Authorised Representative of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14.1 The submissions made by the assessee and reply to show cause is considered. The facts of the case, investigations made by various directorates, statements recorded during the assessment proceedings are considered. From the discussion in the preceding paras it is concluded that long term capital gains booked by assessee in her books were pre-arranged method to evade taxes and launder money. Following are the findings and the reasons which substantiates the findings. a. Mode Of acquisition Of the shares: The assessee purchased 1,81,000 shares of SHREENATH Commercial and Finance Ltd. for Rs. 40,37,842/-. Further, the company issued bonus shares in the ratio of 1:1 on 17.03,2011 to the assessee. Subsequently, the assessee had total of 3,62,000 shares. b. Sale of shares and unusual rise in the price: 3,62,000 Shares of Shreenath Ltd. are sold at a price of Rs. 2,97,26,257/- and a long term capital gain of 2,56,67,731/-has been claimed. This sale is off the market sale so contract notes are available. As discussed the rise in share prices is not holding to any commercial principles and market factors. c. Findings of Investigation wing: The findings of the Direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entry providers: The investigations in the fund flow analyzed in the accounts of the entry providers have established that the cash has been routed from various accounts to provide accommodations to assessee. j. Arranged transactions: The transactions entered by the assessee involve the series of preconceived steps, the performance of each of which is depending on the others being carried out. The true nature of such share transactions lacked commercial contents, being artificially structured transactions, entered into with the sole intent, to evade taxes. 14.2 The facts and circumstances of the case, as recorded above, clearly suggest that the revenue cannot take or accept such make-believe transactions, as presented by the assessee. Truth or genuineness of such transactions must prevail over the smoke screen, created by way of pre-meditated series of steps taken by the assessee, with a view to imparting a colour of genuineness and character of commercial nature, to such share transactions. Needless to say that one has to look at the whole transactions and a series of steps taken to accomplish such share transactions, in an integrated manner. 14.3 The case laws in suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferred even at time of making enquiry by Assessing Officer and same continued to be registered in name of assessee - In those circumstances, Assessing Officer held that transaction of sale of shares was an ingenuine transaction and made addition of alleged sale consideration to assessee's income as income from undisclosed sources - Whether on facts, addition made by Assessing Officer was justified - Held, yes. 14.4 Reliance is placed on the decision of Hon'ble Supreme Court in the case of McDowell and Co. Ltd Vs. CTO 154 ITR 148 wherein it is held that "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is obligation of every citizen to pay his taxes honestly without resorting to subterfuges." Further reliance is also placed on the decision Of Hon'ble Supreme Court in the case of CIT Vs. Durga Prasad 82 ITR 540 (SC) and Sumati Dayal Vs. CIT 214 ITR 801(SC) 14.5 The exceptional luck enjoyed by the assessee was held to be beyond preponderance of probability. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion wing. The statements made by brokers in no way related to the appellant, or his transactions cannot be considered as tangible material to form a belief that the income has escaped assessment. No copies of statements are provided to appellant thereby not providing cross examination. 2. The learned CIT (A) erred in upholding the action of the assessing officer in treating the long-term capital gains accruing to the appellant as non-genuine only on the basis of general finding of Directorate of Investigation and various statements recorded by it without any cogent material on record and no nexus / connection with the appellant being established to prove the impugned transaction as bogus. 3. The learned CIT (A) failed to take cognizance of documentary evidence provided by the appellant such as bank statements, brokers' contract notes and ledger accounts, demat accounts, etc. to substantiate the transactions of purchase and sale of shares. The addition made u/s 68 is merely on presumptions, suspicion, surmises, and conjectures disregarding the direct evidence placed on record. 4. The learned CIT (A) failed to confirm the action of the AO that the sale is off the market s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer has heavily relied on the investigations carried out by the Directorate of Investigation. The predetermined action with specific intention is one of the circumstances evidences leading to the conclusion that the Long Term Capital Gain earned is not genuine. 