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TMI Blog2024 (8) TMI 866X X X X Extracts X X X X X X X X Extracts X X X X ..... to add, alter, amend or delete any grounds either before or in the course of hearing of appeal. 3. The brief facts are that assessee is an individual deriving income from salary, house property, and also during the relevant assessment year she has also declared long term capital gains from sale of shares. The return of income for the A.Y. 2014-15 was filed on 16/07/2014 declaring total income of Rs. 8,52,990/- In the return of income assessee has claimed long term capital gain of Rs. 2,58,25,245/- which was claimed as exempt u/s. 10(38) of the Act from sale of shares of Sunrise Asian Ltd. The assessee in the calendar year 2011 had purchased 55,000 shares of M/s Conart Traders Ltd. from Santoshima Tradelinks Ltd. on 27/11/2011 for Rs. 11,00,000/-. The payment of Rs. 11,00,000/- was made through account payee cheque drawn on Tamilnadu Mercantile Bank Ltd. The assessee received debit note on 28/11/2011 from M/s. Santoshima Tradelinks Ltd of Rs. 11,00,000/- and the said shares were de-materialized on 22/01/2012. Under the scheme of amalgamation entered into between Santoshima Tradelinks Ltd., and Conart Traders Ltd, these two entities were merged with Sunrise Asian Ltd. and the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that office. Thus, it appeared that this company had an office at Mumbai which was maintained for receiving letters and mails. Accordingly, he deduced that Sunrise Asian Ltd. is bogus / paper company and Shri Vipul Vidur Bhatt is operator of the company. 5. Later on, the investigation wing of the department from the search conducted u/s 132(1) found that, Shri Vipul Vidhur Bhatt is an established entry operator who is involved in the activity / business of providing bogus accommodation entries to the various beneficiaries for commission from the scrips of Sunrise Asian Ltd. He controlled, managed and operated as many as 347 bogus entities including Sunrise Asian Ltd. for providing various bogus accommodation entries to the various beneficiaries. In the course of search taken in his case, statement was recorded u/s. 132(4) on 09/02/2016 wherein Shri Vipul Vidur Bhatt had accepted that he is involved in providing bogus accommodation entries of the following natures- (i) Bogus Long Term Capital Gain / Short Term Capital Gain/Loss (ii) One time entry of Share Capital/Share Premium (iii) Unsecured loan entries (iv) Turnover Entries. 6. Further, in his statement u/s. 132(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hima Tradelink Limited (Formerly known as M/s Santoshima Lease Finance and Investment (India) Limited) and (ii) M/s Conart Traders Limited on preferential basis and thereafter share holders of these companies were allotted shares of M/s Sunrise Asian Limited in swap ratio of 11 Once this amalgamation was done the price of the shares of M/s Sunrise Asian Limited was rigged and increased through circular trading Once the price of the shares was increased to a desired level the beneficiaries of bogus LTCG were asked to sell the shares of M/s Sunrise Asian Limited For doing the same unaccounted cash was taken from the routed into the accounts of some beneficiaries and the same was companies/firms/individuals managed and controlled by me and thereafter the routed funds were used to purchase the shares of M/s Sunrise Asian Limited held by the beneficiaries of bogus LTCG Q:26 Please give the list of the entities for whom accommodation entry of bogus LTCG was arranged by you through the shares of Sunrise Asian Limited. Ans. Sir as I have already told the beneficiaries of bogus LTCG were Santoshima Tradelink Limited and Conart Traders Limited through preferential allotmen shares of Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re allotted the shares of Santoshima Tradelink Limited M/s Santoshima Lease Finance and Investment (India) Limited) and M/s. Conart Traders Limited The suspension in the trading was revoked in August 2011 Thereafter, since October, 2012 the price of the shares of Sunrise Asian Limited started rising This price rise in the shares of Sunrise Asian Limited was managed by Shri Hiren Shah. He used to purchase/sell the shares of Sunrise Asian Limited through the entities maintained and controlled by him The price was rigged through circular trading whereby the entities of Hiren Shah used to place the purchase order and then one of our entities used to sell the shares. The purchase orders were usually put near the circuit limit so as to gain maximum price rise in a day Sometimes the outside parties used to place purchase orders early in the morning and we used to release 10-15 shares during the day to those outside parties to execute the trade and to increase the last traded price. Thus the prices of the shares were rigged and were artificially increased on the stock exchange Once the price of the shares was increased, the shares of the beneficiaries were sold on the exchange The price of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is shown that the shares are widely traded whereas in realty there are no genuine traders in the shares. I did volumes in Sunrise Asian limited and have also in some other shares. Q.54 Please inform, have you earned any commission income for the accommodation entries arranged by you? Ans Sir for the entries of unsecured loans I received a cash commission at the rate of 1% of the quantum of entry In the case of LTCG the cash commission was around 4% of the amount of the LTCG entry. This cash commission of 4% was distributed equally between myself, Hiren Shah and Jitendra Joshi. 