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TMI Blog2023 (9) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... lea of the assessee in respect of long-term capital gains earned during the year. Since the main transaction has not been found to be bogus, the addition on account of commission @ 3% made by the AO and upheld by the learned CIT(A) is also deleted. Decided in favour of assessee. Unexplained investment - addition u/s 69 - purchase of shares of M/s Rutron International Ltd. - HELD THAT:- Since the assessee has not sold any shares of M/s.Rutron International Ltd., the question of long-term capital gains/short-term capital loss does not arise. As evident from the record that the assessee in order to substantiate the purchase transaction submitted that the sale consideration was paid through normal banking channel and the shares are held in the Demat account. It is pertinent to note that only when the investment is not recorded in the books of accounts or the explanation by the assessee regarding the nature and source of the investment is found to be not satisfactory, the value of the investment can be treated as an unexplained investment u/s 69 - However, in the present case, no such allegation has been raised by the Revenue. Thus the addition made by treating the purchase cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and circumstances of the Appellant's case and in law, Ld. CIT(A) erred in confirmation the action of the Assessing Officer in making an addition of Rs. 24,55,549/- as alleged commission @ 3% paid on bogus share transaction, as per the founds stated in the order or otherwise. 6. On the facts and circumstances of the Appellant's case and in law, Ld. CIT(A) erred in confirmation the action of the Assessing Officer in not granting deduction of L.T.CAPITAL GAINS U/S 10(38) of the Income Tax Act, 1961 of Rs. 8,18,51,631/-; 7. On the facts and circumstances of the Appellant's case and in law, Ld. CIT(A) erred in confirmation the action of the Assessing Officer in not granting Cost of purchase of shares of Rs. 48,55,722/- as deduction from LT.C.GAINS, as per the calculations submitted; 8. On the facts and circumstances of the Appellant's case and in law, Ld.CIT(A) erred in confirmation the action of the Assessing Officer in leaving Interest u/s 234B and 234C of Rs. 2,23,14,285/- and Rs. 2,672/- respectively; 9. On the facts and circumstances of the Appellant's case and in law, Ld. CIT(A) erred in confirmation the action of the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt Intech Ltd., and these shares were subsequently dematerialised. Out of the aforesaid shareholding, the assessee sold 8,25,000 equity shares in the year under consideration and earned long-term capital gains of Rs. 2,36,72,901. The assessee further submitted that the purchase consideration was duly paid through proper banking channels and thus the entire transaction is genuine. The sale was on the recognized stock exchange on various dates via recognised brokers and the sale consideration was also rooted through recognised stock exchange and Securities Transaction Tax ( STT ) was duly paid on the same. As regards Splash Media, the assessee submitted that it purchased 30,000 shares for a consideration of Rs. 21,34,516, from the recognised stock exchange, having a face value of Rs. 10, per share in May 2008. Subsequently, the company issued 90,000 bonus shares on 30/12/2009. Thereafter, the company split its shares of face value of Rs. 10, to Re.1, due to which the assessee got 12,00,000 equity shares of Splash Media. It was also submitted that the assessee purchased 35,000 equity shares of Splash Media on 21/03/2011, for a consideration of Rs. 13,09,000, from the stock market and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see on this issue and upheld the additions made by the AO. The learned CIT(A) held that the receipt on sale of shares has been correctly treated as unexplained credit under section 68 of the Act, as it has all the ingredients of attracting the rigours of the said section. The learned CIT(A) further held that there is no economic or financial justification for the rise in the price of the shares and the fantastic sale price realisation is not at all humanly probable, as there is no economic or financial basis that the share of the little-known company would jump so high. The learned CIT(A) further held that the assessee has manipulated the sale of shares within a short span of time in collusion with the brokers in order to earn a tax-free exempt long-term capital gain. Being aggrieved, the assessee is in appeal before us. 9. We have considered the submissions of both sides and perused the material available on record. The grievance of the assessee is against the addition made under section 68 of the Act on account of proceeds from the sale of shares by treating the scrips as penny stocks. In the present case, the assessee has transacted in the shares of Comfort Intech Ltd, and Sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee being involved in the entire racket of availing bogus long term capital gains. Thus, these findings appear to be mere general findings of the Investigation Wing without any adverse observation regarding the assessee. The price fluctuation of shares of the entities in which the assessee has transacted also does not support the case of the Revenue, as no material has been brought on record to show that the assessee was involved in such price manipulation. 