9911796707
TMI Blog2024 (5) TMI 1229X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing officer and confirmed by CIT(A) may please be deleted. 3. Assessee craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal." 3. The relevant material facts, as culled out from the material on record, are as follows. Before us, assessee is an individual and filed his return of income for the assessment year (AY). 2013-14, by declaring income of Rs. 51,36,060/- on 30.09.2013. During the year under consideration, assessee has shown income from house property, salary, business and also from Long Term Capital gain. Notice under section 143(2) of the Act was issued and duly served upon the assessee on 08.09.2014. Subsequently, notice u/s 142(1) of the Act was also issued on 27.05.2015. In response to the statutory notices, the assessee attended the hearing. Subsequently, a detailed questionnaire dated 11.12.2015 was issued to the assessee wherein the assessee was asked to furnish the details in respect of Long Term Capital Gain earned during the year under consideration along with copy of Demat account. In response to this notice, the assessee submitted the details called for on 22.12.2015. The assessing officer noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g term capital gain as well as loss to different beneficiaries who approached him. Shri Kedia has declared the name of such bogus scrips wherein one of the scrips mentioned above, M/s Blue circle services Ltd is also included. 5. In view of the above facts, the Assessing Officer issued a show cause notice dated 15.03.2016 to the assessee to explain the transaction, the relevant and useful portion of the show cause notice is reproduced below: "On perusal of the details submitted, during the course of assessment proceedings, it is seen that you have incurred losses on account of trading in shares, in the following scrips: Sr. No. Scrip Code No. Name of the scrip Amount of loss (in rupees) 1 508939 M/s Blue Circle Services Ltd 2,92,23,370 2 512105 M/s PROAIM Enterprises Ltd 63,97,508 3 531893 M/s Sawaca Business Machines Ltd 51,19,205 Total 407,40,083/- 4.1.1 Further, on perusal of the demat statements for the period from 01.04.2012 to 31.03.2013, maintained with M/s Roongta Rising Stocks Pvt Ltd (clearing code no.6171), (CDSL). It is seen that shares of M/s Blue Circle Services P Ltd and M/s Proaim Enterprises Ltd have been acquired th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer rejected the contention of the assessee and observed that in regard to buying of shares off market, the mode of delivery of physical shares and transactions slips of transfer of shares have not been provided to this office and delivery of physical shares remain unexplained. Spot delivery contract note alongwith proof of physical share transfer has not been provided as mandatorily required under Securities Contract Act. That is, the mode of delivery of physical shares and transactions slips of transfer of shares 'Spot delivery contract note' have not been provided to this office and delivery of physical shares remain unexplained. 8. Based on the facts and analysis made by the Assessing Officer, the Assessing Officer observed that a survey under section 133A of the I.T. Act was conducted in the business premises of Shri Anil Satyanarayan Roongta who is one of the directors of M/s Roongta Raising Stock (P.) Ltd. The survey was conducted, so as to examine and verify the Long Term Capital Gains claimed by the assessee, on account of trading in the shares of M/s Mishka Finance Ltd. During the course of survey proceedings, statement on oath of Shri Anil Satyanarayan Roo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the test of human probabilities. Tax planning may be legitimate provided it is within the framework of law. Colourable device cannot be a part of tax planning and it is wrong to encourage the belief that it is honourable to avoid payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes without resorting to subterfuges. The aforesaid observation makes it very clear that a colourable device cannot be a part of tax planning. Therefore where a transaction is sham and not genuine as in the present case then it cannot be considered to be a part of tax planning or legitimate avoidance of tax liability. In same year assessee claimed short term capital loss on sale of shares which were purchased in same year - AO propose to disallow said claim of short term capital loss by treating it as bogus and not genuine. The Facts revealed that such trading transactions of purchase and sale of shares had not been effected, for commercial purpose but to create artificial loss, with a view to reduce tax liability. Transactions of shares were not governed by market factors prevalent at relevant time in such trade, but same were product of design and mutual u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utual understanding on the part of the assessee. 