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TMI Blog2019 (11) TMI 409X X X X Extracts X X X X X X X X Extracts X X X X ..... ereinabove, in the facts and circumstances of the case and the decisions relied upon, that the assessee is not entitled to claim exemption u/s.10(38) of the Act. We find no infirmity in the order of CIT(A) and it is justified - Decided against assessee Addition made on account of commission charged - AO on an examination found a commission @ 5% has was paid for arranging capital gain as payment of such a commission is a common practice - HELD THAT:- In view of the fact that we have countenanced the conclusion of the authorities below in treating the long term capital gain from transfer of shares as bogus, the sequitur is that the assessee did pay commission for arranging the bogus capital gain. However, considering the totality of the facts and circumstances of the instant case, we are of the considered view that the rate of commission be reduced to 2% instead of 5%. Thus, ground No.8 raised by the assessee is partly allowed. Addition made on account of set off of interest against professional fee - HELD THAT:- No evidence whatsoever put forth by the Ld. AR showing the said ₹ 24,00,000/- is a professional receipt from M/s. Sagar Paridhan Pvt. Ltd. Admittedly, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verification of activities of LD PL by visiting its website. 5. Further, the AO examined summary of financials of LD PL and observed that the total number of paid shares was increased by 151 times and there was no material corporate investment to support price rise of its scrip. On examination of trading frequency he was of the opinion that the transactions were conducted in a circular fashion involving the trade frequency, volume generation, contribution to price rise and buying behaviors and no demand for the shares of LD PL which is a little known trading company during 2011-12 and price rise gained only during 2013- 14 and held no justification for such price rise. 6. Regarding the assessee, the AO held that there was no substantial activity nor any investment in shares during the previous year records, thereby, the AO doubted the investment activity of assessee in purchasing 25,000 shares of LD PL for ₹ 15,00,000/- , was of the opinion that the purchase of shares of LD PL is a predetermined action to book Long Term Capital Gain by way of dubious methods with a specific intention, held the Long Term Capital Gain shown by the assessee is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share listed in stock exchange and the said LD PL had share capital and reserves of ₹ 21.27 croers as on 31-03-2014 and had shown revenue of ₹ 40.85 crores during F.Y. 2013-14. The assessee had nothing to do with the alleged modus operandi as discussed by the Assessing Officer and it had no connection with the persons or entities mentioned by the Kolkata Investigation wing. The assessee did not know and had not dealt with any of the persons and entities alleged to be involved in the above said modus operandi. 9. Shri Abhay Agarwal, further submits that the assessee does not know the buyer of the shares sold by the assessee and does not know the entity by name Divyadrishtri Traders Pvt. Ltd. for short hereafter as DTPL and neither have entered into any transactions with it nor with Gateway Financial Services Ltd for short hereafter as GFSL. 10. Further, Shri Abhay Agarwal, the ld. AR referred to Paper Book-II (Legal) has placed reliance on the orders of ITAT, Kolkata and Delhi Benches in the cases of Shri Narendra Kumar Sarogi and Smt. Radhika Garg reported in 55 CCH 2, respectively. He submits that both the Co-ordinate Benches dealt wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PL is a paper company which provides accommodation entries, referring to answer to Q. No. 27 and submitted that the Mr.Anuj agarwal admitted that all the companies mentioned therein were using the same address as their registered office and no books of account are maintained. Further, he submits that Shri Soumen Choudhary an employee of GFSL in response to Q. No. 7 replied that GFSL provide Capital Gains/loss entries to various entities thorough different jamakarchi companies and the LD PL is one of the major scrip dealt by the GFSL for bogus Long Term Capital Gain purpose. The ld. DR placed reliance on the orders of Co-ordinate Benches of Pune and Delhi Tribunal in the cases of Rajkumar B. Agarwal Vs. DCIT in ITA Nos. 1648 1649/PUN/2015 for A.Ys. 2005-06 and 2006-07 and Shri Dandeep Bhargava Vs. ACIT in ITA No. 420/Del/2019 for A.Y. 2015-16 respectively. 