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TMI Blog2023 (5) TMI 876X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee failed to discharge the onus cast upon her u/s 68 - addition is sustained and the assessee s ground of disallowance of exemption u/s 10(38) on long term capital gain is hereby rejected. Addition u/s 69C - year of assessment - HELD THAT:- The transaction pertained to AY 2013-14 and not AY 2015-16 which is the year under our consideration. We are, therefore, of the opinion that the impugned addition cannot be made u/s 69C of the Act in AY 2015-16. We, therefore, set aside the order of the Ld. AO/CIT(A) on the point and delete the addition - We decide ground in favour of the assessee. - ITA No. 747/Del/2022 - - - Dated:- 18-5-2023 - Dr. Brr Kumar, Accountant Member And Ms. Astha Chandra, Judicial Member For the Assessee : Shri Rajiv Saxena, Ms. Sumangla Saxena, Shri Shayam Sunder, Shri Dishant Seth, Advocates For the Department : Shri Amit Shukla, Sr. DR ORDER PER ASTHA CHANDRA, JM The appeal filed by the assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals) - 28, New Delhi ( CIT(A) ) dated 22.03.2022 pertaining to the Assessment Year ( AY ) 2015-16. 2. The assessee has taken the following grounds:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares except this penny stock and that the transaction manifests well planned activity of some person who is dealing in entry operator business. 5. The Ld. AO issued show cause notice dated 21.12.2017 under section 142(1) of the Act, the text of which is reproduced in para 8 of his assessment order. In para 2 thereof, the Ld. AO apprised the assessee of the Investigation Report of Pr. DIT (Inv.) Kolkata wherein it is stated that M/s. HPC Biosciences Limited has been identified as BSE listed stock which have been used for generating bogus long term capital gain and exemption under section 10(38) of the Act has been claimed on the capital gain against the sale of scrips of M/s. HPC Biosciences Limited. The Directorate of Investigation, Kolkata has undertaken investigation on accommodation entry of long term capital gain and identified beneficiaries who have taken bogus entries of long term capital gain. The modus operandi unearthed during the investigation by the Directorate of Investigation was also brought to the notice of the assessee in detail. 5.1 On the basis of details filed by the assessee and other information gathered from the assessee as also the reply dated 26.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions. 6.1 The submissions of the assessee made during appellate proceedings were also countered by the Ld. CIT(A) by bringing on record the findings and modus operandi of a typical penny stock and its characteristics which squarely applied to the case of M/s. HPC Biosciences Limited. 6.2 The Ld. CIT(A) referred to a number of decisions and concluded his findings in para 5.24 and 5.25 of his appellate order reproduced below:- 5.24 All these cases are applicable to the facts and circumstances of the present case in which the various judicial authorities have decided the cases in favour of revenue after going through the entirely of the circumstances and not getting influenced by the picture shown by the appellant which is coloured by the use of sham devices. The case laws relied upon by the AR have been perused. No doubt that the decisions in these cases are in favour of the assessee but it appears that the Hon'ble Tribunals/Courts which have passed these judgements have not been made aware of the entirety of the circumstances. Moreover, the fact that the assessees in these cases fail to clear the test of human probabilities, has not been brought to the knowledg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary. Drawing our attention to the page 7 para 5 of the Ld. AO s order, the Ld. AR submitted that the Ld. AO has described the modus operandi in transactions like those of the assessee and drew conclusion that the assessee has also followed the same. The Ld. AR further contended that vide order dated 06.09.2017 the SEBI has exonerated the assessee and confirmatory order of SEBI was revoked against the assessee but not against M/s. HPC Biosciences Limited which is obvious from para 4 and 6 page 7 and 11 thereof, a copy of which was brought on record. The Ld. AR placed reliance on the decision of Delhi Tribunal rendered on 15.03.2021 in the case of Shri Tapas Kumar Mallik vs. ACIT in ITA No. 8142/Del/2018 copy thereof appears at pages 199-214 of the Paper Book. Our attention was invited to para 15 of the order (supra) appearing at pages 204-205 of the Paper Book. 9. The Ld. DR, on the other hand relied on the order of Ld. AO/CIT(A). He invited our attention to para 7 at page 9 of the Ld. AO s order as also para 7.1 at page 15 of his order. The Ld. DR placed before us written submissions containing therein chronology of inquiries conducted and penal order passed by SEBI