11. The Assessing Officer noted that it is evident that such share transactions were closed circuit transactions and clearly structured one. The short term capital loss claimed by the assessee could not be allowed and the same required to added back towards taxable income. The Assessing Officer noted that such transactions involve the series of preconceived steps, the performance of each of which is depending on the others being carried out, in accordance with the common intention of the assessee and the said company who allotted the shares to the assessee, the nature and effect of the whole scheme has to be taken into consideration, in determining the true intent and nature of such share transactions. The true nature of such share transactions lacked commercial contents, being structured transactions, entered into with the sole intent, to reduce the tax liability. The facts and circumstances of the case, as recorded above, clearly suggest that the revenue cannot take or accept such make-believe transactions, as presented by the assessee. Truth or genuineness of such transactions must prevail over the smoke screen, created by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in appeal before the ld. CIT(A) who has confirmed the action of the Assessing Officer. During the appellate proceedings, before ld. CIT(A), assessee has submitted elaborate written submissions, evidences and documents which were submitted before the Assessing Officer. After considering the submissions of the assessee, the ld. CIT(A) has observed that the modus operandi employed to rig share prices which are basically penny stock to utilize as per requirement of the beneficiaries and in spite of the high standard of integrity and efficiency required and expected of the share brokers, the involvement thereof in manipulating share prices to help in evasion of tax which can be ultimately proved if not directly but using preponderance of probabilities and surrounding circumstances. Although the present case at hand centers round disallowance of huge business loss due to transaction in penny stocks and not LTCG/STCL, the modus operandi employed as analyzed in detail by the AO and the manner of set off of the same with income makes it similar to the case referred to above in context of the surrounding circumstances. Therefore, based on these facts ld CIT(A) confirmed the addition made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made by the Assessing Officer may be deleted. 16. On the other hand, ld. CIT(DR) for the Revenue referring to the page no. 2 of the order of the Assessing Officer, stated that assessee has earned Long -Term Capital Gains to the tune of Rs. 4,17,53,626/- in the current financial year, however to neutralize the tax effect on the other side of Long- Term Capital Loss, the assessee purchased huge Long- Term Capital Loss by selling shares to the tune of Rs. 4,55,72,791/-. The assessee has claimed set-off of business loss from Long -Term Capital Gains, and this set -off of loss against Long Term- Capital Gain was found suspicious and therefore Assessing Officer made the addition. 17. The ld. CIT(DR) also pointed out that the assessee did not demand the cross-examination opportunity during the assessment proceedings. Therefore, at this stage the assessee cannot take the plea that opportunity for cross-examination has not been provided. Thus, ld. CIT(DR) for the Revenue argued that Assessing Officer has analyzed the facts of the assessee, in the context of other companies and the statement of Shri Anil Roongta is also relevant, therefore addition made by the Assessing Officer may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of assessment proceedings, assessing officer issued show cause notice dated 15.03.2016 which is reproduced at Para 4.1 of assessment order. In the show cause notice assessing officer observed that, statement on oath of Rajkumar Kedia was recorded on 13.06.2014, wherein he stated that he was engaged in providing bogus entries for long term capital gain and loss to various beneficiaries. Assessing officer further, observed that the scrips admitted also included the name of M/s Blue Circle Services Pvt. Ltd. The Assessing officer further observed that Rajkumar Kedia in his statement stated that he has not provided short term loss entries to beneficiaries and whatever, loss have been provided, is at par, as the operator get a genuine buyer for the inflated share. The Assessing officer further observed that, the entries were provided only to the persons associated with group. On the basis of the above, assessing officer asked the assessee as to why accommodation loss received from dealing in such shares should not be disallowed. 20. In response to above show cause notice, the assessee filed reply vide letter dated 21.03.2016, along with following documents: (i) Contract Notes for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd, excepting 1,19,000 shares of M/s Blue Circle Services Ltd, which were purchased online through BSE. Assessee paid all the purchase consideration though Banking Channel. Before ld CIT(A), in order to prove the genuineness of these transactions, the assessee filed the contract notes, details of service tax paid, folio numbers, details of STT paid, bank statement, Global report etc. The assessee claimed that out of total shares, 1,19,000 Shares of M/s Blue Circle Services Ltd were kept in his own demat account and the remaining shares with Broker's Pool account. It is not necessary to keep the shares in his own demat account. The shares can also be kept in account of broker for convenience of trading. The assessee has purchased 6,52,000 shares of M/s Blue Circle Services Ltd. Out of this, assessee purchased 5,33,000 shares through broker Roongta Rising Stock Pvt. Ltd. and remaining 1,19,000 shares were purchased through offline transactions. All the shares of other companies namely Proaim Enterprise Ltd and Sawaca Business Machines Ltd, were purchased through broker Roongta Rising Stock Pvt Ltd online. The Assessing Officer stated that all the share purchases/sales made outside s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices from assessing the securities market and trading in the scrip directly or indirectly in any manner. In this connection, it was submitted by ld Counsel that this order was revoked in respect of Blue Services Ltd, as per the final order of SEBI passed on 6th September, 2017. The assessing officer in assessment order at para no 6.1.18 has also observed that in the order of SEBI passed in case of Radford Global Limited, Mishka Trading & Finance Limited has been restrained from dealing in the securities market. 