9911796707
TMI Blog2024 (1) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant information as called for. 3. The assessee is an individual and partner in three (3) firms namely Leopold Café & Stores, New York Café, Leos Boulangerie and assessee has derived incomes under the head Salary, Income from Partnership firm, Capital Gains, Other Sources and Agricultural income. During the course of assessment proceedings, Assessing Officer observed that assessee has claimed exempt income of Rs..82,52,616/- on account of Long Term Capital Gain on payment of STT under section 10(38) of the Act. Based on the information available on record, he observed that assessee has sold 7550 shares of Penny Stock "Kappac Pharma" (suspected scrip) during the current assessment year. The sale value of entire Shares was of Rs..52,27,792/- and assessee had purchased the shares of Parixit Gas Company Ltd. in physical form on 09.10.2012 for Rs..83,050/- and demated the same on 10.01.2013 with Balance Equity Broking (India) Private Limited. The assessing officer has observed that Assessee has declared huge profit in this scrip, hence, he is of the opinion that all these transactions are pre-arranged. The Assessing Officer by relying on the report of Directorate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gains booked by assessee in his books were pre-arranged method to evade taxes and launder money. Following are the findings and the reasons which substantiate the findings. a. Mode of acquisition of the shares: The assessee had purchased 7,550 shares of KAAPAC Pharma Ltd. for Rs 46,700/-. However, it is noticed that the assessee has not purchased of any other scrip in such a huge quantity. b. Sale of shares and unusual rise in the price: The assessee has sold the 7,550 shares for total consideration of Rs. 52,27,792/-, thus, resulting in long term capital gain of Rs 51,81,092/-, which is a 112% increase of the cost price, and, as discussed, the rise in share prices is not holding to any commercial principles and market factors. C. Analysis of transactions: Facts revealed that such trading transactions of purchase and sale of shares are not been effected, for commercial purpose but to create artificial gains, with a view to evade taxes- i. Transactions of shares were not governed by market factors prevalent at relevant time in such trade, but same were product of design and mutual connivance on part of assessee and the operators. ii. The assessee resorted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten submissions, for the sake of clarity it is reproduced below: - "WRITTEN SUBMISSION: 1) The Ld. Assessing Officer has treated the stock of shares sold by the assesse as penny Stock and treated the sale proceeds as Unexplained Cash Credit without appreciating that the sales were in fact Long Term Capital Gain (LTCG) and Security Transaction Tax (STT) was paid and by virtue of the same the Long Term Capital Gain (LTCG) is exempt under section 10(38) of Income Tax Act, 1961 and all other compliance have been fulfilled. 2) The Ld. Assessing Officer made the addition in the case of the assessee by relaying on general evidences gathered by various enforcement agencies with regard to transaction done and taking at of prices of so called "Penny Stocks". Nowhere in the order of Ld. Assessing Officer has clearly bring out the role of the assesse in the "Modus Operandi" of purchasing bogus capital gains and also failed to bring out the any evidence which substantiate cash has exchanged between the Seller and Buyer of the share. Since the transaction has been carried out through the common platform of Recognised and Reputed Stock exchange. 3) The Ld. Assessing Officer has failed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer. Kindly consider the same as an Additional Evidence. 11) Further, we are also enclosing list of various judicial pronouncement of High Courts and Tribunals which are listed below. Udit Kalra vs. ITO (Delhi High Court) s. 10(38) Dogue Capital Gains from Penny Stocks: It is intriguing is that the company had meagre resources and reported consistent losses. The astronomical growth of the value of company's shares naturally excited the suspicions of the Revenue. The company was even directed to be delisted from the stock exchange. The assessee's argument that he was denied the right to cross-examine the individuals whose statements led to the Inquiry and ultimate disallowance of the long term capital gain claim is not relevant in the wake offindings of fact. The Pr Commissioner Of Income Tax ... vs Prem Pal Gandhi C/O KcTower Chd (Punjab /Haryana High Court) The assessee purchased shares of a company during the assessment year2006- 2007 at Rs. 11/- and sold the same in the assessment year 2000-2009 at Rs. 400/- per share. In theabove case, namely, ITA-18-2017 also the assessee had purchased and sold the shares in the same assessment years. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee had sold shares through MTL shares and Stock Broker limited which is a SEBI registered Stock Broker. The payment for sale of shares was received through banking channels. All the documentary evidence being in favour of assessee, the deletion of the addition made by the CIT(A) was upheld by the Tribunal. The findings recorded by the CIT (A) and the Tribunal are pure findings of fact which have not be shown to be illegal, erroneous perverse by the learned counsel for the appellant. He has also not been able to produce any material on record to controvert the said findings. Thus, no Substantial question of law arises. Consequently, finding no merit in the appest by Revenue and the same la dismissed. Dipesh Ramesh Vardhan vs. DCIT (ITAT Mumbai) s. 10(38)/68: Bogus Capital Gains from Penny Stocks: The AO has not discharged the onus of controverting the documentary evidences furnished by the assessee and by bringing on record any cogent material to sustain the addition. The allegation of price rigging/manipulation has been levied without establishing the vital link between the assessee and other entities. The whole basis of making additions is third party statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Hon'ble Supreme Court in the case of Suman Poddar v. ITO (2020) 268 Taxman 320 (SC). 