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TMI Blog2023 (3) TMI 1457X X X X Extracts X X X X X X X X Extracts X X X X ..... ss the initial burden cast upon the assessee is discharged, the onus does not shift to the revenue to prove otherwise. It is incorrect to argue that the assessee have been called upon to prove the negative in fact, it is the assessee s duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuineness and identity. The assessee cannot be heard to say that their claim has to be examined only based upon the documents produced by them namely bank details, the purchase/sell documents, the details of the D-Mat Account etc. The assessee have lost sight of an important fact that when a claim is made for LTCG or STCL, the onus is on the assessee to prove that credit worthiness of the companies whose shares the assessee has dealt with, the genuineness of the price rise which is undoubtedly alarming that to within a short span of time. As transaction of LTCG claimed exempt u/s. 10(38) by the assessee is colourable device in guise of investment in listed shares. Entire transactions were stage managed with object to plough back his unaccounted income in form of fictitious l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounting to Rs. 14,72,630/- Ground No. 3: 3.1 On the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in upholding the addition made by the AO u/s 68 of the Act without appreciating the fact that: * the Refrigerator amounting to Rs. 62,000/- was purchased in AY 2013-14; * the Washing Machine amounting to Rs. 50,500/- was purchased in AY 2013-14; * the Sony Battery amounting to Rs. 20,400/- was purchased in AY 2013-14; * the laptop amounting to Rs. 58,000/- was purchased in AY 2014-15; by making an addition of Rs 1,90,900/- u/s 68 of the Act. 3.2 The appellant prays that the AO be directed to delete the aforesaid additions made u/s 68 of the Act amounting to Rs. 1,90,900." 2. Brief facts of the case are that a search operation was carried out on Balaji Group of companies on 28-01-2015. The premises of the assessee was also covered in the search. Thereafter case of the assessee was centralised and case of the assessee was selected for manual scrutiny under compulsory category. The assessee filed return of income on 26-09-2016 declaring a total income of Rs 20, 70,790/-. Assessee is engaged in the business of civil construction an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res assessee sold through two brokers no.1 M/s Bonanza Portfolio Ltd 63,000/- shares and M/s Zen Securities Ltd 22,000/- shares. These shares were sold by assessee between starting from 11th of September 2014 to 17th oct 2014 vide page no. 48 to 51, 87 to 94 of paper book 1 and page no. 2 to 5 of paper- book 2 (additional evidence). 7. It is observed by us that the net worth of the company was only about Rs 32,00,000/- and the price of the script jumped from Rs 5.7 in 2012 to Rs 910.50 in 2014, i.e., in a short span of almost 2 years. The investee company declared a net profit of Rs 10,00,000/- during AY 2012-13 and Rs 40,00,000/- during AY 2016-17. It is further pertinent to mention that its EPS was almost negligible during the relevant period. There is an established market practice of splitting the shares, in those cases where the demand of shares is very high. Company has tremendous brand value with strong financial credentials and floor price of shares is almost sky touched. In these cases, to make share available to every interested investor and to unleash the maximum possible value of shares, giant companies of respective industries carry such type of practice. A company wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.10.2014 22000 1502260 21.10.2014 85000 5642900 5557900 7.1 While completing the assessment, the AO held that the assessee did not purchase these shares on the floor of the stock exchange i.e. through normal channels for purchase of shares and therefore purchase transaction was suspicious. The AO has further observed that subsequent to purchase, the prices of this scrip was rigged to a large scale to the value of Rs. 910 50, from purchase price of Rs. 10 per share, through a network of operators, stock brokers and exit providers. The AO in this regard had referred to the detailed investigation carried out by DGIT (Inv.) Kolkata, in respect of 84 penny stock companies, which also includes PS IT Infrastructure & Services Ltd., the company, on sale of which the assessee has received windfall gains and it has been concluded by them that these transactions were manipulated and were done with a view to earn tax exempted income. Accordingly the AO treated the long term capital gains as bogus and added the same in the hands of the assessee. The assessee raised various objections about this addition 7.2 During the course of appellate proceedings the issue of bogus long terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried out by the DGIT Mumbai and Ahmadabad. The basic aim of this was to route the unaccounted money of long term capital gain beneficiaries into their account books in the garb of long term capital gain. This nature of long term capital gain was taken by selling the shares on the stock exchange and registering the process arising out of the sale of shares into the books of accounts for implementing this scheme shares of some penny stock companies were used. In this scheme the shares of the penny stock companies were acquired by the beneficiaries at very low price through the route of preferential allotment. These shares had lock in period of one year as per SEBI guidelines In very few cases the shares were acquired through stock exchange These shares were then scrip into similar e denominations and then bogus shares were issued to increase the price. Thereafter the price of the shares of the penny stock companies were rigged' systematically and raised through circular trading this is managed by the operator of the scrip. The shares of these penny stock companies although registered on stock exchange but were always closely hold and are controlled by the parameters of the penn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay Stock Exchange Ltd ("BSE")during May 01, 2012 to July 31, 2015 (hereinafter referred to as the "investigation period / IP") 2. It was observed that the company had made a preferential allotment of 1, 10, 00,000 shares of Rs. 10/-each at par on July 23, 2012 to 49 non-promoter entities. Further, two companies namely, Crescent Digital Technologies Limited and Swift IT Infrastructure and Services Ltd. merged with PSIT on June 05, 2013. Pursuant to the merger, 4,25,20,000 equity shares of Rs.10/each were issued by PSIT The new securities of PSIT were listed on BSE and permitted for trading on exchange w.e.f. August 13, 2013.Moreover, there was a sub-division of Rs. 10/per share of the Company into the shares of Rs. 1/-each w.e.f. September 03, 2014. 