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TMI Blog2023 (11) TMI 1243X X X X Extracts X X X X X X X X Extracts X X X X ..... . Life Line Drugs & Pharma Ltd., at Rs. 6/-per share and sold the same at Rs. 283/-per share in a span of 19 months. She, therefore, entertained the doubt. On verification, learned Assessing Officer found that there is a huge syndicate of entry operators, sharebrokers and money launders involved in providing bogus accommodation of long term capital gains and short term capital loss by large scale manipulation of market prices of shares of certain companies listed on the Bombay Stock Exchange (BSE), with the basic object to convert black money into white, without payment of any taxes thereon. She further recorded that the Securities and Exchange Board of India (SEBI) identified some manipulators of share market by considering inputs from the income tax department and its own surveillance system. 3. Learned Assessing Officer, therefore, basing on the investigation carried out by the department in respect of M/s. Life Line Drugs & Pharma Ltd., proposed to disallow the exemption under section 10(38) of the Act and to treat the long term capital gains as income from un-explained source. Assessee contended that he realized the long term capital gains by transfer of capital asset and, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare which has no value would be called as penny stock, but insofar as shares purchased by the assessee are concerned they had value not only at the time of purchase and at the time of sale, but even after three years from the date of sale of shares, in the year 2015, the shares were quoted in the Stock Exchange at Rs. 134.40 per share. It is, therefore, not a penny stock and the observations made by the learned Assessing Officer are not applicable to the facts. 8. As far as the applicability of the provisions of Section 10(38) of the Act is concerned, he submitted that according to the provisions of section 10(38) of the Act, the income arising on transfer of shares being long term capital asset is exempt from tax, the shares were acquired by the assessee, and received physically constitute capital asset. In respect of applicability of the provisions of Section 45 of the Act, he submitted that any gains derived on transfer of capital asset, is assessable under the head "capital gain". He, therefore, submitted that it cannot be said that the assessee did not hold the shares of Lifeline Drugs and Pharma Ltd. (presently Arihant Multi Commercial) therefore, the assessee was in posses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the facts of the case, because firstly, the presumption as mentioned in Section 132(4A) goes against the department and there is no other provision under the Income Tax Act where the learned Assessing Officer is permitted to presume without direct evidence. In such circumstances, the presumption entertained by the learned Assessing Officer and the learned CIT(A) is not lawful. Lastly, he submitted that the investigations made by the Income-Tax Department can be used only to prevent the recurrence of the instances, but not to penalize the assessees, who have genuinely invested in the company based on the information provided by SEBI. 12. In support of his contentions, learned AR placed reliance on the decisions reported in PCIT vs. Indravadan Jain, HUF & Mrs. Sushma Nagraj, PCIT vs Parasben Kasturchand Kochar, (2021) 130 taxmann.com 177 (SC), Parasben Kochar vs. ITO, in ITA No. 549/AHD/2018, Reshmi Sudhakaran Vs ITO, in ITA No. 353/CHNY/2018, Arun Kumar Goyal Vs ITO, in ITA No. 2416/Hyd/2018, Pr. CIT Vs Jagat Paravindbhai (2022) 142 taxmann.com 247 (Gujarat) and Pr. CIT Vs Smt. Krishna Devi reported in 2021:DHC:188-DB : 431 ITR 361. 13. Per contra, learned DR submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional P. Ltd. Vs. ACIT in ITA No. 2476/Del/2018, for the assessment year 2013-14, by order dated 24/02/2022, Recommendations of SIT on Black Money as contained in the Third SIT report released by Press Information Bureau dated 24/07/2015. 15. We have gone through the record in the light of the submissions made on either side. First coming to the argument that the assessee did the transactions through the stock exchange and banking channels and verifiability of these transactions on paper, it was held that the meticulous paper working is not the be all and end all in proving the genuineness of the transaction. We find in the case of Shri Sanat Kumar (supra), a Co-ordinate Bench of the Tribunal observed that, the meticulous paper work of routing the transaction through banking channel is futile when the results are altogether beyond human probabilities. In that case also neither in the past nor in the subsequent years, assessee has indulged into any such investment having huge windfall. Tribunal opined that had the assessee been so intelligent qua the intricacies of the share market, he would have definitely undertaken such risk-taking activities in the past or future by making such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not require any further investigation. 