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TMI Blog2020 (2) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... ss to set off the tax liability of long-term capital gain arising on sale shares of unlisted companies. The first, issue which has been raised by the assessee that it has not been confronted with the statements of various parties relied upon by the Assessing Officer. The assessee has also contended that opportunity of cross-examining those parties/persons was not provided to the assessee. According to the assessee, this resulted in the violation of the principle of natural justice and thus assessment should be held void ab intio. However, in our opinion, not providing opportunity of cross-examination may be in the nature of irregularity which is curable but not an illegality leading to annulling of the assessment. Further, the ld. CIT(A) of the impugned order has held that addition has not been made solely on the basis of the statement of those persons/parties. As provided as why the investment in the shares transacted by the assessee was not justified in view of the comparison of the other shares available. The Assessing Officer also pointed out the price fluctuation in the shares of the companies over a period, dividend history and other financial parameters to substantiate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the jurisdiction over the case and only mistake is under which section the addition should be made. We reject the contention of the assessee to nullify the order due to wrong application of section by the Assessing Officer while rejecting the claim of the short term capital gain. The grounds of the appeal are accordingly dismissed. - ITA No.1593/Del/2019 - - - Dated:- 7-1-2020 - H.S. Sidhu, Judicial Member And O.P. Kant, Accountant Member Deepak Kapoor, Adv. for the Appellant. Shailesh Kumar, Sr. DR for the Respondent. ORDER O.P. Kant, This appeal by the assessee is directed against order dated 14/01/2019 passed by the ld. Commissioner of Income-tax (Appeals)-8, New Delhi [in short 'the Ld. CIT(A)'] for assessment year 2015-16, raising following grounds: A. Addition of ₹ 1,22,76,352/- BECAUSE the CIT(A)-08, New Delhi, has grossly erred both in law and on facts in denying the claim of set off of Short Term Capital Loss of ₹ 1,22,76,352/- on sale of shares sold on recognized stock exchange and bringing to tax as unexplained credit under Section 68 of the Act. 2. BECAUSE the Ld. CIT (A) has erred in concluding without any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor disputed the genuineness of the transactions, the conclusion arrived in the order is highly whimsical, arbitrary, illogical and wholly untenable. 9. BECAUSE the Ld. CIT (A) while sustaining the above addition has arbitrarily and mechanically rejected the explanation and evidence tendered by the appellant and made the additions and denied the set off by drawing subjective premeditated and preconceived inferences and therefore, the same is not sustainable. 10. BECAUSE various adverse findings and conclusions recorded by the Ld. CIT (A) are factually incorrect and contrary to record, legally misconceived and untenable. B) Addition of ₹ 3,06,908/-. 1. BECAUSE on facts and in law and on grounds taken and basis adopted the addition of ₹ 3,06,908/- under Section 69C read with Section 115BBE of the Act as being unexplained expenditure is unjustified, illegal and unwarranted. The Ld. CIT (A) has simply confirmed the addition holding the same as consequential in nature without application of mind and without passing a reasoned order. The addition of ₹ 3,06,908/-therefore, on facts and in law is perverse, unjustified and illegal. 2. Briefly stated facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in the share prices of the companies under reference vis- -vis their financial performance during the relevant period. The Assessing Officer has summarized his finding in para 4.8 of the assessment order, which are extracted as under for ready reference: 4.8 From the above depiction, it is clear that the assessee has also followed the same modus operandi to set off huge LTCG earned by it during the year. The modus operandi adopted by the assessee, by trading in such scrips, is detailed as under:- i. M/s Kailash Auto Finance Limited ii. M/s Cressanda Solutions Ltd iii. M/s Katra Kaushal Enterprises Ltd (a) The unconventional nature of transaction entered by the assessee in purchase and sale of the scripts of the so called paper companies: M/s Kailash Auto Finance Ltd., M/s Cressanda Solutions Ltd and M/s Matra Kaushal Enterprise Ltd., for the purpose of claiming STCL is nothing but an accommodation entry to set off huge LTCG earned by it during the year. This is corroborated from the following facts and evidences discussed as under. (b) The above companies are obscure companies with no business activity and assets as evident from the balance sheet and financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estigation Report On Manipulation of Penny Stocks and the statements of various Scrip operators. Managers and Brokers, it is