7. AO further noted that the price of share of Sunrise Asian Limited sky rocketed without having any profit, EBIDTA margin, EPS, bonus, dividend etc. Despite none of the essential parameters for increase of price, the share price of Sunrise Asian Limited increased more than 100 times. Thereafter, AO has referred to certain action taken by SEBI against Sunrise Asian Limited and has given general remark and also how the Director of Income Tax Investigation, Kolkata has prepared a small cash trail and how the entry operator operates and how the mechanism works in the syndicate for providing long term ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng term capital gains as entry / exit provider by floating entry / exit provider companies. However, later on, he retracted from his statement by simple affidavit without any evidences. He has referred to certain decisions that such kind of retraction by way of an affidavit cannot be relied upon and has no sanctity. He also referred to search carried out by SEBI and inquiry wherein it was found that there was a manipulation of share price in the scrip of Sunrise Asian Ltd for the period 16/10/2012 to 30/09/2015 and with such observation, violations of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 were committed by certain entities. He also referred to certain modus operandi as an Investigation Wing and also other judgments in his order including Judgment of Hon'ble Delhi High Court in the case of Suman Poddar vs. ITO (2019) 112 taxmann.com 329 and judgment of Hon'ble Calcutta High Court in the case of PCIT vs. Swati Bajaj (2022) 139 taxmann.com 352 and confirmed the action of the ld. AO. 10. Before us, ld. Counsel for the assessee Shri Pradip Kapasi explained the entire facts and background of the case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total assets of about Rs. 166.38 crores and a turnover of Rs. 26 crores, a credibility that could not be ignored. There was substantial rise in the top line and also the profits of the company Sunrise Asian Limited. 3. The step of acquiring stake in a Public Limited company incurring loss, merger of three entities, substantial increase in share capital of listed company & convenient share allotment at the time of merger are the circumstantial evidences that the operators/promoters are determined to benefit the beneficiaries by arranging LTCG. (Pg. 38 of PB-Para 3.13 of Order) The entire scheme of amalgamation was approved by the High Court on satisfaction of the genuineness of amalgamation. The scheme was approved by the High Court only after consent of the commissioner of Income Tax. 4. A Statement was recorded of the director of Sunrise Asian Limited, Shri Kalpesh Manahar Jani (Pg. 30 of PB-Para 5 of Order) First of all, the facts of AO's reliance on the statement of Kalpesh Manahar Jani was gathered by the appellant for the first time only on receipt on assessment order. No copy of the statement has been provided to your appellant till date. Neithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the assessee claimed to have earned huge tax exempt gains within a very short period of span of time fails both genuineness and human probabilities. (Pg. 48 of PB - Para 10.4 of Order) The appellant has had the shares for almost three years which surely was not a short period. The prices have moved over a period of 2 years and the rise of the prices was commensurate with the progress of the company from net worth of 1 crore to 45 crores. Appellant has brought on record overwhelming evidence in support of the genuineness of the transaction and the intentions of the investment behind the transactions and its monitoring by the appellant. There was no failure on any count of the appellant. The failure if any was squarely that of the Ld. AO. The gains made by the assessee in shares of the company are a long term capital gain and is fully disclosed in the accounts of the assessee. The investment in the shares was made in the calendar year 2011 and has since then been accepted as the explained investment year after year. 9. The amount of Rs. 2,70,01,771 received as sale proceeds on sale of shares is required to added back towards taxable income u/s. 68 of the Act. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quarely that of the Ld. AO. Extensive investigation was carried out by the Income-tax Department in the cases of key players such as brokers, operators, directors of company and found that price of shares of M/s Sunrise Asian Ltd were manipulated only with the intention of giving benefit of high LTCG without paying any tax to the beneficiaries, including the appellant. (Pg. 315 of PB - Para 4.3.8, pg 18 of Order) None of the above facts were revealed to the appellant nor the appellant was confronted with the alleged statement and findings neither the AO/CITA(A) has verified the bonafide of the alleged statement nor they produced any of them for cross examination by appellant. In the circumstances, no reliance can be placed on any of the alleged statement. * Investigation if made did not show any link between