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TMI Blog2021 (10) TMI 1251X X X X Extracts X X X X X X X X Extracts X X X X ..... During investigation when statement of assessee was recorded as to how he had paid the amount of ₹ 4,52,000/- and as to what is the name of the seller of the shares of M/s. Kappac Pharma Limited, he has given evasive reply making the entire transaction doubtful. Questions put to assessee during investigation and answers given thereto during his recording of statement u/s 131 Statement of the assessee recorded during investigation leads to the irresistible conclusion that the assessee has not discharged his onus to prove that the entire transaction was genuine because it is incomprehensible that a person, assessee in this case, who is constantly in touch with the person since 25.06.2012 when he has purchased the scrips by making payment through undisclosed cash, then got the scrips dematerialized on 30.12.2013 only after legalizing amount of ₹ 4,52,000/- through IDS, 2016, thereafter he got the amount of ₹ 4,52,000/- returned and paid him the amount through cheque on 31.12.2013, but strangely stated that, I do not particularly know the parties from whom or to whom he bought and sold the shares . Evasive reply coupled with undisputed fact narrated in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of ₹ 50,36,026/-. During scrutiny proceedings, Assessing Officer (AO) noticed that the assessee has claimed capital gains of ₹ 2,72,85,500/- as exempt under section 10(38) of the Income-tax Act, 1961 (for short the Act ) from the sale of scrip of M/s. Kappac Pharma Limited. 3. Apart from the investigation conducted by the AO, he has taken note of country-wide investigation carried out by the Directorate of Investigation, Income-tax, Kolkata to unearth the organized racket for generating bogus entries of Long Term Capital Gains (LTCG) to be claimed as exempt from tax. Numerous cases have been unearthed and individuals have been identified who were beneficiaries of such bogus entries of LTCG amounting to several crores from 2010 to 2014. 4. AO noticed that assessee being the beneficiary of such bogus entries purchased and sold the shares of M/s. Kappac Pharma Limited, detailed as under :- Scrip Purchased M/s. Kappac Pharma Ltd. No. of shares purchased 40000 Date of purchase At various dates Amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the facts and circumstances of the case. 8. Undisputedly, assessee purchased 40,000 shares of M/s. Kappac Pharma Limited on 25.06.2012 from M/s. Girish Metals (P) Ltd. @ ₹ 11.30 per share against cash from undisclosed sources for a total consideration of ₹ 4,52,000/-. It is also not in dispute that aforesaid 40,000 shares were credited to the DEMAT account of assessee on 30.12.2013. It is also not in dispute that assessee has declared said amount of ₹ 4,52,000/- under Income-tax Disclosure Scheme (IDS), 2016, which was accepted by the Principal Commissioner of Income-tax. It is also not in dispute that the assesses sold aforesaid shares in AY 2014-15 during the period 09.01.2014 to 23.03.2014 for a total sale consideration of ₹ 2,77,37,500/- and claimed to have earned Long Term Capital Gain (LTCG) of ₹ 2,72,85,500/-. It is also not in dispute that aforesaid shares were sold through stock exchange by way of contract note. It is also not in dispute that SEBI has temporarily suspended dealings in M/s. Kappac Pharma Limited shares and has taken action against its promoters and stock brokers. It is also not in dispute that Directorate of Investigati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22.11.2019, Shri Sourabh Khandelwal vs. Pr.CIT WP Nos.1918/2018 1922/De018, CIT vs. Sanghamitra Bharali 361 ITR 481, Udit Kalra vs. ITO, Ward 50(1) in ITA 220/2019 judgment dated 08.03.2019, Manvi Khandelwal vs. ITO in ITA No.3212/Del/2018 for AY 2014-15 order dated 26.11.2019, Pooja Ajmani vs. ITO in ITA No.5714/Del/2018 order dated 25.04.2019 Shri Abhimanyu Soin vs. ACIT in ITA No.951/Chd/2016 order dated 18.04.2018 . 12. However, on the other hand, ld. AR for the assessee to repel the arguments addressed by the ld. DR for the Revenue relied upon the impugned order passed by the ld. CIT (A) and contended inter alia that AO made addition merely on the basis of suspicion by relying upon borrowed investigation collected by the Directorate of Investigation, Income-tax, Kolkata; that assessee has entered into purchase and sale of shares at prevailing market price and mildness in the business for a particular period cannot be viewed adversely; that AO has recorded incorrect fact in the assessment order that assessee has not availed of the opportunity of cross examination to cross examine the persons who have confirmed on oath that they have provided bogus LTCG rather assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (in Cr.) 2016 2015 2014 2013 2012 Income