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TMI Blog2024 (6) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... f transactions. The surrounding circumstances of the transactions establish that the transactions entered into by the assessee were not genuine. Assessee had not discharged its onus against the overwhelming adverse evidences that has been brought on record by the Revenue authorities. The thrust of the assessee s argument is that the sale consideration was received by cheque on which STT was paid and, therefore, the LTCG earned was genuine cannot be accepted in view of multiple adverse evidences collected by the Revenue and the assessee cannot be treated as a passive beneficiary of the transactions. The Hon ble Supreme Court held in the case of Security And Exchange Board of India vs. Rakhi Traders Pvt. Ltd., ( 2018 (2) TMI 580 - SUPREME COURT ) that in trade transactions with huge price variations of the transactions, it will be too na ve to hold that the transactions were through screen based trading and hence anonymous. According to the Apex Court, such conclusion would be overlooking the prior meeting of minds involving synchronization of buy and sale order and that such transactions were manipulative/deceptive device to create a desired loss and/or profit. The transactions ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in shares, it is said that, as per statement of facts referred above, and evidences produced therewith he ought not to have made such addition and same is required to be deleted. (Tax Effect Rs. 31,45,930/-) 2. The CIT(A) has erred in not appreciating the facts that The Lr. AO has given wrong finding as per para 3.1, 5, 6, page 25 para 3.3 to para 3.23 of the order which is perverse on facts and also on law and therefore, the addition made may please be deleted. (Tax Effect Rs. 31,45,930/-) 3. The CIT(A) has erred in not appreciating the facts that the Lr. Assessing Officer has not provided the inquiry papers as well as notice u/s 133(6) referred by him and further no examination / cross examination allowed and therefore, the addition based on so called inquiry is merely based on conjectures, surmises and therefore, addition made is liable to be deleted. (Tax Effect Rs. 31,45,930/-) 4. The Lr. CIT(A) has also erred in not appreciating the facts that the assessee has purchased the shares out of regular source of income of past years and books of accounts has been accepted as such without applying sec. 145 and therefore, the purchase made cannot be doubted on this ground and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld on 03.09.2014 for a consideration of Rs. 35,93,767/- @ Rs. 359.58 per share. The shares of MARL were also subdivided and this proceeds was in respect of sale of 1000 shares. (v) The sale of two shares was effected through share broker Tradebull Securities Pvt. Ltd. and the sale consideration of Rs. 56,54,500/- and Rs. 35,93,767/- was credited to the banks accounts of the assessee with CITI Bank on 03.09.2014 and 04.09.2014 respectively. (vi) The assessee had disclosed LTCG of Rs. 73,29,100/- on the sale of these two shares which was claimed exempt under Section 10(38) of the Act. (vii) The payment of purchase price of shares Rs. 1,18,703/- in cash even though the assessee was having operational bank account raised suspicion about the genuineness of the transactions. (viii) The AO found that the companies LDPL MARL were not having good financial track record. Further, both these companies were penny stock companies which were utilized to arrange accommodation entries to the interested beneficiaries. The price of shares of LDPL and MARL were put on artificial rise and fall in a pre-arranged manner. The AO reproduced a chart of price fluctuation of shares of LDPL MARL for the perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first appeal, the Ld. CIT(A) upheld the addition as made by the AO. He passed a detailed order and apart from the decisions as quoted in the assessment order the ld. CIT(A) also relied upon the decision of Mumbai ITAT in the case of ITO vs. Shamim Bharwani (68 taxmann.com 65) and the decision of Ahmedabad ITAT in the case of Pavankumar M Sanghvi vs. ITO (81 taxmann.com 308) . Submission of the assessee 7. Shri Ketan Shah, Ld. AR of the assessee 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. He submitted that there was no dispute to the fact that assessee had purchased the share of LDPL and MARL in support of which the contract note of broker M/s. Vijay Bhagwandas Co. was furnished and the source of this investment was also explained. The Ld. AR explained that the assessee was having surplus cash balance which was utilized for making payment for purchase of shares and that off market purchase of shares was an accepted mode of acquisition. He submitted that the genuineness of the purchase of shares was not doubted by the AO and no disallowance was made on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. ITO, [2022] 137 taxmann.com 463 (Chennai- Trib.) xi. PCIT vs. Champalal Gopiram Agarwal, [2023] 155 taxmann.com 66 (Gujarat) xii. Atulbhai Amritlal Mehta vs. DCIT, [2023] 150 taxmann.com 90 (Ahmedabad Trib.) 9. The Ld. AR further submitted that SEBI had suspended the trading of shares of these two companies after the purchase and sale transactions in the shares was completed by the assessee and that the assessee was never aware of the fact that scrips were in the nature of penny stock companies. He contended that in the investigation report carried out by the Calcutta Directorate as well as in the statements recorded by different persons the name of the assessee never appeared and there was no specific allegation against the assessee that he had entered into an accommodation entry. The Ld. AR submitted that assessee was a regular investors in shares and this was not the only transaction carried out by the assessee. He assailed the invocation of provisions of Section 68 of the Act by the AO and submitted that this provision was not at all attracted as the AO had not added the entire sale consideration which was credited to the books of accounts. Submission of the Revenue: 10. Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ightly claimed. Where the issue of LTCG is involved, not only the sale of shares but the genuineness of the purchases also has to be examined. In the mechanism of capital gains computation what is relevant is not only the sale of shares but also the purchase of shares. Therefore, the genuineness of the entire transaction of acquisition as well as sale of shares has to be looked into as a whole. One can t adopt a dissecting approach by accepting the sale of shares as genuine without examining the genuineness of purchase of the shares. The AO had casted aspersion on purchase of shares while doubting the genuineness of the entire transaction. The contention of the assessee that the purchases were not doubted as no disallowance on account of purchase was made can t be accepted. The AO in the assessment order had specifically pointed question mark on the purchase transactions. 13. The primary facts of this case not under dispute. The assessee has contended that it was a regular investor in shares and that the transactions giving rise to LTCG were not one off transactions. It is found that the assessee had opened a demat account with Tradebulls Securities (P) Ltd. on 21.07.2011. The firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is ordinarily not permissible and subject to certain legal constraints under Security Contract (Regulation) Act, 1956. Further, the reason for payment for purchase of these shares in cash has also not been explained. There is no evidence for cash payment so as to confirm the actual date of transaction. It is also found that the cash payment for the purchase of shares was not made in one go but was staggered on different dates. From the ledger account of the broker M/s. Vijay Bhagwandas Co. in the books of the assessee for the period 01/04/2013 to 31/03/2014, the cash payment was found in the following manner: Date Particulars Vch Type Debit Credit 1/4/2013 To Lifeline drugs pharma ltd Sale of 5000 Journal 78353.00 26/06/2013 To Mahavir Advanced Remedies Ltd - Sale of 2150 Shares 40559.00 1/4/2013 by cash received receipt 19000.00 1/4/2013 by cash received receipt 19000.00 3/4/2013 by cash received receipt 19000.00 4/4/2013 by cash received receipt 19000.00 5/4/2013 by cash received receipt 2345.00 26/6/2013 by cash received receipt 19000.00 27/6/2013 by cash received receipt 19000.00 2567.00 118912.00 118912.00 15. If the assessee was having sufficient cash balance why the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e genuineness of LTCG claim of the assessee. 17. The genuineness of transactions can be tested on the principle of preponderance of human probability as settled by the Hon ble Apex Court in the case of Smt. Sumati Dayal vs. CIT, (1995) 214 ITR 801 (SC) . The documentary evidences in themselves, cannot be held as conclusive evidence of the transaction. When someone is deliberately entering into a transaction in shares of penny stock company, it is obvious that all the documentary evidences will be in order. After all, one has to establish the transactions with reference to the documentary evidences so as to claim the benefit of exemption of LTCG available under the Act. Therefore, while examining such evidences, surrounding circumstances also has to 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 tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The suspension by SEBI reflects the dubious nature of the transactions, which can t be ignored and which was pursuant to manipulation / abrupt movement in the price of these security as noticed by BSE. The AO has analyzed the price movement of these share during the period from 1st April, 2013 to 2nd September, 2014 in the assessment order from which it is evident that there was continuous manipulation of the price of these shares. The volume of trade in these shares was mostly in single digit and the price of LDPL was progressively increased from Rs. 36.1 as on 1st April, 13 to high of Rs. 584.35 on 12th November, 2013 and on the next day i.e. 14th November, 2014 the price had suddenly dipped to Rs. 59.55/-. We see similar trend and fluctuation in the share price of MARL as well. These enquiries and evidences conclusively proved that the trades were manipulated and the gains/losses made by beneficiaries in trade of these securities can t be held as genuine. The AO had further analyzed the financial statements of LDPL MARL in the assessment order and found that the movement of its share price was abrupt, unrealistic and not based upon any sound realistic parameter. The S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n mark on the genuineness of the transactions carried out by the assessee. The statement of the share brokers of Kolkata who were involved in providing accommodation entries through Jamakarchi/shell Companies also casts a serious doubt on the genuineness of the transactions. They had categorically admitted to have provided accommodation entries through multilayered transactions and trading in the shares of LDPL MARL. Though the assessee was nowhere indicted in their statements the fact that accommodation entries were provided by dealing in shares of LDPL MARL, stands established. 