14. Heard both parties and perused the materials available on record. We note that the Assessing Officer doubted the credibility of LD PL and its operations and how the assessee would make such a huge investment in LD PL which is not a large cap or mid cap scrip in conventional market sense, wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e assessee the beneficiary, LD PL a paper compnay, DTPL is exit provider, KORP SL and GFSL the brokers, the shares were allotted on preferential terms to the entities connected and related directly to LD PL. There is no dispute period in which the prices of LD PL during the period January, 2011 to 2013 trading between ₹ 0.80 per share to ₹ 0.85/- per share and in October, 2014 the prices went up to between ₹ 280/- to ₹ 290/-. It is needless to say the appreciation is about 350 times. We note that the Assessing Officer examined the financials of LD PL and as rightly pointed out by the ld. DR, the profit of loss account as on 31-03-2013 which is at page 20 clearly shows that LD PL no revenue was shown from business operation. Therefore, it is clear when the assessee got shares of LD PL on preferential basis, there was no business activity of LD PL as clearly evident from the profit and loss account as discussed above, in spite of which purchase of shares of said entity supports the view of AO and CIT-A that it is a predetermined action with a specific intention to derive Long Term Capital Gain by dubious method. Accordingly, we hold the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough there is no profit business activity of the said company. 20. The assessee beneficiary held the preferential shares from 29-11-2012 to 19-11-2013 in which year the 25,000 shares have become ₹ 2,50,000/- shares by conversion and started selling the said shares from 10-06-2014 to a dummy paper company of the operator and assessee the beneficiary provided unaccounted cash by many layers to the operators. To prove above scheme of method, Shri Jeevan Bachhav, the ld. DR brought our attention to page No. 19 of the Assessing Officer s order and submitted that the paper company the DTPL is the buyer of shares of assessee which were transferred to KORP SL which is managed by Anuj Agarwal. 21. In this regard we note that the DDIT, Kolkata Investigation wing recorded statement of Mr. Soumen Choudhary representing the GFSL in reply to Q. No. 7 at page 32 of AO s order he clearly explained the mode of method share broking activity. He stated that he is an employee of M/s. Gateway Financial Services, the GFSL which is engaged in the business of share broking through the Bombay Stock Exchange platform. It is active in the equity segment. The firm buys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e beneficiary is intimated by the operator or an agent of the operator to provide cash which can be routed to some other jamakharchi company/entity to buy these shares from the beneficiary. The cash received from the beneficiary is then hand over to the operator through agents are directly. The entry operator then routs and layers back this cash so received into various paper entities that are controlled and managed by him. This paper entities that have received layered money are then used as dummy buyers (counter parties) for buying the rigged/artificially jacked up shares from the beneficiary. When the buyers (counter parties) are ready, then the entry operator intimates the beneficiary to sell specific number of shares at a specific price and a specific time. This ensures that the shares of only the beneficiary as directed by the operator are bought through the dummy buyer. The transactions takes place through stock exchange and brokers and some nominal commission is charged in cash on the net pre-arragneged 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 the ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed above. Ans. Sir KORP Security Limited is a share trading company. Apart from this no actual business activities being carried out by the abovementioned companies. These companies were created for sole purpose of providing accommodation entries in form of long term capital gain to various beneficiaries. Q. 15 Please state who are the directors in Divyadrishti Traders Pvt. Ltd. and Divyadrishti Merchant Pvt. Ltd. Ans. Sir, we have created these companies to provide accommodation entries in the form of LTCG. Sir, Kinkar Bhatcharya and Sukhanta Chatergy are dummy directors in these companies. These are papers companies and having its office address at 163B, M.G. Road, Third Floor, Kolkata-700007. Q. 16 Please provide modus operandi of providing accommodation of long term capital gain. Ans. Various clients used to approach ask to get long term capital gain for the securities holded by them for years. He used to charge brokerage for arranging above transaction. After holding the equity share for more than one year clients used to sell such shares on very higher rates. Such shares are bought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was recorded u/s 131 of the Income Tax Act, 1961. Please go through the statement of Mr. Anupam Bajoria and offer you comments? Ans. Sir, I have gone through the statement as I have already stated that these companies are controlled and managed by me in which Mr. Kinkar Bhatacharya and Sukanta Chatergi are directors. Mr. Rajesh Jain is my part time accountant and looks after the accounts of aforesaid mentioned companies. In fact, the companies are using the address as it registered office, however, no books of accounts are maintained there. 