Statement Revenue - - - - - Other Income - - - - Total Income - - - - - Expenditure -0.02 -0.08 -0.08 -0.08 -0.06 PBIT -0.02 -0.08 -0.08 -0.08 -0.06 Depreciation - - - - - PBT -0.02 -0.08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the parties and perused the records especially the impugned order. I find that AO after a detailed analysis of the investigation report with the materials available on record in the case of the assessee and on further examination of the financials of Kappac Pharma Ltd., price volume of the scrip of Kappac Pharma Ltd., concluded that the modus operandi adopted by the assessee followed the pattern discovered by the Investigation wing during various search and survey operations. It was held that that the transactions showing long term capital gain, which had been claimed by the assessee as exempt under section 10(38), were sham transactions. It was held that it was a case of bogus long-term capital gain obtained through brokers and that the assessee had used colourable device for avoidance of tax. The receipt of ₹ 23,68,313/- was deemed to be income under section 69A. The assessee has contended that 4,000 shares of Kappac Pharma Ltd. purchased from Corporate Stock Broking (P) Ltd. at a price of ₹ 13.09 per share in physical form. It has also been submitted that out of the 4,000 shares, 3000 shared were sold on 04/02/2014 for @₹ 677 per share and another 500 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the fact and circumstances of the case brought on record by the Assessing Officer after proper examination of the material facts and after taking into account the findings of SEBI and corroborating evidences gathered by the Directorate of Investigation, Kolkata against a network of brokers and operators engaged in manipulation of market price of shares of certain companies controlled and managed by such persons with a purpose to provide accommodation entries in the form of long term capital gains. Further, the contention of the assessee that long term capital gains cannot be treated as bogus merely because some investigation with regard to certain company and broker or investigation has been carried out by the Directorate of Investigation, Kolkata only proves that the appellant wants to take shelter under such documentary evidences which themselves have been created as masks to cover up the true nature of transaction. A genuine transaction must be proved to be genuine in all respect. The onus was on the appellant to prove that the transaction leading to claim of long term capital gains was distinctly genuine transaction and not bogus, premeditated transaction arranged with a v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee proceeding, the assessee has failed to produce any evidence to prove that the long term capital gain claimed by her was genuine. In the present case, it is seen that the assessee has failed to discharge her burden of proof and the Assessing Officer, on the other hand, has proved that the claim of the appellant was incorrect. The enquiry conducted by SEBI was further corroborated by the investigation carried out by the Directorate of Investigation, has been thoroughly analysed by the Assessing Officer to prove that the assessee has introduced bogus long term capital gains in her books of account by routing her unaccounted income through a tax evasion scheme. The statement of brokers engaged in providing bogus long term capital gains clearly proves that Kappac Pharma Ltd. is one of such companies whose scrips have been manipulated to provide bogus long term capital gains. It is noted that on similar facts and circumstances, Hon'ble ITAT A-Bench, Chandigarh in the case of Shri Abhimanyu Soin vs ACIT, Circle-7, Ludhiana in ITA No.951/Chd./2016 vide order dated 18/04/2018, have expressed the view that the undisclosed income in the garb of long term capital gain has to be assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the reality of such recitals. Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal. Therefore, the Courts and the Tribunals have to judge the evidence before them by applying the test of human probability. Human minds may differ as to the reliability of piece of evidence, but, in the sphere, the decision of the final fact finding authority is made conclusive by law. 5.2 I further find that the above ratio as laid down by the Hon'ble Supreme Court has been reiterated and applied by the Hon'ble Apex Court in the case of Sumati Dayal vs. CIT (214 ITR 801). It is essential on the part of the Assessing Officer to look into the real nature of transaction and what happens in the real word and contextualize the same to such transactions in the real market situation. Further, in the case of McDowell : Co. Ltd.