self-evident that the scrip price movement was mainly on account of manipulation in a pre-arranged synchronized fashion to book accommodation entries in form of Bogus LTCG as well as provide Shortterm Capital loss to a huge no. of beneficiaries. (i) The assessee has not been able to explain as to how and why did it invest in such scripts without knowing the financial performance of the company. The assessee claims that the transactions are arranged through tax consultants. (j) The assessee is not a regular investor in shares. However, he is a prudent businessman and high on educational qualification. From such an educated person it is expected that due diligence has been done before purchasing a stock. However, the analysis show a very different picture. The investor has only invested in High Risk Stocks only, which during the investigation were found to be penny stocks, a scheme hatched by various players to obtain/provide accommodation entry of bogus LTCG/STCL through manipulation of stock market. This being the case, the assessee has entered into a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailash Auto is such scrips which is engaged in providing accommodation entry in form of LTCG/STCL to various beneficiaries. Beneficiaries are allotted the shares at nominal price and the price of the shares rise artificially by using loopholes of stock exchange mechanism and the shares were sold at desired level to various bogus entities. These bogus entities are paid by the unaccounted money of the beneficiaries in cash. As a result, unaccounted income ploughed back in the file of individuals and HUF's in the form of bogus L.TCG without paying income tax on it. In process the bogus Short Term Capital Loss is also hooked by the entities who wants to reduce their taxability. Q.16 Please specifically mention modus operand of providing bogus LTCG in scripts of Kailash Auto Finance. Ans. Sir. In this scrips of Kailash Auto Finance we have followed amalgamation method. Initially beneficiaries were allotted shares of Panchshul Marketing Pvt Ltd and Careful Projects Advisory Limited on high premium. Later on, these two companies got amalgamated vide high court order into Kailash Auto Finance Ltd. By the virtue of amlgamation shareholders of Panchshul Marketing Pvt. Ltd. and Care ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it correct. Sir, M/s Kailash Auto Finance Limited is a penny stock company and the shares of M/S Kailash Auto finance Limited have been used to provide entry of bogus LTCG and bogus Short Term Capital Loss to various beneficiaries as per their requirement. Q.29 During the course of Survey operation u/s 133A of the Income Tax Act, 1961 on 19-05-2015 at the office of M/s Kailash Auto Finance Pvt. Ltd. at 32/33, Gopal Bhavan, 2nd floor, 199, Princess Street, Mumbai-400002, statement of Mr. Dipan Patel registered office of Kailash Auto Finance Limited. Please go through the statement ant) offer your comment. Ans. Sir, I have gone through the statement of Mr, Dipan Patel and found it correct. 2.4 Sh. Sunil Dokania has also provided list of the entities, who availed the benefit of bogus accommodation entry of long-term capital gain. 2.5 Regarding the shares of M/s. Cresenda Solutions Ltd., the Assessing Officer has reproduced statement of 'Sh. Devesh Uphadhya' given before authorities of Director of Investigation, Kolkata, wherein he admitted of providing bogus entries of long-term capital gain to the beneficiaries on one side and bogus long-term capital loss on o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by him is not in the opinion of the AO satisfactory, the sum so credited may be charged to income tax as income of the appellant of that year. In the present case the appellant's explanation that the said receipt is on account of investment in shares whereby share of unknown company has jumped in no time has been totally rejected by the AO. The appellant has not at all been able to adduce cogent evidences in this regard. There is no economic or financial justification for the sale price of these shares. The fantastic sale price realization is not at all humanly probable, as there is no economic or financial basis that a share of little known company would jump so high, in these circumstances, I do not find any infirmity in the orders of the AO In view of the facts discussed in earlier paras, I am of the considered view that the AO was justified to disallow the claim of Short Term capital Loss and to treat the same as income from undisclosed sources. Therefore, the addition of Rs, 1,22,76,352/- on account of Short Term capital Loss made by the AO is confirmed. This ground of appeal is ruled against the appellant. The other additions of ₹ 3,06,908/- being consequential in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Appeal No. 1006 (Delhi) of 2019, dated 25-7-2019] for assessment year 2014-15 has uphold the addition for bogus long-term capital gain on sale of shares of M/s. Cresenda Solutions Ltd., which confirm that shares of the said company were transacted for providing bogus long-term or short-term capital