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TMI Blog2024 (5) TMI 692X X X X Extracts X X X X X X X X Extracts X X X X ..... e Pvt. Ltd. to the sale of shares of M/s. Unno Industries Ltd., the assessee has not discharged her onus against the adverse evidences brought on record by the AO and no satisfactory reply was given to explain the same. The approach of the CIT(A) to allow the appeal of the assessee without considering the facts and the surrounding circumstances was fallacious and cannot be upheld. CIT(A) did not consider the attending facts and circumstances of the case at all and the transactions cannot be held as genuine only on the basis of documentary evidence of sale consideration and payment of the STT thereon. The unusual sequence in the purchase transactions, the preponderance of probabilities and the surrounding circumstances as discussed above, are heavily loaded against the genuineness of the transactions and, therefore, we have no hesitation in reversing the findings of the CIT(A). As the Revenue had invoked the provisions of Section 68, the onus was squarely on the assessee to prove the genuineness of the credit transaction, which has not been discharged. Revenue has brought enough materials on record to exhibit the transactions as sham or bogus and the assessee has miserably failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the case. Brief facts of the case: 4. The return of income was filed by the assessee for A.Y. 2014-15 on 31.12.2014 declaring total income at Rs. 5,56,630/-. The case was selected for scrutiny on the ground suspicious transaction relating to long term capital gain on shares (inputs from Investigation Wing) . In the course of assessment, the AO made enquiries in this regard and the relevant facts which emerge from the assessment order are as under: (i) The assessee had purchased 500 equity shares of an unlisted company M/s. Basukinath Real Estate Pvt. Ltd. @ Rs. 250/- per share at total cost of Rs. 1,25,000/- on 04.11.2011. A copy of the bill issued by M/s. Jwalaji Suppliers Pvt. Ltd. of Kolkata for purchase of these shares was produced and AO found that the bill did not contain the details of certificate number. The payment for this offline purchase of shares was made through cheque dated 23.03.2012 after nearly 4 months. It was further found that this payment was made after taking unsecured loan of equivalent amount from Shri Snehal Patel, husband of the assessee. (ii) The assessee was allotted bonus shares of M/s. Basukinath Real Estate Pvt. Ltd. on 16.03.2012 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading in the company was under suspension. (viii) Shri Amit Saraogi, a share broker based in Calcutta had accepted his involvement in providing accommodation entries for LTCG/STCG and a copy of his statement accepting the involvement in such activities has been reproduced in the assessment order. The AO found that the said Shri Amir Saraogi was also one of the Directors in M/s. Basukinath Real Estate Pvt. Ltd., the share of which was initially acquired by the assessee. On the basis of these links, the AO concluded that the transfer arrangement entered into by the assessee was part of multi-layer transactions for obtaining bogus LTCG. (ix) The AO also analyzed the financial statement of M/s. Unno Industries Ltd. in the assessment order and came to the conclusion that this company was a non-trading company/shell company used as a vehicle for various financial manoeuvres. The fluctuation in the share price of this company was not based on any realistic parameters and the fluctuations were too abrupt. M/s. Unno Industries Ltd. was one of the BSE listed penny stock company used for generating bogus LTCG having total trade value of Rs. 1006,96,23,779/-. As mentioned earlier SEBI had pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly supported the order of the AO. Submission of the assessee 8. Shri Sunil Talati, ld. AR of the assessee submitted, at the outset, that the tax effect involved in this case was below the limit as prescribed by the CBDT. Therefore, the appeal should be dismissed for this reason alone. On merits, he submitted that the purchase and sale transactions were all supported by proper documentary evidences and there was no reason to doubt the genuineness of the transactions. The Ld. AR submitted that there was no dispute to the fact that the assessee had purchased the shares of Basukinath Real Estate Pvt. Ltd. in support of which the contract note of M/s. Jwalaji Suppliers Pvt. Ltd. was furnished and the source of this investment was also explained. The allotment of bonus shares of M/s. Basukinath Real Estate Pvt. Ltd. was also documented. Further, allotment of shares of M/s. Unno Industries Ltd. pursuant to amalgamation was supported from the copy of extract of ROC data base and the order of Hon ble Bombay High Court dated 18.01.2013. The Ld. AR emphasized that the shares of M/s. Unno Industries Ltd. were sold at the rate as quoted on the Stock Exchange on which STT was paid and the capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as purchased shares of Basukinath and said company was merged with Unno Industries subsequently on which appellant cannot have any control. Even the AO has no evidence to prove that gain earned by the appellant is bogus or accommodative whereas appellant has cogent evidence to provice such gain as genuine capital gain. 13.10 it is abundantly evident from the assessment order that the addition of Rs. 32,04,410/- is made by the AO without bringing on record any direct evidence to prove that these LTCG were not genuine and were in the nature of accommodation entries. The Ld. AR has submitted that neither Basukinath nor Unno Industries is listed anywhere as shell companies. Considering the facts discussed herein above and relying upon decision quoted by the appellant on each and every issue related thereto, addition made by the AO for Rs. 32,04,410/- has to be deleted and the AO is directed to tax such gain as LTCG exempt u/s 10(38) of the Act .. 