9911796707
TMI Blog2022 (3) TMI 829X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the period which the assessee had entered into the transaction. This fact itself nails the finding of the AO which has discussed in detail and also by the ld. CIT(A). It is immaterial that order of the SEBI came in 2018 because the SEBI has analysed the entire trading of shares from year 2013 and found that not only the prices of the scrips of the said company were rigged but also were involved in fraudulent activities, which led to completely debarred its trading in the stock exchange. This order of SEBI clearly implicates, the entire transaction of purchase and sale of shares and goes to prove that the transaction was not genuine and corroborates the findings of the enquiry conducted by the Income Tax Department. All these enquiries conclusively proved that the trades have been manipulated and the gains or the losses made by the beneficiaries cannot be said to be genuine. We hold that the transactions in the present appeal are yet another example of the constant use of the deception of stock market transaction to bring unaccounted money into banking channels. This device of stock transactions of unworthy stocks with no profits continues to plague the legitimate economy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court is satisfied that by recording in his own writing the words: Yes, I am satisfied , the mandate of Section 151(1) of the Act as far as the approval of the Addl. CIT was concerned, stood fulfilled.There has been an independent application of mind that the Assessing Officer which deciphered from the reasons recorded by the Assessing Officer. The price of shares has been risen from ₹ 26.50 to ₹ 392.00 (average) any span of 13 months.The company had no profit/ meager profit to demand such price.The assessee is not a regular trader investing in the stock market transactions. In the entire period of 5 years, there was only highest spurt for the smallest period wherein the sale took place in the entire period between 2010 to 2015 as depicted in the graph above showing typical bell shape.The shares were purchased of market from private party. No iota of due diligence viz. the advisor, the analysis of fundamentals, the profits, the assets undertaken by the assessee. The order of the SEBI dated13.03.2019 and 22.12.2020 proving the manipulation in trading of the scrips. The undeniable proof of involvement of the broker ISF Securities found by the SEBI. Order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re (refer para 3 5 of reasons recorded); v) That as stated in opening para of reasons recorded mere suspicion created by investigation wing information is made as sole basis to form belief which is proscribed in law; vi) That to make deep scrutiny reopening u/s 148 is made as stated in penultimate para of reasons recorded; vii) That existence of information relied in reasons before Ld AO at the time of reasons recording is disputed and seriously questionable; 1.2 That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without appreciating that no back material like investigation wing report details vis a vis assessee, etc, was lawfully confronted to assessee thus invalidating entire reopening (much less cross examined as per due process of law); 1.3 That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without valid approval from superior authority under the Act; 1.4 That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never co-related even remotely to the facts of the present case as there is no iota of evidence brought on record which can display that assessee herein has inducted certain cash at the time of sale to certain indentified broker/middleman/syndicate member who has in turn introduced certain identified artificial paper company for alleged parking of said cash to buy the shares sold by the assessee which theoretical trail has remained inchoate completely modifying the entire basis of the addition. 5. That on the facts and in the circumstances of the case and in law, Id AO and Ld CIT-A erred in making and sustaining subject additions without appreciating that law gives discretion to the assessing officer in applying deeming fictions u/s 68 as applied by Ld AO as firstly opinion and satisfaction u/s 68 as not been objectively arrived in facts of present case on due application of mind secondly assessee has no economic capacity and source to generate given amount of unaccounted income, thirdly law requires that additions under said deeming fiction cannot be made sans incriminating material brought on record which is completely lacking in present case Lastly section 68 does not app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice u/s 143(2) of the Act. ii) To delete the addition of ₹ 24,69,636/- on a/c of alleged bogus LTCG. iii) To quash assessment order and Id CIT-A order for being passed in serious violation of audi altrem partem. iv) To hold section 68 etc does not apply to sale of shares and that too sans credit in books of account maintained by assessee; v) To restore returned income vi) Any other appropriate relief Excerpts from the Assessment Order: 3. The assessee is an individual and during the relevant year, the assessee is house wife only earn interest income on FDRs and saving bank account as income from other sources and also earned Long Term Capital Gains being exempt u/s 10(38). 4. The assessment proceedings u/s 147 of the Income Tax Act, 1961 were initiated by recording reasons and notice u/s 148 of the Act dated 31.03.2018 was issued with prior approval of the Addl. CIT, Delhi-38, New Delhi, Notice u/s 148 dated 31.03.2018 was sent through Speed post requiring the assessee to furnish her Return of income within 30 days in response to notice u/s 148. The assessee did not comply with this notice nor had filed her return of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bilities. Thus a deeper study was needed to ascertain whether the transactions were genuine investment transactions or colorable device only to convert the unaccounted cash into tax exempt income. In short, it was to be ascertained whether the apparent was real. 11. The scrip were thoroughly examined and the following facts emerged: Facts of the Share namely M/s Esteem Bio (EBFL) 12. The revenue held that from the Individual Transaction Statement of the assessee and the Investigation Report on Manipulation of penny stocks for bogus Long Term Capital Gain (hereinafter referred as LTCG), it was noticed that the assessee is a LTCG beneficiary and during the relevant year has earn LTCG exempt u/s 10(38) of net amount of ₹ 21,03,034/- through transactions in the impugned scrip of M/s Esteem Bio (EBFL). 13. The investigation report was thoroughly perused by the AO and after going through the relevant material and statements recorded on Oath u/s 131(1), it was evident that the scrip was operated in a well-coordinated and pre-arranged fashion to provide transactions in the form of bogus LTCG. Accordingly, a detailed study and enquiry was made regarding the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Net worth 27.32 25.48 8.56 5.89 3.75 Unsecured Loans 0.39 0.73 3.24 3.38 3.47 Total Debt 0.39 0.73 3.24 3.38 3.47 Total Liabilities 27.71 26.21 11.80 9.27 7.22 Application of Funds Gross Block 13.32 12.69 6.18 5.33 4.24 Less: Accum. Depreciation 1.10 0.52 0.00 0.00 0.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------ Mar 14 Mar 13 Mar 12 Mar 11 Mar 10 12 mths 12 mths 12 mths 12 mths 12 mths Income Revenue From Operations (Gross) 3.20 6.43 0.90 0.23 0.00 Revenue From Operations (Net) 3.20 6.43 0.90 0.23 0.0 Total Operating Revenues 3.20 6.43 0.90 0.23 0.00 Other Income 0.11 0.08 0.00 0.00 0.00 Total Revenue 3.31 6.51 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough large volumes: 18. The screenshot of bulk/block deals is captured from the official website of Bombay Stock Exchange www.bseindia.com shows the pattern typical of a well-coordinated manipulated stock of thin trading by limited entities in large volumes. Dividend history of the Scrip 19. As per information available in the public domain such as BSE official website www.bseindia.com and moneycontrol.com, there is no significant dividend pay-outs by the company in its entire history. Rejection of Vague General Facts Submission of the assessee 20. The reply of the assessee has been considered but not found acceptable in the light of the developments in the case as already discussed above which clearly show that the assessee has not been able to discharge onus of proving genuineness of transactions. From the overall facts of the case as brought out above, it is amply evident that, a. Assessee purchased shares of a company/script which is devoid of any basic fundamentals and was suspended by the BSE for trading previously as well as afterward. A regular and genuine investor would hardly know-that such a company to even listed on BSE. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investing whatsoever and no cross verification was done in this case. l. The assesses has no idea what the listed company did or does. m. If the AR of the assessee s version is to be believed, the assessee seem to be having amazing sense to distinguish between various, penny stocks so much so she made above mentioned investments as a regular investor in order to buy the shares of such script. n. The assessee bought the share at a rock bottom price and exited near the peak of the scrip price curve. o. In the replies, the assessee has mainly contended that since sale were made through exchange and the payment was received through banking channel, it was a genuine transaction. Secondly, sale was made online after paying STT at the market rates therefore sale transactions were also genuine. The contention of the assessee was examined. It is not the case of this office whether purchase of shares through preferential placement did actually took place or shares were sold on the exchange at the prevalent market rates after paying STT or not. What this office has come to conclude on the basis of above analysis, documentary evidences, circumstantial evidences, human condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02.2014 Sale of 1200 shares @ 341.62 per share (through Demat account) 4,09,944/- 04.03.2014 Sale of 2400 shares @ 390,32 per share 9,36,768/- 10.03.2014 Sale of 2400 shares @ 419.26 per share 10,06,224/- During the appellate proceedings, the AR gave his written submission. The objections raised by her are summarized below: 1. The AO reopened the case and made additions based on the basis of certain information received. 2. The AO did not confirm that the material in the report was relatable to the transaction entered by the assessee. 