9911796707
TMI Blog2023 (12) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... ence the same is void and against the provisions of law. The assessee had informed before the commencement of reassessment proceedings and the assessment is done on his legal representative Smt. Usha. Vinod Parekh; 2.1 Without prejudice to above; The Hon'ble CIT(A)-NFAC erred in confirming the validity of issue of notice u/s. 148 of the Income- tax Act, 1961 and passing the order u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961. The reopening is bad, illegal, void and against the provision of law and natural justice; 2.2 The CIT(A)-NFAC ought to have appreciated that the appellant has disclosed fully and truly all material facts necessary for the assessment during first assessment 2.3 Without prejudice to above; The Hon'ble CIT(A)-NFAC erred in confirming the addition u/s. 68 of the Act of Rs. 16,09,340/- which is the sales consideration received towards sale of shares of M/s. Compact Disc Ltd and on which long term capital gain earned is Rs. 9,91,813/-; The addition is bad, illegal, void and against the provision of law; 3.2 The Hon'ble CIT(A)-NFAC failed to appreciate that the transaction of purchase and sale of shares as carried out by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had booked bogus long-term capital gains and therefore, a show because notice, dated 30/11/2016 whereby the Assessee was asked to show cause why transaction should not be treated as bogus and entire receipt of INR 16,09,340/- should not be treated as unexplained credits under section 68 of the Act. In reply, the legal heirs of the Assessee filed reply letter, dated 08/12/2016, stating that the Assessee was a regular investor in shares. The Assessee used to purchase shares of listed companies routinely on the basis of tips received from the friends and relatives and did not make any detailed inquiry into the financials of the listed companies. The shares of the Company were also purchased on the basis of such tips. It was stated that in the preceding assessment years also the Assessee had earned short term capital gains from the sale of share of the Company and the capital gains disclosed in the return were accepted as short-term capital gains. The Assessee had over the years made investment in shares of listed companies. These investments were of nominal amount spread over many scripts and mutual funds. However the Assessing Officer was not convinced. According to the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as bogus and invoke the provisions of Section 68 of the Act. The Learned Authorised Representative also invited attention to the facts that 34,401 Share of the Company with aggregate purchase cost of INR 10,32,914/- were lying unsold. On the strength of the aforesaid, the Learned Authorised Representative submitted that transactions under consideration cannot be regarded as bogus. The judicial precedents relied upon by the Assessing Officer and the CIT(A) have no application in the facts of the present case. Further, finding returned by the Assessing Officer that the Assessee has introduced unaccounted or unexplained income in the books by the aforesaid transactions is also without any basis. Thus, the addition of the INR 16,09,340/- cannot be sustained. 8. Per contra, the Learned Departmental Representative relied upon the order passed by the Assessing Officer and the CIT(A). It was submitted that the Company was one of the companies identified as penny stock by the Investigation Wing, Kolkata in its report. Detailed inquiry was conducted by the Investigation Wing, Kolkata before returning the finding. The Assessing Officer has returned a finding that substantial investment was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion entry of bogus long term capital gain, bogus short term capital gains and bogus short term capital loss/ bogus business loss through trading of shares of penny stocks." (Emphasis Supplied) 11.1. In paragraph 4.1 above, the Assessing Officer has noted that the Assessee purchased the shares of the Company during the Financial Year 2007-08 and sold the same in Financial Year 2009-10; that no such gain were shown earlier or subsequently; and that the Assessee had shown only nominal capital gain over the years except during the previous year relevant to the Assessment Year 2010-11. However, the aforesaid finding in contrary to the material on record. The Assessee had undertaken following purchase/sale transactions: Details of purchase No. Of Shares Sold Date of sale Sale Value (INR) Gain (INR) Profit earned as (LTCG/ STCG) Taxed in Assessment Year 50,000 shares were purchased on 16/01/2007 at the cost of INR 8,58,610/- (at the rate of INR 17.17 per Share) 6,000 17-07-2007 2,60,220 1,57,187 STCG 2008-09 15,000 09-08-2007 9,02,550 6,44,967 STCG 2008-09 10,000 11-12-2007 7,48,248 5,76,526 STCG 2008-09 599 12-12-2007 47,060 36,774 STCG 2008-09 5,000 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proceeds