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TMI Blog2020 (7) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 accommodation entry providers in the whole scheme. Thus, if it is true that assessee has obtained a bogus long-term capital gain, assessee should have obtained the accommodation entry of the purchase of those shares from any of the accommodation entry providers and when the shares are sold the sales should have been taken as a purchase by any of the exit providers. In such circumstances to prove that the assessee has obtained the bogus long-term capital gain. Financial of the above company of which assessee has sold the shares. It is shown before us a detailed chart showing the financials of the company for last several year - there is no allegation against the company about any wrongdoing either in the securities market or under The Companies Act - profit and loss account the assessee has shown payment of tax and therefore it is also income tax assessee - for year ended on 31st of March 2012 company that company has paid a tax of ₹ 24.50 lakhs and for the earlier year 26.14 lakhs. Therefore, it cannot be said to be penny stock company at all. The learned assessing officer has not brought on record any material to show that this company is not having the genuine sharehol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act. Therefore, though assessee has raised several grounds but they are merely challenging the reopening of the assessment and challenging the addition on the merits. 03. The brief facts of the case show that assessee is an individual. He filed his return of income originally on 29/7/2011 declaring total income of ₹ 74,22,010. Above return was processed under section 143 (1) of the act on 4/3/2013. 04. Subsequently the information was received from investigation wing by the Department that the scheme was hatched by the various players to obtain and provide accommodation entries of the bogus long-term capital gain through manipulation of the stock market. From the perusal of the information and data received from the investigation wing, the learned AO noted that assessee is one of the beneficiaries who booked bogus long-term capital gain by selling 50,000 shares of Nouvea Global Ventures Ltd for ₹ 56,43,084/ in financial year 2010 11 to different parties. The AO further noted that most of the purchases are on abnormal rates and were done by identified paper companies controlled by entry operators and most of those entry operators on oath admitted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... booked bogus long-term capital gain. The detail of such transaction is annexed and is part of the satisfaction note. 4. From the transaction given in the seat attached, it is observed that Sri Sureshkumar Agarwal has sold 50,000 scripts of Nouvea Multi‟ for ₹ 5643084 in financial year 2010 11 to different parties. In the script, NOUVEAU GLOBAL VENTURES LIMITED total trade of ₹ 2038723071/ have been done in the annexed transaction details. From the perusal, it is evident that most of the purchases are on abnormal rates and were done by the identified paper/ Jamakharchi companies controlled by entry operators, most of them on oath admitted to have engaged in providing entries. 5. I have examine the details provided by the investigation directorate of Kolkata, details are available in the ITD system is an information provided by the assessee in the ITR and I am satisfied that the assessee has introduced her unaccounted income in the form of long-term capital gain by manipulating the penny stock. 6. Further the assessee has not offered this income of ₹ 5 643084/ in the return of income for assessment year 2011 12 to taxation and accordingly, clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge norms. He submitted shares sold by the assessee were purchased by different persons through stockbrokers through online trading platform of Bombay stock exchange at different point of time. The assessee received the sale consideration through his broker through proper banking challenge as per the Bombay stock exchange and securities and board of India norms. It was further stated that the assessee had purchased the shares on 12/12/2007 at ₹ 35 per share and sold the same at an average selling price of ₹ 113/ per share in August 2010. Therefore, the price of the shares moved approximately 3.23 time support after holding the investment for a period of three years. He submitted that assessee had those shares in his demat account for three years. Thus, the claim of exemption u/s 10 (38) is genuine. 10. The learned assessing officer considered the reply filed by the assessee and held that assessee has purchased the shares at ₹ 35 per share on 12/12/2007 and assessee has not explained that this purchase price of shares was not on higher side. Assessee has not submitted any documentary evidence that can establish that the purchase price of shares is at average ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the allegation of the assessing officer. v. Edifice of the assumption of jurisdiction was the information supplied by the investigation wing, which was never supplied to the appellant. vi. Proceedings have been initiated based on no material much less any tangible and relevant material and as such, reasons recorded do not constitute valid reasons to believe for initiation of proceedings under section 147 of the act. vii. Reasons