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TMI Blog2022 (1) TMI 1258X X X X Extracts X X X X X X X X Extracts X X X X ..... led transactions lead to exorbitant returns which are made tax free. As in the case of CIT Vs Korlav Trading Company Ltd. [ 1998 (2) TMI 104 - CALCUTTA HIGH COURT] and CIT Vs Precision finance P. Ltd.[ 1993 (6) TMI 17 - CALCUTTA HIGH COURT] had observed and held that mere filing of confirmation and transaction through the banking channel is not enough to prove the genuineness. 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. Prima facie, it may appear to be a case made on preponderance of probabilities but not beyond reasonable doubt. However, in this case a deeper examination of the facts reveal that in a scam of such massive scale many players and layers involved hence the judgments of Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02/2018 are bad in law in as much as notice u/s 143(2) is not in accordance with jurisdictional conditions stipulated under the Act. 2. That order passed by Ld AO dated 30/12/2016 and further order passed by Id CIT A dated 13/02/2018 are bad in law in as much as addition of Rs 103,46,835 u/s 68 on a/c of alleged sham Long Term Capital Gains is made violating principles of natural justice and on basis of vague and generalized show cause notice (19/12/2016) without confronting any back material to assessee thus rendering the entire proceedings a nullity in eyes of law as replied to AO vide letter 20/12/2016. 2.1 That order passed by Ld AO dated 30/12/2016and further order passed by Id CIT A dated 13/02/2018 are bad in law in as much as addition of Rs 103,46,835 is made violating principles of natural justice without confronting any investigation wing report relevant extract, material found by investigation wing etc. which is sufficient to quash the assessment order and order passed by Ld CIT-A. 3. That order passed by Ld AO dated 30/12/2016and further order passed by Id CIT-A dated 13/02/2018 are bad in law in as much as addition of Rs 103,46,835 is made inter-alia on basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and in the circumstances of the case and in law, both Id CIT-A and Id AO erred in making subject additions without appreciating that the modus operandi relied extensively in impugned orders is 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 nullifying the entire basis of the addition. 6. That on the facts and in the circumstances of the case and in law, Id AO erred in making subject additions without appreciating that law gives discretion to the assessing officer in applying deeming fictions u/s 68 etc which discretion has not been judiciously exercised in facts are present case as assessee has no economic capacity and source to generate given amount of unaccounted income. Further law requires that additions under said deeming fiction cannot be made sans incriminating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any/al l grounds of appeal before or at the time of hearing of the appeal. Humble Prayer: i) To delete the addition of Rs.103,46,835 on a/c of alleged bogus LTCG; ii) To quash assessment order and Id CIT-A order for being passed in serious violation of audi altrem partem iii) To hold section 68 elc. does not apply to sale of shares iv) To delete the addition of Rs.20,694 v) To restore returned income vi) Any other appropriate relief 4. The assessee is an individual. During the year under consideration, the assessee had filed a return of income on 30.07.2014 declaring a total income of Rs 17,26,593/- for the financial- year 2013-14 relevant to assessment year 2014-15. The case was selected for scrutiny and notice U/s 143(2) of the Act was issued upon the assessee. The assessment proceedings culminated in an order of assessment framed u/s 143(3) of the Act dated 30.12.2016 by Deputy Commissioner of Income Tax Circle-1, Meerut, determining the income of the assessee at Rs.1,20,94,122/- against the returned income of Rs. 17,26,593/- by making addition of Rs. 1,03,67,529/- which includes a sum of Rs. 1,03,46,835/- being the long term capital gain accrued to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement on oath in survey u/s 133A of the Act that they have provided accommodation entries to different beneficiaries. ii) That Shri. Narendra Kumar Balasia, director of M/s SMC Comtrade Private Ltd. has admitted that sub brokers use penny stock companies for providing bogus long term capital gain to their clients, they have provided bogus long term capital gain of M/s Unno Industries to their cl ients. iii) The financial of the penny stock M/s Unno Industries Ltd. and movement of the price is abrupt, unrealistic and not based upon any realistic parameters. iv) The assessee is unaware about the share market but has earned profit of Rs. 1,03,46,835/- by investing very low amount without having any information or knowledge of stock market. v) That all the activities regarding long term capital gain were completed by the broker but it is interesting to note that he do not know the name, address and phone number of broker. vi) The shares sold by the assessee were purchased by six companies and out of six, in respect one company M/s Galore Suppl iers Pvt. Ltd. one Shri. Navneet Kumar Singhania in his statement has admitted that such company is a paper company and has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Empower India Ltd. 14. Statement of affairs of assessee for the period ended 31.03.2013 and 31.03.2014. The ld. AR argued that it is not in dispute that the assessee has purchased the shares and purchase consideration has been paid and finally the shares of M/s Unno Industries have been sold at the rate quoted on the Stock Exchange and the amounts have been received which are rightfully eligible for exemption u/s 10(38). The doubting of the revenue authorities is purely on the grounds of suspicion and the statement of people recorded who are unconnected with the transaction. Further, he relied on the order of the Co-ordinate Bench ITAT Kolkata in the case of Sumaysh Agarawal Vs. ITO, Ward-29(1), Kolkata ITA No.1790/Kol/2018 and argued that the SEBI has exonerated and the final enquiry about the trade of the shares. At this juncture, we would like to clarify that the order of SEBI dealt with the shares of M/s Kailash Auto Finance Ltd. but not with the shares of M/s Unno Industries Ltd. which are involved in this case. Hence the arguments of the Ld.AR cannot be held to be valid in these scrips. The ld. AR argued that the contentions of the revenue were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng term capital gains. We would like to mention here that the scrips of Kailash Auto finance have been exonerated by the enquiries conducted by SEBI. No information has been brought before us regarding the exoneration by the SEBI in the case of Unno Industries Ltd. which have been dealt by the assessee in the instant case. 13. Further, evidences are also available on record with regard to the purchase of shares sold by the assessee. The shares of Unno Industries Ltd. have been purchased by a company named Galore Suppliers Pvt. Ltd. The subbroker/ entry operator Sh. Navneet Kumar Singhania in the statement recorded on oath u/s 131 of the IT Act on 18.03.2014 undisputedly submitted that the company Galore Suppliers Ltd. has been used for providing accommodation entries. 