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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 ..... o the broker - Though we have confirmed the aforesaid addition that assessee s transaction is not genuine based on the discussion made above, however, the presumptive addition on account of brokerage which assessee might have paid to the broker cannot be sustained without any actual material of outgoing by the department. Accordingly, addition made by the ld. AO is deleted. Appeal of the assessee is partly allowed. - SHRI AMIT SHUKLA, JUDICIAL MEMBER MS. PADMAVATHY S, ACCOUNTANT MEMBER For the Appellant : Shri Pradip Kapasi For the Respondent : Shri A.S. Sant ORDER PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against the order dated 02/12/2022 passed by ld. CIT(A)-57, Mumbai for the quantum of assessment passed u/s. 143(3) for the A.Y. 2014-15. 2. In the grounds of appeal, the assessee has raised the following grounds:- 1. On the facts under the circumstances of the case as well as law on the Subject, the Ld. Commissioner of Income Tax (Appeals) 57, Mumbai has erred in confirming the action of the Assessing Officer in making the addition of Rs. 2,70,01,771/- u/s. 68 of the Act for alleged bogus Long Term Capital Gain on sales transactions of shares o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... results of company were not lucrative so as to achieve any gain. Thus, he deduced that purchase of these shares were predetermined scheme on part of the assessee to acquire long term / short term capital gains or loss by way of dubious methods. Thereafter, AO referred to survey action in the case of Sunrise Asian Ltd. and statement of Director, Shri Kalpesh Manahar Jani which was recorded on 04/02/2015 u/s. 131. In his statement on oath, he admitted that he is not aware of anything related to Sunrise Asian Ltd. and in response to question; he simply stated that I do not have any link with this company . He further admitted that Shri Vipul Vidur Bhatt (his cousin brother) has used his name and has appointed him as a director to Sunrise Asian Ltd. 2 1/2 years ago. Further, during the survey action at the registered office of M/s. Sunrise Asian Ltd. at 133, Pancharatna, Opera House, Near Charni Road Railway Station, Mumbai, it was found that no work or any activity was carried out in the office and there are only two employees in the office including one peon and there was only one old computer kept in the office. No books of accounts were kept and maintained in that office. Thus, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long term capital gain in the scrips of M/s. Sunrise Asian Ltd. Relevant questions for the sake of ready reference is reproduced hereunder:- Q.21 Please inform, in what capacity are you managing the affairs of Sunrise Asian Limited? Ans Sir the shares of Sunrise Asian Limited has been used for providing bogus long term accommodation entries of bogus LTCG I am the operator of the scheme and have managed the affairs of Sunrise Asian Limited Q.22 Please explain in detail the entire modus operandi of providing bogus long term accommodation entry in scripts of Mis. Sunrise Asian Limited. Ans Sir. I acquired M/s Sunrise Asian Limited from one Shri Vijay Bhaiti during 2010-11 which was listed on BSE however the trading in the scripts was suspended by BSE I had acquired this company for providing accommodation entries of bogus LTCG After the acquisition I got the company suspension revoked Thereafter I managed the amalgamation of two companies with Sunrise Asian Limited viz (1) M/s Santoshima Tradelink Limited and (1) Conart Traders limited Thereafter the beneficiaries of bogus LTCG accommodation entries were allotted shares of (1) Santoshima Tradelink Limited (Formerly known as M/s Santos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control of Santoshima Tradelink Limited and Conart Traders Limited I approached various intermediaries and also various intermediaries approached me for availing accommodation entry of LTCG Santoshima Tradelink Limited and Conart Traders limited were amalgamated in Sunrise Asian Limited As per the scheme of amalgamation, the shareholders of Santoshima Tradelink Limited and Conart Traders Limited were allotted shares of Sunrise Asian Limited in the swap ratio of 1:1 during May 2013. These shares were listed on the stock exchange in June 2013. Meanwhile, the prices of the shares were increased through arranged trading from around Rs. 50 in October 2012 to Rs. 450 in Feb 2013. After the price of The shares was increased, I arranged for the sale of the shares of the beneficiaries for providing accommodation entry of bogus LTCG This entire scheme was managed by me and Shri Hiren Shah and Shi Jitendra Joshi. Q.32 Please explain what happened after the shares were allotted to the beneficiaries of LTCG Ans. Sir some of the beneficiaries were allotted the shares of Sunrise Asian Limited itself in 2011-12 and the others were allotted the shares of Santoshima Tradelink Limited M/s Santoshima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed used to purchase the shares of the beneficiaries from the stock exchange in this way, the unaccounted income of the beneficiaries was routed into the accounts of the beneficiaries in the form of entry of LTCG Q.34 When did the beneficiaries