of reopening are only based on the borrowed satisfaction and there is no satisfaction of the assessing officer. viii. Initiation of reassessment proceedings is also based on non-application of mind much less independent application of the mind. ix. Proceedings initiated are based on surmises conjectures on suspicion and therefore the same are without jurisdiction. x. Reopening of the assessment is invoked for fishing and roving enquiries, which is not permissible. xi. The reasons recorded are not on perusal of the record because the assessee has shown the long-term capital gain exempt under section 10 (38) of ₹ 3 866678 and the sale price is shown at ₹ 5 622799/ whereas the learned assessing officer has stated that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He submitted that the sale of the shares have been reflected in the Demat account, the copy of Ledger account for sale of shares in the books of the broker, the receipt of consideration in the bank statement for FY 2010 11. He therefore submitted that the sale of the shares are also on online stock exchange platform of the Bombay stock exchange where the time and date stamp are accorded, it cannot be considered as a non-genuine. iv. The assessee is also a habitual investor in the various scripts. He submitted the detailed list of shares held by the assessee and capital gain earned in earlier years. He submitted that the assessee has earned in 2007 08 the long-term capital gain on Swastik Marble private limited and LIC future plans. In 2013 14 the assessee has earned the long-term capital gain exempt under section 10 (38) in Gemstones Ltd . In 2014 15, the assessee has earned long-term capital gain in Unno industries and V and K software. In 2015 16, he submitted that assessee also earned long-term capital gain in Unno industries Ltd. Therefore, he submitted that assessee is a regular investor in the shares. v. There is only a range bound movement in the share price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93 (SC), 2016 (15) SCC 785. He also referred to the several decisions of the honourable Delhi High Court and coordinate benches. viii. Assessee has purchased the shares before three years, maintained those shares in his Demat account for three years, sold those shares on stock exchange; there is no allegation of any entry provider with respect to the transactions made by the assessee through its broker. He submitted that the assessee has maintained the shares in the Demat account of the appellant maintained with Vivek Financial Focus Limited [ Depository Agent ] for all these years. He also submitted the copy of Ledger account of the appellant in the books of the broker, copy of the demat account showing holding of 50,000 shares, copy of contract note for purchase of shares, copy of Ledger account of purchase of shares, copy of bank statement and bank book of the assessee for financial year 2007 08 of the appellant to show the purchases through account payee cheques and copy of acknowledgement of return of income along with computation of income and balance sheet for assessment year 2008 09. He further submitted that during the course of assessment proceedings in assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gation wing was received that the above impugned company in which the assessee has sold the shares and earned the long-term capital gain is a penny stock company and it is being operated by the various entry operators who provide accommodation entry by a distinct modus operandi where the shares are shown to have been purchased at low price of non descript companies, their prices are rigged on stock exchange and then at that price , exit providers are identified where in the sources of money is generated through trails who buy the shares at given date and time and in fraction of seconds the transaction take place at stock exchange platform at predetermined prices resulting in to gain in the hands of the beneficiaries. In the demat account the shares are parked to give it a colour of genuineness, where in fact they do not have any value, the shares are untranslatable other than through entry providers, low volumes are the identification of penny stock companies. Sources from which the entries of shares are put through in demat account are also either through promoters or through entry operators as loan. Income Tax Department through its investigation wing carried certain investiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe , but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether such report is material available to the assessing officer based on which process of reopening can be commenced on not. Our answer to this question is yes. If such an exhaustive detail is available in a material before the assessing officer, it cannot be said that there is nothing in that material against the assessee. The reliance placed by the learned authorised representative heavily on the decision of the Supreme Court in case of ITO versus Lakmani Mewal das 103 ITR 437 (SC) is misplaced. We have already held that the material is available the assessing officer which is not a pure fancy, not merely a suspicion, not a gossip at all, not a rumor and not at all a conjecture or surmises. 