14. Further, the statement of the assessee has been recorded on oath u/s 131 of the IT Act on 19.12.2016 could not submit any details about the method he transacted in the shares. The entire facts have been specifically confronted to the assessee on 19.12.2016. The assessee could not through any light with regard to the transactions entered with the brokers namely Bonanza Portfolio Ltd. or Zuari Investments Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od idea of how much LTCG is to be provided along with the break-up of individual beneficiaries. This data is essential to decide which penny stock or companies to use for the job and which beneficiary to buy how many shares. Types of Penny stock companies. 18. Broadly speaking there are two types of companies. i) An old already listed company, the entire shareholding of which is bought by the syndicate to provide LTCG entries. These are generally dormant company with no business and with accumulated losses. ii) A new company which is floated just for the purpose giving LTCG entries. Such new companies are often floated after the initial booking is complete and the capital base is decided keeping in mind the entries to be provided. The entities involved in the transactions. 19. There are three categories of individuals who are involved in the transactions i) Syndicate Members: They are the promoters of the Penny Stock companies who own the initial shareholding mostly in the name of paper companies either in a fresh IPO or purchased from the shareholders of a dormant company. They are usually a group of 4-5 individuals who also referred to as Syndicate Members and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Merger method : In this method the operators first form a Private Limited Company and the shares at par are allotted to beneficiary individuals. This private limited company is then amalgamated / merged with a listed penny stock company by a High court order. Depending on the capital of the amalgamating and amalgamated companies, the investors are allotted stock of the listed companies in the same proportion. The prices of shares are thus manipulated at 20 to 25 times the face value. The investors hold these shares the penny stock listed company which it got as a result of merger for one year (statutory lock-in period for exemption under IT Act) and then sell it to one of the shell private limited companies of the operator. The investor thus makes a LTCG of 25 are more times its original investment. A typical chart of share price verses date and the volume of a Penny stock would see the bel l curve peak as one shown on the left. Snapshot of Basic modus of providing bogus LTCG 22. Merger of Unlisted companies with Listed Entity: This is the most preferred option for the persons willing to operate for the purpose of doing Long Term capital Gains. In case of the merg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r books in form of accumulated profits or Share Premium Account. The purpose of a company in issuing bonus shares is to reward or acknowledge the shareholders for being investors in the company. By issuing bonus shares, the company tries to increase the morale of the shareholders. It is a financial reward that the company gives to its shareholders. However in the cases of above type, the main purpose of issuing the bonus shares to the shareholders is to reduce their cost of acquisition, thereby increasing the quantum of Long Term Capital Gain. For Example, if a person buys the shares of a particular company at a price level of 100 and receives 9 shares as bonus, his cost of acquisition stands to Rs. 10/- per share. 26. Splitting the shares:- It is the most effective way to camouflage the price of shares. The shareholder does not get affected by any of such proceeding adopted by the company except the effect of Corporate Action of NSDL/CDSL thereby releasing old shares and getting the spitted shares in Demat Account. After split of shares the price of shares on the exchange goes down automatically in proportion with the ratio of split and one doesn t see anything adverse happenin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res at Rs.1.79. BSE in a circular inform the Members, the trading of securities of M/s Unno Industries Ltd. has been suspended after exchange had noticed substantial increase in manipulation/abrupt movement in the price of securities. The name of the company finds place among the 31 companies suspended by the BSE: 30. The brokers M/s Bonanza Portfolio Ltd. has been found to be involved in various irregularities and monetary penalties have been levied by the adjudicating authorities of the SEBI Adjudication Order: EAD-9/VKV/GSS/2020-21/ 9143 Under Section 15-I Of Securities And Exchange Board Of India Act, 1992 Read With Rule 5 Of SEBI (Procedure For Holding Inquiry And Imposing Penalties) Rules, 1995. In respect of: M/s. Bonanza Portfolio Ltd. (CIN No.: U65991DL1993PLC052280) (Stock Broker bearing registration no. INZ000081033) PAN: AAACB0764B 31. Further, the broker M/s Zuari Investments Ltd. has also been found to be involved in various infringements with regard to conduct of business in connivance with other parties which can be found in the Order No. EAD-3/JS/GSS/1400-1402 /2018- 19 September 28, 2018. Thus, it is proved beyond doubt that the brokers and the trade in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that even if the transaction is made through cheque it cannot be presumed to be genuine. These observations are more so valid when weighed against the plethora of evidences and incongruence brought out by the revenue to prove the not so genuine of these transactions entered by the assessee. 39. 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. 40. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the transactions are through screen based trading and hence anonymous. The Hon ble Court held that such conclusion would be overlooking the prior meeting 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, ongoing 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. 42. In light of the above facts and material brought on record by the AO and the statement of the assessee himself goes to prove that the case of the AO is not based on any suspicion or surmises. One very important fact which is clearly distinguishable from the judgments relied upon by the ld. Counsel of the assessee that, not only in the case of M/s Unno Industries Ltd. the SEBI has suspended the trading of the shares in BSE but also the two brokers through whom the assessee has purchased shares have been found doing irregularities by the SEBI. Another important fact is that, the Director of one of the company, Galore Suppliers Pvt. Ltd. who has bought the shares of M/s Unno In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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