11. In the assessment order on pages 39-40, the AO has reproduced the statement of Mr.Anil Agarwal recorded during the course of search proceedings by the Investigation Wing. The extracts of the aforesaid statement, as noted in the assessment order, are reproduced as under:- Q8 Please explain the modus operandi of the bogus LTCG/STCL entry obtained by the beneficiaries. Ans. Sir, the bogus LTCG entry beneficiary approaches an entry operator who is having a listed company through some agent/mediator or directly. These listed companies are penny stock companies, having no actual business and having a closed share holding pattern. Thereafter, the beneficiary on instruction of the operator, purchases the shares of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LTCG and I introduced them to Shri Paras Chaplot, Shri Pankaj Shah and Shri Vijay Jain. Thereafter, as per the modus operandi, the beneficiaries invested in the penny stock of M/s Radford Global Limited, M/s Rutron International Limited and M/s First Financial Services Limited. The shares of these companies were rigged and the price was increased to desired level over a desired period. Once the prices of the shares reached their peak price, the sale of the above mentioned scrips was arranged by Shri Paras Chaplot, Shri Pankaj Shah and Shri Vijay Jain so as to provide entry of LTCG to the beneficiaries. In this process some of the entities were given entry of Short Term capital Loss also. Q10 Please explain the role of M/s Comfort Securities Limited in providing LTCG to the beneficiaries of the scrips Radford Global Limited, First Financial Services Limited and Rutron International Limited. Ans. Sir, Shri Paras Chaplot, Shri Pankaj Shah and Shri Vijay Jain introduced some clients to Comfort Securities Limited. These entities became clients of comfort Securities Limited and traded in the shares of M/s Radford Global Limited, Rutron International Limited and First Financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the statements recorded by the Revenue, which was alleged to have been provided in the pen drive as noted in the show cause notice reproduced from pages 2-21 of the assessment order. However, as evident from the record no such statement was furnished by the Revenue. Even during the hearing before us, the Revenue has not brought any such statement on record. Therefore, the nexus of any tainted investor/exit provider/entry provider with the assessee is not established by the Revenue in the present case. 14. In the assessment order at para 8.6, the AO held that in respect of the scrip of Splash Media, the assessee shares were purchased by 93 different entities/exit providers, and out of them notice under section 133(6) of the Act sent to 24 entities was returned unserved with a remark unknown/left by the postal authorities. Therefore, the AO held that paper companies were created in the form of exit providers to provide a route for the beneficiaries to exit when the price of the scrips is rigged at the desired level. As regards Splash Media, it is pertinent to note that the assessee purchased and sold the shares on the recognised stock exchange. Further, the mere fact that noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA no.700/Mum./2023 Assessee s Appeal A.Y. 2012 13 20. In this appeal, the assessee has raised the following grounds: The following are the grounds of appeal, which are without prejudice to one other: - 1. On the facts and circumstances of the Appellant's case and in law the Id. A.O. erred in reopening the assessment u/s 147 by issue of notice u/s 148 which is merely due to change of opinion and therefore the reopening is bad in law. 2. On the facts and circumstances of the case and in law the Id. A.O. erred in reopening the assessment u/s 147 by issue of notice u/s 148 dated 26.03.2019 which is barred by limitation in view of the first proviso to section 147 of Income Tax Act, 1961. 3. On the facts and circumstances of the Appellant's case and in law, Id. A.O.erred in holding that the transaction of purchase and subsequent sale of shares of M/s. Comfort Intech Limited as non-genuine and bogus for the reasons mentioned in the impugned order or otherwise and confirmed by the Honorable CIT(A); 4. On the facts and circumstances of the Appellant's case and in law the Id. A.O. erred in disallowing the claim of short term capital loss o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounted money into short-term capital loss by conniving with any entry operator/exit operator, who was involved in artificial price rigging of shares. Therefore, our findings/conclusions as rendered in the assessment year 2011-12 are applicable mutatis mutandis to the present appeal. Accordingly, we direct the AO to delete the impugned addition made under section 68 of the Act and accept the plea of the assessee in respect of short-term capital loss. As a result, grounds no.3-5, raised in assessee s appeal are allowed. 24. The issue arising in grounds no.6 and 7, raised in assessee s appeal, is pertaining to the addition under section 69 of the Act in respect of the purchase of shares of M/s Rutron International Ltd. 25. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, information was received from DDIT (Investigation), Unit-5 (4), Mumbai that M/s Rutron International Ltd. is a penny stock company and the shares of this company were manipulated and rigged to provide entry of bogus long term capital gains/short-term capital loss to the beneficiaries. During the year under consideration, M/s Rutron Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration as unexplained investment under section 69 of the Act has no basis and accordingly is directed to be deleted. Accordingly, the impugned order on this issue is set aside and grounds no. 6-7 raised in assessee s appeal are allowed. 27. In the result, the appeal by the assessee is partly allowed. ITA no.701/Mum./2023 Assessee s Appeal A.Y. 2013 14 28. In this appeal, the assessee has raised the following grounds: The following grounds of appeal are without prejudice to one another: 1. On the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in confirming the action of A.O. in making additions in the appellant's case in the absence of any incriminating material found as per the grounds stated in the order or otherwise. 2. On the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in confirming the action of Assessing Officer in treating the long term capital gains earned by the appellant as non-genuine and bogus transaction, as per the grounds stated in the order or otherwise. 3. On the facts and circumstances and in law the Ld. CIT(A), erred in confirming the action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of M/s First Financial Services Ltd. for a total consideration of Rs. 75 lakh having a face value of Rs. 10, per share and a premium of Rs. 10, per share on 05/12/2011, on a preferential allotment basis. In the year under consideration, the assessee sold 35,000 equity shares of M/s.First Financial Services Ltd. at an average rate of Rs. 286.89. per equity share and earned long-term capital gains of Rs. 93,41,133. The AO vide assessment order dated 28/12/2017, passed under section 143(3) read with section 147 of the Act treated the transaction as bogus and made the addition of the entire sale consideration of Rs. 1,41,00,133, under section 68 by treating the same as unexplained cash credit on the basis that the net worth of this company is negligible as per its financials but the share price was rigged to an astronomical level. The AO also placed reliance upon the statement of Mr. Anil Agarwal who admitted that the scrips of this company were, inter-alia, used to provide bogus long-term capital gains to beneficiaries. The AO further made an addition on account of commission @ 3% to obtain the pre-arranged bogus long-term capital gains, which comes to Rs. 2,80,234, under section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot been found to be bogus, the addition on account of commission @ 3% made by the AO and upheld by the learned CIT(A) is also deleted. As a result, grounds no.2-6, raised in assessee s appeal are allowed. 33. In view of our aforesaid findings ground no.7, is rendered academic and therefore needs no separate adjudication. 34. Ground no.8, raised in assessee s appeal, pertains to the levy of interest under sections 234B of the Act, which is consequential in nature. Therefore, ground no.8 is allowed for statistical purposes. 35. Ground no.9 pertains to the initiation of penalty proceedings, which is premature in nature and therefore is dismissed. 36. In the result, the appeal by the assessee is partly allowed. ITAs no.702/Mum./2023 and 703/Mum./2023 Assessee s Appeal A.Y. 2014 15 and 2015-16 37. In the appeal for the assessment year 2014-15, the assessee has raised the following grounds: The following grounds of appeal are without prejudice to one another: 1. On the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in confirming the action of A.O. in making additions in the appellant's case in the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38. In the appeal for the assessment year 2015-16, the assessee has raised the following grounds: The following grounds of appeal are without prejudice to one another: 1. On the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in confirming the action of A.O. in making additions in the appellant's case in the absence of any incriminating material found, as per the grounds stated in the order or otherwise. 2. On the facts and circumstances of the Appellant's case and in law the Ld. CIT(A) erred in confirming the action of Assessing Officer in treating the long term capital gains earned by the appellant as non-genuine and bogus transaction, as per the grounds stated in the order or otherwise. 3. On the facts and circumstances and in law the Ld. CIT(A), erred in confirming the action of Assessing Officer in disallowing the claim u/s 10(38) of the Act being Long Term Capital Gain on sale of shares listed on Stock Exchange. 4. On the facts and circumstances of the Appellant's case and in law, LD. CIT(A) erred in confirming the action of Assessing Officer in making an addition of Rs. 98,77,000/- by invoking the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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