10. Aggrieved assessee is in appeal before us raising following grounds in its appeal: - "1. Addition u/s 68 Rs. 52,27,792/- 1.1 The Learned CIT (A) erred in upholding the addition made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961 on an erroneous basis that the investment made in KAPPAC PHARMA LTD shares and Long Term Capital Gain on share is considered as not explained although all the necessary evidence was filed in the course of proceedings. 1.2 The Learned CIT (A) failed to appreciate that the provision of section 10(38) of the Income Tax Act, 1961 are attracted since the Appellant has offered explanation about the nature and source of investments supported by all documentary evidence as requested by learned CIT(A) which the learned CIT(A) erred in not considering these evidence. 1.3 The Learned CIT (A) erred in treating the isolated transaction of purchase of Shares in 2012 and sale thereof in 2014 resulting in long term capital gain of Rs. 52,27,792/- as business profit and not as Capital Gain as claimed by the asseessee Appellant although Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot commensurate with the financial results and the purchase of shares of KPL appeared to be a predetermined action of the assessee leading to earning of Long Term Capital Gain by way of dubious methods. The predetermined action with specific intention is one of the circumstances evidences leading to the conclusion that the Long Term Capital Gain earned is not genuine. Further, assessee has not declared any Short Term Capital Gain or business income or exempt income share transactions in the previous assessment years. In this regard, Ld.AR of the assessee submitted as under: - "The fundamental submission of the Appellant is as follows: a. If some persons connive to rig the prices of shares of a listed company, that would not mean that every person who sold shares of that listed company on stock exchange, was party to the design of price rigging. Since these shares are listed on the stock exchange, there would always be persons who have sold the shares without being party to the price rigging. The listed shares are available to every owner of shares across the country and it would be unreasonable to proceed on the basis that all such sellers throughout the country have connived t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny role is attributed to the Appellant in the alleged price rigging of the shares of KPL in such investigation. The general findings of the investigation report cannot be used to assail even genuine transactions. No copies thereof were also furnished to the Appellant which is violative of principles of natural justice. Factually incorrect statements made by the AO in the Assessment Order g. The case of the AO is one admittedly based on "circumstantial evidence". The AO has made the following factual errors in the Assessment Order while constructing a case based on circumstantial evidence: Sr.No. Factually incorrect observation / statement made by the AO Correct position 1. It is seen from assessee's case records that his return of income does not show income from trading in shares in the past" (Para 6.1(i)/ pg. 4 of AO order) The AO has relied on this finding to doubt that the Appellant would purchase shares of a company that did not show financial performance. The AO has observed "It is extremely difficult to believe the fact that assessee would invest Rs. 83,050 on the suggestion of friends (whose name he couldn't even recall)" (Para 6.1(i)/ pg. 4 of AO orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has certified that such transactions are rigged and are carried out to convert Black money into white" (Para 6.47 pg. 10 of AO order) Same as above. No such alleged order passed by or investigation carried out by SEBI has been brought out by the AO 4. "The assessee had purchased 7,550 shares of KAAPAC Pharma Ltd. "for Rs. 46JOO/-. However, it is noticed that the assessee has not purchased of any other scrip in such a huge quantity" (Para 8.1(a)/ pg. 11 of AO or der) At the outset, the observation that 7,550 is a huge quantity is factually incorrect. The purchase consideration was admittedly only Rs. 46,700/-. The Appellant has purchased shares of other companies also and the same is reflected in the returns and records of the Appellant which have not been doubted in any manner whatsoever by the AO. 5. *The assessee has not been able to prove the unusual rise and fall of share prices to be natural and based on the market forces. It is evident that such shares transactions were closed circuit transactions and clearly a structured one. The assessee has not submitted any data/ information about Kappac Pharma which prompted to invest in this scrip or which explains " the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement would reveal the same. Despite repeated requests during the scrutiny proceedings, the AO has failed to hand over a copy of the said statement to the Appellant 7. "The money trial of transactions was also examined and, in a large number of transactions trial right from cash deposit account to the beneficiaries account was unearthed." (Para 5.37 pg. 3 of AO order) Admittedly, no such alleged cash trail has been unearthed in the case of the Appellant. In fact, it is not even the case of the AO that such cash trail was attempted to be established in the case of the Appellant. 