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TMI Blog2023 (6) TMI 1399X X X X Extracts X X X X X X X X Extracts X X X X ..... n disallowing the exemption claimed by the Appellant u/s 10(38) as Long Term Capital Gain and thereby confirming the addition made by the Income Tax Officer, Ward 2(2), Kalyan ('the AO') amounting to Rs. 86,12,600/- u/s 68 of the Act. 1.2 The Hon'ble CIT(A) further erred in: - not giving an opportunity to cross examine - solely relying on the findings of the investigation team and not considering all evidences filed - concluding that the entire transaction was a sham 1.3 In the aforesaid legal and factual matrix, the appellant prays that the AO be directed to allow the exemption u/s 10(38) of Long Term Capital Gain amounting to Rs. .86,12,600/- as claimed." 3. The Assessee has also raised the following additional grounds of appeal, vide letter, dated 02/09/2020: "1. On the facts and circumstances of the case and in law, the Income Tax officer, Ward 2(2), ('the ITO') erred in making the addition under Section 68 of the Income-tax Act, 1961 ('the Act') without obtaining an explanation from the deceased assessee. 2. The Appellant further submits that u/s 68 of the Act, it is the assessee who has to furnish an explanation and the same responsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the Assessee to furnish details/information. 9. In response, the Assessee filed letter, dated 22/08/2016 and 01/09/2016, providing various details/information to the Assessing Officer on 05/12/2016. 10. The Assessee passed away on 05/12/2016 and the Legal Heir intimated the fact of death of the Assessee to the Assessing Officer. The Assessing Officer issued summons to the Legal Heir on 22/12/2016 and his statement was recorded under Section 131 of the Act. During the course of recording the statement the Legal Heir was asked to provide explanation regarding the transactions of sale of shares of Sunrise Asian. However the Legal Heir expressed his inability to provide details/explanation. While recording statement of Legal Heir reference was also made by the Assessing Officer to information available with the Assessing Officer and the statements of Mr. Vipul Vidur Bhatt and Mr. Anil Agarwal. 11. On 27/12/2016, the Legal Heir filed letter seeking (a) Annual Information Report wherein sale of shares of Sunrise Asian for consideration of INR. 89,42,206/- was reported, and (b) Report/Explanation about the verification done by the Assessing Officer and the basis on which the sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hai Vaghasia (through Legal Heir) Prop. M/s Aries Enterprises. The Assessing Officer assessed income at INR 97,79,700/- after making addition of INR. 86,12,600/- under Section 68 of the Act under Section 68 of the Act denying LTCG exemption of claimed under Section 10(38) of the Act. While framing the assessment as aforesaid, the Assessing Officer relied upon the following: (a) Investigation Report of Directorate of Income Tax (Investigation), Kolkata in the case of "Project Bogus LTCG/STCG through BSE Listed Penny Stock" (For short "the Investigation Report"). (b) Final Order, dated 06/09/2021, of Securities And Exchange Board of India, Mumbai under Section 19 read with Section 11(1), 11(4) and 11B of the Securities And Exchange Board of India Act, 1992 (For short "SEBI Order"). (c) Statement of Mr. Vipul Vidur Bhat, the named Operator of the Script - Sunrise Asian, recorded under Section 132 of the Act by the Investigation Wing, Mumbai. (d) Stand Alone Balance Sheet of Sunrise Asian for the Financial Year 2010-11 to 2014-15. (e) Trading data of the Script - Sunrise Asian between 17/08/2011 and 09/03/2015 which included data regarding the volume of trades, number of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions undertaken by the Assessee. (v) The Assessee did not have any transaction or relationship with First Financial Services Limited or Comfort Group. (vi) The Assessing Officer was not justified in concluding that the Legal Heir had provided explanation which was unsatisfactory. (vii) The findings returned by the Assessing Officer were incorrect in view of the following - (a) Off - market purchase of shares was not barred under law. The Assessee had made payment for purchase of shares through account payee cheque against issuance of proper allotment letter; (b) Apart from shares of Sunrise Asian, the Assessee had sold shares of other company as well at a price