17. It is an admitted fact that the assessee is an individual and according to the learned AR, he is the Director, VRA Constructions Pvt. Ltd. According to the assessee, purchase of the shares of M/s. Life Line Drugs & Pharma Ltd., is the only transaction which the assessee contracted. Never before nor subsequently, the assessee dealt with the purchase or sale of shares. Assessee purchased 1,50,000 shares of M/s. Life Line Drugs & Pharma Ltd., at Rs. 6/-per share and sold the same at Rs. 283/-per share, and derived a profit of Rs. 2,60,28,410/-within a span of 19 months. Admittedly, assessee is not a professional in dealing in shares. According to the learned DR, if the assessee derived such disproportionately high profits in the maiden transaction, it would be but natural for the assessee to do similar transaction subsequently also. But it is not the case here. 18. Assessment order clearly reads that the learned Assessing Officer was conscious of the fact that various enquiries conducted by the Income Tax Department unearthed a huge syndicate of entry operators, share brokers and money launderers involved in providing bogus accommodation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was observed that the prices of some shares of penny stock companies which included the company, the shares of which the assessee dealt with, were artificially rigged to benefit shareholders through bogus claim of long term capital gain. During scrutiny, the learned Assessing Officer issued notice directing the assessee to submit details of these share and was directed to explain with evidence that the transaction where assessee earned long term capital gains, were genuine. The learned Assessing Officer on analyzing the investments made by the assessee noted that the shares were purchased for Rs. 1 lakh and when the investments in shares became eligible for long term capital gains, it was sold for Rs. 29 lakhs during the period when the general market trend was recessive. He, thus, opined that such shares matched all the features of companies which were providing bogus long term capital gains and made additions under section 68 of the Act by treating long term capital gains as 'un-accounted income' on ground that assessee invested in the shares to convert unaccounted cash under the guise of long term capital gains. On appeal, the learned CIT(A) upheld the additions made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer of monies and accumulation of monies which were unaccounted for by many individuals and legal entities in the country in foreign banks. The degree of control on such transactions by the states was explained by the Hon'ble Supreme Court in the following terms: If the State is soft to a large extent, especially in terms of the unholy nexus between the law makers, the law keepers, and the law breakers, the moral authority, and also the moral incentives, to exercise suitable control over the economy and the society would vanish. Large unaccounted for monies are generally an indication of that. These matters before us relate to issues of large sums of unaccounted for monies, allegedly held by certain named individuals, and loose associations of them; consequently we have to express our serious concerns from a constitutional perspective. The amount of unaccounted for monies, as alleged by the Government of India itself is massive. The show-cause notices were issued a substantial length of time ago. The named individuals were very much present in the country. Yet, for unknown, and possible unknowable, though easily surmisable, reasons the investigations into the matter proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receive, comment and criticize the evidence, statements or records on which the charges is being against him, the demand and tests of natural justice are satisfied. ... ... ... 65. Thus, the report submitted by the investigation department cannot be thrown out on the grounds urged on behalf of the assessees. The assesses have not been shown to be prejudiced on account of non-furnishing of the investigation report or non-production of the persons for cross examination as the assessee has not specifically indicated as to how he was prejudiced, coupled with the fact as admitted by the revenue, the statements do not indict the assessee. That apart, we have noted that the investigation has commenced targeting the individuals who dealt with the penny stocks and after examining the modus seeing the cash trail the report has been submitted recommending the same to be placed before the DGIT (investigation) of all the states of the country. It is thereafter the concerned assessing officers have been informed to consider as to the bonafideness and genuineness of the claims of LTCG/LTCL of the respective assessees qua the findings which emanated during the investigation conducted on the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at to prove the allegations, against the assessee, can be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled and when direct evidence is not available, it is the duty of the Court to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded so as to reach a reasonable conclusion and the test would be what inferential process that a reasonable/prudent man would apply to arrive at a conclusion. Further proximity and time and prior meeting of minds is also a very important factor especially when the income tax department has been able to point out that there has been a unnatural rise in the price of the scrips of very little known companies. Furthermore, in all the cases, there were minimum of two brokers who have been involved in the transaction. It would be very difficult to gather direct proof of the meeting of minds 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 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, we cannot loose sight of the fact that the shares of very little known companies with in-significant 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 paragraphs. 