[(1985) 154 ITR 148 (SC)],the Hon'ble Supreme Court have observed as under: Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of ₹ 27,20,457/- in the identical facts and circumstances, which has further been confirmed by Hon ble Delhi High Court in ITA 220/2019 order dated 08.03.2019 by returning following findings :- This court has considered the submissions of the parties. Aside from the fact that the findings in this case are entirely concurrent - A.O., CIT(A) and the ITAT have all consistently rendered adverse findings - what is intriguing is that the company (M/s Kappac Pharma Ltd.) had meagre resources and in fact reported consistent losses. In these circumstances, the astronomical growth of the value of company's shares naturally excited the suspicions of the Revenue. The company was even directed to be delisted from the stock exchange. Having regard to these circumstances and principally on the ground that the findings are entirely of fact, this court is of the opinion that no substantial question of law arises in the present appeal. 19. Coordinate Bench of the Tribunal in case of Manvi Khandelwal (supra) also decided the issue as to claiming LTCG exemption u/s 10(38) of the Act on the basis of scrips of M/s. Kappac Pharma Limited on the basis of which assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance in Form 2. 29) Please state the name of the seller for shares of Kappac Pharma Limited? Ans. I do not particularly know the parties from whom or to whom I buy or sell shares. My records show that the shares were sold to me by some company named Girish Metals Pvt. Ltd. 23. Perusal of the aforesaid statement of the assessee recorded during investigation leads to the irresistible conclusion that the assessee has not discharged his onus to prove that the entire transaction was genuine because it is incomprehensible that a person, assessee in this case, who is constantly in touch with the person since 25.06.2012 when he has purchased the scrips by making payment through undisclosed cash, then got the scrips dematerialized on 30.12.2013 only after legalizing amount of ₹ 4,52,000/- through IDS, 2016, thereafter he got the amount of ₹ 4,52,000/- returned and paid him the amount through cheque on 31.12.2013, but strangely stated that, I do not particularly know the parties from whom or to whom he bought and sold the shares . Evasive reply coupled with undisputed fact narrated in the preceding para shows that the entire transactions as to purchasing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in making investment in an unknown stock and then selling the same as per convenience by rigging prices at astronomical rates shows that the entire transaction is a colourable device to evade the taxes. 27. Hon ble Apex Court in CIT vs. Durga Prasad More 82 ITR 540 while deciding the identical issue whether apparent was not real and in those circumstances, taxing authorities were held entitled to look into the surrounding circumstances to find out the reality of such recitals/transactions by returning following findings:- Held, reversing the decision of the High Court, (i) that it could not be said that the finding of the Tribunal as to the unreality of the trust put forward was not based on evidence or was otherwise vitiated; (ii) that the Tribunal did not interpret the two deeds but merely found itself unable to accept the correctness of the recitals in those documents: to accept those recitals or not was within the province of the Tribunal and the High Court could not interfere with its conclusion unless it was perverse or not supported by evidence or was based on irrelevant evidence; (iii) that though an apparent statement mast be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying the test of human probabilities . Because no man of ordinary prudence would invest huge amount of ₹ 4,52,000/- in a consistently loss making company, namely, M/s. Kappac Pharma Limited, particularly when assessee is a novice being not into the share trading prior or after the transaction under consideration; (iii) that the assessee has failed to dispel all the suspicion raised by the AO to establish the genuineness of the transaction in question which apparently does not satisfy the test of human probabilities rather suppressed the correct facts and withheld the name of real seller of shares in question during recording of his statement u/s 131 of the Act; (iv) that business model of M/s. Kappac Pharma Limited, consistently a loss making company, has been examined and held to be a provider of bogus exempt LTCG by using colourable device in order to convert unaccounted money into fictitious exempt LTCG by the coordinate Benches of the Tribunal in numerous cases; and (v) that a genuine transaction needs to be proved to be genuine by the person who substantially asserts the same and not by the Revenue as contended by the ld. AR for the assessee because once ..... X X X X Extracts X X X X X X X X Extracts X X X X
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