24. In regard to the other scrips of Proaim Enterprise Limited and Sawaca Business Machines Limited. Assessing Officer observed that shares of their companies were bought by broker company off market. In this connection, ld Counsel stated that the observation made by the assessing officer are contrary to the facts on record. The all the shares of Proaim Enterprise Limited and Sawaca Business Machines Limited were purchased online through BSE. The assessing officer observed that assessee sold his shares of Proaim Enterprise Ltd to M/s Insight Multi Trading Pvt Ltd and Principal Officer of this company did not provide the confirmation and the letter was returned by the pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to assessee. The amount cannot be assessed as undisclosed income of assessee in the absence of positive material brought by Revenue to prove that the amount in fact belonged to assessee as the burden lay on the Revenue. It was also held that any material collected by Assessing officer behind the back of assessee cannot be used against him unless assessee has been given a chance to rebut the same. (ii) Sunita Dhadda vs. DCIT [148 TTJ 0719] (Jaipur Trib.) [This Decision was confirmed by High Court of Rajasthan][SLP was dismissed by SC] - Held that when any addition is made by Revenue by way of income, burden to prove that such amount was received and was in nature of income is on Revenue. AO has utterly failed to discharge his burden which heavily lied upon him. As far as burden of assessee is concerned, it was discharged by statements recorded under oath and otherwise. Assessment made without disclosing to assessee information supplied by departmental representative and without giving any opportunity to assessee to rebut information so supplied and declining to take into consideration all materials which assessee wants to produce in support of case constitutes violation of fundame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to reduce the quantum of income liable for tax might have been the view expressed by the AO but he miserably failed to substantiate that. The ld Counsel submitted that the transactions were at the prevailing price and therefore the suspicion of the AO was misplaced and not substantiated. In this regard, ld Counsel relied on the following judgments: (i) M/s Classic Growers Ltd vs. CIT [ITA No. 129 of 2012] (Cal HC) - Held that in this case the ld AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchases and sale of shares were stage managed. The Hon'ble High Court held that the opinion of the AO that the assessee generated a sizeable amount of loss out of prearranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the ld AO but he miserably failed to substantiate that. The High Court held that the transactions were at the prevailing price and therefore the suspicion of the AO was misplaced and not substantiated. (ii) CIT v. Lakshmangarh Estate & Trading Co. Limited [2013] 40 taxmann.com 439 (Cal)(HC) - Held that in this case the Hon'ble Calcutta Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Tribunal wherein it was found that the chain of transactions entered into by the assessee have been proved, accounted for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. On these facts, the appeal of the revenue was summarily dismissed by High Court. (vii) Pr. CIT v. Prem Pal Gandhi in ITA-95-2017 (O&M) dt. 18-1- 2018 (Punjab & Haryana HC) - The Court in the context of penny stocks held that the appreciation in the value of the shares is high does not justify the transactions being treated as fictitious and the capital gains being assessed as undisclosed income if, a. the shares are traded on the Stock Exchange, b. the payments and receipts are routed through the bank, c. there is no evidence to indicate it is a closely held company, and d. the trading on the Stock Exchange was manipulated in any manner (viii) CIT v. Shyam R. Pawar [2015] 229 Taxman 256 (Bombay)(HC) - In this case, assessee declared capital gains on sale of shares of two companies. Assessing Officer, observing that tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee furnished all evidences in the form of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the ld AO to be false or fabricated. The facts of the case and the evidences in support of the assessee's case clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the ld AO was not justified in rejecting the assessee's claim. 27. We note that the Assessing Officer having failed to bring on record any material to prove that the transaction of the assessee was a collusive transaction could not have rejected the evidences submitted by the assessee. In fact, in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee, under these circumstances nothing can be implicated against the assessee. One is bound to consider and rely on the evidence produced by the assessee in support of its claim and base decision on such evidence and not on suspicion or preponderance of probabilities, no material was brought on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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