3. That the copy of the investigation report and statement of persons recorded by the investigation Wing and opportunity of cross examination was not provided by the AO. 4. That the transaction was genuine since, all the documentation was done in which no infirmity was found. 5. The assessee has cited several case laws in her favour and tried to distinguish the judgments relied upon by the AO. The Ld.CIT(A) held that The principle of preponderance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of natural justice do not require formal cross examination Therefore, it cannot be laid down as a general proposition of law that the revenue could not have relied on any evidences which had not been subjected to cross examination. The LD.CIT(A) held that the assessee has emphatically stated that all the requirements of section 10(38) have been covered and the assessee wes entitled to the exemption. Further that all the documentary evidences in support of this transaction have been disregarded treating the transaction as sham. To address this objection a background of this entire gamut of the scam is briefly stated below. Outcome of investigations by the Investigation wing Total 84 BSE listed companies were identified as penny stocks. More than 60,000 PAN of the beneficiaries was involved. More than 5000 paper/shell companies involved in providing bogus accommodation entries were detected. Statements of the directors of the companies were recorded. Cash trail reflected how unaccounted/undisclosed cash of beneficiaries was routed through to convert black money into LTCG/STCG. IMPORTANT OBSERVATIONS OF NSE/SEBI/SIT 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument that the sale was a screen based transaction on the Bombay Stock Exchange platform whose genuineness could not be doubted. It is worthwhile to mention here that the Apex Court of the country has rejected this plea that every trading activity done on BSE platform does not have scope of manipulation. Hon'ble Supreme Court in a recent judgment dated 8th February 2018 in the case of Securities and Exchange Board of India versus Rakhi Trading Private Limited (civil appeal number 1969 of 2011 with civil appeals number 3174-3177 of 2011 and civil appeal number 3180 of 2011) has observed as under: Considering the reversal transactions, quantity, price and time and sale, parties being persistent in number of such credit transactions with a huge price variations it will be too naive to hold that the transactions are through screen-based trading and hence anonymous. Such conclusion would be overlooking the prior meeting of minds involving synchronization of buy and sell order and not negotiated deals. The impugned transactions are manipulative/deceptive device to create a desired loss and oblique or profit. Thus, the screen based transaction would not necessarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ork to camouflage their bogus nature .. the reasoning given is contrary' to human probabilities for in the normal course of conduct, no one will make investment of such huge amount without being concerned about the return and safety of such investment. Accordingly the appeal is allowed. iv) Hon'ble Nagpur ITAT while delivering judgment dt.10.04.2017, in l.T.A. No. 61/Nag/2013. Assessment Year: 2006-07, in case of Saniav Bimalchand Jain L/H of Smt. Shanti devi Bimalchand Jain Vs. Pr.CIT-1, Nagpur has dealt with this issue and observed as under:- v) Hon'ble Nagpur ITAT while delivering judgment dt.10.04.2017, in I.T.A. No. 61/Nag/2013. Assessment Year: 2006-07, in case of Sanjay Bimalchand Jain L/H of Smt. Shanti Devi Bimalchand Jain Vs. Pr. CIT-I, Nagpur has dealt with this issue and observed as under: 7. In this regard I may gainfully refer to the decision of Hon'ble jurisdictional High Court in the case of Major Metals Ltd. vs. Union of India and others in Writ Petition No. 397 of 2011 vide order dated 22nd February, 2012. The Hon'ble jurisdictional High Court in this case has held that a company cannot command disproportionate and huge share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered 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 assessee of that year. In the present case the assessee's explanation that the said receipt is on account of investment in shares whereby share of ₹ 5/- of unknown company has jumped to ₹ 485/- in no time has been totally rejected by the authorities below. The assessee 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 so called purchaser of these shares has not been identified despite efforts of the AO. The broker company through which shares were sold did not respond to queries in this regard. Hence the fantastic sale price realization is not at all humanly probably; as there is no economic or financial basis, that a share of little known company would jump from ₹ 5/- to 485/-. In these circumstances, I do not find any infirmity in the orders of the authorities below. Accordingly I affirm the same and dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article 226 of the Constitution of India should refrain from exercising the power. In the instant also, the case of the petitioner was fairly considered and thereafter the above decision is taken. (emphasis supplied). 4.12 In Phool Chand Bajrang Lai v. ITO [1993] 203 ITR 456, Hon'ble apex court has held as under (page 477): From a combined review of the judgments of this court, it follows that an Income-tax Officer acquires jurisdiction to reopen an assessment under section 147(a) read with section 148 of the Income-tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must; record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and circumstances. DECISIONS RELIED UPON BY ITAT/COURTS IN FAVOUR OF REVENUE ON THE ISSUE OF CIRCUMSTANTIAL EVIDENCE APPLICABLE IN PENNY STOCK CASES CIT vs. Durga Prasad More [1971] 82 ITR 540 (SC) Sumati Dayal 214 ITR 801 (SC) Mc Dowell Co. 154 ITR 148 (SC) SornNath Maini 306 UR 414 (HC) Ashok Mahendru Sons (HUF) vs. CIT 173 TAXMANN 178 (HC) Hersh Win Chadha Vs. DCIT 135 TTJ 513 (ITAT Delhi) Arvind M Kariya Vs. ACIT IN ITA No. 7024/Mum/2010 (ITAT Mumbai) 5.2 DECISIONS ON THE ISSUE OF - RULE OF EVIDENCE AO is a quasi - judicial authority and rigor of the rules of evidence contained in the evidence act are not applicable. There is no presumption in law that the AO is to discharge an impossible burden to assess the tax liabilities by direct evidence only and to establish the evasion beyond doubt as in criminal proceedings. Dhakeshwari Cotton Mills Ltd. Vs. CIT (1954) 26 ITR 775 (SC) S.S. Gadgil vs. Lal Co. (1964) 53 ITR 231 (SC) CIT vs. Jay Engineering Works Ltd. (1978) 113 ITR 389 (Delhi HC) Dinshaw Darabshaw Shroff vs. CIT (1943) 11 ITR 172 (Bom.) Hersh win Chadha Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the AO has also made further addition of ₹ 1,17,602/- @ 5% of the total transaction amount of Rs. /- by way of brokerage/commission paid to the entry operator as admitted by persons who were involved in such share manipulations. However, the addition made by the AO u/s 68 is erroneous and may be treated as unexplained expenditure u/s 69C. While the appellant denies the sale expenditure it is known fact that there are no free lunches in the commercial world. Even the judicial authorities have upheld the incurring of such expenditure for arranging tax exempt income of such a sizable amount. Accordingly, the addition of ₹ 1,17,602/- is hereby confirmed. 25. Aggrieved with the order of the ld. CIT(A), the assessee filed appeal before the Tribunal. 26. The ld. AR argued the issue extensively relying on various case laws with regard to reopening u/s 148 and as well as on merits of the case. Write up of our arguments for your honors kind consideration in forthcoming hearing Ground No. 1 1.1 on validity of impugned reopening u/s 148 on basis of reasons recorded in extant case (typed copy placed on records) In reasons recorded u/s 148(2) in presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory. In the first two lines, the Assessing Officer has recorded the finding that the sum of ₹ 2,35,00,000/- has escaped assessment but in the last two lines, he has recorded that the case is being reopened to verify the genuineness, identification and creditworthiness of the aforesaid transactions. If the case is being reopened for the purpose of verification of the genuineness, how can there by satisfaction of escapement of income. Any satisfaction with regard to escapement of income or otherwise can be recorded only after the verification of genuineness, identification and creditworthiness of the transaction and not earlier. Thus, we are of the opinion that the Assessing Officer has reopened the case under Section 147 for the purpose of verification of genuineness, identification and creditworthiness of the transactions mentioned in the information supplied by the DIT (Investigation) and this is what the Assessing Officer has concluded at the end of the reasons recorded for issue of notice under Section 148. Now, the question remains whether an assessment can be reopened under Section 147 for the purpose of verification of genuineness, identification and creditworthiness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find any basis for reaching to the conclusion that there was escapement of income by the Assessing Officer.... Even Delhi Bench of ITAT in case of Gopal Chand Mundhra in similar reopening u/s 148 where allegation of bogus Long term capital gains was there while quashing the similar reasons/reopening, Hon ble bench observed as under (after considering Bombay high court decision and above SBS realtors case) (ITA 1375/Del/2019) (Order: 21.08.2019): Reasons recorded in above case: Subsequently, the Assessing Officer recorded the following reasons for reopening of the assessment u/s 147 of the Act: Information has been received from Investigation Wing of the Income tax Department that large scale, manipulation had been done in the market price of shares of SPLASH MEDIA by a group of persons acting as a syndicate in order to provide entries of tax exempt long term capital gains to the assessee (beneficiary). According to the information available, the assessee had traded in the above scrip to the tune of ₹ 23,74,500/- during the financial year 2010-11 and bogus LTCG amounting to ₹ 21,16,776/- had been facilitated to the assessee during the financial year 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the form of details of the amount of credit received, the payer, the payee, their respective banks, and the cheque number. This information by itself cannot be said to be tangible material. 