in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not amongst the 216 entities in whose case confirmatory orders were revoked. e) After the Revocation order, the whole time member passed directions vide order dated December 22, 2020 against eleven entities (including M/s HPC Biosciences Ltd.) where the said company was restrained from; accessing the securities market by issuing prospectus, offer document or advertisement soliciting money from the public in any manner for 8 years. f) Vide further order dated 25.02.2022 SEBI held M/s HPC BioSciences Ltd and other entities guilty of unfair trade practices and penalties were imposed for violation of various provisions of SEBI act and rules (including PFTUP Regulations) for total amount of Rs 25 lakh against M/s HPC Biosciences Ltd. g) SEBI passed another order on 22.04.2022 under section 15-1 of SEBI Act for violation of SEBI ICDR Regulations, 2009 against M/s HPC Biosciences ltd and its directors/key persons particularly in relation to preferential allotment just prior to filing of prospectus for IPO on 13.01.2013 in violation of extant rules and imposed further penalty of Rs 20 lakh in total for such violations. Peculiars facts and surrounding circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion . 10. We have carefully considered the rival submissions and perused the records. The facts are not in dispute. However, we recapitulate the facts. The assessee purchased 10000 equity shares of unlisted company M/s. HPC Biosciences Limited @ Rs. 10/- per share directly on 01.01.2013 which were allotted to the assessee on 03.01.2013. On the day of allotment itself i.e. 03.01.2013 the company issued bonus shares in 1:1 ratio which enabled the assessee to acquire 20,000 shares @ Rs. 5/- per share. M/s. HPC Biosciences Limited filed prospectus with BSE for SME segment on 13.01.2013 and the shares were listed on BSE platform on 19.03.2013. The share price of this scrip rose many fold within a short span of 15 months and reached around Rs. 590/- per share in May-June, 2014. The assessee sold 5100 shares on 28.05.2014, 8400 shares on 03.06.2014, 6300 shares on 05.06.2014 and 200 shares on 24.02.2015 for an aggregate sum of Rs. 1,18,34,753/- through M/s. Narayan Securities Ltd. resulting in long term capital gain of Rs. 1,17,14,346/- which the assessee claimed as exempt under section 10(38) of the Act. 11. It is in the backdrop of the above factual matrix that we have to consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial performance of the company. These factors among others enabled the Ld. AO to reach the conclusion that the assessee entered into sham transactions to convert her unaccounted cash in the garb of exempt long term capital gain. The Ld. DR brought to our notice the results of enquiry conducted by the SEBI in the case of M/s. HPC Biosciences Limited and pointed out that vide order dated 22.12.2020 the company was restrained from accessing the securities market by issuing prospectus, offer document or advertisement soliciting money from the public in any manner for eight years. Further vide order dated 25.02.2022 SEBI held the company guilty of unfair trade practices and imposed penalty of Rs. 25 lakhs for violation of various provisions of SEBI Act and Rules. Again vide order dated 22.04.2022 under section 15-I of SEBI Act, SEBI imposed a further penalty of Rs. 20 lakhs upon the company and its directors/key persons for preferential allotment of shares just prior to filing of prospectus for IPO on 13.01.2013 in violation of extant rules and regulations etc. We, therefore, endorse the findings of the Ld. CIT(A) recorded by him in para 5.25 (extracted above) of his appellate or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason the assessee s return was selected for complete scrutiny. 14.2 During assessment proceedings, statutory notice under section 143(2) of the Act was served upon the assessee to produce evidence in support of the return. Again notice under section 142(1) of the Act along with questionnaire was issued, in compliance of which requisite details were furnished. On examining the details, the Ld. AO found that during the previous year relevant to AY 2015-16 the bank account of the assessee was credited by sums on different dates aggregating to Rs. 1,18,34,753/-. He sought explanation because the Ld. AO had information that the investigation made by the Directorate of Investigation, Kolkata had revealed that some unscrupulous operators in the capital market were running a scheme of providing entries of long term capital gain for commission. The methodology adopted involved three legs, namely, purchase of share by the beneficiary offline: to save on STT using the loopholes in section 10(38) of the Act which places restriction of trading by payment of STT on sale of shares and not on purchase; price rigging: after purchase of shares the syndicate members start rigging the price gradua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding circumstances available on record. The assessee, in our humble opinion utterly failed to discharge successfully the onus which lay upon the assessee to prove the genuineness of the transaction. Merely because the transaction is through account payee cheque alone which is the strongest plea of the assessee cannot convert a non-genuine transaction into a genuine transaction. 