higher than the purchase price and the capital gains arising from the same were accepted; (c) the Assessing Officer had failed to correlate the transaction of sale of shares by the Assessee with the Operators/Brokers named in the reports/order of SEBI and/or Investigation Wing; (d) merely because Assessee has earned large amount of LTCG would not lead to a conclusion that the transactions undertaken by the Assessee was bogus; (e) The Assessee was not in control of the movement in the price of shares; (f) There was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iciaries by taking advantage of artificial hike in the quoted price of penny stocks (such as Sunrise Asian) occasion by synchronized trades on stock exchange by the Operator, Syndicate Member, Brokers and Exit Providers in collision with Beneficiaries. The Assessee had acquired shares of Sunrise Asian, a script identified as penny stock in the Investigation Report, in off-market transaction and the same were sold after some time at much higher price during the period identified in SEBI Order as the period within which the quoted price of penny stock - Sunrise Asian was manipulated. The Assessee had deployed a colorable device to introduce unaccounted income as LTCG and therefore, the Assessing Officer was justified in making addition under Section 68 of the Act. 21. We have given thoughtful consideration to the submission made by both the sides, perused the order passed by the CIT(A) and the Assessing Officer and considered the legal position. 21.1. At the outset we would like to deal with contentions raised on behalf of Assessee/Legal Heir and the Revenue 21.2. We note that SEBI Order clearly records that the person acting in concert were able to manipulate the quoted price of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact exists, if on weighing the various probabilities such person finds that the preponderance is in favour of the existence of the particular fact. [Narayan Ganesh Dastane vs Sucheta Narayan Dastane : 1975 AIR 1534 (SC)] 21.6. Therefore, in case of penny stock transaction involving parties identified as tainted Operator, Syndicate Member, Broker, and/or Exit Operator by Investigation Wing, SEBI etc. the preponderance of probability that the transaction undertaken being tainted would be in favour of the Revenue and against an assessee claiming the transaction to be genuine, putting higher onus on such assessee to prove genuineness of the transaction. 21.7. In the case of CIT Vs. Durga Prasad More : 82 ITR 540 (SC) the Hon"ble Supreme Court has observed as under: "13. In stating that .........................Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decision of the final fact finding aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 132 of the Act. In the SEBI Order passed in the case of Sunrise Asian, Mr. Vipul Vidur Bhatt is Noticee No. 26. and was barred from (a) accessing the securities market (b) buying/selling/dealing in shares (whether directly or indirectly) and (c) being otherwise associated with securities market for a period of 6 months. (iv) Beneficiary being entities/persons who have taken benefit of LTCG exemption to bring back unaccounted income as capital receipt/gain. According to the Assessing Officer, in the present case the Assessee is the Beneficiary who has received back the unaccounted income as capital gains receipts. (v) Exit Operator is one who buys the shares from the Beneficiary and pays consideration through banking channel. In paragraph 6.2 of the Assessment Order, the Assessing Officer has concluded that the exit entry providers are M/s Comfort Securities Limited and Mr. Anil Agarwal key person of Comfort Group. 22.3. Further, according to the Investigation Report, bogus penny stock transactions involved the following stages (i) Purchase/Acquisition - The beneficiaries acquire penny stock at a nominal rate which generally takes place as off-market transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein that Pushpanjali Commotrade Private Limited, Kolkatta and Ranisati Dealer Private Limited, Kolkatta have helped in managing routing of cash. 23. On the basis of the above, the Assessing Officer concluded that following parties acted in collusion: (a) The Assessee - being the Beneficiary (b) Mr. Vipul Vidur Bhatt - being the Operator (c) Mr. Anil Agarwal and Comfort Group (M/s Comfort Securities Limited, Comfort Fincorp) - being operator, broker and/or exit provider (d) Pushpanjali Commotrade Private Limited, Kolkatta and Ranisati Dealer Private Limited, Kolkatta being companies managing routing of cash 23.1 Assessing Officer further concluded that with the help of the above parties, the Assessee acquired 18,000 shares of Sunrise Asian by Merger Method which and sold the same at artificially increased price in Patch 2 to earn tax exempt LTCG by way of pre-arranged transactions. Thus, introducing unaccounted income in the books as capital receipts/gains. 