20. Coming to the second part, this tells us what the AO did with the information so received. He says; The information so received has been gone through. One would have expected him to point out what he found when he went through the information. In other words, what in such information led him to form the belief that income escaped assessment. But this is absent. He straightaway records the conclusion that the above said instruments are in the nature of accommodation entry which the assessee had taken after paying unaccounted cash to the accommodation entry given (sic giver) . The AO adds that the said accommodation was a known entry operator the source being the report of the Investigation Wing . 21. The third and last part contains the conclusion drawn by the AO that in view of these facts, the alleged transaction is not the bonafide one. Therefore, I have reason to be believe that an income of ₹ 5,00,000 has escaped assessment in the AY 2004-05 due to the fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial which formed the basis for the belief that income has escaped assessment. The various other decisions relied by the id. Counsel also supports his case. Since, in the instant case, the reopening of the assessment has been made on the basis of information received from the Investigation Wing and there is no independent application of mind by the Assessing Officer and such reopening is made on the basis of borrowed satisfaction, therefore, such reopening is not in accordance with law and ha to be quashed. Accordingly, such reassessment proceedings have to be treated as not in accordance with law and has to be quashed. Prayer on legal /jurisdictional challenge: We humbly request your honors to follow the above rulings, in present case and quash the impugned reopening action u/s 148 of the Act which in our humble submission is clearly without authority of law and merely for purpose of verification/scrutinizing and examination impugned reopening is made which is held to be impermissible and for that provisions of section 143(2) must have been used if at all which is nowhere done as mandated in law. Plea on merits of the case: Addition of ₹ 24,69,636 (break up : ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elling and dealing in securities either directly or indirectly in any manner till further directions. A list of 239 persons is also mentioned in SEBI order which are at pages 34 to 42 of the order the names of the appellants do not find place in the said list. At pages 58 and 59 the names of pre IPO transferee in the scrip of M/s. Esteem Bio Organic Food Processing Ltd. is given and in the said list also the names of the appellants do not find any place. At page 63 of the SEBI order-trading by trading in M/s. Esteem Bio Organic Food Processing Ltd. - a further list of 25 persons is mentioned and once again the names of the appellants do not find place in this list also. 25. As mentioned elsewhere the brokers of the assesses namely ISG Securities Limited and SMC Global Securities Limited are stationed at New Delhi and their names also do not find place in the list mentioned here in above in the SEBI order. There is nothing on record to show that the brokers were suspended by the SEBI nor there anything on record to show that the two brokers of the appellants mentioned here in above were involved in the alleged scam. The Assessing Officer has not even considered examining the br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs attention to some more orders from this Hon ble Tribunal which supports our above prayer for deletion of addition: In case of Riaz Munshi Delhi F bench vide order dated 11.03.2020 on issue of whether company EBFL for whom shares were sold in that case (also same here), for AY 2014-2015 (same period here), can it be called penny stock company, answer to this is given in paragraph no. 6 of the order of Hon ble Tribunal which is reproduced below for sake of ready reference: 6. We have considered the rival submissions and perused the material on record. The assessment order clearly show that the A.O. merely reproduced the modus operandi of the entry providers who booked bogus long term capital gains through penny stock companies in which either there is no business or they have accumulated losses or a Company is floated only for that purpose. Learned Counsel for the assessee has filed financials of M/s EBFL from A, Ys. 2011-2012 to 2017-2018 and for the assessment year under appeal the financials are reproduced above, which clearly show that this Company is dealing in actual business activities. Its financials are very heavy and as such the modus operandi of this type of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the authorities below are set aside and the additions made by the Assessing Officer in respect of both the assessees are deleted. Vijay Kumar Baid (HUE), I.T.A. No.2300/CHNY/2018 Date of Pronouncement: 24-01-2019 However, records produced by the assesses before me in the nature of contract note: issued by M/s. MSE Financial Services Ltd and certificate of M/s. Stock Holding Corporation of India Limited clearly indicate that the shares were purchased by the assessee through on-market transactions, and that too in demat form. Payments were made by the assessee were also through bank. Ld. Counsel for the assessee has certified that these records were with the lower authorities. It is a matter of record that SMIL had issued bonus shares in the ratio of 3:1 and thereafter split their shares. Sale made by the assessee was also through stock exchange and consideration received through bank only. In similar circumstances in the case of Nirav Kumar Mahendra Kumar Sapani (supra) this Tribunal had held as under:- 5. We have considered the rival submissions on either side and perused the relevant material available on record. The purchase of shares of Swaca B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws: Gopal Chandra Mundhra in ITA No. 1375/Del/2019 Riaz Munshi order dated 11.03.2020 SBS Realtors in ITA No. 7791/Del/2018 Nirav Kumar Mahendra Kumar Sapani in ITA No. 2032/Mds/2017 Vijay Kumar Baid (HUF) in ITA No. 2300/CHNY/2018 Ishwar Chand Mittal in ITA No. 8706/Del/2019 28. On the other hand, the ld. Sr. DR extensively relied on the orders of the revenue authorities below. He has extensively quoted from various judgments and reiterated the facts that have been mentioned above as excerpts from the orders of the Assessing Officer and the ld. CIT(A). 29. Heard the arguments of both the parties and perused the material available on record. 30. With regard to the reopening u/s 148, we have gone through the reasons recorded by the Assessing Officer before issuing of notice. The reasons are as under: Smt. Krishna Devi is an existing assessee of this ward as per territorial jurisdiction. ITR has been filed by assessee for the assessment year under consideration in this ease. 2. In this case information was reed transferred from F.NO CCIT-2 / DLI/ Exchange information /2017-2018 dated 08.11.2.017 on account of non genu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (d) where a person is found to have any asset (including financial interest in any entity) located outside India. Explanation 3.-For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. Explanation 4.-For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012. 32. The provisions of Section 148 of the Act are as under: Section 148. Issue of notice where income has escaped assessment. 148. (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of Section 151 of the Act are as under: Section 151. Sanction for issue of notice. 151. (1) No notice shall be issued under section 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice. (2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. (3) For the purposes of sub-section (1) and sub-section (2), the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or the Commissioner or the Joint Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of Section 147 espousing when the Assessing Officer has to issue a notice and believe the escarpment of income have been duly adhere. Similarly, the provisions of Section 148 with regard to issue of notice before making the assessment has been duly served and the assessee within the due date and such notice has been served after taking due approval of the Pr. CIT in accordance with the provisions of Section 151. In our opinion, the formation of belief by the Assessing Officer that the income of the assessee chargeable to tax had escaped assessment was reasonable as well as rationale and related to the information received which is discernable from the bare reading of the reasons recorded by the Assessing Officer. While the reasons themselves are undisputable, there is no reason to find out fault with the approval given by the ld. PCIT which is based on the facts enumerated before him. We find nothing on record to dispute the approval given by the ld. PCIT u/s 151 for issue of notice u/s 148. 36. Further, it is the case of the Ld.AR that there was no independent application of mind by the sanctioning authorities for according approval. Whilst it is the settled position i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, we find that the reasons had a live link on the reopening as the information pertains to the trading in the stocks of specified scrip. The assessee has entered into transactions in the same scrip which proves the live link with the information in the reasons invoked by the Assessing Officer in this case. Similarly, we find that there is existence of reason and existence of belief by the AO to reopen the assessment based on the information and on verification of the material before him. 42. The Hon ble Supreme Court in the case of Lakhmani Mewal Das 103 ITR 437 enunciated that the two conditions required to be satisfied before the Income Tax Officer issued a notice under s. 148 of the Income Tax Act are that he must have reason to believe (i) that the income chargeable to tax had escaped assessment and (ii) that such income had escaped assessment by reason of the omission or failure on the part of assessee, to disclose fully and truly material facts necessary for assessment for that year. Both these conditions must co-exist in order to confer jurisdiction on the Income Tax Officer. Further the Income Tax Officer should record his reasons before initiating proceedings unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is not required to establish escapement of income. Establishing escapement of income is the culmination of examination of material and investigation of the facts following the due procedure as envisaged in the Income Tax Act. What is necessary to reopen an assessment is not a final verdict but a prima facie reason. In the instant case, neither the information was wrong nor the reasons to believe were faltered. Hence, we uphold the action of revenue authorities on the issue of impugned notice dated 31.03.2018 u/s 148. On Merits: 45. On merits of the case, the ld. AR primarily argued that the issue is no longer res integra based on the judgment of the Hon ble High Court in the case of the assessee. The ld. AR has produced the order of the Hon ble High Court dated 15.01.2021. We have gone through the same and find that the scrips involved in that year are different from the scrips involved in the instant year. The order of the Hon ble High Court dealt with the scrips namely Gold Line International Finvest Ltd.