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TMI Blog2023 (1) TMI 314X X X X Extracts X X X X X X X X Extracts X X X X ..... PER B.M. BIYANI, A.M.: Feeling aggrieved by appeal-order dated 18.11.2019 passed by learned Commissioner of Income-Tax (Appeals)-1, Indore [ Ld. CIT(A) ], which in turn arises out of assessment-order dated 29.12.2017 passed by the learned DCIT-3(1), Indore [ Ld. AO ] u/s 143(3) of the Income-tax Act, 1961 [ the Act ] for Assessment-Year 2015-16, 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. 90,69,199/- 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. 90,69,199/- 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, ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alid. 2.7 That various 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 2,73,105/- is erroneous. 2. None appeared on behalf of assessee. However, Ld. DR representing the Revenue submitted that the present appeal involves exactly same issue as was there in ITA No. 909/Ind/2018 of the same assessee for earlier assessment year 2014-15, which stands already heard by ITAT, Indore on 18.10.2012. Therefore, the present appeal can also be proceeded with for hearing. We accepted the request of Ld. DR and proceeded accordingly. 3. Briefly stated the facts are such that the assessee-individual filed his return of income on 04.11.2015 declaring a total income of Rs. 35,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2014 / 23.04.2014 / 25.04.2014 for a sum of Rs. 91,03,492/-, resulting into a exempted capital gain of Rs. 90,69,199/-. 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: 3.9 Since, the assessee has not offered proper explanation with regard to the genuineness of the above transactions of penny stock, a statement u/s 131 of the assessee also recorded to examine the assessee and to unearth the truth. 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 financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee to prove that the claim of long term capital gain as exempt u/s. 10(38), is not discharged in the instant case. 4.2 The Hon'ble Supreme Court in the case of Commissioner of Income-Tax, West .vs Durga Prasad More 82 ITR 540 observed the often quoted 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 recital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounted cash equal to the sale proceeds of share in to white in the guise of exemption under section 10(38) of the Income Tax Act, 1961. xi) With so much of evidence against the assessee, the onus was on assessee to prove that his tral1sactions were genuine 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prevailing in the instant case, and without any corroborative or circumstantial evidence/s cannot he regarded as conclusive Two, the preponderance probabilities only denotes the simultaneous existence of several facts', each probable in itself, albeit low, so 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. Reliance is also placed in the recent case law Bombay High Court in the case of Sanjay Bimal Chand Jain Vs. PCIT-1, Nagpur Another dated 10.04.2017 which is very much similar to the facts and circumstances in the case of present case wherein it was held that the authorities have recorded a clear finding of the fact that the assessee had indulged in dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. While so observing, the authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth Rs. 5/- had jumped to Rs. 485/- in no time. The Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the sum received which is sought to be given by the assessee, the Income-tax Officer has the jurisdiction to enquire from the assessee the nature and source of the said amount. When an explanation in regard thereto is given by the assessee, then it is for the Income-tax Officer to be satisfied whether the said explanation is correct or not. It is in this is regard that enquiries are usually made in order to find out as to whether firstly, the persons from whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the Income-tax Officer may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere name-lender or not Be that as it may, it is clear that the Income-tax Officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a service charges. The use of the words any sum found credited in the books in section 68 indicates that the said section is very widely worded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) Malini R Rele Vs. ITO 205 ITR 52 (Mumbai) ITAT Third Member. While analyzing the facts of this case, it is kept in mind that the proceedings under Income Tax Act are not judicial proceedings in the sense in which the phrase 'judicial proceedings' is ordinarily used. The Assessing Officer is not fettered or bound by technical rules about evidence contained in the Indian Evidence Act and he is entitled to act on material which may not be accepted as evidence in a court of law. 26 ITR775 (S.C), 45 ITR 206 (S.C), 63 ITR 449 (S.C). Thus, the assessment can be made on the basis of inference on evidence which in criminal or civil justice may be insufficient. Further, as held by the Supreme Court in the case of Collector of Customs Vs. D. Bhoormal A.R. 1974 SC 859, the department is not required to prove its case with mathematical precision towards demonstrable degree; for, in all human affairs absolute certainty is a myth, and as proof. Fundamental rules of evidence and interpretation in mind relating to proof in all criminal or quasi-criminal proceedings, where there is no statutory provision to the contrary. But in appreciating its scope and the nature of the onu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l transaction of Rs. 90,69,199/- is worked out at Rs. 2,73,105/-. Since, assessee has not disclosed this amount in his return of income, therefore, considering the facts as discussed above, the commission amount of Rs. 2,73,105/- is hereby added to the assessee s total income as unexplained expenditure incurred out of income from undisclosed sources u/s 69C of the Act. A penalty proceeding u/s 271(1)(c) of the Income Tax Act 1961 also initiated on this issue. Addition Rs.2,73,105/- 7. During first appellate proceeding, the assessee submitted a detailed reply to Ld. CIT(A) which is noted by Ld. CIT(A) in his appeal-order. However, the assessee did not find any favour from Ld. CIT(A) who confirmed the entire