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TMI Blog2023 (1) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... I, A.M.: Feeling aggrieved by appeal-order dated 20.09.2018 passed by learned Commissioner of Income-Tax (Appeals)-1, Indore [ Ld. CIT(A) ], which in turn arises out of assessment-order dated 15.12.2016 passed by the learned ACIT-3(1), Indore [ Ld. AO ] u/s 143(3) of the Income-tax Act, 1961 [ the Act ] for Assessment-Year 2014-15, the assessee has filed this appeal on following grounds: 1.That the learned Commissioner of Income Tax (Appeals)-1, Indore has further grossly erred both in law and, on facts in denying the claim of exemption of long term capital gain of Rs. 66,28,161/- on sale of shares sold on recognized stock exchange and, eligible for exemption u/s 10(38) of the Act and bringing to tax as unexplained credit u/s 68 of the Act. 2. That learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in making an addition of Rs. 66,28,161/- being sale consideration on sale of shares listed on recognized stock exchange as unexplained credit u/s 68 of the Act. 2.1. That while sustaining the aforesaid addition and denying the exemption learned Commissioner of Income Tax (Appeals) has failed to appreciate that, appellant was owner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious adverse findings and conclusions recorded by the learned Commissioner of Income Tax (Appeals) are factually incorrect and contrary to record, legally misconceived and untenable. 2.8 That the learned Commissioner of Income Tax (Appeals) has erred in concluding without any basis that assessee has introduced his unaccounted income in the form of long term capital gain by manipulating the penny stock 3. That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in Addition u/s 69C of unexplained commission paid @ 3% of Rs 1,99,847/- is erroneous. 2. None appeared on behalf of assessee despite several hearings afforded from time to time. Ld. DR representing the Revenue was ready to argue the case. On perusal of Grounds of Appeal, it was observed that the present appeal can be heard on the basis of material held on record and after hearing Ld. DR. Accordingly, the appeal was heard and being disposed of by this order. 3. Briefly stated the facts are such that the assessee-individual filed his return of income on 21.10.2014 declaring a total income of Rs. 28,45,390/- from salary, house-property, business / profession and interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/-, resulting into a exempted capital gain of Rs. 66,28,161/-. 6. During assessment-proceeding, Ld. AO confronted the assessee about these transactions and also recorded the statements of assessee u/s 131 of the act. Finally, the Ld. AO concluded that the capital gain declared by the assessee is not genuine and the same has been arranged by the assessee so as to claim benefit of section 10(38). The observations / conclusions made by Ld. AO are re-produced below: 3.5 In view of the above statement it is concluded that assessee is a regular investor and doing regular trading in the stock exchange. He has not knowing to the company i.e. M/s Lifeline Drugs. The assessee has stated that on the tips received from market he has purchased and after some time on the rise of rates he has sold such scripts. It is also observed that assessee was unaware with the company's book results and its financial status. It is also noted that increase in the prices of the share of M/s Lifeline Drugs in just one and half year was approx 19834% is total unrealistic. 4. The assessee has been confronted with all the evidence gathered and the issues mentioned in the foregoing paragraphs at P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following relevant observation: It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an asses see who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. That genuineness could validly be tested on the ground or principle of preponderance of human probabilities, which could thus form a valid ground or parameter for determining. the genuineness, stands since settled by the apex cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that he had not availed benefit of the aforementioned scheme to convert black money into white. xii) In Sumati Dayal vs. Commissioner of Income tax - the Supreme Court observed as under: It is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. [See. Parimisetti Seetharamamma (supra) at P. 5361. But, in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is prima facie, evidence against the assessee, viz. the receipt of money, and if he fails to rebut, the said evidence being un-rebutted, can be used against him by holding that it was a receipt of an income nature. While considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to cast a serious doubt on the truth of the reported facts', which together make up for a bizarre statement, leading to the inference of collusiveness or a device set up to conceal the truth, i.e., in the absence of credible and independent evidences 8.In view of the facts and circumstances discussed supra and circumstantial evidence available on record, it has been concluded that the transactions were sham transactions and aimed only to bring unaccounted money in the guise of exempt long term capital gain and paper work has been done merely to give a colour of authenticity to the transaction and by creating a fa ade of legitimate transactions. The same is therefore chargeable to tax u/ s 68 of IT Act. Section 68 of the Income-tax Act, 1961, reads as under: 68. Where any sum is found credited in the books of an assessee 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 Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The aforesaid section merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mits an Income-tax Officer to make enquiries with regard to the nature and source of any or all the sums credited in the books of account of the company irrespective of the nomenclature or the source indicated by the assessee. In other words, the truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of account can be gone into by the Income-tax Officer. 