8. "Shown below are the trade data pertaining to assessee's sale of shares ofKappac Pharma Ltd. These are the cross parties who have purchased shares from the assessee and provided exit entry ..." (Para 6.47 pg. 10 of AO order) At the outset, it needs to be noted that the shares were sold on the stock exchange and the Appellant is not aware about the counter party to its sale transactions. The AO has not brought on record any material to show how the alleged counter- parties were also parties to the arranged transaction. It is not the case of the AO himself that any action had been taken by SE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to link the Appellant to the alleged price rigging and the allegations of the AO were general statements. k) The judgements relied on by the CIT (A), in para 6.5 to 6.7/ pg. 9 & 10 of CIT (A)'s order are clearly distinguishable: a. MK Rajeshwari (ITAT Bangalore) (pg. 133 to 148 of paperbook) - In this case, the scrip involved was of M/s Mahavir Advanced Remedies Ltd. and the assessee in this case contended that she purchased the shares from the Managing Director of this company and the ITAT found discrepancies in the version of the assessee regarding the purchase of the shares (Para 6). Whereas in the present case, no discrepancy is found in the purchase of the shares by the Appellant and the same has been admitted by the AO. b. Poonam Gupta (ITAT Bangalore) (pg. 149 to 151 of paperbook) - The assessee did not appear before the ITAT. The ITAT decided this matter in the absence of the assessee since there was no material to controvert the findings given by the CIT (A). There is no ratio laid down in this judgement (Para 4) and it cannot be treated as a precedent. c. Suman Poddar (SC) (pg. 152 to 159 of paperbook) At the outset, it needs to be noted that the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of preponderance of probabilities. d. The obtaining of long term capital gains was a transaction that involved "forgery" and "criminal activity" since contract notes are bogus. This case ought to be treated differently from a case where an assessee simply makes a wrongful claim and claims excess deduction or claims deduction of personal expenditure. 15. In the rejoinder, Ld.AR of the assessee raised objections to the submissions of the Ld. DR. Ld.AR of the assessee filed its written submissions, for the sake of clarity it is reproduced below: - "4. Rejoinder to argument in para 3(a) above - The oral submissions go beyond the findings of the AO in para 4 and para 8.1(a) of the assessment order itself. The AO has not doubted the purchase at all. A transaction cannot be considered as doubted on the basis of generalized assumptions and statements unless the AO categorically and unequivocally rejects/ doubts the same. Hence, the learned Departmental Representative cannot contend that the purchase itself is doubted by the AO. It is settled position of law that departmental representative cannot make out a new case which is not the case of the assessing officer also. The Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factual aspects were not disputed by the learned Departmental Representative. Furthermore, no adverse inference can be drawn against the Appellant for purchasing the shares in cash since "there is no law which prohibits the purchase of shares in cash". This was held by the Delhi bench of the Tribunal in para 17 of its judgment the case of Swati Luthra v. ITO [2020] 181 ITD 603 (Del.) (pg. 211 to 223 of paperbook-1@pg. 222). 7) Rejoinder to argument in para 3(d) above - The allegations of "forgery" and "criminal activity" have been made without any basis. The contract notes are issued by the stock-broker and are authorised by the stock exchange. The allegations of "forgery" and "criminal activity" have not even been made by the AO. No proceedings have been initiated against the Appellant on the allegegation that there is forgery or criminal activity. These allegations are made only with a view to create prejudice against the Appellant. Hence, the learned Departmental Representative is once again attempting to make out a case which is not the case of the AO himself. The Appellant once again relies on the judgement in the case of ACIT v. Ms. Alshwarya K. Rai (supra) in this regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogus capital gains" and that "Investigation Wing had also conducted enquiries which proved that the assessee is also one of the beneficiaries of the transactions". These factors are completely absent in the case of the Appellant. 9. Viewed from any angle, the judgments' in the case of MK Rajeshwari (supra) and Suman Poddar (supra) turned on their own facts. In both these judgments, the Revenue was able to show the connection of the assessee therein with the bogus transactions which is the sine qua non to sustain the addition as per the judgment of the jurisdictional High Court in Shyam R. Pawar (supra). Therefore, merely because a certain conclusion against the assessee's therein was reached in the judgments' in MK Rajeshwari (supra) and Suman Poddar (supra), the same cannot be applied to all cases without appreciating the difference in the facts of each case. 10) In light of the above, the fundamental case of the Appellant (also set out in para 9 to 14 of the brief Written Note/ Submissions @pg. 3 to 4 of paperbook 1) may be noted. The Appellant cannot and ought not to be condemned on the basis of preponderance of probabilities. The stock market regulator SEBI has also noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961?" 2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ("RFL") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ("STT") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL. 3. Therefore we find nothing perverse in the order of the Tribunal. 4. Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd. but that does not help the revenue in as much as the facts in that case were entirely different. 5. In our view, the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereinafter. 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 12. Mr. Hossain's submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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