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TMI Blog2019 (6) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... ns who purchased the said shares, as the said transactions were attempt to hedge undisclosed income as long term capital gains. In the case of Sanjay Bimalchand Jain v. PCIT, [ 2017 (5) TMI 983 - BOMBAY HIGH COURT] has laid down the law that if the assessee has not tendered cogent evidence to explain as to how the shares in an unknown company had jumped to such an higher amount in no time when the fantastic sale price was not at all possible as there was no economic or financial basis to justify the price rise and if the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain, such gain has to be assessed as undisclosed credit u/s 68 We find that the AO has rightly withdrawn the amount which has been claimed by the assessee as exempt u/s 10(38) and assessed the entire sale consideration u/s 68 - Decided against assessee. - I.T.A. No. 3009/Chny/2018 - - - Dated:- 21-5-2019 - Shri Inturi Rama Rao, Accountant Member And Shri Duvvuru RL Reddy, Judicial Member For the Appellant : None For the Respondent : Ms. C. Yamuna, JCIT ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the submissions of the assessee, the report of the Investigation Wing of the Department, confession given on oath under section 131 of the Act by the brokers/promoters/ operators, SEBI s direction to BSE to suspend trading 331 shell companies stocks, the Assessing Officer concluded that the assessee has been facilitated accommodation entries to bring in his own unaccounted money in the guise of long term gain and thus, the amount of ₹.20,45,457/- claimed as exempt under section 10(38) of the Act has been withdrawn and the entire sale consideration of ₹.21,58,650/- was assessed under section 68 of the Act under the head income from other sources . On appeal, by following various case law, the ld. CIT(A) confirmed the unexplained income under section 68 of the Act. 3. On being aggrieved, the assessee is in appeal before the Tribunal. When the appeal was taken up for hearing, none appeared on behalf of the assessee or any adjournment petition filed by the assessee despite noting the next date of hearing by making endorsement in the order sheet. Hence, we proceed to decide the appeal on merits after hearing the ld. DR. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7;.20,45,457/-, which was claimed as exempt under section 10(38) of the Act should not be treated as not genuine and withdrawn and the entire sale consideration of ₹.21,58,650/- treated as income under the head income from other sources being bogus long term capital gain under section 68 of the Act and taxed accordingly. The reply of the assessee to the show-cause notice reads as under: The Assessee is a HUF bearing the PAN Number AADHH6741J. The Assessee filed the return of the income for A. Y. 2012-13 on 02/03/2013 admitting an income of ₹ 299,060/- including Long Term Capital Gains on the sale of listed shares of ₹ 17,82,211/- which was exempt by virtue of Section 10(38) of the Income Tax Act. The Assessing Officer, in the show cause notice dated 14/11/2017, has wrongly alleged that the Assessee has indulged in bogus transactions and has colluded with share brokers to earn capital gains. The Assessee submits that this is pure conjecture and is facts and the established principles of law. The Assessee had, based on advice received, purchased shares in Blue Circle Services Limited on 20/04/2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction of purchase/sale of shares is an accommodated entry to earn LTCG and to claim the same as exempt under section 10(38) of the Income tax Act, after holding period of 12 months. The observations made by the Investigation Wing and SEBI are reproduced as under: The Calcutta Stock Exchange Limited, is the biggest share broker in the list. It is clarified that Calcutta Stock Exchange as a broker is a set of many sub brokers. These sub brokers have taken BSE Terminal through Calcutta stock Exchange Ltd. Most of these sub brokers are involved in providing accommodation entry of L TCG, through floating Jamakharchi/bogus clients. It is further seen from the report that the Calcutta Stock Exchange as a broker, have traded in penny stocks/share of shell companies which include shares of M/s. Blue Circle Services Ltd also. It is further submitted that the Securities and Exchange Board of India (SEBI) has in the recent past, passed some orders on the issue of manipulation of share market for providing accommodation entry of bogus LTCG. SEBI considering the inputs from income tax Department as well as from its own surveillance system and that of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch scrips when rates are quoted very high in the market. Thus, even if the purchases are genuine in a given case, the sales of such penny scrips can be bogus because the market rates are manipulated. By the modus as stated above, the unaccounted money is laundered and brought into the books as capital gains on account of transactions in shares attracting either full tax exemption or concessional rates of taxation. For engineering such as bogus LTCG, the operator also charges - quite naturally -, a certain amount of commission/ service charges, which may range from 4% to 8%, depending upon the bargaining power of the operator and the beneficiary. These type of transactions usually occurs in the penny stock of the shares. The term penny stock is defined by US authorities and by Indian authorities also and generally, the stock whose floating capital in the market are below ₹.50 crores are being considered as a penny stock. 