(para 11 of the order of Hon ble HC) whereas the scrips involved in the instant year are M/s Esteem Bio Organic Food Processing Ltd. In that case, the enquiry of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the stock exchange platform when there is an enormous evidence in the position of the revenue that the transactions have been undertaken in collusion with the brokers and promoter entities. The assessee cannot wash off her hands saying that the assessee is not in active connivance with entire scheme of operation but only a passive beneficiary of the manipulation of the trades/scrips by some other persons or entities. In order to prove the passive benefit gained by the assessee , the assessee has to come with suitable or reliable evidences which can exonerate the assessee which is grossly absent in the assessee s case. 49. We have also gone through the various enquiries conducted by the SEBI in the case of M/s Esteem Bio Organic Food Processing Ltd. The said scrips has been restrained from operation of trading. The details are as under: 50. The Competent Authorities of SEBI has passed orders dated 13.03.2019 and 22.12.2020 which has indicted the trading of shares in circumspective nature against the interest of the public. The company was also restrained from trading on the SEBI platform. Further, the Metropolitan Stock Exchange vide order dated 23.12.2020 has also res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the year 2011 and 2012, these companies increased their capital base by issuing shares to several entities. Once the equity share capital base of these companies increased substantially, they came out with IPO in the year 2013. After listing, the share price of all these companies increased astronomically till December 31, 2014. More particularly, the price of the scrip of Esteem Bio witnessed substantial increase during the period February 7, 2013 to December 31, 2014, i.e. within a span of 244 trading days. 3. It has also been observed that these scrips were not in demand by the general investors. However, a set of connected entities were pushing up the price by putting unusual trades, i.e. 1 or 2 trades per day in such a manner so as to make positive contribution to the Last Traded Price (LTP) and establishing New High Prices (NHP). These connected entities whose trades contributed majorly to the buying volume and to the price rise of the scrip were referred to as the Trading Group entities. Direct/ indirect connection was observed amongst the trading group entities and also with other entities related/connected to companies on the basis of Know Your Client (KYC) deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that in response to the SCN issued to the Noticees, Shri Ashwin Verma (Noticee No. 4) has responded vide letters dated June 11, 2018. However, none of the other Noticees has responded to the SCN till date. In order to proceed further in the matter, an opportunity of hearing was granted to the Noticees on January 30, 2019. On the date scheduled for hearing, Shri Dipak Purwar, Chartered Accountant, appeared for hearing as Authorized Representative of Noticee No. 4 and made oral submissions on the lines of the written reply filed by the Noticee in the matter. The summary of the written and oral submissions made by Noticee No. 4 is as under: a) He does not know anything about Esteem Bio, its IPO and its preferential allotment or the fraudulent scheme or mechanism, if any. He is not connected or related to the company, its promoters/directors or to any company related to Esteem Bio. b) The trading account through which the alleged manipulative trades were done in the scrip was not opened by him but by some other person whom he does not know. Trades done in his name from this account were without his knowledge or consent. c) He is an investor and invests in securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under. Regulation 4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:- (a) indulgin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Vishal Yadav (Noticee No. 3) and others in the group. Shri Vishal Yadav (Noticee No. 3) has also executed off-market transactions with Core Capital Services Ltd. (Noticee No. 6), River High Share Brokers Pvt. Ltd. (Noticee No. 7), Shri Ashwin Verma (Noticee No. 4) and others in the group. Sure Portfolio Services Pvt. Ltd. (Noticee No. 8) has traded in the scrip of Esteem Bio and it is having common director, address and email id with several other entities in the trading group. 13. The details of the trades executed by and between the Noticees along with the inter-se connections and relationship shared by the Noticees with each other were provided to them along with the SCN. Most of the Noticees have chosen not to respond to the SCN and even the Noticee who has filed a written reply, i.e., Noticee no. 4, has not disputed the connections and transactions as alleged in the SCN. The Noticee has also not disputed his relation with counterparties to the trades. Similarly, other Noticees have also not raised any disputes with regard to their connections as pointed out in the SCN. I find it relevant to refer a judgment of the Hon ble Securities Appellate Tribunal (SAT) dated Dece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vtslmi Yackv (LTP eontributi on in Rupees, Number of trades in bracket) Sure Portfolio Services Private Limited (LTP contiibyti on in Rupees) Number1 of trades In bracket) T oral (LTP contributi on in Rupees, Number of trades in bracket) Accurate Buildwell Private limited 0.05 (1) 24.75 (2) .. _ 24.80 (3) Century Buildmart Private limited 10.7 (1) 15.1 (2) - - 25.80 (3) Core Capital Services Limited 14.50 (1) 14.50 (1) Pawan Kumar Kaul 5.5 (t) - - - _ River High Eight Share Brokers Private limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Details of trades in which Noticees were counter parties and NHP contribution Date Bover Name Seller Name Bur Order No. Sell. Older No. Buy Order Time Sell Order Time Trade Price Dirt NHP Trade Qt 16/01/14 Ccatorf Buildmart Pvt. Ltd Prevail Kumar Kaul 1400012S3063S8 15000101265572 3:09:5 PM 3:99:53 PM 134.9 ToTo 1.200 17/01/14 River High Right Share Brokers Pvt Ltd Accurate Buildwell Pvt, Ltd 12000105130311 19000124089524 10:25:49 AM 10:18:35 AM 145 10.10 1200 21/01/14 Core Capital Services Limited Visfa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid trades executed by the Noticees are discussed further hereunder. 16. From the details of trades entered into by the Noticees and the details of orders placed during the day on which the trades were executed, I note that for the trade executed between Shri Pa wan Kumar Kaul (Noticee No. 2) and Century Buildmart Pvt. Ltd. (Noticee No, 5) on January 16, 2014, the order book analysis has revealed that Pawan Kumar Kaul placed sell order for 1200 shares at 3:09:53 PM at a price of₹ 134.90. Before this sell order there was no other sell order available in the system. The buy order available in the system was at the price of ₹ 112.35, which was much lower than the sell order price. Within 4 seconds of placing the sell order, i.e. at 3:09:57 PM, Century Buildmart Pvt. Ltd. (Noticee No. 5), a connected entity, placed buy order at the same price and die same volume as the sell order of Noticee No. 2 and the trade for 1200 shares was executed at the price of ₹ 134.90, This trade created NHP difference of ₹ 10.10. Considering the absence of liquidity in. the scrip and negligible volume of trade and the timing of orders placed by the connected entities, I f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed a NHP. 20. On January 23, 2014, Accurate Buildwell Pvt. Ltd. (Noticee No. 1) placed sell order for 1200 shares at 3:11:01 PM at a price of ₹ 182.00. Before this sell order there was no other sell order or buy order pending in the system. At 3:11:05 PM, Pawan Kumar Kaul (Noticee No. 2), a connected entity, placed buy order at the same price and the same volume as the sell order of Noticee No. 1 and die trade for 1200 shares got executed at the rate of Rs.l82.00 per share. This trade established a NHP and the difference of this high price from the last high price was ₹ 5.00.1 note that the orders were placed in the evening by the Noticees and the orders matched within a time difference of 4 seconds. Considering the absence of liquidity in the scrip and the negligible volume of trade and the timing of orders placed by the connected entities, I find that the trade was not executed in normal course of trading. The Noticee No. 2 by placing buy order to match the sell order of Noticee No. 1 contributed to price rise in the scrip and established another NHP which was ₹ 5 more from the last high price in the scrip. 21. On January 27, 2014, Ashwin Verma (N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablished a NHP in the scrip and artificially raised the price of the scrip sending a false and deceptive perception to innocent investors about the market value of the scrip. 24. I also note that the trades of the Noticees have made positive contribution to LTP on several occasions in the scrip of Esteem Bio and such trades executed by the Noticees were instrumental in unusual price rise in the scrip. The Noticees by acting as counterparty to each other have executed successive trades at prices higher than the last traded price and as per findings of the investigation, such trades have contributed ₹ 90.04 to the price use in the scrip. Sure Portfolio Services Pvt. Ltd. (Noticee No. 8) has executed trades which contributed ₹ 1.85 to positive LTP and the trade has matched with River High Right Share Brokers Pvt. Ltd. (Notic.ee No. 7). Similarly, trades of other Noticees have also contributed to the price rise. 25. It is noted that the trades executed by and between the Noticees have been executed in a way to ensure matching of orders placed by one Noticee with other Noticees. The Noticees apparently have placed their orders in such a way that every time the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntity had contributed to 9.17% of the market NHP within a span of two weeks has observed as follows: .Very fact that the appellant had indulged in self-trades/ LTP/ NHP without giving any justifiable reason, dearly justifies the inference dram by the .AO that the trades executed by the appellant were manipulative trades... 