started booking entry of LTCG? Ans. Sir the price of the shares were increased from Rs. 60 in Oct 2012 to Rs 460 in Feb 2013 The beneficiaries who were allotted shares of Sunrise Asian Limited through off-market transaction were having the shares for more than one year as on Feb 2013. These beneficiaries started selling the shares after Feb 2013. The shares of the beneficiaries through preferential allotment in Santoshima Tradelink Limited and M/s: Conart Traders Limited were listed in June 2013 and they also started selling the shares after the listing as they had also held the shares for more than one year Q.38 What is the need for providing artificial volume and which are the shares in which such activity has been done by you? Ans Sir, the artificial volume helps in giving a legal face to the trades done in a penny stock By creating artificial volume it is shown that the shares are widely traded whereas in realty there are no genuine trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial on record analysed the entire issue in detail. First of all, he has referred to the balance sheet and the financials of Sunrise Asian Ltd. which was available in public domain right for the year ending 31/03/2012 to 31/03/2015 and the financial results which are incorporated from pages 12- 15 of the appellate order. From the financials of the company he observed that, it indicates that during the period from F.Y.2010-11 to 2014-15 the turnover of Sunrise Asian Ltd. ranged from Rs. 38.11 Lakhs to Rs. 172.71 Crores, however, profits were almost negligible and it ranges from Rs. (-)50,45,578- to Rs. 69,54,857/-. Further, market price of shares of Sunrise Asian Limited was maintained to Rs. 60/- from 08/09/2011 to 08/10/2012 and suddenly on 07/02/2013, the price rose to Rs. 419.75 and it further escalated to Rs. 596.25/-. Such rise in share price of Sunrise Asian Ltd. was not in consonance with the financials of the company. He further noted that though in the statement u/s. 132(4) recorded by the Investigation Wing Shri Vipul Vidur Bhatt has confirmed his role in providing bogus long term capital gains as entry / exit provider by floating entry / exit provider companies. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uent to the merger of the company and the listing of the shares amalgamated company ie Sunrise Asian Limited where the net worth of the company rose from about 1 crore rupees to 45 crores. So there was a forty-five fold increase in net worth and the price of the share has multiplied for about 20 times only. Prices have moved in the same range of Rs. 450 to 600 for about 2 years before sale of shares and thereafter for another 2 years after the sale of shares (Rate/Copies attached). The fact is the share prices of the scrip in question has moved the tandem with the index. Secondly, no evidence is brought on record that such prices were found to be manipulative by the appellant or the authorities regulating the stock exchange. Thirdly, genuineness of transactions on the ground of market price cannot be disregarded without establishing the direct involvement of the appellant and involvement of unaccounted income and cash of the appellant. Kindly note that no inquiry of any nature was conducted by the AO. The company had net worth of Rs. 46 crores and the total assets of about Rs. 166.38 crores and a turnover of Rs. 26 crores, a credibility that could not be ignored. There was substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any basis and is made without any inquiry into the affairs of the company. The said company is a listed company and was not delisted on the dates of sales. 7. Intention of the assessee to purchase these shares was nothing but an act of conscious mind to dupe the provisions of the Income Tax Law for routing of unaccounted money in the form of exempted income. (Pg. 30 of PB - Para 4.7 of Order) - This is a baseless allegation. No evidence of any strength and credibility has been brought by the AO on record to support his wild allegation. Allegations of conversion unaccounted income into exempted income is made without bringing on record of any proofs to establish that the appellant had or was in possession of such income and had a source for such income and that such alleged income was used in financing the share transactions resulting into tax free Long Term Capital Gains. No inquiry whatsoever was made by AO/CIT(A) to supported there wildest assumption. 8. This entire edifice through which 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 appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified. (Pg. 323 of PB-Para 8, pg 26 of Order). The rise in price was over a period of three years and was maintained for another 2 years after the sale of the shares. The rise was on account of merger of the company and the listing of the shares amalgamated company i.e Sunrise Asian Limited where the net worth of the company rose from about 1 crore rupees to 45 crores. So there was a forty-five fold increase in net worth and the price of the share has multiplied for about 20 times only. Appellant has brought on record overwhelming evidence in support of the genuineness of the transaction by producing 10 evidences one of which disputed by AO/CIT(A) (Page 54 to 258, 329, 337 to 339, 349 to 359, 388 to 390 of the PB) and (Page 14 15 of Factsheet) 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. 