8. To jack up the price of M/s. Blue Circle Services Ltd and for easy manipulation of the share prices, the first step was splitting of the shares, by which one share was split into 10 shares. Then the price of the share was artificially rigged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived by the parties for the shares sold through Stock Exchange). (It is also to be noted that the shares sold by the parties were purchased by none other than these operators and their associates. No public interest was not at all there in the shares of the company) 12. Statements were also recorded from many of the brokers involved in these operations. Most of the persons have admitted that the scrip Blue Circle-508939 (also other scrips like Esaar India Ltd, Kailash Auto-511357, CCL-531900, TUNI TEXTILE 531411, NCL RESEARCH-530557, SURABHI -512311, UNNO-519273, KAPPAC-506938) were used for arranging bogus LTCG they have relaxed the KYC norms required for opening of account they have also admitted that their clients are paper companies which in some cases not found as existent given on their address. Thus it is found that there is a group of persons working in tandem to provide arranged capital gain by receiving cash in lieu of it. They have confessed that as a broker they were actively engaged in providing entries in the form of LTCG in collusion with other operators. The confession by brokers is also a circumstantial evidence against the assessee that LTCG i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sons on 20.04.2011 through off market, then the 27000 equity shares of Blue Circle (due to split in 1:10 ratio) is transferred into assessee's account only on 10.08.2012 by M/s. Badri Prasad Sons. There is no transfer certificate from M/s. Blue Circle Services Limited regarding the transfer but only a computer generated letter from M/s. Badri Prasad Sons indicating the transfer of 27000 shares of Blue Circle into the assessee's demat account. The Assessing Officer issued a letter to the seller M/s. Badri Prasad Sons from whom the assessee had purchased the above shares and called for the following details: a. The assessee had purchased 2700 shares of M/s. Blue Circle Services Ltd. on 20.04.2011 and he had paid cash of ₹.1,05,840/- for the same. The said shares were split in 1: 10 ratio and on 10.08.2012. 27000 shares were transferred by you to the assessee. You are requested to submit the details as to how the amount was given to you for the purchase of the said shares. Apart from your account copy, you are requested to submit the transaction statement, pool account and self account related to of M/s. Blue Circle Services Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise placing of orders placed is not possible particularly when trade price is static for various trades executed. It may be noted that all the trades have been executed at a fraction of second. All these trading patterns shows that your Long Term Capital Gain is arranged one. The assessee sold 27000 shares on 14.08.2012 , i.e., on one single day claiming long term capital gains of ₹.20,45,456/- and these shares were purchased by the company which is also a jamakarachi company and exit providers. 18. From the details submitted by the assessee, his broker M/s. Sugal Damani Share Brokers Ltd and the ITS details in the AST module, the Department came to know that all the 27000 shares of M/s. Blue Circle Services Ltd. pertaining to the assessee were purchased by M/s. Kingfisher Properties Pvt Ltd, 95A, CR Avenue, 1st Floor, Kolkata-700073 with PAN AAECK3394G through M/s. Gateway Financial Services Ltd. 19. In their sworn statement before the investigation wing, Shri Jagdish Purohit, Shri Bikash Sureka, Shri Devesh Upadhaya have clearly stated on oath that the directors of M/s. Blue Circle Services Ltd. were dummy directors and that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty enters the financial transaction in its books for accommodating the other party. Here one party provides book entry of influx of funds to the other party (beneficiary) in a manner that this other party doesn't have to pay any tax on such influx of funds. For this, such influx of funds in the books of beneficiary is done in the form of either some liability, which is never repaid by the beneficiary or in the form of some tax exempt income. These transactions are accommodated in lieu of cash of equal amount taken from the beneficiary. The entry operator earns some commission charged over and above this amount of accommodation entry, generally at certain fixed percentage for giving such accommodation entry. The purpose of such transactions is to accommodate one party (the beneficiary) by influx of money in its books through the other party, who take cash in unaccounted manner from such beneficiary. An entry operator is a person who is in the business of giving such accommodation entries in lieu of cash after charging certain percentage of commission in cash. Jama kharchi companies refer to the companies under the control of accommodation entry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harged in cash on the net prearranged bogus capital gain accruing to the beneficiary. This pre-arranged bogus capital gain income so earned through rigging of shares is claimed as exempt in the books of beneficiary. Sir, I would like to apprise you that accommodation of LT and Short Term Gain/Loss might appear to be genuine prima facie as the payments while investing in