15.1 Nothing has been done by the assessee except filing the details of the transaction and making a bald plea that transaction has been done as a normal prudent person. However, even this plea is contrary to facts brought on record by the Revenue. The assessee did not consider the business activity of the company M/s. HPC Biosciences Limited, its financials and its creditability. 15.2 In CIT vs. Precision Finance Pvt. Ltd. 208 ITR 465 (Cal) the Hon ble Calcutta High Court has observed that it is for the assessee to prove the identity of the creditor/ his creditworthiness and the genuineness of the transactions. In CIT vs. Nova Promoters Finlease Pvt. Limited (2012) 342 ITR 169 (Del) the Hon ble Delhi High Court held that it would be incorrect to state that the onus to prove the genuineness of transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant profit accrued from out of such manipulative practices, same were also to be treated as tainted. However, the assessee had opportunity to prove that there was no manipulation at the other end and whatever gains the assessee had reaped was not tainted. This has not been proved or established by the assessee. Therefore, the AO was well justified in coming to a conclusion that the so called explanation offered by the assessee was not to his satisfaction. Thus, the assessee having not proved the genuineness of the claim, the creditworthiness of the company in which the assessee had invested and the identity of the person from whom the transactions were done, the assessee had to necessarily fail. 16.1.2 The court went on to observe further that in such a factual scenario, the AO had adopted an inferential process which was found to be a process which would be followed by a reasonable and prudent person. The AO had culled out proximate fact of the case, took into consideration the surrounding circumstances which came to light after investigation, assessed the conduct of the assessee, took note of the proximity of the time between the buy and sale operations and also the sudden an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n attempt to hedge the undisclosed income as long term capital gain. 20. Suman Poddar vs. ITO (2019) 112 taxmann.com 330 (SC): In this case the Hon ble Supreme Court reproduced the relevant part of the order of CIT (Appeals) wherein he observed that in the assessment order the AO referred to the general modus operandi of bogus accommodation entry and thereafter, he has further referred to statement of parties who had provided accommodation entry through managing and controlling the shares of the companies in which the assessee has also transacted. The AO thereafter asked the assessee to justify the rationale behind investment in these penny stock companies not having financial worth, however, the assessee failed to justify the same. The AO also pointed out the price fluctuation in the shares of the companies over a period, dividend history and other financial parameters to substantiate that there was no capital loss against receipt of cash money. The AO made the addition on the basis of material available on record, the surrounding circumstances, the human conduct and preponderance of probabilities. 20.1 The Hon ble Supreme Court observed that the statement of the persons who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/Del/1507/2019: In this case the assessee invested in 4000 shares in a penny stock company which share prices were increased astronomically within a period of approximately 19 months when the price of acquisition was Rs. 12/- per share, on the date of sale it was Rs. 720/-. The Hon ble Delhi High Court affirmed the order passed by the Tribunal and dismissed the appeal filed by the assessee. 22. Before us, the assessee has placed reliance on the following decisions of the Hon ble Delhi High Court: i. Pr.CIT vs. Smt. Krishna Devi (2021) 431 ITR 361(Del.) ii. Pr.CIT vs. Karuna Garg (ITA No. 477/2022) decided on 23.11.2022 iii. Pr.CIT vs. Smt. Bindu Garg (ITA No. 519/2022) decided on 08.12.2022 22.1 Reliance has also been placed on the following decisions of Coordinate Delhi Benches of the Tribunal: i. ITO vs. Smt. Shivani Gupta (ITA No. 5204/Del/2020) dated 06.04.2021 ii. Shri Mukesh Mittal vs. ITO (ITA No. 761/Del/2020) dated 26.03.2021 iii. Shri Tapas Kumar Mallick vs. ACIT (ITA No. 8142/Del/2018) dated 19.03.2021 iv. Amit Jindal vs. ITO (ITA No. 1547/Del/2019) dated 24.02.2022 23. Before we proceed further, let us notice the observation of Hon ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough two brokers stationed at