28. After analyzing the trades executed by the connected entities (the Noticees) amongst themselves, one can surely say that such a trading pattern cannot be called as involving any genuine trading; rather by so trading continuously for a period of around one and half months, such trading pattern had resulted into an artificial rise in price and volume in the shares of Esteem Bio thereby creating a false and misleading impression about the trading in the scrip of Esteem Bio to the investors at large in the market. By continuously entering sell and buy orders deliberately to match each other s order and entering into trades in the scrip in a concerted manner the Noticees have collusively established higher prices of the scrip which was bound to have influenced the decision of the innocent investors to invest in die scrip. In this regard, the obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increasing the price is established. I can clearly find that the trades of the Noticees are not trades executed in normal course of trading and investment in securities market. Noticees have deliberately .manipulated the price of the scrip and created a misleading appearance of trading in the scrip to induce innocent investors in the securities market thereby contravening the provisions of regulations 3 (a), 3(b), 3(c), 3(d), 4 (1), 4(2)(a) and 4(2)(e) of the PFUTP Regulations. Directions: 31. In view of the foregoing. I, in order to protect the interest of the investors in the securities market, in exercise of the powers conferred upon me under sections 11 (1), 1 IB, 11(4) read with section 19 of die SEBI Act, 1992 hereby restrain the Noticees from accessing the securities market and further prohibit them from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of four years. However, for the purpose of computation of the period of restrain and prohibition as directed above, the period of restraint already undergone by the Noticees in terms of the interim o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 Aavia Softech Pvt. Ltd. AAKCA4089N 9 Mayfair Infosolution Pvt. Ltd. AAFCM3716M 10 Avisha Credit capital Pvt. Ltd. AAACA5715D 11 Nikky Printing Press Pvt. Ltd. AADCN5292K 12 Neel Kanth Trading Co. - 13 Ace Consultant ABGPK4707P 14 Amsons Apparels Pvt. Ltd. AAFCA3887K 15 Gracious Software Pvt. Ltd. AADCG0392F (The entities mentioned above are individually known by their respective name or Noticee no. and collectively referred to as Noticees ) In the matter of Esteem Bio Organic Food Processing Limited Background: 1.The present proceedings are arising out of a show cause notice dated August 14, 2017 (hereinafter referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 25, 2015, submitted the following details of utilization of the IPO proceeds, as on March 31, 2015: Table 2: Utilization of the IPO Proceeds (as per letter dated December 25, 2015 of Company) Sr. No. Particulars Utilized as on 31/03/2015 (INR in Lakh) Setting up of shade Net cultivation facility 375.00 2. Development of farm land for transition to organic farming 564.49 3. Procurement of farm tools and equipments 29.06 4. Brand Build and General Corporate Purpose 30.00 5. Issue Expenses 31.28 6. Investment in short term, advances 99.67 Total 1129.50 iv. The Company was asked to furnish details of the utilization of funds raised thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Individual Investors (RIIs) were funded by the funding group entities, out of which 238 applicants were allotted 14,28,000 shares. Similarly, in HNI category also, 60,000 shares allotted to one HNI were funded by the funding group entity. Further, in the market maker category, the application for 7,50,000 shares were funded by the funding group entities. In total, out of 45,18,000 shares allotted under the IPO, 23,34,000 shares allotted to 240 applicants (238 RIIs,+ 1 Market maker+ 1 HNI),were funded by the funding group entities, which comes to 51.66% of the total shares allotted under the IPO. viii. It was further unearthed in the investigation that out of the total IPO proceeds of INR11.29 Crore (approx.), the Company had transferred an amount of INR11 Crore (approx.) to various entities. The details of such transfers are depicted in the following pictorial representation: ix. The details of funding by the funding group entities and the amounts of money received by such entities and inter se fund transactions amongst such entities are narrated as follows: Table 4: Details of Fund Transactions Sr. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 7) Yes Bank 01368390 000 2266 A One Furniture had issued 20 cheques of INR 1.50 Lakh each to the Company on behalf of 20 Non ASBA retail investors. (20 allottees got allotment) It had received INR 16.50 Lakh from Magnum Industrial Corporation and INR 15 Lakh from Sumit Kumar. 4 Ram Prakash Proprieto rship Firm Khan Enterprise (Noticee no. 7) Tamilnad Mercantile Bank 21115005 080 0272 Khan Enterprise had issued 19 cheques of INR 1.50 Lakh each to the Company on behalf of 19 Non ASBA retail investors. (18 allottees got allotment) It had received INR 22.40 Lakh from Shiv Traders INR 5 Lakh from Garg Traders Suppliers. Shiv Traders (TMB - 211150050800237) had received INR 81.50 Lakh from ECO, INR 67 Lakh from the Company in October and December, 2012 5 Aavia Softech Pvt. Ltd. (Noticee no. 8) Axis Bank - :9120200 240 45250 Aavia So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It had fund movement with AMS Powertronic Pvt. Ltd. 10 Ace Consultan t (Noticee no. 13) HDFC Bank - 03142000 000 740 Ace Consultant had funded INR 1.50 Lakh to 1 Non ASBA entities. (1 allottees got allotment) - 11 Amsons Apparels Pvt Ltd. (Noticee no. 14) Axis Bank - 91202001 496 4077 It had issued 3 cheques of ₹ 1.50 Lakh each to the Company on behalf of 3 non ASBA allottees. (2 allottees got allotment) It had received INR 5.00 Lakh from Core Capital Services Pvt. Ltd. Further, it had fund movement with AMS Powertronic Pvt. Ltd., Goldline, Madhukar Dubey (Noticee no. 6). 12 Gracious Software Pvt Ltd. (Noticee no. 15) Axis Bank - 91202001 500 6932 It had issued 42 cheques of INR 1.50 Lakh each to the Company on behalf of 42 non ASBA allottees. (42 allottees got allotment) It had received INR 63 Lakh from Mayfa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 84,000 10 ISF Securities Ltd. (Ace Consultant- Noticee no. 13) 1.50 1 - 6,000 11 Amsons Apparels Pvt. Ltd. (Noticee no. 14) 4.50 2 - 12,000 12 Gracious Software Pvt. Ltd. (Noticee no. 15) 63.00 42 - 2,52,000 13 Indirect Funding 96000 Total 607.50 240 621.10 23,34,000 3. Thus, based on the aforesaid details, the SCN alleges that the Company and its Directors had devised and planted a scheme with the help of the funding group entities to achieve the threshold of minimum applications (90%) of the offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as on behalf of the Company (Noticee no.1) also and inter alia informed that Noticee no. 2has expired. 7. The Company i.e. Noticee no. 1, vide its letter dated October 06, 2017and Noticee no. 3vide his letter dated June 13, 2019, have sought copy of the entire investigation report and all other material collected by SEBI during the investigation and to support their request for such documents, reliance has been placed by them on the judgment of the Hon ble Supreme Court of India in the matter of SEBI Vs. Price Waterhouse (Civil Appeal no. 6003-6004/2012).Further, vide letter dated November 25, 2019, Noticee no. 1 and 3 have filed a written reply to the SCN and also vide letter dated March 09, 2020, a post hearing written submission has been filed by them. The following key submissions have been made in the said letters: i. In compliance with the Regulation 106Pof SEBI ICDR Regulations, 2009, the IPO of Esteem Bio was 100% underwritten. The said fact reflects that the charges of arranging funds for subscription to the IPO cannot be sustained. In support, the copy of the underwriting agreement has been filed. ii. The transactions with various entities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in its normal course of business, it had provided funds to needy people, who in turn have discretion to utilize such funds as per their requirement. The Noticee no. 10,vide its letter dated June 12, 2019, has sought copy of entire investigation report, all other material collected by SEBI during the course of investigation, and also has sought cross examination of persons whose statement were recorded by SEBI during the investigation. Further, vide letter dated July 29, 2019, the Noticee no. 10sought time to file additional reply and has also sought certain documents. The said documents were already provided to the Noticee vide SEBI s letter dated July 25, 2019, however, so far no further reply has been filed by the Noticee no. 10. 9. Noticee no. 13 (Ace Consultants) vide its written reply dated October 03, 2017 and through a post-hearing written submission vide letter dated August 19, 2019has advanced the following submissions: i. Ms. Sunita Khemka the proprietor of the Noticee firm has association in the field of financial and capital market as consultant for over 25years and has been dealing regularly in securities. ii. Ms. Sunita was a Designated Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or misrepresentation needs to be present, as held by Hon ble Supreme Court in the matter of Ram Chandra Singh Vs. Savitri Devi and Ors. [2003 8 SCC 319]. By the investment ofINR1.50 Lakh, there is no inducement caused to anyone nor any false statement has been alleged to be made. xi. Similarly, to prove an act to be manipulative, a mere single act is not sufficient and series of acts reflecting the manipulative intent is required, as has been held by Hon ble SAT in the matter of Sterlite Industries (India) Ltd. Vs. SEBI. xii. The evidence to prove the allegation of fraud requires stronger evidence as has been observed by Hon ble Supreme Court in the matter of Bank of India Vs. Degala Surya Narayan (AIR 1999 SC 2407) 10. Noticee no. 15 (Gracious Software Limited), vide its letter dated June 12, 2019, has made identical requests for copies of documents, as have been made by other Noticees. Further, vide letter dated July 29, 2019, the Noticee no. 15 sought time to file written reply to the SCN, however, so far, no reply has been filed by the Noticee no. 15. Consideration of Issues and findings 11. Before addressing the contentions raised on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since in the extant case, all the documents that have been relied upon in the SCN to make the allegations against the Noticees have already been furnished to them along with the SCN itself. Moreover, as per the materials before me, no statement of any person has been recorded during the investigation, hence, the question of providing a copy of any statement does not arise. I find the SCN containing all the findings of Investigation relevant to the Noticees based on which the allegation have been made therein and in support of those allegations all the relevant facts and documents have already been conveyed to the Noticees through the SCN and its Annexures. Therefore, the demand of the Noticees for a copy of Investigation Report and all documents etc., are found to sans any merit, hence rejected. 