20. Now the question arises whether there is any nexus between the such material and the belief of escapement of income. Looking to the material available the basic allegation as per the investigation report was that these are the companies in which large-scale rigging in the price of the stock exchange has been done by the entry operators providing long-term capital gain to the beneficiaries. In such report of investigation wing there was a direct name of the assessee was found to be a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l gain on sale of the shares but has not offered same for taxation but has claimed exemption u/s 10 (38) of the act. Therefore there is a clear-cut application of mind on the information (material) received by the assessing officer having direct nexus with the belief of the escapement of income. Now the assessee has challenged that the learned assessing officer has not independently applied his mind. It is merely a statement was no evidence placed by the assessee before us to show that the learned assessing officer has not placed any villains on record. The burden of saying so is always on the assessee to prove that that the assessing officer did not independently apply his mind on the material available for reopening of the assessment. Such is the verdict of the honourable allowable High Court 246 ITR 560 in Gupta and Co (SK ) versus ITO. Therefore, in absence of any evidence placed by the assessee that there is non-application of mind by the assessing officer, this argument merely an argument argument without any legs to stand thereon. The process of reasoning given by the learned assessing officer in the present case clearly goes from the material received from the investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecording reason and then issuing the notice to assessee, it could have straightway provided that the assessment would be made on the basis of the material available but that is not the case. Thus, it does not mean a subjective satisfaction on the part of the assessing officer. It is merely a prima facie belief. 24. Thus even assessing officer acts as a reasonable and prudent man on the basis of information gathered there is a good case for reopening of the assessment being held valid. 25. The next contention of the learned authorised representative is that the learned assessing officer has mentioned in the reasons recorded that the investigation conducted by the directorate of investigation Calcutta and statement of various entry operators recorded by the investigation wing. However, despite asking the learned assessing officer has not exceeded to the request of the assessee to give him copies of the same. On careful analysis of the argument of the learned authorised representative, we failed to understand why assessee wants the copy of the investigation report. Before that, we state that such investigation report is available in public domain. Despite this, we try to address ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on this issue. However, the learned authorised representative could not show us that varies the copy of the approval based on which he is alleging that such approval is mechanical. In view of this argument of the learned authorised representative deserves to be rejected. 27. In view of our above finding on the reopening of the assessment, we do not find any infirmity in the order of the learned assessing officer as far as the reopening of the assessment is concerned and confirmation thereof by the learned Commissioner of income tax appeals. Accordingly, we hold that there is no infirmity in the reopening of the assessment by the lower authorities. Thus, Ground number one and all its up ground are rejected. 28. Now we come to ground number [2] , which challenges the addition of ₹ 5 643084 on account of the sale proceeds received by the assessee on sale of equity shares through stock exchange held to be chargeable to tax by the learned assessing officer u/s 68 of the income tax act. At the cost of repetition, once again the fact shows that assessee has purchased 50,000 shares of Nouveau global ventures Ltd on 12 December 2007 for ₹ 1756121/- through his broker Ala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paper/jamakharchi companies controlled by entry operator is concerned, we waste to submit that all the transactions of sales had been done through screen-based trading on the recognized stock exchange. The assessee does not have any details about the identity of the persons to move he sold shares. In this regard, we would like to appraise your good self that it is undisputed in case of screen-based trading, all trades executive in OPEC screen, wherein the persons do not get to choose counterpart to the trade. The automated system itself matches orders on apprise/time priority basis and hence is not possible for anybody to have access over the identity of counter party dealing in any transaction. Since the counter party identity not displace, one can never have any choice with whom it wants to deal or not to deal. 10.1 The reply of the assessee has been per used and found that the assessee has stated that he purchased shares at the rate of ₹ 35 per share on 12.12.2007. The assessee has neither explained that this purchase price of shares was not on higher side note the assessee has submitted any documentary evidence that can establish that the purchase price of the share i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of the sale of shares in the books as long-term capital gain. For implementing the scheme, sales of some penny stock