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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 ..... brokers and exit providers. The test of human probabilities when applied to the above set of facts tilts the balance in favour of the Assessee. The preponderance is in favour of the Assessee as the circumstantial evidence and surrounding facts do not support the case of the Revenue as explained in hereinabove. There is no direct or 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. AO 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. Thus 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 norma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its that u/s 68 of the Act, it is the assessee who has to furnish an explanation and the same responsibility cannot be cast on the legal heir of the assessee. 3. The Appellant prays that the addition is invalid and be deleted. 4. The Assessee (i.e. Late Shri Kanubhai Haribhai Vaghasia), an individual, passed away on 05/12/2016 during the pendency of the assessment proceedings. The present appeal has been preferred by the legal heir of the Assessee (i.e. Shri Bhavin Vaghasia) [hereinafter referred to as the Legal Heir ]. 5. During the previous year relevant to the Assessment Year 2014-15, the Assessee had two proprietary concerns. He was engaged in the business of trading in chemicals through proprietary concern operating under the name and style of M/s Aries Enterprises. The Assessee was also registered as a sub-broker (affiliated with Mangal Keshav Securities Limited) registered with Securities Exchange Board of India (SEBI) and was carrying out proprietary businesses under the name and style of M/s Equity Research Investment wherein the Assessee earned commission income/brokerage. The Assessee was also a partner in Maharashtra Chem Trade and made personal investment in shares and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the verification done by the Assessing Officer and the basis on which the sale of shares were proposed to be treated as bogus. Further, vide the aforesaid letter, dated 27/12/2016, the Legal Heir furnished the details of purchase of 18,000 shares of Conart Traders Ltd. along with copy of the order passed by the Hon ble Bombay High Court approving scheme between amalgamation Conart Traders Ltd., Santoshima Tradelinks Limited and Sunrise Asian under the provisions of Section 391 to 394 of the Companies Act, 1956 by virtue of which 1 share of Sunrise Asian was allotted for 1 share of Conart Traders Ltd. The Assessing Officer was also informed that on account of increase in the quoted price of shares of Sunrise Asian, the Assessee had sold the investment in share of Sunrise Asian through the broker ITI Financial Services with whom Appellant held a trading account. The aforesaid sale of shares of Sunrise Asian took place through stock exchange at the prevailing quoted price. 12. Thereafter, the Legal Heir also filed a letter, dated 29/12/2016, stating that the Legal Heir had intimated the Assessing Officer about the demise of the Assessee on 13/12/2016, however, the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... included data regarding the volume of trades, number of shares traded, closing price etc. (f) Statement of Mr. Anil Agarwal, the named Exit Provider of the Script Sunrise Asian, recorded under Section 132 of the Act by the Investigation Wing, Mumbai. (g) Order, dated 19/12/2014, passed by the Securities And Exchange Board of India, under Section 19 read with Section 11(1), 11(4) and 11B of the Securities And Exchange Board of India Act, 1992 in the matter of First Financial Services Limited (For short SEBI Order, dated 19/12/2014 ) 15. Being aggrieved, the Legal Heir filed appeal before the CIT(A) challenging the addition of INR 86,12,600/- made by the Assessing Officer under Section 68 of the Act contending as under: (i) The statement of the Operator (i.e. Mr. Vipul Vidur Bhat), on which reliance was placed by the Assessing Officer, was not provided during the course of assessment or subsequently. It was contended that the Assessee neither knew Mr. Vipul Vidur Bhatt nor did he carry out any transaction with whom or his associates. The Assessee held D-Mat Account with Federal Bank and shares of Sunrise Asian were sold through broker (i.e. ITI Financial Services Ltd.) with whom the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e price of shares; (f) There was no evidence of arrangement between the Assessee and named operators, brokers and/or exit providers and the Assessing Officer had failed to establish any cash trail showing introduction of unaccounted income by the Assessee as LTCG; (g) The statements of Mr. Anil Agarwal and Mr. Sanjay Vora were not relevant to the case of the Assessee and the statement of Mr. Vipul Vidur Bhatt was not provided; and (h) The Assessee had the personal knowledge of the transaction and therefore, the legal heir of the Assessee pleaded ignorance at the time of recording statement under Section 131 of the Act; 16. However, the CIT(A) was not convinced and therefore, the appeal preferred by the Legal Heir was dismissed, vide order dated 25/01/2018. 17. Being aggrieved the Legal Heir has preferred the present appeal on the grounds/additional grounds reproduced in paragraph 2 and 3 above which are taken up hereinafter. 18. We have heard both the sides at length. The Learned Authorised Representative for Appellant reiterated the submission made before the Assessing Officer and the CIT(A) while the Learned Departmental Representative supported the order passed by the CIT(A) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the quoted price of shares listed on stock exchange to their advantage. The Investigation Report also records that the provisions of Section 10(38) of the Act were exploited by persons acting in concert (such as operators, brokers, syndicate members and exit providers) for abetting persons having unaccounted income to introduce the same in books through banking channels as capital receipts or tax exempt capital gains income with the help of shell companies or jamakharchi companies under control of the persons acting in concert. Securities Exchange Board of India (SEBI), as a securities market regulator, has passed orders identifying and penalizing persons/concerns acting in concert indulging in price rigging through synchronized trading in shares through stock exchange trades. Therefore, we reject the contention that the mere fact that the sale transaction was undertaken through stock exchange and is supported by proper documentation would, by itself, lead to a conclusion that the transaction is genuine. 