gain or loss. He submitted that order of the Tribunal has been further upheld by the Hon'ble Delhi High Court. The Ld. DR also relied on following decisions: 1. Udit Kalra v. ITO 2019-TIOL-751-HC-DEL-IT; 2. Sanjay Bimalchand Jain L/H Shantidevi Bimalchand Jain Vs. PCIT (ITA No.18/2017 Bombay High Court (Nagpur Bench); 3. Sanat Kumar Vs. ACIT (2019-TIOL-1296-ITAT-DEL, ITA No. 1881/Del/2018) 4. Pooja Ajmani Vs. ITO [2019] 106 taxmann.com 65 (Delhi-Trib.) 5. Anip Rastogi Vs. ITO (ITA No.3809/Del/2018) 6. Abhimanyu Soin Vs. ACIT 2018-TIOL-733-ITAT-CHD 7. Smt. M.K. Rajeshwari Vs. ITO (ITA No.1723/Bang/2018) 8. Chandan Gupta Vs. CIT [2015] 54 taxmann.com 10 (Punjab Haryana)/[2015] 229 Taxman 173 9. Balbir Chand Maini Vs. CIT [2011] 12 taxmann.com 276 (Punjab Haryana/[2011] 201 Taxman 94 (Punjab Haryana) (MAG)/[2012] 340 ITR 161 (Punjab Haryana)/[2012] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uto Finance Ltd. 38.37 4.12 89.29% (c) Matra Kaushal Enterprises 47.06 13.18 71.99% 4.4 The Ld. counsel of assessee submitted that there was a similar fall in price of the various shares of other companies. He filed a copy of the newspaper report dated 14/10/2019 with the caption Top wealth destroyers: Adozon loss over 90% market value in a year . According to him, loss in the transaction of the shares is normal feature of the present volatile/financial capital market where the value erosion is much faster compared to old times. The ld. Counsel submitted that principle of the preponderance of the probabilities and the ratio of the judgment in the Sumati Dayal v. CIT [1995] 80 Taxman 89 (SC) are not applicable over the facts of the present case. The Ld. counsel submitted that the assessee carried out all transaction on public platform managed by the recognized BSE through registered brokers and there is no evidence whatsoever produced by the Assessing Officer or the CIT(A) specifically and pointedly supporting the allegation that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SMC BENCH 3. - Do- CIT IV vs Fair Finvest Ltd. (2013) 357 ITR 146- Delhi High Court Del 5822 (Date: 22-11-2012 Delhi High Court 4. -Do- MahavirJhanwar vs ITO, Ward- 35(4) ITA No. 2474/Kol/2018 (A.Y. 2014-15) (Date: 01-02-2019) Co-ordinate Bench of Kolkatta ITAT 5. STCL Mangilal Jain vs ITO, Ward-3(3) (related to Short Term Capital Loss) ITA No. 729/Kol/2018 (A.Y. 2014-15) (Date: 15-05-2019) ITAT Kolkatta 6. Share Trading Loss CIT vs M/s Alpine Investments (Share trading loss) ITA No. 620 of 2008 - High Court at Calcutta (Date: 26-08-2008) High Court at Calcutta 7. Unexplain ed credit u/s 68 Ms. KantabenBhogil alKubadia vs ITO- 21(2)(1) ITA No. 1937/Mum/2018 - ITAT MUMBAI (A.Y. 2014-15) (Date: 10-07-2019) ITAT MUMBAI 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s assessment should be held void ab intio. However, in our opinion, not providing opportunity of cross-examination may be in the nature of irregularity which is curable but not an illegality leading to annulling of the assessment. Further, the ld. CIT(A) in Para 4.1 of the impugned order has held that addition has not been made solely on the basis of the statement of those persons/parties. The relevant part of the order of Ld. CIT(A) is reproduced as under: 4.1 I have considered the submission of the appellant and observation of the AO made in the assessment order on the issue The appellant has stated that it has not been allowed cross-examination of parties on the basis of whose statement, the addition has been made. On this issue it is observed from the assessment record that the AO has made the addition on the strength of independent analysis of the documents to arrive at the conclusion that the appellant has failed to prove genuineness of the transaction in respect of STCL as discussed above. Statements and other material found in the course of investigation has been used by him as a corroborative material to strengthen his findings. As per the requirement of section 68 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment order has referred to the general modus operandi of the bogus accommodation entry and thereafter, he has further referred to statement of the parties who had provided accommodation entry through managing and controlling the shares of the companies, in which the assessee has also transacted. The Assessing Officer thereafter asked the assessee to justify the rationale behind investment in these penny stock companies not having financial worth, however, the assessee failed to justify the same. The Assessing Officer provided as why the investment in the shares transacted by the assessee was not justified in view of the comparison of the other shares available. The Assessing Officer also pointed out the price fluctuation in the shares of the companies over a period, dividend history and other financial parameters to substantiate that there was no financial logic for investment in the company except for claim of bogus short-term capital loss against receipt of cash money. The Ld. Assessing Officer accordingly concluded that the addition was made on the basis of the material available