companies were used. The same modus operandi adopted for providing accommodation entry of bogus loss. Penny stocks are those stocks which trade at very low price and whose market capitalization is very low. The low price of the penny stock makes manipulation of the sale price very easy. 6.1 On perusal of the information data, it was observed by the AO that the appellant was one of the beneficiaries, who booked bogus long-term capital gain. From the given transaction, it was observed that the appellant at sold 50,000 scripts of ‟Nouvea Multimedia‟ four ₹ 5,643,000 zero 84/ in financial year 2000 11 to different parties. In the script, Nova global ventures Limited total trade of ₹ 2,038,723,071/ has been done and it was shown in the transaction details. From the perusal of data, it was evident that most of the purchases were on abnormal higher rates and were done by the identified paper companies controlled by entry operators, most of them on oath admitted to have been engaged in providing entries. 6.2 In view of the above discussio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roker. Therefore, the assessee has discharged the prime of onus cast up on him. In the circumstances we are reminded of the decision of the honourable Delhi High Court which dealt with the taxability of accommodation entry and consequent pendulum of action required from the side of the assessee as well as AO in case of Commissioner of Income-tax v. Nova Promoters Finlease (P) Ltd.* [2012] 18 taxmann.com 217 (Delhi)/[2012] 206 Taxman 207 (Delhi)/[2012] 342 ITR 169 (Delhi)/[2012] 252 CTR 187 (Delhi) wherein it has been held as under:- 38. The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the long-term capital gain exempt u/s 10 (38) of the income tax act of this company. In the same report at Chapter number 3, the list of all these 84 companies are given with reference to action taken on them by Securities and Exchange Board of India [ SEBI]. At serial number 71 is the name of this company against which no such action has been mentioned. Further, at para number 10 of the report it has shown that there are 18 exit providers and 5 accommodation entry providers in the whole scheme. Thus, if it is true that assessee has obtained a bogus long-term capital gain, assessee should have obtained the accommodation entry of the purchase of those shares from any of the accommodation entry providers and when the shares are sold the sales should have been taken as a purchase by any of the exit providers. In such circumstances to prove that the assessee has obtained the bogus long-term capital gain, The learned assessing officer should have examined i. The assessee by issue of summons u/s 131 of the act to know about the basic facts about these investments such as the business of the company, how assessee came to know about investment credentials of these company, history of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estigate the peeny stock cases. None of those steps were found in this case All these information could have been obtained by the assessing officer by issue of 133 (6) notice to the depository as well as to the stock exchange and the respective broker. However, despite having the basic information available with the assessing officer he has chosen to sit and become a mute spectator. When the assessee has provided the complete information, which would have been available with the assessee in the documentary format, the role of the assessing officer starts as an investigator of the information furnished by the assessee, when he recorded the reason, he formed a prima facie reason to believe that there is an escapement of income. He should have converted his reason into the fact by making an investigation on the information provided by the assessee. For the reasons best known to the assessing officer, he did not do anything on the information provided by the assessee. He merely made the addition holding that assessee has not shown justification for purchase of shares at a very high price. The assessee has submitted a complete month -wise chart of highs and lows of the share of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial to show that this company is not having the genuine shareholding. 33. However we disagree with the argument of the ld AR that assessee if he is a habitual investor cannot enter in to the penny stock transaction of obtaining bogus long term capital gain. Assessee has shown that he has earned long term capital gain in many companies in subsequent year, but many of those companies are also in the list of penny stock prepared by the Investigation wing such as UNNO Industries . Therefore we reject that argument. 34. In these circumstances, the addition in the hands of the assessee is not sustainable when the details furnished by the assessee were not at all controverted by bringing cogent material and investigation made thereon by the ld AO. The assessee has shown the long-term capital gain exempt u/s 10 (38) of the act amounting to ₹ 3,866,678. The purchase value of those shares was ₹ 1,756,121/ . The learned AO has made the addition of the full value of the consideration received by the assessee on sale of those shares amounting to ₹ 5,643,084/-. Thus, ground number two of the appeal of the assessee is allowed. 35. In the result, appeal of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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