appellant and the alleged manipulation. * Importantly, the Id. AO did not at all conduct any inquiry or examination to establish that the evidence produced were unbelievable in law. The appellant is one of the beneficiaries of the shares of Sunrise Asian Ltd. In the case of penny stocks including Sunrise Asian Ltd, statements of several persons were recorded a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where alleged of any bogus transaction with the assessee. Even the SEBI has not proceeded against assessee or her broker nor have they been charged or fined by the SEBI. Further, no material belonging to assessee was found in the course of search of Shri Vipul Vidhur Bhatt. He further submitted that the assessee at any point of time before passing of ld. AO was ever informed nor was asked to show cause about the statement of Shri Vipul Vidhur Bhatt, neither assessee was given any opportunity on these information gathered by investigation wing or statements or was confronted that AO was proposing to rely on the statement of Vipul Vidhur Bhatt and Kalpesh Manahar Jani or the investigation report of the DDIT or the alleged proceedings before SEBI. It was only from the order of the AO, the assessee for the first time was shocked to learn of the sole reliance of the AO on the above mentioned documents based on which the ld. AO had held the transactions in shares to be bogus and deny the exemption u/s. 10(38) in respect of the Long term Capital Gains of Rs. 2,58,25,245. 12. The AO or the ld. CIT (A) have themselves not examined Vipul Vidhur Bhatt or Kalpesh Manahar Jani nor have they pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry must be conducted in accordance with the rules of natural justice and all the material for and against the assessee must be shown to him and an opportunity must be given to him to rebutt the findings and to present his case. The Madras High Court in V. Datchinanurthy and another, 149 ITR 341 confirmed the above findings. Please also see the decision in the case of Dilipkumar Kalicharan, 52 ITD 310 and Colonisers, 41 ITD 57 (Hyd)(SB). Please see the decision of the Supreme Court in Kishanchand Chellaram, 125 ITR 713(SC), wherein it was held that the material collected behind the back and without the knowledge of the assessee had no evidentiary value more so when no opportunity of cross examination was provided to the person against whom such material was used. * Documents produced were not even examined and/or disapproved by AO before making additions as had been his duty. Please see- Softline Creations (P) Ltd, 387 ITR 636 (Delhi) Laxman Industrial Resources, 397 ITR 106 (Delhi) Multitex Filtrations Engineers, 13 SOP 208 (Delhi) (Trib) * The documents relied upon by AO/CIT(A) but not confronted with to the appellant are not reliable and should be ignored in adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs Ltd on 23.02.2013 which were transferred on 28.06.2013 under Sunrise Asian Ltd in pursuance of scheme Amalgamation. (Pg. 388 to 389 of FB) * Copy of statement of A/c of Tamilnad Mercantile Bank Ltd disclosing the transfer of 55000 shares in the name of the CM Karvy Stock Broking Ltd a registered Broker under the caption in rolling market spreading for the period from 10.12.2013 to 26.12.2013. (Pg. 330 to 334 of PB) * Copies of all the 37 Brokers Note recording the sales of 55000 impugned shares on different dates stretching from 27.11.2013 to 21.3.2014 is corroborated by Contract-Notes issued by SEDI registered broker. (Pg. 54 to 258 of PB) * The Contract-Notes show the order time, Trade number and Trade time of the shares sold. Also show Security Transaction Tax, Service Tax paid by assessee. No defect has been pointed out in documents submitted by the assessee. (Pg. 54 to 258 of PB) * Ledger A/c of the assessee for A. Y 2014-2015 and A.Y 2013-2014. * Bank statements of Tamilnad Mercantile Bank Ltd for the period from 01.04.2013 to 31.03.2014 crediting all the receipts out of sales of 55000 shares under head "Deposits" on different dates received from Karvy Stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e correct, then there cannot be any different view to hold that share transaction of sale of shares of Sunrise Asian Ltd is not bogus or it was not part of any rocket of accommodation entry. Thus, the order of the ld. AO and ld. CIT(A) should be confirmed. 16. In rejoinder, ld. Counsel submitted that here the entire order of the authorities below has been passed on the basis of of the statement of Shri Vipul Vidur Bhatt, appraisal report of the Investigation wing and the order of SEBI. However, the statement of third party and the reports of the parties relied upon by the ld. AO has been used behind back of the assessee without confronting with the same for providing opportunity to assessee. Neither the copy of third party statement or alleged investigation wing was furnished to the assessee nor was its content made known to the assessee for completion of assessment. Shri Vipul Vidur Bhatt was never produced for cross examination despite assessee made a request to the ld. CIT(A) and the ld. CIT(A) has merely said that it was not practical to get cross examination of Shri Vipul Vidur Bhatt and it is not necessary. He has also referred to various judgments that any material used aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined based on a test of 'preponderance of probabilities' wherein various factors are to be analysed. The factors which are explained and contended by the assessee and the factors and circumstances brought on record by the departmental authorities as well as material facts coming on record before us. 20. Before us, ld. Counsel for the assessee has relied upon the following factors in favour of the assessee. * Firstly, assessee had purchased 55,000 equity shares of Conart Traders Ltd being held by Santoshima Tradelinks Ltd. on 27/11/2011 for Rs. 11,00,000/- to market from one closely held company at Rs. 20/- per share. Shares were purchased through account payee cheques paid on 07/09/2011. Share certificates regarding transfer of shares in the name of the assessee was issued by the said company which was later on de-materialized in the name of the assessee after couple of months. Thus, it was a genuine purchase transaction. * Secondly, M/s. Conart Traders Ltd. was amalgamated with M/s. Sunrise Asian Ltd., in pursuance to the scheme of amalgamation and were duly approved by the Hon'ble High Court and as per the scheme of amalgamation, share swapping ratio was fixed as 1:1 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Sunrise Asian Ltd. at Mumbai it was found that no work was carried out from office and there were only two employees including one peon and there was no infrastructure except one old computer kept and no books of accounts or documents are found regarding the affairs of the company. * Fourthly, statement of Shri Vidur Vipul Bhatt has been incorporated in the assessment order wherein he has categorically admitted that M/s. Sunrise Asian Ltd. was not only paper / bogus company and he was an entry operator from this company he was providing accommodation entry for bogus long term capital gain and short term capital loss to various beneficiaries who had approached him for a commission of 4-5%. He has also explained the entire modus operandi and how alongwith Shri Hiren Shah and Shi Jitendra Joshi were in connivance with him for arranging transaction with M/s. Sunrise Asian Ltd and they were involved with him for providing accommodation entry. He has also explained the modus operandi in his statement which has been incorporated by us in the foregoing paragraphs. * Lastly, M/s. Sunrise Asian Ltd. did not have financial strength or profit to justify such a high escalation of price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of material which has been brought on record before us is that, SEBI has conducted detailed enquiry and investigation in the scrip of M/s. Sunrise Asian Ltd. alongwith the persons and entities associated with it. The SEBI has noted that 80 connected entities had manipulated the price of the scrip of M/s. Sunrise Asian Ltd in four patches in trading during the investigation period. 77 out of 83 entities were counter parties to the sale of shares by 1059 entities at artificially inflated / manipulated prices. The list of such entities who manipulated the prices during the period 16/10/2012 to 29/02/2015 have been discussed in detail. After considering the replies filed by all the noticees and giving sufficient time, some of the findings in the order dated 06/09/2021 are reproduced herein below:- "From the above Table VII, it is observed that by trading amongst themselves, the group of connected entities contributed 920, which is 31.47% of the market positive LTP, Kiss, the connected entities listed at Br. No 34-46 had aided other connected entities (Sr. No. 1-33) selling shares to increase the price of the scrip. Regulations (a)-(d) of the PRUTP Regulations, 2003 inter alia prohibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Courts cannot be helpless. It is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion therefrom. The test would always be that what inferential process that a reasonable/prudent man would adopt to arrive at a conclusion..." In the instant proceedings, the pattern of trading by the entities listed at Sr. no. 1-46 of Table VII in the scrip of Sunrise Asian coupled with the inter se connection amongst themselves and with the Company, based on the preponderance of probability, leads me to conclude that the trades executed in said scrip were manipulative in nature. 7.12 In view of the significant positive LTP contribution by the group of connected entities (listed in Table VII) by trading amongst themselves, it is concluded that connected entities had not acted as genuine buyers (Sr. No. 1-33) or sellers (Sr. No 34-46) and had no bona fide intention to buy/sell the shares of Sunrise Asian. Rather, the orders placed by them were laden with all the ingredients to be held as unfair and misleading, which in turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of only Rs. 0.27 Crore, Rs.0.70 Crore and Rs.0.95 Crore, respectively. The aforementioned actions of the aforementioned Noticees as detailed in the preceding paragraphs clearly resulted in 'fraud" under the PFUTP Regulations, 2003, being committed, which in turn affected the interests of investors in the securities market. In this context, reliance is also placed on the observations of the Hon'ble SAT in the matter of Amaresh Pathak vs. SEBI, Appeal no. 332 of 2020- Order dated February 16, 2021, wherein it had observed: '11.... When a person enters into a transaction in securities with the intention