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lan (supra) and Vodafone International Holdings (supra) and it is in the manner explained in these decisions the rule in McDowell & Co. Ltd. (supra) needs to be applied. From paragraph 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 Holdings (supra), 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 also referred to the decision in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning those parties/persons was not provided to the assessee. According to the assessee, this resulted in the violation of the principles of natural justice and thus assessment should be held void ab intio. However, in our opinion, not providing opportunity of cross-examination may be in the nature of irregularity which is curable but not an illegality leading to annulling of the assessment. Further, the ld. CIT(A) in para 4.1 of the impugned order has held that addition has not been made solely on the basis of the statement of those persons/parties. The relevant part of the order of Ld. CIT(A) is reproduced as under: I have considered the submission of the appellant and observation of the AO made in the assessment order on the issue. The appellant has stated that it has not been allowed cross-examination of parties on the basis of whose statement, the addition has been made. On this issue it is observed from the assessment record that the AO has made the addition on the strength of independent analysis of the documents to arrive at the conclusion that the appellant has failed to prove genuineness of the transaction in respect of STCL as discussed above. Statements and other mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t applicable where the material or evidence used is of Collateral Nature. We find that the Assessing Officer in the assessment order has referred to the general modus operandi of the bogus accommodation entry and thereafter, he has further referred to statement of the parties who has provided accommodation entry through managing and controlling the shares of the companies, in which the assessee has also transacted. The Assessing Officer thereafter asked the assessee to justify the rationale behind investment in these penny stock companies not having financial worth, however, the assessee failed to justify the same. The Assessing Officer provided as why the investment in the shares transacted by the assessee was not justified in view of the comparison of the other shares available. The Assessing Officer also pointed out the price fluctuation in the shares of the companies over a period, dividend history and other financial parameters to substantiate that there was no term capital loss against receipt of cash money. The Ld. Assessing Officer accordingly concluded that the addition was made on the basis of the material available on record, the surrounding circumstances, the human co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nda Solution is Ltd. Which shows that astronomical increase in share price of said company which led to returns of 491 % for Appellant, was completely unjustified. Pertinently, EPS of said company was Rs. 0.01/-as in March 2016, it was Rs. 0.01/-as in March 2015 and-0.48/-as in March 2014. Similarly other financial parameters of said company cannot justify price in excess of Rs. 500/-at which Appellant claims to have sold said shares to obtain Long Term Capital Gains. It is not explained as to why anyone would purchase said shares at such high price. Tribunal goes on to observe in impugned order as follows: With such financials an affairs of business, purchase of share of face value Rs. 10/-at rate of Rs. 491/-by any person and assessee's contention that such transaction is genuine and credible and arguing to accept such contention would only make decision of judicial authorities fallacy. Evidences put forth by Revenue regarding entry operation fairly leads to conclusion that assessee is one of beneficiaries of accommodation entry receipts in form of long term capital gains assessee has failed to prove that share transactions are genuine and could not furnish evidences re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucted enquires which proved that assessee is also one of beneficiaries of transactions and entries provided, Even BSE listed this company as being used for generating bogus LTCG. On facts of case and judicial pronouncements will give rise to only conclusion that entire activities of assessee is colourable device to obtain bogus capital gains. Hon'ble High Court of Delhi in case of Udit Kalra ITA No. 220/2009 held that company had meagre resources and astronomical growth of value of company's shares only excited suspicion of Revenue and hence, treated receipts of sale of shares to be bogus. Hon'ble High Court has also dealt with arguments of assessee that he was denied right of cross examination of individuals whose statements led to enquiry. Ld. AR arguments that no question of law has been framed in case of Udit Kalra also does not make any tangible difference to decision of this Case, Since additions have been confirmed based on enquiries by Revenue, taking into consideration ratio laid down by various High Courts and Hon'ble Supreme Court, our decision is equally applicable to receipts obtained from all three entities. Further, reliance is also placed on orders o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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