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TMI Blog2023 (7) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... of long-term capital gain and upheld the additions made by revenue. No material change which could suggest non-applicability of the decision in present appeal. Hence, we find no valid reason to deviate. Accordingly, we uphold the additions made by revenue-authorities - Decided against assessee. - ITA No.609/Ind/2019 - - - Dated:- 1-12-2022 - MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER For the Appellants : None For the Respondent : Shri Ashish Porwal, Sr. DR ORDER Per B.M. Biyani, A.M.: Feeling aggrieved by appeal-order dated 21.02.2019 passed by learned Commissioner of Income-Tax (Appeals)-II, Indore [ Ld. CIT(A) ], which in turn arises out of assessment-order dated 20.12.2016 passed by the learned ITO, Ward-5(5), 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 Ld. CIT(A) grossly erred both on facts and in law, by passing the order under section 250, without giving the assessee an opportunity of being heard. 2. The Ld. CIT(A) has erred in holding that total income of the assessee at Rs. 80,75, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital gain of Rs. 69,78,526/- as bogus receipt u/s 68 of the Act, and also (ii) Ld. AO added a sum of Rs. 1,39,568/- on account of estimated brokerage-cost incurred by assessee out of undisclosed sources for arranging bogus capital gain. Aggrieved by the order of assessment, the assesse filed appeal to Ld. CIT(A). The Ld. CIT(A), however, dismissed appeal and did not grant any relief. Now, the assessee has assailed the order of Ld. CIT(A) in this appeal filed before us. Ground No. 1: 4. In this ground, the assessee has claimed that Ld. CIT(A) has grossly erred by passing order u/s 250 without giving the assessee an opportunity of being heard. 5. Ld. DR drew our attention to Para No. 3.0 of the order of Ld. CIT(A) which reads as under: 3.0 The case was originally fixed on 20.02.2018. On such date, the AR of the appellant had filed adjournment. On request of the AR the case was again fixed on 09.03.2018. Further, the case was adjourned to next date on the request of the appellant. Further, various notices were issued but nobody had attended on those dates. It is clear from the above facts that various opportunities were given to the appellant but the appellant had fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of stock-exchanges which have resulted into the unearthing of syndicates of various players involved in providing bogus accommodation entries of capital gain. Those players work as syndicate and manipulate market prices of penny-stocks in order to provide exempted capital gain to the interest persons in lieu of unaccounted cash, with the objective to covert black money into white without payment of income-tax. Ld. AO has narrated the modus operandi applied by them for providing such bogus capital gain. (iii) Ld. AO examined the financials of Turbotech Engineering Ltd. and observed that the market capitalization of the company is very small and the P L A/c shows that the company had no business during last 5 years. He further observed that the company had suffered losses during the period. He observed that the weak financials demonstrate that the company is having neither fundamentals nor potential. (iv) Ld. AO analysed the stock-market data of the share of Turbotech Engineering Ltd. and observed that the market price is unrealistic and not related to the financial results of the company. Ld. AO observed that the price of share was initially very low, which then continuous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as submission of the appellant in this regard. 4.1 During the course of assessment proceedings, it was noticed by the AO that the appellant had shown Long Term Capital Gain on sale of scrip viz M/s Turbo Tech Engineering Ltd which was classified as Penny Stock Scrip as per the data available on ITD. During the year under consideration, the appellant had purchased the shares of Turbo Tech Engineering Ltd. through M/s Shah Space Manager Pvt Ltd. and had earned a huge profit on the same had claimed exemption u/s 10(38) of the Act on the said transactions. 4.2 The AO had issued notice u/s 131 of the Act to the appellant to explain the said transactions. But the appellant had appeared before the AO to explain the said transactions. It was noticed by the AO that the appellant was not a regular investor and not doing regular trading in stock exchange. I t was also noticed that the appellant did not have any knowledge of M/s Turbo Tech. In the case of Turbo Tech, the AO had gathered various information. It is clear from the information that the market capitalization of this company was very small and the company had not done any business during last 5years. It is clear f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /bogus companies and uses them to do circular transactions to rig the price of the shares. The shares of these penny stock companies although listed on exchange are always closely held and are controlled by the promoter of the penny stock company and the operator who is arranging for the bogus LTCG/STCL. This is due to the fact that the general public is not interested in these shares as these companies have no credentials and this helps the operator to keep a control on the price movement of shares. 4.5 On going through the above information, it is crystal clear that the appellant had 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 had made investment through the derecognized broker and had earned excessive return within a short span of period which is extremely unusual. 4.6 The reliance-is-placed on the following judicial pronouncements: 1. Sanjay Bimalchand Jain L/H ShantideviBimalchand Jain Vs PClT (ITA No.18/2017 Bombay High Court (Nagpur Bench) The assessee had purchased shares of two penny stocks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from undisclosed sources. Whether on facts, addition made by Assessing Officer was justified - Held, yes 4. Usha Chandresh Shah Vs ITO [2014-TIOL-1459-ITAT-MUM where Hon'ble ITAT Mumbai held that in this case the 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 SEBI 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 AO by applying the test of human probabilities 5. Ratnakar M Pujari Vs ITO [2016.;TIOL-1746-ITAT-MUMj where Hon'ble ITAT Mumbai held that a transaction of off market purchase of share' for which payments were made in cash and the brokers had issued pre dated contract notes, is liable to be treated as bogus transaction, and hence such cash receipts are liable to be tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 beneficiaries into their regular books of accounts without paying any tax on the same. Some of the listed companies, directly or indirectly owned by operators and whose share prices have been apparently manipulated by the syndicate of operators, which have come to adverse notice of the Income Tax Department, are as under: SL No Script Code Script Name Full Name of Penny Stock 62 504358 Turbo Tech Turbotech Engineering Ltd. Page No. 29 / 33 of the Report: Brief Discussion on all listed Penny Stocks (Scripts) used in Bogus LTCG Scam. As discussed in previous chapter we have searched surveyed some 32 share Broking Entities and more than 20 Entry operators. Out of the investigations of such high magnitude, we have uneart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 as follows: Lastly, we have given our anxious consideration to the judgments relied upon by the learned counsel of the Respondent viz. SEBI vs. Kishore R. Ajmera [(2016) 6 SCC 368] and Dushyant N. Dalal vs. SEBI [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 onus of proof is on the assessee to prove the genuinity. Unfortunately, the assessees have been harping upon the transactions done by them and by relying upon the documents in their hands to contend that the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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. BATCH also referred to the decision in the case of Hill Country Properties Limited Versus Goman Agro Farms Private Limited 90 and also the decision in IRC Versus Duke of Westminster 91 . 74. In our con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 15. 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 upheld. 16. We are in absolute agreement with the submission of Ld. DR that the issue of exempted capital gain arising from Turbotech Engineering Ltd. stands duly examined and concluded by ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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