5.5 The appellant has also relied upon the various decision of Tribunals on the similar issue in favour of assessee. The appellant has relied upon the decision of Hon'ble Tribunal, Delhi in ITA No. 410/Del/2018 in the case of Mohit Hora (H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout examining the genuineness of purchase of original shares. Such an approach by the ld. CIT(A) cannot be upheld and his order is liable to be reversed for this reason alone. 13. The department had conducted detailed enquiries in the organized racket of bogus LTCG transactions which were claimed exempt from tax. During the course of investigation the transactions in BSE listed penny stocks, which were used for generating bogus LTCG, were verified. The SEBI had placed scrip of M/s. Unno Industries Ltd. under surveillance measures and the trading in this scrip was also suspended. This was pursuant to manipulation / abrupt movement in the price of this security as noticed by BSE. In fact, SEBI had subsequently levied a fine of Rs. 5 Lakhs on M/s. Unno Industries Ltd. for indulging in non-genuine trade in illiquid stock options segment of BSE and this information is available in the public domain. The SEBI had observed large scale reversal of trades in the illiquid stock option segment of the BSE leading to creation of artificial volumes on the bourse during the period from April 2014 to September 2018, for which this penalty was levied. 14. As pointed out by the AO in the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken into account in order to unravel the true nature of the transactions. The Hon ble Supreme Court has observed in the case of CIT vs. Durga Prasad More, [1971]82ITR540(SC) that the taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. In penny stock transactions a facade of genuineness is created and in order to unravel the truth one has to go behind such fa ade. The Hon ble Supreme Court had held in the case of Vodafone International Holdings B.V. v. Union of India (204 Taxman 408)(SC) that the Revenue may invoke the substance over form principle or piercing the corporate veil test after it is able to establish on the basis of the facts and circumstances surrounding the transaction that the impugned transaction is a sham or tax avoidant. 16. When we examine the evidences brought on record by the Assessing Officer, the first question that arises is whether these evidences satisfy the test of preponderance of human probability. The assessee was new to share trading activity as no evidence of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares would be allotted to the assessee even before the consideration for original shares was paid by the assessee to the broker. The assessee had not brought on record any evidence for transfer of ownership of shares of Basukinath Real Estate Pvt. Ltd. prior to the payment of consideration for purchase of these original shares. The assessee has not explained why the initial purchase of shares was not carried out on the recognized stock exchange or through a registered member of the stock exchange. Neither the reason for off market purchase of shares on credit from an unknown broker in Kolkata has been explained. Such a conduct of the assessee casts a serious doubt on the genuineness of the transactions. For the reasons as discussed above, the tell-tale evidences for purchase of shares as brought on record, can t be held as genuine. 18. It is also found that the assessee had opened a demat account on 09.04.2012. The shares of M/s. Unno Industries Ltd. were issued to the assessee on 12.02.2013 when the assessee already had a demat account but these shares were not dematerialized immediately after allotment, the reason for which has not been explained. Why these shares were demateria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted in view of multiple adverse evidences collected by the Revenue and, therefore, the assessee cannot be treated as a passive beneficiary of the transactions. In trade transactions with huge price variations of the transactions, it is too naive to hold that the transactions are through screen based trading and hence anonymous. In such transactions there is prior meeting of minds involving synchronization of buy and sale order and such transactions are manipulative/deceptive device to create a desired loss and/or profit. 22. On consideration of the facts and the surrounding circumstances as discussed above, we are of the considered opinion that the transactions entered into by the assessee are not genuine. From the purchase of shares of M/s. Basukinath Real Estate Pvt. Ltd. to the sale of shares of M/s. Unno Industries Ltd., the assessee has not discharged her onus against the adverse evidences brought on record by the AO and no satisfactory reply was given to explain the same. The approach of the CIT(A) to allow the appeal of the assessee without considering the facts and the surrounding circumstances was fallacious and cannot be upheld. The ld. CIT(A) did not consider the atten ..... X X X X Extracts X X X X X X X X Extracts X X X X
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