3.6 The term 'Burden of Proof' means burden to prove an allegation before a decision can be given. The question regarding burden of proof arises on a contested issue where one of the two contending parties has to introduce evidence and in the absence of such evidence, it is assumed that the party has failed. Sometimes in the statute itself it is provided that, burden of proof will be on the assessee or the assessing officer. However, there is difference between 'Burden of Proof' and 'Onus of Proof' as 'Burden of Proof' lies on the person who has to prove a fact and it never shifts, but the onus may shift. As per section 103 of the Evidence Act, Burden is on that person w he wishes the court to believe in the existence of a particular fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substitute in this work-a-day world. The law does not require the prosecution to prove the impossible. All that it requires is the establishment of such a degree of probability that a prudent man may, on its basis believe in the existence of the fact in issue. Thus legal proof is not necessarily perfect proof; often it is nothing more than a prudent man's estimate as to the probabilities of the case. The other cardinal principle having an important bearing on the incidence of burden of proof is that sufficiency and weight of the evidence is to be considered - to use the words of Lord Mansfield in Blatch Vs. Archer according to the proof which it was in the power of one side to prove and in the power of the other to have contradicted . Since it is exceedingly difficult, if not absolutely impossible for the Department to prove facts, which are especially within the knowledge of the opponent or the accused, it is not obliged to prove them as part of its primary burden. 9. In view of the detailed discussion made above, the total amount of Rs. 66,28,161/- is added under section 68 of the Income tax Act, 1961. As the assessee has deliberately and willfully concealed its u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital gain on the above transaction and claimed exemption u/s 10(38) of the LT. Act. The AO considered the amount of Rs.66,28,161/- as income from other sources u/s 68 of the LT. Act and made the addition. 4.2.1 The Directorate of Investigation, Kolkata carried out a countrywide investigation to unearth the organized racket of generating bogus entries of Long Term Capital Gain which is exempt from tax. The modus operandi adopted by the operators was to make the beneficiary buy some shares of a pre-determined Penny stock company controlled by them. These shares are transferred to the beneficiary at a very nominal price mostly off-line through preferential allotment or off-line sale to save STT. The beneficiary (an Individual) holds the share for one year, the statutory period after which LTCG is exempt under section 10(38) of the Income Tax Act, 1961. In the meantime the operators rig the price of the stock and gradually raise its price many times, often 500 to 1000 times. This is done through low volume transaction indulged in by the dummies of the operator at a pre-determined price. When the price reaches the desired level the beneficiary who bought the shares at a nominal pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstantiate as to in which knowledge he has sold the shares on that particular date; VII. The company whose shares were purchased and sold are not engaged in any active business. It has no turnover or profit earning apartment to justify 200 time increase in its market price in the stock market. Hence it can be inferred that the prices were artificially jacked up to enable sellers of the shares to enjoy tax-free LTCG; VIII. The above conclusion is fortified from the specific findings in the case of the scrip traded by the appellant i.e. M/s Lifeline Drugs and Pharma Ltd.; IX. The SEBI in fact suspended trading of the above scrip due to surveillance measures. This also shows artificial tinkering with the prices of the shares of the company. 4.2.3 On going through the above information, the appellant indulged in bogus long term capital gain and claimed the amount as exempt u/s 10(38) of the LT. Act by way of taking accommodation entry. The purchase of shares is an off market transaction. The appellant is a not regular investor in the shares and invested in shares for the first time and earned return of more than 200 times within a short span of period which IS extremely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed to have been sold through broker had not been. transferred even at time of making enquiry by Assessing Officer and same continued to be registered in name of assessee - In those circumstances. Assessing Officer held that transaction of sale of shares was an ingenuine transaction and made addition of alleged sale consideration to assessee's income as income from undisclosed sources - Whether on facts, addition made 0:'1 Assessing Officer was justified - Held, yes 4. Usha Chandresh Shah Vs ITO [2014-TIOL-1459-I.T.A.T.