13. Moving on further, it is observed that adequate opportunities of personal hearing have been provided to all the Noticees, however, the Noticee nos. 4 to9, 11,12, 14 and 15have neither filed any reply to the charges made in the SCN nor have availed the opportunities of personal hearing granted to them. I am therefore, of the view that as the said Noticees have chosen not to respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made thereunder; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made thereunder. Prohibition of manipulative, fraudulent and unfair trade practices Regulation 4 (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 Minimum Subscription 14. (1) the minimum subscriptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Plot No. 3, Gali No. 3, East Guru Angad Nagar, Laxmi Nagar, Delhi - 110092. Proprietorship firm of Sumit Kumar, Madhukar Dubey and Satendra Kumar were having common address. 3 Madhukar Dubey Proprietors hip Firm Alliance Traders N V Sales Corporation A One Furniture Magnum Industrial (Noticee no. 6) N V Sales Corporation had fund movement with Khan Enterprises, AMS Powertronic Pvt. Ltd. A One Furniture had received funds from Magnum Industrial. Alliance Traders had received funds from AMS Powertronic Pvt. Ltd., Mayfair Infosolution Pvt. Ltd., A One Furniture, N V Sales Corporation, Nisha Traders. Magnum Industrial had received funds from ECO and A One Furniture. Address: Plot No. 3, Gali No. 3, East Guru Angad Nagar, Laxmi Nagar, Delhi- 110092. Proprietorship firm of Sumit Kumar, Madhukar Dubey and Satendra Kumar were having common address. 4 Ram Prakash Proprietors hip Firm Khan Enterprises Aggrawal Traders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It had fund movement with AMS Powertronic Pvt. Ltd. 10 Ace Consultant (Noticee no. 13) It had fund movement with the ISF Securities Ltd and Goldline. Common Address with ISF Securities Ltd. Till March 2014, Brij Kishore Sabharwal (Director of Eco Esteem Bio) was the director in ISF Securities Ltd. 11 Amsons Apparels Pvt. Ltd. (Noticee no. 14) It had fund movement with AMS Powertronic Pvt. Ltd., Goldline, Madhukar Dubey and Mayfair Infosolution Pvt. Ltd. 12 Gracious Software Pvt. Ltd. (Noticee no. 15) It had fund movement with Goldline and Mayfair Infosolution Pvt. Ltd. 13 Aavia Buildtech Pvt. Ltd. It had received IPO proceeds of INR 40.00 Lakh from the Company. Aavia Buildtech Pvt. Ltd. and Aavia Softech Pvt. Ltd., were having common address: 1/2486, Gali No. 26, Ramnagar, Modern Shahdra, East Delhi 110032. Aavia Buildtech Pvt. Ltd. and Aavia Softech Pvt. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onus successfully by demonstrating that such transactions were not due to the alleged collusive nexus between them, but on account of some bonafide commercial reason. As noted above that many of the Noticees have till date preferred to remain silent and have not filed any reply to the SCN. The Noticees who have responded to the allegations made in the SCN, are also found to have made only various bald assertions and their denial of having any connection with the Company or with other entities has not been backed by any credible supportive evidences, so as to inspire confidence in any of their explanations to counter the allegations of connections made against them in the SCN. 19. On a careful perusal of the replies filed by the Noticees, it is observed that the Noticee no. 1has simply tried to shrug off the allegations of connections with other entities by claiming that the fund transactions alleged in the SCN, took place out of commercial dealings, however, no verifiable documents such as balance sheets, invoices, TDS certificate, agreement/contract etc., have been produced before me to support such a tall claim of having transferred huge sums of money, viz :INR 239.60 Lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ISF. Hence Noticee no. 13 is allegedly connected with the Company through Noticee no. 3. 21. As per the submissions made before me and the documents filed, Ace Consultant is a proprietorship firm of Ms. Sunita Khemka. While referring to the submissions of the Noticee no. 13, I find that it has not denied its connection with the Noticee no. 3.It has been explained that the said Ms. Sunita Khemka (prop. of Noticee no. 13) along with her family members owned majority shareholding of ISF and further she was one of the Designated Director of ISF. It has further been stated that Noticee no. 3remained as a Director of ISF for some time after the family members of the Ms. Sunita Khemka acquired the said company. It has however been contended that there was no personal or collusive nexus with the Noticee no. 3 (Mr. Brij Kishore Sabharwal),who eventually left the Board of ISF. In so far as the transactions with Goldline (Noticee no. 4) is concerned, the Noticee no. 13has vehemently argued that it had received an amount of INR 50.00 Lakh from Noticee no. 4 (Goldline International)and the said amount was repaid to it along with interest @ 9%. In support of her contentions, the Noticee n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fers with ISF and also shared its address with ISF. I note that the natural person (Ms. Sunita Khemka)behind the Noticee no. 13(as a proprietor of the firm), was admittedly also a Director and a majority shareholder in ISF in which Noticee no. 3 was also a Director. Undoubtedly, proprietorship of a firm is inseparable cannot be taken away from the proprietor of such firm, who in the present case also happened to be a Director and shareholder in ISF, hence the connection between Noticee no.13 (a proprietorship firm of Ms. Sunita Khemka) and Noticee no. 3(Mr. Brij Kishore Sabharwal) is inevitably clear and settled. It has been contended before me that in the initial transition days of acquisition of ISF by Ms. Sunita Khemka and her family, it was thought proper to let Noticee no. 3continue for a while as a Director of ISF to retain retail clients of the said company and the Noticee no. 3eventually ceased to be Director of ISF w.e.f March 21, 2014. I find such an explanation is completely baseless offering no justification of continuation of Noticee no.3 as a Director of a company acquired by the proprietor of Noticee no.13 since the services of Noticee no. 3 could have been availed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot only transferred funds directly to the IPO account of the Company (e.g. INR 63 Lakh paid on behalf of 42 investors) but also had provided funds to certain other entities, who in turn have used such funds to finance the IPO applications either in ASBA mode or paid application amount directly to the Company by way of cheque on behalf of IPO applicants, out of the funds so received from the Noticee no. 4. 28. I note that neither the ultimate recipient of the funds, i.e., the Company, nor the transferor of the funds, i.e., the funding group entities on behalf of various IPO applicants, have furnished any justification for such fund movements in their accounts on behalf of the applications filed by large number of third party unrelated applicants. It is pertinent to mention here that the Company has allotted shares to those applicants whose applications were supported by cheques issued by various third- party funding group entities (and not by the applicants themselves) which was grossly against the norms governing the issue of shares under IPO. 29. Having found that the Noticees have prima facie enjoyed inter se connections amongst themselves as alleged in the SCN, I n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings of the present matter and even all of those who participated, have not been able to justify their fund transactions. For illustration, as pointed out earlier in this order I find that when the Noticee no. 10 was confronted with the charges of funding 3 entities(applicants/investors) to the tune of INR 4.5 Lakh for their IPO applications, it has made a shallow statement that it has provided funds to some needy persons, in pursuance of its business activity of non-banking financial company. It has further been argued by them that the recipient of the funds had their discretion to utilize such funds (over which it had no control). However, as I have observed before, the Noticee no.10 has neither furnished any particulars of such advances having been made to such needy people who applied for shares of the Company under its IPO nor has provided any documentary evidence so as to substantiate its claim of having transacted with those people in course of its activities as a NBFC. 32. Insofar as the Noticee no. 13 (Ace Consultant) is concerned, I note that it faces the allegation of having funded one ASBA applicant, who was eventually allotted shares under the IPO of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes. Further, there is no provision to enable a proprietorship firm to be an IPO applicant in exclusion of its proprietor. In the present case, the Noticee no. 13 has filed copy of ITR of Ms. Sunita Khemka for 2 years wherein the details of the Noticee no. 13, as proprietorship firm of Ms. Sunita Khemka, have been duly captured, which in the absence of any other contradictory evidence, have to be accepted. Therefore, as the allegations against Noticee no. 13 are limited to funding the IPO application of its own proprietor, the said charges are not maintainable in view of the factual support and legal framework, as discussed above. 35. Adverting to the allegation against the Company and the other Noticees, it is noted in the SCN that the Company has with the help of its connected entities, funded large number of IPO applications and has effected subsequent allotments of shares to those investors. As can be seen from the narrative of the SCN, out of 450 retail applicants, applications of as many as 270 applicants were funded by the funding group entities and out of the said applications, a total number of 238 applicants got allotment of 14,28,000 shares from the Company u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le on record and annexed with the SCN. The Company has argued that the charges of ensuring subscription through funding of the IPO applicants are erroneous for the reason that the IPO was 100% underwritten. The Company has also furnished the copy of the Underwriting Agreement in support of the said contention. 