to artificially raise the price, he thereby automatically induces the innocent investors in the market to buy/sell the stocks. The buyer or the seller is invariably influenced by the price of the stocks and if that is manipulated the person doing so is necessarily influencing the decision of the buyer/seller thereby inducing him to buy or sell. This is what Regulation 4 of the PFUTP Regulation speaks of. Inducement to any person to buy or sell securities leads to manipulation in the price of the scrip. If the factum of inducement is established, it will necessarily fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that these persons / entities have manipulated the prices and after providing accommodation entry including the exit providers who were involved assisting in purchasing of the shares from various persons. If this finding is corroborated by the other factors which has been referred and relied upon by the department as noted above, we cannot put blinkers in our eyes on these factors and material coming on record and simply because assessee adduced certain documents for purchase and sale of shares does not make the transaction genuine. 29. Here one important factor is that assessee is not a regular trader of the shares and dealt with one of such purchases of shares of a company which was not having substantial business or credibility, or any future prospects, assessee has brought the shares and later on had sold at a huge price then also without any financial credentials to justify the rise of shares. The financials and its credibility have been discussed in detail by the SEBI in its order. This factor definitely creates suspicion about the entire transaction. In such cases, it is not necessary that there should be direct evidence available against the assessee or assessee has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot be any direct evidence against the assessee, but all these factors do cast a shadow on test of genuineness of the transaction which requires juridical frown and condemnation. The assessee cannot act bonafide merely relying upon the documents in their hands to contend that transactions were genuine. The test of genuinety has to be seen on principles of 'preponderance of probabilities' and here all the factors show that there is nothing genuine about this transaction. The company which does not have any significant value before such high rise in stock exchange and later on it vanishes from trading, ostensibly goes to show that it was nothing but a paper/sham company as trading was among selected few with predetermined exit providers to provide accommodation entry to few beneficiaries, which was revealed from the inquiry and adjudication order of SEBI and this fact was also found by the income tax department in the course of the search conducted on the key entry operator of these shares. At this point it would be relevant to refer and rely upon the ratio and the Hon'ble Calcutta high Court in the case of PCIT vs. Swati Bajaj, for the sake of ready reference are reproduced her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part in the inquiry which is being conducted by the Assessing Officer in scrutiny assessment under section 143(3). The assessee were conscious of the fact that they have not been named in the report, therefore made a vague and bold statement that the non-furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee. If the report was available in the public domain as has been downloaded and produced by the revenue, nothing prevented the assessees who are ably defended by the Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defence. Therefore, the based on such general statements of violation of principles of natural justice the assessees have not made out any case. [Para 65] * To prove the allegations, against the assessee, can be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled and when direct evidence is not available, it is the duty of the Court to take note of the immediate and proximate facts and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee makes the claim for exemption the onus of proof is on the assessee to prove the genuinity. Unfortunately, the assessees have been harping upon the transactions done by them and by relying upon the documents in their hands to contend that the transactions done were genuine. Unfortunately, the test of genuinity needs to be established otherwise, the assessees are lawfully bound to prove the huge LTCG claims to be genuine. In other words if there is information and data available of unreasonable rise in the price of the shares of these penny stock companies over a short period of time of little more than one year, the genuinity of such steep rise in the prices of shares needs to be established and the onus is on the assessee to do so as mandated in section 68. Thus, the assessees cannot be permitted to contend that the assessments were based on surmises and conjectures or presumptions or assumptions. The assessee does not and cannot dispute the fact that the shares of the companies which they have dealt with were insignificant in value prior to their trading. If such is the situation, it is the assessee who has to establish that the price rise was genuine and consequently they a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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