3. Investigation revealed that the maximum price rise in the scrip of PSIT occurred during the period May 01, 2012 to February 11, 2014 (hereinafter referred to as Order in the matter of PS IT Infrastructure and Services Ltd. price rise period'). During this price rise period the price rose from Rs. 50 to Rs. 466.95. 4. The Price Volume details of the scrip during this price rise period are as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Hence, the preponderance of probability leads us to the conclusion that the Noticees have acted in a manipulative manner for increasing the price of the scrip of PSIT. In view of the above, I find that the Noticees have violated Regulations 3(a),(b)(c)(d), 4(1) and 4(2) (a),(e) of SEBI (PFUTP) Regulations, 2003. C If the answers to issues A and B are in the affirmative, what directions are required to be issued against the Noticees? 60. As noted above, the violations of Regulations 3(a),(b), (c)(d), 4(1) and 4(2) (a)(e) of SEBI (PFUTP) Regulations, 2003 have been established against the Noticees. Now, the final question that emerges for consideration is what directions are required to be issued against the Noticees in light of the violations committed by them. In this regard, 1 note that Section 11 of SEBI Act casts a duty on the Board to protect the interests of investors in securities and to promote the development of and to regulate the securities market. For achieving such object. it has been authorized to take such measures as it thinks fit. Thus, power to take all measures necessary to discharge its duty under the statute, which is a reflection of the objective disclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Stock Exchanges, Depositories and the Registrar and Share Transfer Agents to ensure compliance with the above directions." 7.6 Thus the SEBI held that transactions in the scrip of PS IT were in violation of regulations 3a, 3b, 3c, 3d, 4(1) and 4(2) of SEBI regulation 2003. The SEBI observed that 22 notices (Stock Brokers/operators) sold these shares in the market in minuscule quantities to increase the price of the scrip and thus not only the investors were misleading but also the integrity of the security market. Thus the SEBI barred these persons from operating in the security market for a period of 6 months. The order of SEBI makes it amply clear that transactions in the scrip of PS IT Infrastructure and Services Ltd. were manipulated and were not in normal course of business. As discussed above from the facts of the case it is clear that PS IT Infrastructure & Services Ltd. had a very small net worth of only about Rs. 32 lakhs and it did not have any financial capacity or brand value so that its share prices could have multiplied over 90 times in a short span of about one year. In fact the asset base of this company is also very small. Further it had shown a net profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortion of the investigation report has been noted in full. A careful reading of the same would show that the assessee has not been named in the report. If such be the case, unless and until the assessee shows and proves that she/he was prejudiced on account of such report/statement mere mentioning that nonfurnishing of the report or non-availability of the person for cross examination cannot vitiate the proceedings. The assessee has miserably failed to prove the test of prejudice or that the test of fair hearing has not been satisfied in their individual cases. In all the cases, the assessee have been issued notices under sections 143(2) and 142(1) they have been directed to furnish the documents, the assessee have complied with the directions, appeared before the Assessing Officer and in many cases represented by Advocates/Chartered Accountants, elaborate legal submissions have been made both oral and in writing and thereafter the assessments have been completed. Nothing prevented the assessee from mentioning that unless and until the report is furnished and the statements are provided, they would not in a position to take part in the inquiry which is being conducted by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be faulted. 12. A holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, the authorities below cannot lose sight of the fact that the shares of very little known companies with in-significant business and net worth had a steep rise in the share prices within the period of little over a year. The revenue 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 assessee 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. To reiterate, the assessee was not named in the report and when the assessee makes the claim for exemption the onus of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed up on by the revenue are acceptable on the given facts of the case: i). SHRI BADRESH MANSUKHLAL DODHIA, MUMBAI v. ACIT CIRCLE-1, KALYAN, ITA 5544/MUM/2018, 06-01-2021 ii). ITO 24(3) (1), MUMBAI v. ARVIND KUMAR JAIN HUF, MUMBAI. ITA 4862/MUM/2014 18-09-2017 iii). VIJAYRATTAN BALKRISHAN MITTAL, MUMBAI V. DCIT, CC- 8 (1), MUMBAI, ITAT- ITA 3428/MUM/2019. Etc. Vide Legal paper book filed. Case laws relied up on by the Revenue: i). Sanjay Bimalchand Jain v. PCIT-1, Nagpur [2018] 89 taxmann.com 196 (Bom.) ii). Suman Poddar v. I.T.O. [2019] 112 taxmann.com 330 (SC.) In view, of the above factual matrix and law on this issue pronounced by the Hon'ble Apex Court and Jurisdictional High Court we are of the considered view that the transaction of LTCG claimed exempt u/s. 10(38) by the assessee is colourable device in guise of investment in listed shares. Entire transactions were stage managed with object to plough back his unaccounted income in form of fictitious long term capital gain (LTCG) and claim bogus exemption, Assessing Officer was justified in denying exemption under section 10(38) and treating such bogus LTCG in penny stock under purview of unexplained cash un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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