New Delhi. Shares of one company were dematerialised on the date of purchase. The shares of another company were kept in common pool account of the broker on the day of purchase and purchase consideration was paid after 2-3 days. The sale transactions were done through Demat account via online trading. In these cases the Tribunal recorded the finding that the assessees discharged the onus cast upon them under section 68 of the Act. Thus the Tribunal had decided the appeals of the assessees in their favour. On appeals filed by the Revenue, the Hon ble Delhi High Court dismissed them holding that no substantial question of law arose in those appeals. Nonetheless the fact remains that on facts all these cases are distinguishable. As stated earlier, in the case of the assessee at hand, the assessee had not purchased the shares online through brokers but the shares were purchased by the assessee directly from an unlisted company offline through private preferential allotment and on the day of allotment itself the company issued bonus shares in 1:1 ratio. The shares were listed on BSE platform later on. Hence the decisions of the Delhi High Court in Karuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of Shri Tapas Kumar Mallick s case and therefore reliance on this case by the assessee is of no help to her. 24.6 In Amit Jindal s case (supra), the shares were purchased through offline trading with a view to earn huge profit as admitted by the assessee in his statement recorded by the AO under section 131of the Act. The Tribunal followed the decision of the Co-ordinate Bench in the case of Smt. Karuna Garg (supra). However, in Smt. Karuna Garg s case, the shares were purchased online through broker. It is, therefore, obvious that the facts of the assessee s case are not identical with the facts of Smt. Karuna Garg s case. 25. There is yet another set of Tribunal s decisions in favour of the Revenue on identical facts. 25.1 DCIT vs. Pawan Kumar Malhotra (2010) 2 ITR (Trib) 250 (Del): in this case the Delhi Tribunal held that cash credit may be inferred even in respect of amount recorded as sale price of shares held by the assessee at an abnormal rate at 70 times the cost, so that the inference that it is sham has to be upheld as an instance of disguise cash credit. 25.2 ITO vs. Shamim M Bharwani (2015) 170 TTJ (Mumbai) 238: in this case the assessee earned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CSL was not above board and it was only providing accommodation entry in the form of long term capital gain and short term capital gain to evade tax. The assessee also failed to explain the business of CSL and failed to produce balance sheet of CSL. The assessee also failed to prove genuineness of transactions. Therefore, impugned addition was to be sustained. 26. At this juncture it may not be out of place to mention that in the case of DCIT vs. Phoolwati Devi (2009) 314 ITR (AT) 1 (Delhi) it has been held that documentary evidence are normally accepted as a proof of transaction but where such evidence is unbelievable in the light of the test of human probabilities and surrounding circumstances, the rejection of such evidence would be justified. 26.1 In Swati Bajaj s case (supra) the Hon ble Calcutta High Court observed in the context of the report of the Pr. DGIT (Inv.)Calcutta that large number of NRIs and well known FIIs are buying and selling penny stocks and this appears to be a case where the black money stashed abroad is coming back to India (purchase) or money being sent out of the country (sale). The report points out that while only Rs. 27.57 crores have gone ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of proof, the addition made by the AO cannot be faulted. 27. On the facts and in the circumstances of the assessee s case in hand and in the light of the judicial precedents set out above, we have no hesitation at all in holding that the Ld. AO/CIT(A) were perfectly justified in treating the impugned transactions as sham and discarding the assessee s explanation as not satisfactory. We concur with their findings that the assessee failed to discharge the onus cast upon her under section 68 of the Act. Accordingly, the impugned addition is sustained and the assessee s ground No. 1(a) of disallowance of exemption under section 10(38) of the Act on long term capital gain of Rs. 1,17,34,753/- is hereby rejected. 28. The next grievance of the assessee raised in ground No. 1(b) is that the Ld. CIT(A) erred in confirming the addition of Rs. 2,11,226/- under section 69C of the Act. During assessment proceedings, the Ld. AO required the assessee to show cause why an amount of Rs. 2,11,226/- (being 1.8% of sale price of shares) be not added to the income as being paid as commission for such bogus entry. The explanation of the assessee before the Ld. AO/CIT(A) was that the purchase of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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