11. Further, Ld.AR of the assessee brought to our notice the decision of the Coordinate Bench in the case of Smt. Veena Chaturvedi v. DCIT [2023] 156 taxmann.com 457 (Mumbai - Trib) and submitted that on similar facts which are identical to the present case and also involving the similar scrip, the Coordinate Bench has decided the issue in favour of assessee by deleing the addition made by the Assessing Officer. Ld.AR of the assessee filed a comparative summary to establish the decision of Smt. Veena Chaturvedi v. DCIT (supra) is applicable to the facts of the assessee's case. For the sake of clarity, it is reproduced below: - Sr. No Parameters for comparison Veena Chaturvedi vs DCIT Abhishek Doshi vs ITO 1 Scrip traded Shreenath Commercial and Finance Ltd Shreenath Commercial and Finance Ltd 2 Purchase on stock exchange Yes Yes 3 Sale on stock exchange Yes Yes 4 Period of purchase Mar-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITAT is reproduced below: - "18 We have heard the rival submissions and perused the relevant finding given in the impugned orders as well as material referred to before us. It is an undisputed fact that assessee has purchased 4,97,500 shares of Shreenath Commercial and Finance Limited from 10/03/2011 to 11/03/2011 in the open market on the Online Trading Portal of the Stock Exchange through registered Broker, RBK Share Broking Limited. One important fact to be noted here that in so far as RBK Share Broking Ltd. is concerned, nothing adverse has been found nor there is an enquiry that the said broker has provided any kind of accommodation entry or was involved in any such dubious transaction. On 22/03/2011 bonus shares were issued at the ratio of 1:1 and accordingly, assessee had held that 9,95,000 shares were sold after almost 2 years from 16/01/2013 to 21/01/2013 for sums aggregating to Rs. 8,29,88,876/-, on which assessee had earned a long-term capital gain of Rs. 7,29,88,736/- which claimed as exempt. Apart from that, all the documentary evidences in the form of contract note for purchase and sale of shares; copy of Demat Account reflecting receipt and transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re there was whole nexus which was found by the SEBI and these exit providers were banned by the order of the SEBI on 04/12/2014. As per the Interim order of the SEBI dated 04/12/2014, wherein primary investigation was undertaken on the dealings in the scrip of Moryo Industries Limited on noticing huge rise in the traded volumes and price of the said scrip on the Bombay Stock Exchange from 15/01/2013 to 31/08/2014. In the said interim order, a tenuous connection was drawn between 91 persons/entities comprising of Moryo Industries Limited, Promoters, Directors and Preferential Allottees and they were temporarily restrained from buying, selling or dealing in the securities market. The said SEBI order is only in respect of scrip of Moryo Industries Ltd. and nowhere there is any whisper or mention about the scrip of M/s. Shreenath Commercial & Finance Ltd.; nor in the said list of 91 persons/entities, contain the name of either Shreenath Commercial and Finance Limited or the assessee or family members. Thus, per se, the said interim SEBI order does not impinge upon the assessee or the transaction of the scrip of Shreenath Commercial and Finance Limited in the Bombay stock exchange. Mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f bogus/ long term capital gain first of all such a reference is wholly out of context because assessee has not dealt with any of these brokers. Two statements of such brokers were also provided to the assessee by the ld. AO but no way they were connected to the assessee nor assessee has dealt with them nor is assessee's name figuring anywhere. The assessee had made transaction of purchase and sale of shares through RBK Share Broking Limited against which there is no such enquiry or information that this broking entity was involved in any kind of accommodation entry. Although these brokers have given the list of various scrips in which they have done the trading in shares for providing accommodation entry and one of the scrip mentioned was M/s. Shreenath Commercial & Finance Ltd. As per the statement of Shri Ritesh Jain, it was also alleged that M/s. Manu Stock Broking is a broking house for some of the exit providers related to sale of shares by Chaturvedi Family, however, in his statement there is no mention about the scrip and M/s. Shreenath Commercial & Finance Ltd. The said statement is part of the assessment order and nowhere in the said statement there is any whisper about t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial and Finance Ltd. between 04.03.2011 to 15.03.2011 M/s. Shrinath Commercial and Finance Ltd thereafter Issued bonus shares in the ratio of 1:1 on 22.03.2011 and thus the assessee came to hold 56 lakh shares in the said company. We note that these shares were purchased through recognised stock exchange through registered broker and were credited in the D-mat account of the assessee. Similarly, the bonus shares were also credited in the said Dmat account held by the assessee. All these purchases of shares were supported by the contract notes issued by the authorised brokers of the stock exchange and the payments were made through banking channels. Thereafter, the assessee sold these shares during the period commencing on 23.08.2012 to 08.02.2013 for a total consideration of Rs 41,48,39,241/- and was received through banking channel thereby making a longterm capital gain of Rs 35,44,38,501/- which was claimed as exempt under section 10(38) of the Act as long term capital gain on sale of shares. We notice that all these transactions were carried out on a recognised stock exchange by the assessee through registered brokers duly evidenced by the contract notes and entries in the Dma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e can only presume that the assessee is one of the beneficiary in this transactions merely as an investor who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. We observe that the Hon'ble Bombay High Court in the case of Pr. CIT v. Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04.03.2022 held as under: - "1. The following question of law is proposed: "Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in deleting the addition of Rs. 1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs. 1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961?" 2. We have considered the impug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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