-MUM Where Hon'ble of ITAT Mumbai held that in this case assessee could not produce the copies of share certificates and copies of share transfer forms. The transaction of purchase of shares could not be cross verified. The shares of the company was declared as Penny Stock by SEEI and the broker Sanju Kabra, through whom the shares were sold by the assessee was indicted for manipulating the prices of penny stock shares. The tax authorities have rightly applied the test of human probabilities to examine the claim of purchase and sale of shares made by the assessee. The CIT(A) was justified in confirming the order of the AD by applying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Ltd. 7361135725 Page No. 12 / 14 of the Report 4. Project Basis Enquiry of the scam. Various enquiries have been conducted by the Directorate of Investigation, Kolkata, on a project basis, which has resulted into the unearthing of a huge syndicate of Entry Operators, share brokers and money launderers, involved in providing bogus accommodation of Long Term Capital Gain, Short term capital loss. It has come to light that large scale manipulation has been/is being done In market price of shares of certain companies listed on the Bombay Stock Exchange by certain persons working as a syndicate in order to provide entries of tax exempt bogus Long Term Capital Gains to large number of persons in lieu of unaccounted cash. The basic objective of this racket is to convert black money into white without payment of Income Tax. The unaccounted cash of such persons [beneficiaries] is utilized to purchase shares of such companies at a very high artificially inflated market price. This practice is generally called Accommodation Entry Scam, as the activities of such persons are carried out with prime objective of accommodating unaccounted cash of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al rise in the price of the scrips of very little known companies. Furthermore, in all the cases, there were minimum of two brokers who have been involved in the transaction. It would be very difficult to gather direct proof of the meeting of minds of those brokers or sub-brokers or middlemen or entry operators and therefore, the test to be applied is the test of preponderance of probabilities to ascertain as to whether there has been violation of the provisions of the Income Tax Act. In such a circumstance, the conclusion has to be gathered from various circumstances like the volume from trade, period of persistence in trading in the particular scrips, particulars of buy and sell orders and the volume thereof and proximity of time between the two which are relevant factors. Therefore, in our considered view the methodology adopted by the department cannot be faulted. 70. It was argued by Mr. Bagaria that in the decision in Balram Garg, the decision in K.R. Ajmera has been overruled. To examine the correctness of the said submission, we have carefully gone through the findings rendered by the Hon'ble Supreme Court in paragraph 47 of the judgment in Balram Garg which reads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, we cannot loose sight of the fact that the shares of very little known companies with in-significant business had a steep rise in the share prices within the period of little over a year. The Income Tax department was not privy to such peculiar trading activities as they appear to have been done through the various stock exchanges and it is only when the assessees made claim for a LTCG/STCL, the investigation commenced. As pointed out the investigation did not commence from the assessee but had commenced from the companies and the persons who were involved in the trading of the shares of these companies which are all classified as penny stocks companies. Therefore, the argument of the assessee that the copy of the investigation report has not been furnished, the persons from whom statements have been recorded have not been produced for cross examination are all contention which has to necessarily fail for several reasons which we have set out in the proceedings. To reiterate, the assessee we not named in the report and when the assessee makes the claim for exemption the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had argued the rule in McDowell was considered in Azadi Bachao Andolan and Vodafone International and it is in the manner explained in these decisions the rule in McDowell needs to be applied. From paragraph 138 onwards the Hon'ble Supreme Court considered in detail as to why McDowell and what it says and what it does not say. The argument of Mr. Bagaria would primarily rests on as to what would mean by a sham transaction as a legal one and it is pointed out that all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. Further by referring to the decision in Vodafone International, it is submitted that the revenue cannot start with the question as to whether the transaction was a tax deferment/avoidance but the revenue should apply the look at test to ascertain its true legal nature and that genuine strategic planning had not been abandoned. Further the revenue has to establish on the basis of facts and circumstances surrounding the transactions that the impugned transaction is a sham or tax avoidance. In this regard Mr. Bagaria ITAT NO. 06 OF 2022 AND ETC. BA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d leading to the assessees. While at that relevant stage the sounding circumstances, the normal human conduct of a prudent investor, the probabilities that may spill over, were all taken into consideration to negative the claim for exception made by the assessee. Therefore, the department was fully justified in taking note of the prevailing circumstances to decide against the assessees. 10. Thereafter, Ld. DR submitted that the ITAT, Indore Bench has already decided Shri Abhishek Gupta Vs. ITO, Ward-5(5), ITA No. 74/Ind/2019, order dated 17.08.2022 wherein the identical issue of exempted capital gain from shares of Turbotech Engineering Ltd. was examined. Ld. DR submitted that after a mindful consideration and thorough analysis, the Bench has rejected the assessee s claim of long-term capital gain and upheld the additions made by revenue. Ld. DR submitted that the basic facts of the present appeal are similar to the facts involved in Shri Abhishek Gupta (supra) and there is no reason to deviate from the pre-existing decision. Ld. DR, therefore, prayed that the decision should be applied in present appeal too and the additions made / confirmed by lower authorities must be uphe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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