28. On perusal of the above answer of Anuj Agarwal, clearly demonstrates that the above jamakharchi companies like in the present case LD PL, DTPL, KORP SL and GFSL are created for the purpose of accommodation entries in respect of booking bogus long term capital gain/loss for a prospective beneficiary having no credible financials and economic foundations, which clearly supports the view of both the authorities below in doubting a transaction lead to claim long term capital gain in the hands of assessee the beneficiary, is bogus. In view of the above, we find the reply provided by the DTPL in response to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the present case and the issue involved before us is identical to the substantial question of law raised before the Hon ble High Court of Bombay at Nagpur, the ratio laid down therein is, in our opinion, applicable to the present case. Thus, grounds raised by the assessee are liable to be dismissed. 31. Regarding the decision of Hon ble High Court of Delhi in the case of Suman Poddar, we find that the assessee claimed long term capital gain as exempt income u/s.10(38) of the Act. The AO doubted the said transactions in purchasing the shares of M/s. Cresenta Solutions Ltd. and on examination of details of financials of said company the AO treated the said transaction as bogus and denied the exemption as claimed by the assessee u/s.10(38) of the Act. The CIT(A) confirmed the view of the AO. The ITAT in the Second Appellate proceedings confirmed the order of CIT(A) in denying the exemption claimed by the assessee u/s.10(38) of the Act. The Hon ble High Court of Delhi while dealing with the substantial question of law was pleased to observe, that to gain benefit of long term capital gain at the rate of 491% over a period of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the frequencies and probabilities. (iii) The books did not show any drawings on race days or on the immediately preceding days for the purchase of jackpot combination tickets. (iv) The gross amounts were credited with capital account with no debits and (v) did not show interest in races from 1972 onwards. The Hon ble Supreme Court by referring to a decision in the case of Durga Prasad More reported in 82 ITR 540 (SC) held that the issue is to be considered by applying the test of human probabilities taking into consideration the surrounding circumstances and upheld the majority opinion rendered by the Two Members of the Settlement Commission. 34. In the case of M/s. Royal Rich Developers Pvt. Ltd. of Hon ble High Court of Bombay wherein the facts are that the assessee had issued 9,37,500 equity shares at a face value of ₹ 10/- with a premium of ₹ 30/- per share and received ₹ 3.75 crores by way of share application money. The AO examined the source of said receipt and held the said receipt is assessee s unexplained cash credit. The CIT(A) confirmed the view of AO by considering detailed remand report. The Tribunal agreed with the findings of CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case and the decisions relied upon, that the assessee is not entitled to claim exemption u/s.10(38) of the Act. We find no infirmity in the order of CIT(A) and it is justified. Thus, ground nos. 1 to 7 raised by the assessee fail and are dismissed. 37. Ground No.8 is relating to confirmation of addition made on account of commission charged in the facts and circumstances of the case. It is noted that the AO on an examination found a commission @ 5% has was paid for arranging capital gain as payment of such a commission is a common practice. He, therefore, made an addition of ₹ 5,20,115/- (₹ 1,04,02,303/- @ 5%) as unexplained expenditure u/s 69 of the Act. The CIT(A) confirmed the same. 38. In view of the fact that we have countenanced the conclusion of the authorities below in treating the long term capital gain from transfer of shares as bogus, the sequitur is that the assessee did pay commission for arranging the bogus capital gain. However, considering the totality of the facts and circumstances of the instant case, we are of the considered view that the rate of commission be reduced to 2% instea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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