2022 (1) TMI 1258 - AT - Income Tax

Bogus LTCG - Addition u/s 68 - deception of stock market transaction - Penny stock purchases - Burden of proof - scope of preponderance of probability - HELD THAT - All the enquiries conclusively proved that the trades have been manipulated and the gains or the losses made by the beneficiaries cannot be said to be genuine.The mere fact that payments have been received through cheque cannot give any credence so as to genuineness of the transactions. Taking cue from the judgment of PCIT-7 Vs. Bikram Singh 2017 (8) TMI 1138 - DELHI HIGH COURT we hold that the transactions in the present appeal are yet another example of the constant use of the deception of stock market transaction to bring unaccounted money into banking channels. This device of stock transactions of unworthy stocks with no profits continues to plague the legitimate economy of our country. As seen from the facts narrated above, the transactions herein clearly do not inspire confidence as being genuine and are shrouded in mystery, as to why the so-called transactions lead to exorbitant returns which are made tax free. As in the case of CIT Vs Korlav Trading Company Ltd. 1998 (2) TMI 104 - CALCUTTA HIGH COURT and CIT Vs Precision finance P. Ltd. 1993 (6) TMI 17 - CALCUTTA HIGH COURT had observed and held that mere filing of confirmation and transaction through the banking channel is not enough to prove the genuineness. On this issue we hold that preponderance of the evidence is one type of evidentiary standard used in a burden of proof analysis. Under the preponderance standard, the burden of proof is met when the party with the burden convinces the fact finder that there is a greater chance that the claim is true. This is the burden of proof in a civil trial. The theory of preponderance of probability‟ is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. Prima facie, it may appear to be a case made on preponderance of probabilities but not beyond reasonable doubt. However, in this case a deeper examination of the facts reveal that in a scam of such massive scale many players and layers involved hence the judgments of Hon ble Apex Court that the standards of proof required to prove such fraudulent conduct would necessarily be less stringent is squarely applicable and in the instant case the evidences cannot be said to be even less stringent rather they more strong. We are certainly not on the probability theory while dealing the issue before us and certainly we have not been carried away by the single point of profits earned. The facts have been examined holistically with reference to enquiries and the entire operation of the stocks, method of investment, regularity of the investments, enquiries conducted by SEBI , evidences produced by the assessee. In light of the above facts and material brought on record by the AO and the statement of the assessee himself goes to prove that the case of the AO is not based on any suspicion or surmises. One very important fact which is clearly distinguishable from the judgments relied upon by the ld. Counsel of the assessee that, not only in the case of M/s Unno Industries Ltd. the SEBI has suspended the trading of the shares in BSE but also the two brokers through whom the assessee has purchased shares have been found doing irregularities by the SEBI. Another important fact is that, the Director of one of the company, Galore Suppliers Pvt. Ltd. who has bought the shares of M/s Unno Industries Ltd. from the assessee had categorically admitted that not only the M/s Unno Industries Ltd. was penny stock but also involved in providing accommodation entries in this share. This fact alone demolishes the argument of the ld. Counsel that entire transaction of sale of shares was genuine. - Decided against assessee.

Issues Involved:
1. Validity of notice under Section 143(2).
2. Addition under Section 68 for alleged sham Long Term Capital Gains (LTCG).
3. Violation of principles of natural justice.
4. Evidentiary value of statements.
5. Burden of proof regarding bogus transactions.
6. Application of deeming fictions under Section 68.
7. Basis of findings on suspicion and human probabilities.
8. Opportunity to confront back material and cross-examine witnesses.
9. Applicability of Section 68 to the sale of shares.
10. Consistency with relief granted in similar cases.
11. Statutory status of evidence from stock exchange systems.
12. Addition based on alleged commission paid to entry provider.

Detailed Analysis:

1. Validity of Notice under Section 143(2):
The assessee contended that the notice under Section 143(2) was not in accordance with jurisdictional conditions stipulated under the Act. However, the tribunal did not find this argument persuasive and upheld the validity of the notice.

2. Addition under Section 68 for Alleged Sham LTCG:
The assessee challenged the addition of Rs. 1,03,46,835 under Section 68, arguing that the LTCG was genuine and supported by documentation. The tribunal, however, found that the transactions were part of a scheme involving penny stocks and accommodation entries. The modus operandi involved brokers and operators manipulating share prices to provide tax-free gains to beneficiaries. The tribunal concluded that the LTCG claimed by the assessee was not genuine.

3. Violation of Principles of Natural Justice:
The assessee argued that the addition was made without confronting any back material or investigation wing report, violating principles of natural justice. The tribunal noted that the assessee was given an opportunity to respond to the findings and statements during the assessment proceedings but failed to provide satisfactory explanations.

4. Evidentiary Value of Statements:
The assessee contended that the statements used to make the addition had no evidentiary value as they were recorded during survey operations and were not corroborated by independent material. The tribunal held that the statements, along with other evidence, sufficiently demonstrated the manipulation of share prices and the provision of accommodation entries.

5. Burden of Proof Regarding Bogus Transactions:
The tribunal emphasized that the burden of proving the genuineness of the transactions lay with the assessee. The assessee failed to discharge this burden, as the evidence provided did not substantiate the claim of genuine LTCG.

6. Application of Deeming Fictions under Section 68:
The tribunal found that the deeming fiction under Section 68 was applicable as the transactions were not supported by credible evidence. The assessee's claim that the transactions were genuine was not upheld due to the lack of economic capacity and source to generate the unaccounted income.

7. Basis of Findings on Suspicion and Human Probabilities:
The tribunal rejected the assessee's argument that the findings were based on suspicion and human probabilities. It held that the findings were based on substantial evidence, including statements from brokers and operators involved in the scheme.

8. Opportunity to Confront Back Material and Cross-Examine Witnesses:
The tribunal noted that the assessee was informed about the enquiries and given an opportunity to respond. The failure to cross-examine witnesses was attributed to the assessee's lack of initiative in this regard.

9. Applicability of Section 68 to the Sale of Shares:
The tribunal upheld the applicability of Section 68 to the sale of shares, noting that the transactions were part of a scheme to provide accommodation entries and were not genuine.

10. Consistency with Relief Granted in Similar Cases:
The assessee argued that relief had been granted in similar cases. The tribunal, however, found that the specifics of the present case, including the involvement of brokers and operators in manipulating share prices, distinguished it from other cases where relief was granted.

11. Statutory Status of Evidence from Stock Exchange Systems:
The tribunal noted that the statutory status of evidence from stock exchange systems did not automatically validate the transactions, especially when substantial evidence indicated manipulation and accommodation entries.

12. Addition Based on Alleged Commission Paid to Entry Provider:
The tribunal upheld the addition of Rs. 20,694 for alleged commission paid to the entry provider, finding that it was based on reasonable assumptions and evidence.

Conclusion:
The tribunal dismissed the appeals, upholding the additions made by the Assessing Officer and confirming that the transactions in question were not genuine. The tribunal's decision was based on substantial evidence of market manipulation and accommodation entries, rejecting the assessee's arguments on various grounds.

← Previous Next →