24. The contention of the Appellant is that the above conclusions drawn by the Assessing Officer are without any basis or material on record. 25. We have perused the SEBI Order, Investigation Report, SEBI Order, dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss: Cost of Acquisition 3,60,000 LTCG exempt under Section 10(38) 86,12,600 25.5 All the sale transactions were undertaken through broker ITI Financial services Limited. 25.6 We note that in the Investigation Report the sub-brokers associated with Baba Bhoothnath Trade & Commerce Pvt. Ltd., Madhya Pradesh Stock Exchange Ltd., Religare Securities Ltd., Comfort Securities Ltd., Anand Rathi Share & Stock Brokers Ltd., SMC Global Securities Ltd. and the Calcutta Stock Exchange Ltd. have been identified as brokers/sub-brokers facilitated bogus LTCG transactions of Sunrise Asian. In the Assessment Order the name of Comfort Securities Ltd. comes up in paragraph 7.2 of the Assessment Order wherein reference has been made to SEBI Order, dated 19/12/2014, passed in the case of First Financial Services. A perusal of the aforesaid shows that the same had no relevance to trading in shares of Sunrise Asian. Further, ITI Financial Services Limited was the broker for the Assessee and its name does not find any mention in the Investigation Report and/or the SEBI Order. 25.7 The Assessing Officer has concluded that the Comfort Group and Mr. Anil Agarwal acted as exit providers. However, on per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roker affiliated with Mangal Kseshav Securities limited has been placed on record. The Assessee has also been making personal investments in share market since 2007. The investments held by the Assessee as on 31/03/2012 were INR 28,47,999/- which stood reduced to INR 19,38,124/- as on 31/03/2014. The details of shares sold during the relevant previous year are as under: Sr. Name of Shares Date of Sale QTY Gain/(Loss) 1 Sun Asian 14/10/2013 2500 1,212,458.83 2 Bayer Cropscience Ltd. 14/10/2013 250 349,553.00 3 Natco Pharma Ltd. 14/10/2013 100 652,250.01 4 Sun Asian 15/10/2013 5500 2,654,777.44 5 Bayer Cropscience Ltd. 17/10/2013 100 140,279.21 6 Natco Pharma Ltd. 17/10/2013 500 156,722.22 7 PVR Limited 17/10/2013 500 77,670.22 8 Bayer Cropsience Ltd. 23/10/2013 200 278,803.36 9 Bayer Cropscience Ltd. 28/10/2013 200 291,758.39 10 Sun Asian 01/11/2013 2000 950,932.07 11 Sun Asian 03/12/2013 5000 2,353,734.83 12 Sun Asian 19/12/2013 2500 1,175,833.32 13 Sun Asian 24/12/2013 500 234,469.37 Total 10,529,242.27 Therefore, the Assessing Officer has, in Paragraph 5.2 of the Assessment Order, incorrectly stated that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indirect evidence linking Comfort Group Companies (i.e., Comfort Fincorp and Comfort Securities Limited), Mr. Anil Agarwal, Pushpanjali Commotrade Private Limited, Kolkatta and Ranisati Dealer Private Limited, Kolkatta with the Assessee. The Assessing Officer and CIT(A) had proceeded with the understanding that the Assessee was new to trading; he traded in single script and had not earned high returns on sale other investments. This understanding was incorrect and contrary to material on record. Even as per SEBI Order, not every shareholder who sold/purchased shares of Sunrise Asian through stock exchange during the Patch-2 was involved in share price manipulation or booking bogus LTCG. 26. In view of the above, we hold that the material on record supports the case of the Assessee/Legal Heir that transactions of sale of shares of Sunrise Asian were genuine transactions undertaken during normal course by the Assessee who had knowledge of the stock-market and had been making investments in shares since many years. Accordingly, the claim of exemption under Section 10(38) of the Act is allowed in respect of capital gains of INR 86,12,600/- arising from sale of shares of Sunrise Asian ..... X X X X Extracts X X X X X X X X Extracts X X X X
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