on record, the surrounding circumstances, the human conduct and preponderance of probabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies. The price movement of the shares was also found to be unrealistic by him. The Assessing Officer has particularly pointed out that price movement of the relevant shares transacted by the assessee, were not matching with movement of the share market in general and movement of the other scrips in the same line of the business. The Assessing Officer also pointed out that volume transacted in those script was also very low. There was no history of dividend payout by those companies. The ld. Assessing Officer has pointed out that the assessee could not explain, why it invested in such script without knowing the financial performance of the company. The relevant analysis has been reproduced by the Assessing Officer in Para 3.4 (Page-11) of the assessment order. The conclusion of AO has already been reproduced by us in brief facts of the case. 5.2 It was claimed by the assessee that said transactions were arranged through tax consultants. The assessee neither before the ld. CIT(A) not before us has rebutted these adverse finding by the Assessing Officer. The contention of the assessee is that the transactions have been done on recognized stock exchange through registered sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Pertinently, EPS of said company was ₹ 0.01/- as in March 2016, it was Rs. - 0.01/- as in March 2015 and -0.48/- as in March 2014. Similarly, other financial parameters of said company cannot justify price in excess of ₹ 500/- at which Appellant claims to have sold said shares to obtain Long Terms Capital Gains. It is not explained as to why anyone would purchase said shares at such high price. Tribunal goes on to observe in impugned order as follows: 10. With such financials and affairs of business, purchase of share of face value ₹ 10/- at rate of ₹ 491/- by any person and assessee's contention that such transaction is genuine and credible and arguing to accept such contention would only make decision of judicial authorities fallacy. 11. Evidences put forth by Revenue regarding entry operation fairly leads to conclusion that assessee is one of beneficiaries of accommodation entry receipts in form of long term capital gains. assessee has failed to prove that share transactions are genuine and http://itatonline.org could not furnish evidences regarding sale of shares except copies of ITA 841/2019 Page 7 of 10 contract notes, cheques received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. Investigation Wing has also conducted enquiries which proved that assessee is also one of beneficiaries of transactions entered by Companies through multiple layering of transactions and entries provided. Even BSE listed this company as being used for generating bogus LTCG. On facts of case and judicial pronouncements will give rise to only conclusion that entire activities of assessee is colourable device to obtain bogus capital gains. Hon'ble High Court of Delhi in case of Udit Kalra, ITA No. 220/2009 held that company had meager resources and astronomical growth of value of company's shares only excited suspicion of Revenue and hence, treated receipts of sale of shares to be bogus. Hon 'ble High Court has also dealt with arguments of assessee that he was denied right of cross examination of individuals whose statements led to enquiry. ld. AR argument that no question of law has been framed in case of Udit Kalra also does not make any tangible difference to decision of this case. Since additions have been confirmed based on enquiries by Revenue, taking into consideration ratio laid down by various High Courts and Hon'ble Supreme Court, our decision is equall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss claimed by the assessee is not found to be genuine and deserve to be disallowed. The relevant grounds of the appeal of the assessee are accordingly dismissed. 6. The next issue which has been raised by the assessee that no addition could have been made under section 68 of the Act in the case of the assessee. According to the assessee, the case of the assessee is of cash debit and not of cash credit, hence provisions of section 68 are not attracted. We find that the Ld. CIT(A) has rejected this contention of the assessee. We agree with the contention of the asseesee that addition for short term capital loss cannot be made under section 68 of the Act, because addition has not been made for unexplained credit on sale of the shares during the year but in respect of the claim of bogus short capital loss. In the case of the assessee, correct action would be disallowance of claim of the short capital loss of the assessee. However, in our opinion, mentioning wrong section in the assessment order cannot render the entire assessment null and void. It is not the jurisdictional requirement for completing the assessment. The Assessing Officer has correctly acquired the jurisdiction over t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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