21.3. Similarly, we reject the contention of the Revenue that the fact that a script has been identified as penny stock would lead to an automatic conclusion that everyone holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusive by law. (Emphasis Supplied) 22. Accordingly, we proceed to examine the surrounding facts and circumstances of the present case. 22.1. It is admitted position that Sunrise Asian is one of the penny stock companies listed on Bombay Stock Exchange (BSE) used for generating bogus LTCG. A perusal of the Assessment Order shows that the Assessing Officer has placed reliance on the Investigation Report while making the addition of INR 86,12,600/- under Section 68 of the Act by treating the transaction of sale of shares of Sunrise Asian as a bogus penny stock transaction. 22.2. According to the Investigation Report, penny stock transactions generally involved the following persons: (i) Syndicate Members are generally promoters of penny stock companies owing initial share holding in the name of paper companies. We note that in Paragraph 1.2 B of the SEBI Order, the names of persons who were directors on the board of Sunrise Asian during the investigation period (i.e., 16/10/2012 to 30/09/2015) have been set out. The Assessment Order, however, does not contain any reference to the aforesaid persons. (ii) Brokers/Sub-Brokers are SEBI registered brokers/sub-brokers through whom penny s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal method (i.e. purchase of share of listed company), or Merger Method (i.e. share of unlisted company acquired through off-market transaction - such as purchase or preferential allotment, are swapped for shares of listed company through a scheme of merger of unlisted company into a listed company) We note that in the case before us, the Assessee acquired shares of Sunrise Asian under Merger Method. 18000 share of Conart Traders Limited were allotted to the Assessee for consideration of INR 3,60,000/- and under the scheme of merger, whereby Santoshima Tradelink Limited and Conart Traders Limited were merged into Sunrise Asian, the Assessee was allotted 1 share of Sunrise Asian for 1 share of Conart Traders Limited. (ii) Price Rigging After the purchase of script of penny stock companies by the beneficiaries, the Syndicate Members start rigging the price through brokers. We note that the Assessing Officer has, in Paragraph 5. (II) Analysis of Script M/s Sunrise Asian Limited , analyzed the movement in the price of shares of Sunrise Asian between July 2012 and January 2014. In SEBI Order, price rigging period has been divided into four patches and analyzed: Patch 1 - Price Rise : 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Script Code: 506615] has been identified as 1 of the 84 penny stock in the Investigation Report at Serial No. 59 of the list of BSE listed penny stocks used for generation of LTCG. 25.1 In the Assessment Order, the Assessing Officer has identified Mr. Vipul Vidur Bhatt as an Operator. However, there is nothing on record to link the Assessee with Mr. Vipul Vidur Bhatt. The Assessing Officer seems to have drawn inference on the strength of the statement given by the Mr. Vipul Vidur Bhatt to the effect that the beneficiaries of bogus LTCG were allotted shares of Conart Traders Limited on preferential basis in 2011-12. Perusal of material placed on record shows that the Assessee did acquire shares of Conart Traders Limited by way of allotment in 2011-12. The Assessee has made payment of INR 3,60,000/-, through bank account, for allotment of 18,000 shares of Conart Traders Limited on 18/11/2011 and the shares were allotment to the Assessee of 15/01/2012. The Assessee has placed on record copy of relevant extract of bank statement (reflecting payment of INR 3,60,000/-) and copy of share certificate. 25.2 On 27/02/2013, the shares of Conart Traders Limited were converted from physical f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14, that Comfort Group and Anil Agarwal were acting for operators for penny stock scripts other than Sunrise Asian. The only link between Sunrise Asian and Confort Group seems to be that one of the companies of Comfort Group (i.e. Comfort Securities Ltd.) acted as a Broker facilitating bogus LTCG trades. However, for the Assessee, ITI Financial Services Limited was the broker. Therefore, the sale transactions undertaken by the Assessee cannot be said to have any link with Comfort Securities Ltd. We note that in reply to question no. 26, Mr. Vipul Vidur Bhatt had stated that he will furnish a list on beneficiaries within 10 days. However, no reference to such list has been made in the Assessment Order. It is also not the case of the Revenue that the name of the Assessee finds mention in the list of 83 connected entities/persons identified by SEBI as having acted in concert with Sunrise Asian and its directors to manipulate the price in paragraph 7.31 of SEBI Order. It is pertinent to note that SEBI has not taken any action against the beneficiaries and has penalized the persons acting in concert being the Syndicate Members which includes the promoters/directors/key persons of listed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person not known to such type of trading is against human probabilities. This is factually incorrect as the Assessee has been registered as subbroker with SEBI and has been making personal investments since 2007. Further, apart from sale of share of Sunrise Asian, the Assessee had also sold share of other companies during the same period and earned a substantial return which have been accepted by the Revenue as genuine. The detail of the aforesaid sale transactions are as under: Name of Shares Quantity Profit % Gains on Cost Bayer Cropscience Ltd 750 10,60,394 641.21% Natco Pharma Ltd. 600 8,08,972 366.88% 25.11 Further, on perusal of paragraph 7.21 of the SEBI Order, we find that during Patch 2 (01/07/2013 to 07/05/2014) 62 connected entities listed in Table 8 of the SEBI Order had traded amongst themselves. The name of the Assessee does not find any mention in the aforesaid list. Mr. Vipul Vidur Bhatt - the operator of the script Sunrise Asian is listed at serial number 37 of the aforesaid list. However, the contention of the Revenue is that during Patch 2 the Assessee had sold shares to Comfort Group Companies (M/s Comfort Securities Limited, Comfort Fincorp with Mr. Anil Agarwa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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