addition by holding as under: Ground Nos. 2 4:- Both the grounds of appeal have been raised against addition on account of LTCG/total sale consideration of Rs.90,69,199/- claimed exempt u/s 10(38) of the Income Tax Act, 1961. The addition has been found made by Assessing Officer u/s 68 of Income Tax Act, 1961 considering the same as bogus credit entry obtained by paying consideration out of unaccounted cash. 4.1 The appellant during relevant period had sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounting to several crores from 2010 to 2011. ii. The result of the inquiry was also shared with SEBI and the SEBI, after investigating 28 cases have found the allegation to be correct. The remaining cases are still being investigated by SEBI. The SEBI has suspended trading of the scrip of M/ s Lifeline Drugs . Pharrna Ltd. iii. The beneficiaries were confronted in course of further investigation by the Investigation Wing. Barring a few, almost, all of them have accepted having taken the entries for a commission. A sum of crores has been voluntarily surrendered by such assessees. iv. As per searches/surveys/inquiries conducted by the Income Tax Department in the case of Penny Stock Companies it has been admitted by several entities like Madhya Pradesh Stock exchange Ltd., Indore, destiny Securities Ltd., New Delhi etc. that Mjs Lifeline Drugs Pharrna Ltd. was one of the scrip through which Long term Capital Gains was arranged for beneficiaries. The SEBI had also suspended operations of trading of M/s Lifeline Drugs Pharma Ltd. holding the same to be a penny stock in which manipulations were carried out. 4.3 In view of the above stated details and facts. th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e part of design to create capital without paying taxes on the same. 2. With collusion of the broker, shares were purchased of an unknown company with dubious background for miniscule consideration. 3. The process of purchase is not recorded on any stock exchange or market. 4. The payment for the shares purchased is made in cash which is not supported by any documentary evidence. 5. The shares were converted into the DEMAT format Just before the transaction. 6. The assessee is unable to substantiate as to in which knowledge he has sold the shares on that particular dated. 7. The company whose shares were purchased and sold is not engaged in any active business. It has not turnover or profit earning apparatus to justify abnormal increase in it's 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. 8. The above conclusion is fortified from the specific findings in the case of company whose script was traded by the assessee. 9. The S'EBI, in fact suspended trading of the above script with effect from 07- 01-2015 due to surveillance m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the appellant had purchased 6000 shares of Surabhi Chemicals and Investments Ltd. from Akriti Advisory Services Ltd. offline for Rs.25/- each (face value Rs.10) when the same was being traded in the market @ Rs.O.26 paise. Thereafter, the price of shares short up within short span of time resulting in to large amount of LTCG exempt ujs 10(38) of Income Tax Act, 1961. The AO after taking in to cognizance entirety of events treated the entire sale consideration as unexplained credit in terms of section 68 of the Income Tax Act, 1961 The matter travelled upto Honble ITAT. D-Bench Channai. It was clearly observed by the bench that the shares of Mj s Surabhi Chemicals Investments Ltd. was sky rocketed without having any substantial profit, EBIDTA margin, BPS bonus, dividend etc. None of the criteria essential for increase in price was present in this case. The most relevant part of decision is reproduced here under.- All these trading patterns show that LTCG admitted by the assessee is an arranged one. The payment of Security Transaction Tax was to paint creditworthiness to the transaction and claim exemption u/s 10(38). In view of the information provided by the investiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant part of judgment is reproduced hereunder.- We have heard the rival submissions and carefully perused the materials on record. At the outset we must say that the Ld.AR could not justify before us any of their claims made before the Ld. Revenue Authorities that the transaction was genuine, Further the Ld.AR could not successfully controvert to any of the findings of the Ld. Revenue Authorities before us which are against the assessees. Instil the Ld.AR has only come out with the plea that the assessees were not provided with opportunity of cross-examining the Witness, the investigation report was not furnished and proper opportunity was not provided of being heard. However we find that all these arguments raised by the Ld.AR before us was never alleged before the Ld. Revenue Authorities when the matter was before them. In this situation we do not have any other option but to confirm the orders of the Ld. Revenue Authorities in the case of all the assessees because the Ld. AO as well as the Ld,CIT(A) have arrived at their respective decisions after considering the issues in the appeal in detail and there is nothing before us to disturb their findings. Accordingly we her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eques in name of assessee for purchase of shares claimed to be sale proceeds of same shares received in advanceI Broker could not give details of purchaser of sharesI Moreover, shares 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 inqenuine transaction and made addition of alleged sale consideration to assessee's income as income front undisclosed sources - Whether on facts, addition made by Assessing Officer was justified - Held, yes. 4.13 Further, in the case or Ushn Chandresh Shah Vs ITO 12014.TIOL- 1459-ITAT-MUM. It was held that: Where Hon ble ITAT Mumbai held that in this case the assessee could not produced the copies of share certificates and copies of share transfer forms. The transaction of purchase oJ 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empting provision: they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the state. This is for the reason explained in Mangalore Chemicals and other decisions, viz each such exemption/exemption increased the tax burden on other members of the community correspondingly. One of court the provision is found applicable to him, full effect must be given to it. As observed by a constitution Bench of this court in Hansraj Gordhandas Vs. H. H. Dave, 1961 2 SCR 253 that such a notification has to be interpreted in the light of the words employed by it and not on any other basis. This was so held in the context of the principle that in a taxing statue, there is no room for any intendment, that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification, i.e. by the plain terms of the exemption. The Honble Supreme Court, in a recent decision in the case of M/s Dilip Kumar and Company Others, in appeal No. 3327/2007 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to Rs. 273105/- is confirmed. Accordingly, both the grounds of appeal are dismissed. 