shares or selling of the shares is in cheques through Stock Exchange brokers. But as I have told you that these LT and ST entries are minutely managed and supervised, controlled by the entry operators as explained earlier for earning commission income and thus are actually are in the nature of accommodation entries. When the shares are finally sold by the beneficiary, the cheque payments received by him are in fact for the equivalent amount of cash paid by him to the entry provider in unaccounted manner. Q 9 Kindly state names of the companies, by purchasing the shares of which in the above manner, you provided accommodation entries of bogus LTCG to different beneficiaries. Ans. Sir. I don't remember all such companies at present. However, I have provided such acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07/1954 Bal Chand Purohit Jagadish Prasad Purohit 00083125 24/02/1958 Bal Chand Purohit Kailash Prasad Purohit 01319534 12/10/1960 Bal Chand Purohit Anil Kumar Purohit 00082942 22/11/1980 Sushil Kumar Purohit Pawan Kumar Purohit 00083020 06/06/1976 Sushil Kumar Purohit Q 9 In response to Question No. 6, you have provided DIN of all key family members. On verification of DIN of such persons, it is found that they are one of the directors in many companies. You are already one of the directors in so many companies and your family members are also directors in different companies. The number of companies against each of your fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction and to claim exemption under section 10(38) of the Act. 22. On verification of the details submitted by the assessee along with the supporting documents produced by him and in comparison with the details of the investigation wing, Kolkata, the details gathered from the various websites in the internet after affording adequate opportunity of being heard to the assessee, to establish clearly in this entire penny stock transaction, the Assessing Officer brought out the following details in the assessment order and are reproduced hereunder: (i) Blue Circle Services Ltd. is one of the BSE listed penny stocks which has been used for generating bogus LTCG. On going through the entity's history of M/s. Blue Circle Services Ltd in the website 'watchoutinvestors.com', it is seen that M/s. Blue Circle Services Ltd has time and again been suspended/debarred/restrained either by the BSE or the SEBI for indulging in creation of artificial market and price manipulation. (ii) M/s. Badri Prasad Sons the broker/seller through whom the shares of BLUE CIRCLE SERVICES LTD have been purchased by the assessee, has been identified as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. AADCD7140G 55 Anjali Suppliers Pvt. Ltd. AAJCA1784D 56 Rangan Vincom Pvt. Ltd. AAGCR1715E 57 Katyani Commodities Pvt. Ltd. AAECK6244R 58 Ladios Trading Pvt. Ltd. AACCL3868N 59 Avlokan Deakorn Pvt. Ltd. AALCA1583G 60 Devakantha Trading Pvt. Ltd. AADCD7044B 61 Shelter Sales Agency Pvt. Ltd AASCS1797F 62 Udbal Mercantile Pvt. Ltd. AABCU2648C 63 Amrusha Mercantile Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered stock broker and (iii) receiving the payment for sale of shares through bank transaction, these shares have actually been sold by pre-arranging trading in shares of Blue Circle Services Ltd and has been purchased by one Jamakarachi company, M/s. Kingfisher Properties Pvt. Ltd through the exit provider M/s. Gateway Financial Services Ltd. (iv.b) The role of each of these players in connection with the assessee beneficiary has been explained details in the order. 23. In the assessment order, the Assessing Officer explained the entire working of the flow of conversion of black money into white using long term capital gains tax exemption and penny stock from the assessee in a circular pattern and back to him. Moreover, out of the list of beneficiaries submitted by the brokers/entry providers received from share brokers/directors/dummy directors of bogus companies before the investigation wing substantiates that the assessee is one of the beneficiary. 24. The case law relied on by the assessee in the grounds of appeal in the consolidated order dated 06.04.2018 in the cases of Vimalchand Gulabchand v. ITO in I.T.A. No. 2003/Chny/2017; Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n public domain), is conspicuous by its absence, i.e., even years after the transaction/s. The company is, by all counts, a paper company, and its share transactions, managed. We, accordingly, reversing the findings of the first appellate authority, confirm the assessment of the impugned sum u/s.68 of the Act. We decide accordingly. In this case, the assessee had purchased the shares of penny stocks companies at lesser amount and within a year sold such shares at much higher amount and the assessee had not tendered cogent evidence to explain as to how shares in an unknown company had jumped on higher amount in no time and also failed to provide details of persons who purchased the said shares, as the said transactions were attempt to hedge undisclosed income as long term capital gains. In this connection, in the case of Sanjay Bimalchand Jain v. PCIT, in ITA No. 18/2017, the Nagpur Bench of the Hon ble High Court of Judicature at Bombay has laid down the law that if the assessee has not tendered cogent evidence to explain as to how the shares in an unknown company had jumped to such an higher amount in no time when the fantastic sale price was not at all possible a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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