38. At this stage, I observe that there was no need for the Company to even refer to the underwriting agreement, had the Company and/or the other Noticees were able to show an iota of bonafide in their transactions thereby successfully controverting the allegations of funding the IPO applicants who were allotted shares by the Company. The details of funding made by the funding group entities need no further discussion in this order, as the same have already been elaborated earlier and have been found to be uncontested by any of the submissions of the Noticees. 39. Without prejudice to the above, in order to deal with the argument pertaining to the Underwriting Agreement, its relevant clauses are reproduced hereunder: 2. Underwriting On the basis of representations and warranties contained in this Agreement and subject to its terms and conditions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Noticee that by virtue of Underwriting Agreement being in place, the underwriter was under contractual obligation to subscribe to the entire unsubscribed portion of the IPO, so as to cross the minimum threshold of 90%of the offer size of the IPO. Therefore, the Company has not been able to demonstrate as to how the Underwriting Agreement can lead to an absolute prima facie presumption that there was no necessity on the part of the Company to conceive any plan or scheme to arrange funding for its IPO applicants as alleged in the SCN, so as to absolve it from the charges of arranging funds with the connivance of connected funded group entities. Even after considering that the aforesaid clauses of the Underwriting Agreement did provide some comfort to the Company in the matter of subscribing against the defaults in making payment by some of the applicants, the unassailable facts remain that the Company and its connected entities were indeed involved in providing funding to as much as 51.66% of the total shares allotted and in the absence of such efforts made by the Company and its connected entities in an organized manner, the IPO of the Company was bound to fail. 41. In view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of prima facie observations recorded in the course of investigation the Noticee Company was categorically pointed out to the fact that it has transferred the IPO proceeds to the funding group entities as a pay back to those entities which helped the Company in achieving the minimum subscription threshold of 90% to ensure a successful listing of its securities. In the aforesaid context, it goes without saying that the Company was under obligation to counter the charges made in the SCN with cogent reasons and supporting documents so as to substantiate the trail of funds out of the IPO proceeds, justifying the utilisation of IPO proceeds on the lines as stated under the object clause of the Prospectus. However, the Company has not been able to provide a complete picture of the utilisation of the entire amount of IPO proceeds in any of its replies. 45. It is observed that, the Company had, during the investigation, filed certain details of utilisations such as: (i) INR 3.75 Crore towards setting up of shade Net cultivation facility; (ii) INR 5.64 Crore towards development of farm land; (iii) INR 29 Lakh towards purchase of tools etc; (iv) INR 30 Lakh towards Brand build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15, 2013 2. Garg Traders and Supplies 60.00 Lakh -do- 60 Lakh on 15.01.2013 3. S.P. Enterprises 1.00 Crore -do- 40 Lakh on 19.12.2012 60 Lakh on 15.01.2013 4. Shiv Traders 2.16 Crore -do- 17 Lakh on 05.10.2012 50 Lakh on 08.10.2012 50 Lakh on 12.10.2012 39 Lakh on 15.10.2012 60 Lakh on 15.01.2013 Total 5.60 Crore (approx.) 47. A bare perusal of the aforesaid agreements produced by the Company shows that those are actually un-notarized agreements which were executed on the letter head of the Company and not even on a stamp paper. Strangely enough, the Company had decided to part with such an amount constituting more than 50% of the money raised from the public through certain agreements recorded on a plain and unsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as: The Company has so far not entered into any technical or financial collaboration agreement . Further, in yet another disclosure, the Company had stated that is has not entered into any agreement with suppliers of soil bed etc. The said clause reads thus: We have not entered into any agreement with the suppliers for supply of soil bed, shade net cultivation etc. for the Project, we have also not entered into any contract with contractors as specified in the Objects of the Issue. Any delay in entering into such agreements may delay the implementation schedule, which may also lead to increase in prices of the equipment and machineries in future affecting our costs, revenue and profitability. 50. I find that the Prospectus contains a reference to the quotation given by Raj Marketing for Land Development at the rate of INR 127 per Sq. Meter, however, the agreement referred to above, which has been supposedly executed 9 months before the IPO, has been executed for Land development (total consideration of INR 1,84,18000 for 97.34 Acres/393920 Sq. Meters) at the rate of INR 46.75 per Sq. Meter. Thus, in a short span of time, the price for land development has been shown to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out/or being carried out on the said land by the said developer, ever since those agreements were executed. The Company had come out with the IPO in the early part of 2013 and yet it appears that the project has not yet even commenced till date, leave alone the completion of the same. It is also observed that each of the four agreements has been executed with respect to development of a small piece of land, out of the entire land admeasuring 295.80 Acres, owned by the Company. However, surprisingly enough, none of these agreements mentions any details with respect to the exact identification of those small parcel of land assigned to each of the 4 vendors entities and basic information such as survey numbers etc., are also conspicuously missing in those agreements. 54. To sum up, I note that the Company has attempted to justify its huge financial transactions involving development of farm land for transition to organic farming, aggregating to almost half of the IPO proceeds, by producing unverifiable documents like unregistered/un- notarized self-generated agreements recorded on its letter heads, self-generated invoices etc. which have no legal sanctity nor are they e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f INR 4.40 Crore as short term loans to 4 entities with following details: Table 9: Details of advances extended by the Company Sr. no. Name of the entity Amount (in INR) Documents 1) GDR Finance and Leasing Pvt. Ltd. 2,80,68,000 Ledger account, bank account statements and Form 26 AS 2) AGI Hospitalities Pvt. Ltd. 10,00,000 -do- 3) Mammon Concast Pvt. Ltd. 10,00,00,00 -do- 4) Saroj Mittal 50,00,000 Ledger account and bank account statements Total 4,40,68,000 57. In this regard, I observe that out of the 4 entities, the Company had transferred funds to 3 entities in the year 2013 itself, immediately after receipt of funds from the IPO. Ironically even after passage of 7 years, the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished details of any such expenditure having been incurred under the aforesaid three heads. Thus, the claim of the Company with respect to the utilization of IPO proceeds on the above stated objects also is found to be false, evasive and misleading. 59. Having found that the Company has not been able to demonstrate appropriate utilization of the IPO proceeds on the lines of the stated objects in the prospectus, the Company has to be confronted with the allegations of having transferred/diverted the IPO proceeds to various entities including the funding group entities who have funded the IPO applications of large number of applicants. The Company could have easily confronted the said charges with strong evidence to the contrary by showing that the utilization of the funds from the IPO proceeds has actually been made for the right purposes and declared objects as per IPO documents, but as recorded in detail above, none of the claims of the Company about utilization of IPO proceeds was found to be true and duly substantiated with any verifiable evidence and the explanation offered by the Company were found to be rather specious, manipulative and baseless. Under the circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of IPO proceeds, it may be relevant here to mention that out of the total amount of INR 11.25 Crore raised in the IPO, the Company had transferred a total of INR 4.84 Crore to Goldline, i.e. the Noticee no. 4 (INR 2.39 Crore were transferred directly and INR 2.45 Crore were transferred indirectly through ECO). The Company has simply termed the said transaction with Noticee no. 4 (Goldline) to be a commercial transaction without even attempting to provide any details of those commercial transaction involving such a huge sum of public money and the Company has not even claimed if the above amounts transferred to Goldline were in compliance with any of the stated objects of IPO. It is observed that the said amount of INR 4.84 Crore constituted around 43% of the total amount raised by the Company but the Company has not been able to provide any justification for transferring such huge amounts to Noticee no.4. Similarly, the Company has also not been able to furnish the any supporting details for various other fund transfers like transfer of INR 3.25 Crore to an entity called AMS Powertronics; INR 40 Lakh to another entity viz., Aviva Buildtech; INR 81 Lakh to Noticee no. 9 and tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to utilize such funds in the interest of investors by deploying such funds towards the stated objects of IPO but it has palpably offered no reasoned explanation to justify the purpose of such transfers of funds. 