8. Before us, the Ld. DR made a crystal-clear and pointed submission. He submitted that the assessee has declared exempted capital-gain from shares of Lifeline Drugs and Pharma Ltd., which is a company identified by Income-tax Department as Penny-stock and even the operations in the shares of company were also suspended by SEBI. Ld. DR submitted that these facts are clearly evident from Investigation Report in the case of Project Bogus LTCG / STCL Through BSE Listed Penny Stocks dated 27.04.2015 released by Directorate of Income-tax (Investigation), Kolkata, the relevant paragraphs of the report being reproduced below: Page No. 2 of the Forwarding-Letter embodied in the Report: We identified the following BSE listed penny stocks which have been used for generating bogus LTCG: SL No Script Code Script Name Full Name of Penny Stock Amount of Total Value 36 506113 Lifeline Dru Lifeline Drugs Pharma Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has considered various legal precedents of the Hon ble Supreme Court and other Courts; has taken into account the Investigation-Report dated 28.04.2015 prepared by Investigation-Wing of Income-tax Department; and considered the issues of cross-examination, human probability etc. Some relevant paragraphs of the decision are extracted below: 69. Thus, the legal principle which can be culled out from the above decision is that to prove the allegations, against the assessee, can be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled and when direct evidence is not available, it is the duty of the Court to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded so as to reach a reasonable conclusion and the test would be what inferential process that a reasonable/prudent man would apply to arrive at a conclusion. Further proximity and time and prior meeting of minds is also a very important factor especially when the income tax department has been able to point out that there has been a unnatural rise in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be drawn on the basis of immediate and relevant facts was contrary to the law already settled by the Hon'ble Supreme Court in Chintalapati S. Raju. Therefore, it would be incorrect to submit that the decision in K.R. Ajmera has been overruled. This position becomes clearer as the decision in K.R. Ajmera was referred to in Chintalapati S. Raju as could be seen in paragraph 30 of the said judgment. Therefore, we hold that the law laid down in K.R. Ajmera continues to be good law. 72. In the light of the above discussion, the only conclusion that can be arrived at is that the opinion can be formed and the decision can be taken by taking note of the surrounding circumstances which had been elaborated upon in K.R. Ajmera. 73. It is very rare and difficult to get direct information or evidence with regard to the prior meeting of minds of the persons involved in the manipulative activities of price rigging and insider trading. We can draw a parallel in cases of adulteration of food stuff, more than often action is initiated under the relevant Act after the adulteration takes place, the users of adulterated products get affected etc. Therefore, a holistic approach is req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction. Until and unless the initial burden cast upon the assessee is discharged, the onus does not shift to the revenue to prove otherwise. It is incorrect to argue that the assessees have been called upon to prove the negative in fact, it is the assessees duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. The assesses cannot be heard to say that their claim has to be examined only based upon the documents produced by them namely bank details, the purchase/sell documents, the details of the D-Mat Account etc. The assesses have lost sight of an important fact that when a claim is made for LTCG or STCL, the onus is on the assessee to prove that credit worthiness of the companies whose shares the assessee has dealt with, the genuineness of the price rise which is undoubtedly alarming that to within a short span of time. The revenue had placed heavy reliance on the decision in McDowell to show that the claim of the assessee is not case of tax planning to be one of the tax avoidance by indulging in dubious methods. Mr. Bagaria had argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are before us could have been regular investors, investors could or could not have been privy to the information or modus adopted. In our considered view, what is important is that it is the assessee who has to prove the claim to be genuine in terms of Section 68 of the Act. Therefore, the assessee cannot escape from the burden cast upon him and unfortunately in these cases the burden is heavy as the facts establish that the shares which were traded by the assessees had phenomenal and fanciful rise in price in a short span of time and more importantly after a period of 17 to 22 months, thereafter has been a steep fall which has led to huge claims of STCL. Therefore, unless and until the assessee discharges such burden of proof, the addition made by the assessing officer cannot be faulted. 76. It was argued that unless there are foundational facts, circumstantial evidence cannot be relied on. This argument does not merit acceptance as wealth of information and facts were on record which is the outcome of the investigation on the companies, stock brokers, entry operators etc. Based on those foundational facts the department has adopted the concept of working backward leading ..... X X X X Extracts X X X X X X X X Extracts X X X X
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