22. The assessee was provided with a copy of statements of Shri Anuj Agarwal, Shri Pravin Agarwal, Shri Ashok Kayan and Shri Harshvardhan Kayan in the course of assessment proceeding. The contention of the assessee is that the assessee was not named as a beneficiary by any of the brokers and thus there was no direct evidence in their statements. The ld. AR vehemently argued that the assessee was never allowed an opportunity to cross examine the brokers nor a copy of the documents referred in their respective statements and the investigation report of Kolkata Directorate was made available. 23. It is true t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. The endeavour of the department is to examine the modus operandi adopted and in that process now seek to identify the assessees who have benefited on account of such modus operandi . Therefore, considering the factual scenario no prejudice has been established to the assessee by not furnishing the investigation report in its entirety nor making the persons available for cross examination as admitted by the department in substantial number of cases the assessees have not been specifically indicted by those persons from whom statements have been recorded. As the assessee has failed to prove the test of prejudice, the contention that it was not allowed the opportunity of cross-examination can t be accepted. The right to cross-examine can t be treated as a test of fair hearing particularly when the assessee has not been indicted in the statements. By not providing the opportunity to cross-examine, there was no violation of principle of natural justice and the right to defend itself was not affected in any manner. 25. It is also found that the AO had not relied solely on the investigation report of the Calcutta Directorate as well as the statement of share brokers explaining the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the two which are relevant factors. Therefore, in our considered view the methodology adopted by the department cannot be faulted. 72. In the light of the above discussion, the only conclusion that can be arrived at is that the opinion can be formed and the decision can be taken by taking note of the surrounding circumstances which had been elaborated upon in Kishore R. Ajmera (supra). 73. It is very rare and difficult to get direct information or evidence with regard to the prior meeting of minds of the persons involved in the manipulative activities of price rigging and insider trading. We can draw a parallel in cases of adulteration of food stuff, more than often action is initiated under the relevant Act after the adulteration takes place, the users of adulterated products get affected etc. Therefore, a holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, we cannot loose sight of the fact that the shares of very little known companies with insignificant 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 trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. The assesses 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 assesses 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. 75. While it may be true that M/s. Swati Bajaj, Mr. Girish Tigwani or other assessees who are before us could have been regular investors, investors could or could not have been privy to the information or modus adopted. In our considered view, what is important is that it is the assessee who has to prove the claim to be genuine in terms of section 68 of the Act. Therefore, the assessee cannot escape from the burden cast upon him and unfortunately in these cases the burden is heavy as the facts establish that the shares which were traded by the assessees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and, therefore, the LTCG earned was genuine. This cannot be accepted in view of multiple adverse evidences collected by the Revenue and the assessee cannot be treated as a passive beneficiary of the transactions. The Hon ble Supreme Court held in the case of Security And Exchange Board of India vs. Rakhi Traders Pvt. Ltd., (supra) that in trade transactions with huge price variations of the transactions, it will be too na ve to hold that the transactions were through screen based trading and hence anonymous. According to the Apex Court, such conclusion would be overlooking the prior meeting of minds involving synchronization of buy and sale order and that such transactions were manipulative/deceptive device to create a desired loss and/or profit. 28. 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. The manner of purchase of shares of LDPL MARL in off-market transactions, inordinate delay in dematerialization of those shares and their dematerialization just days before their sale; the assessee has not discharged its onus against the adverse eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X
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