64. It is also pertinent to mention here that all the funds out of IPO proceeds were transferred out to various entities immediately after the completion of the IPO within a span of 11 days, however, despite the fact that more than 7 years have elapsed by now , the Company has even not been able to provide any basic information as to what was the purpose of such fund transfers, how were they ultimately utilized, whether any revenues have been generated out of those funds transfers or whether any recovery has been effected out of the funds so transferred 7 years ago etc., leave alone producing any documentary evidence to substantiate the purpose objectives of those funds transfers. These unexplained transfers of IPO proceeds compounded by the fact that no satisfactory explanation is forthcoming from any of the notices to justify these funds transfers further strengthen the preponderance of probabilities that the Noticees have skillfully devised successfully imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their written replies including documents such as agreements of bank account statements etc., which they claimed to have failed to furnish at the time of investigations. Therefore, the grievances of the Noticees about having been not given a fair trial do not exist anymore and my findings and observations in this order are not only based on the allegations made in the SCN but also after taking into cognizance all the submissions, both oral written made by the Noticees and various information including copies of banks statements furnished by the Company other Noticees. In my view, the Company and the other Noticees whoever have responded to the SCN, have provided all the information that they wanted to furnish out of their own volition during the present proceedings, and none of the Noticees has expressed any constraint or handicaps now for furnishing information to me. Under the circumstances, no bonafide reason for permitting a re-investigation into the matter subsists. In view of the above, the Company s grievance of bias or prejudice, if any, has been fully taken care of to ensure free and fair trial of the present proceedings. However, the fact remains that despite affordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuine investors who had subscribed to its shares under the IPO relying in the misleading disclosures made by the Company. It also amply explains as to why the Company and other Noticees have not been able to produce any concrete reasons and tangible evidence to justify the transfers of such huge sums of money out of IPO proceeds to a number of entities including to certain funding group Noticees and despite their bald superfluous claims of having utilized the IPO proceeds for the declared objects, why none of the Noticees has been able to substantiate such claims with even a shred of supporting evidence till the conclusion of the present proceedings. Eventually such specious claims about utilization of IPO proceeds remained far away from the actual utilization those IPO proceeds and till date, the objects of IPO have remained as unfulfilled promises to the innocent public shareholders who whole heartedly supported the Company s SME listing with the expectation of a good performance from the Company. 68. Keeping in view the aforesaid detailed factual analysis of the matter and my findings as well as observations based on those facts supported by documentary evidence, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticee no. 3 has not disputed his directorship with the Company nor has claimed to be unaware/ignorant of the charges made against the Company. It is also important to mention that in the present proceeding; it is Noticee no. 3 who has represented the Company before me. 72. I may state here that behind an artificial juristic person like the Noticee Company in the present proceedings, it is the minds and wisdom of certain natural persons who are at the helm of the affairs of such corporate entity which actuate the Company into its actions. All the deeds and misdeeds executed in the name of the Company are actually attributable to these natural persons, i.e., the Directors of the Company who have superintendence and control over all the activities of a company. In the present case, the fraudulent scheme that was devised which led to achievement of the compliance with the Regulation 14 (1) of ICDR by way of funding the applications of large number of share applicants under the IPO of the Company to the extent of 51.66% its shares subscriptions and the way the funds raised in the IPO were diverted to various entities including funding group entities without utilizing the same for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who may not have the competence enough to garner interest of adequate number of investors and by keeping this mandatory requirement, the interest of investors in the proposed to be listed companies, is sought to be protected. However, certain entities, as noted in the present case, by resorting to devious means, have been able to cross the said threshold of 90% and have accordingly projected an artificial compliance of the said statutory requirement to the general public at large. Such deceitful acts on the part of a yet to be listed company is not acceptable as it carries dangerous potential to create artificial inducement to the gullible shareholders of the said Company as well as to the general investors of the securities market, who are unaware of such dubious schemes conceived by the Directors to somehow get their companies listed on a stock exchange by short changing the interest of the investors, who would easily fall prey to such schemes and invest in the securities of the Company by relying upon the misleading IPO documents. 76. As the fraudulent scheme employed by the Company now stands exposed establishing the fact that the Company in the ordinary course of its IP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this order 4 Goldline International Finvest Ltd. Yes Till date of this order 5 Satendra Kumar its Proprietorship firm viz. Nisha Traders, Bright Securities Yes Till date of this order 6 Madhukar Dubey its Proprietorship firm viz. N V Sales Corporation, A One Furniture Yes Till date of this order 7 Ram Prakash its Proprietorship firm viz. Khan Enterprise Yes Till date of this order 8 Aavia Softech Pvt. Ltd. No 1 Year 9 Mayfair Infosolution Pvt. Ltd. Yes Till date of this order 10 Avisha Credit capital Pvt. Ltd. Yes Till date of this order 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnected entities were pushing up the price of the scrip through unusual trades in such a manner so as to make a positive contribution to the Last Traded Price (LTP) and establishing New High Price (NHP). 54. The observations and finding of fact arrived by the SEBI clearly proves that the scrips of M/s Esteem Bio Organic Food Processing Ltd. where manipulated in stock exchange and fraudulent scheme was deployed by the said company right from year January 2013 during the period which the assessee had entered into the transaction. This fact itself nails the finding of the Assessing Officer which has discussed in detail and also by the ld. CIT(A). It is immaterial that order of the SEBI came in 2018 because the SEBI has analysed the entire trading of shares from year 2013 and found that not only the prices of the scrips of the said company were rigged but also were involved in fraudulent activities, which led to completely debarred its trading in the stock exchange. Thus, this order of SEBI clearly implicates, the entire transaction of purchase and sale of shares and goes to prove that the transaction was not genuine and corroborates the findings of the enquiry conducted by the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he plethora of evidences and incongruence brought out by the revenue to prove the not so genuine of these transactions entered by the assessee. 62. With regard to the arguments of the ld. AR that how strong ever is the suspicion it cannot be a reason to make addition. The ld. AR also argued that the strong suspicion cannot overtake the facts on record and the judicial pronouncements. 63. On this issue we hold that preponderance of the evidence is one type of evidentiary standard used in a burden of proof analysis. Under the preponderance standard, the burden of proof is met when the party with the burden convinces the fact finder that there is a greater chance that the claim is true. This is the burden of proof in a civil trial. The theory of preponderance of probability‟ is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. In situations like this case, one may fall into realm of preponderance of probability‟ wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting of minds involving synchronization of buy and sale orders and not negotiated deals. The Hon ble Apex Court held that such impugned transactions are manipulative, deceptive device to create loss or profit. Thus, on going through the entire factum of the case, we hold that on merits also the profits earned by the assessee cannot be said to be genuine. 65. The ld. Counsel for the assessee has much harped on the judgment of Hon ble Jurisdictional High Court in the case of the assessee (supra) stating that the facts and ratio laid down therein is clearly applicable in the present case also. We have already clarified in our foregoing paragraph 46 that the facts involved in the present case are different and why the said judgment will not be a binding precedence on the facts of the present case. For the sake of ready reference, the observation and the finding of the Hon ble High Court while upholding the order of the Tribunal are as under: 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels. The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of fact to corroborate the finding of the AO which was purely based on uncorroborated enquiry by the Investigation Wing. Here in this case, the most crucial fact brought on record is the order of the SEBI and finding arrived by the SEBI as to how the scrips of M/s Esteem Bio Organic Food Processing Ltd. was rigged and this company was involved in fraudulent scheme only for giving accommodation entries. This finding itself distinguishes the case before the Hon ble High Court. The Hon ble High Court has not laid down any principle albeit has confirmed the finding of ITAT based on facts which we have already and held as clearly distinguishable. Accordingly, reliance placed by the ld. Counsel on the said judgment is not relevant. 67. Thus, on going through the entire facts and circumstances of the case, it can be concluded based on the following snap shot that transactions entered by the assessee are not genuine. 1. A tangible and reliable information has been available with the Assessing Officer to initiate proceedings u/s 148 of the Act. 2. Proper reasons have been recorded before issue of the notice. 3. The reasons recorded are related to the information receive ..... X X X X Extracts X X X X X X X X Extracts X X X X
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