arising out of the sale of shares into the books as LTCG. For implementing this scheme, shares of some Penny Stock Company are used. The same modus is adopted for providing accommodation entry of bogus loss. 4.3 In this scheme, the shares of the penny stock companies are acquired by the beneficiaries of LTCG at very low prices generally through the route of preferential allotment (private placement) or off market transaction. These shares have a lock-in period of 1 year as per Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. Another route to acquire the shares is through Amalgamation or merger. In this route, the beneficiaries of LTCG are allotted shares of a private limited company which is subsequently amalgamated with a listed penny stock and the beneficiaries receive shares of the listed penny stock in exchange of the shares of private limited company. 4.4 Thereafter, the price of the shares of the penny stock companies are rigged and are raised through circular trading. This is managed by the "operator" of the scrip. An "Operator" is a person who is managing the overall affairs of the scheme and he is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to merely Rs. 1.56. The daily trading details in shares of the company are given below. The price & volume movement of the shares of the company from 01.04.2010 to 31.12.2014 is given below in a graphical from ....." 11.6. None of the purchase/sale transactions were undertaken by the Assessee during the aforesaid period between 01/04/2010 and 31/12/2014. On perusal of details of purchase and sale transaction it emerges that the shares of the Company were purchased on 16/01/2007, 14/06/2007 and thereafter, on 25/07/2007. Thus, while the price of the shares was rising the Assessee was purchasing the shares. However, at the same time, the Assessee was booking short term capital gains by selling the shares purchased earlier. 11.7. According to the Assessing Officer, the price touched peak of INR 124 per share on 17/01/2008. We note that the sales transactions have been undertaken in December 2007, before the peak was reached in January, 2008 or in June/July/August, 2008 when the price was falling from the peak of INR 124 per share. Further, no purchase/sale transactions were undertaken by the Assessee between 01/04/2010 and 31/12/2014. For the Year 2009-10, the Company has earning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gave instructions to the broker for sale of the shares and did not know whether at that point of time the shares were quoted at the lowest or highest. It was further contended that he was not aware of the purchaser of the shares and as per the mechanism of the stock market the buyer or seller never interact. It was also contended that in the past also he had gains and even in earlier years the gains have shown from sale of such shares and accepted as short term capital gain. It has also been contented that the trading has been done on the stock market and all relevant documents have been filed including the contract notes and bank statement highlighting the payments and receipts. 4.13 The assessees contention has been examined alongwith the facts involved, the supporting filed and the findings on the basis of investigation conducted by the Department and other agencies. It is seen that the assessee had over the years made investment in shares but they were nominal amounts spread over many scrips and mutual funds. It is however seen that the assessee had made investment of Rs. 3,38,727/- in the said shares and the financials indicate that in the normal course none would invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntroduced/credited capital of Rs. 16,09,340/- during the year in his books the source of which he explained as proceeds from these share sale transactions. Since the explanation offered by the assessee in respect of the source of this capital introduced being share sale transactions has been held to be not satisfactory in view of the elaborate discussion made herein, section 68 is squarely applicable in this case. 7. In view of all the facts as observed hereinabove and the investigation done by the Department on a large scale to unearth the true nature of the transactions which has clearly proved the manipulative practice which was accepted by the majority involves therein there is no evidence to the contrary in the case of the assessee to certify the transaction to be a genuine sale of asset the income wherefrom would fall under the head "Long term Capital Gain". Accordingly the receipt shown by the assessee purportedly from sale of shares of Compact Disc Ltd. is treated as Unexplained Credits u/s 68 and the said amount of Rs. 16,09,340/- is brought to tax under the head income from Other sources". (Emphasis Supplied) 11.9. On perusal of the above, we note that the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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