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 intent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company for the year of issue was Rs. 25,64,71,363 and net profit was Rs. 14,57,760. The purchase value of share being Rs. 20 (Rs. 10 Face Value and Rs. 10 premium) was commensurate to the earnings and business of the company. The fact of purchase was duly declared in the balance sheet filed with return of income for earlier years. Further, when assessee was allotted shares of Sunrise Asian Ltd post amalgamation, it was a listed company of the Bombay Stock Exchange and sold all the shares through recognised stock exchange electronically on payment of STT and other charges through registered broker. Thus, the credit appeared in the books of accounts were on account of sale of shares only. He further submitted that, in the statement of Shri Vipul Vidur Bhatt, nowhere the name of the assessee is mentioned nor anywhere it has been found that share transactions were not genuine. He has nowhere 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of natural justice that required AO/CIT(A) to issue summons, conduct inquiry, produce parties for cross examination deserves to be quashed. Your appellant also submits that the AO had failed to examine a) Santoshima Tradelink Ltd (Santoshima), b) Registered Brokers, c) their AO, d) their bankers e) Depositories (DP) and f) Others before disbelieving the evidences furnished by them and the facts stated by the appellant. Your honour's kind attention is drawn to the following decisions wherein it had been held that assessment made without furnishing the material used against the assessee must be quashed. It was held that the assessee must be furnished with the copies of such material and should be given an opportunity to explain his case and rebut the findings of the Income Tax Department. In P. Shreelekha Bannerjee, 49 ITR 112 (SC), the court held that the enquiry 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee towards the sale of 55000 shares of M/S. CONART TRADERS LID Rs. 20 per share (Pg. 339 of PB) The copy of the statement of A/c of Tamilnad Mercantile Bank Ltd. recording the payment of Rs. 11,00,000.00 to M/s. Santoshima Trade Link Ltd by payee's A/c cheque on 07.09.2011. (Pg. 330 to 334 of PB) An application dated 27.11.2011 for Share Transfer in the name of the assessee. (Pg. 420 to 423 of PB) Copy of the Share Certificate No. 426 recording the transfer of shares in the name of the assessee on the back side. (Pg. 337 to 338 of PB) The copy of Acknowledgment issued by TMB Demat services of receipt of 55000 shares to be dematerialized in the name of the assessee. (Pg. 340 of PB) Copy of the Statement of Account of the assessee under DP ID 303069 showing the demat of 55000 shares of Conart Traders 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 26.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings of the ld. AO are misleading. His main contention was that no opportunity was afforded to the assessee to produce the material and to cross examine. 15. On the other hand, ld. DR on behalf of the Revenue after referring to various observations of the ld. AO and ld. CIT (A), submitted that here in this case SEBI has passed an order wherein it has found that the share price of Sunrise Asian Limited was manipulated and the trading of said scrip was banned by the SEBI. The copy of adjudication order and the final order passed by SEBI dated 06/09/2021 and 17/06/2022 has been filed before us. Thus, he submitted that now in view of the order of the SEBI wherein all the allegations which have been made by the ld. AO has been found to be 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 Investiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terials referred to before us. Here in this case, the addition has been made on sale of shares of Sunrise Asian Limited which has been claimed as exempt long term capital gain u/s.10(38). 19. The background of the case has already discussed in the foregoing paragraphs. To adjudicate such cases, what is required to be seen is totality of attending facts, circumstances surrounding the transaction undertaken by the assessee right from the stage of purchase to the sale of the shares and persons and entities involved in whole of the transaction and what are the material and information against such persons. It is not necessary that there would be any direct evidence or information against the assessee. A holistic approach has to be 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 share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amalgamated with M/s. Sunrise Asian Ltd., it was merely scheme adopted for giving accommodation entry because M/s. Sunrise Asian Ltd was found to be bogus / paper entry and Shri Vipul Vidur Bhatt was found to operator of the company in the search conducted by the investigation. Secondly, in the statement recorded of the Director of the company Shri Kalpesh Manahar Jani categorically admitted that he is neither aware of anything nor or affairs of M/s. Sunrise Asian Ltd nor does he have any link with this company. He also admitted that his cousin brother Shri Vipul Vidur Bhatt has used his name and has appointed him as a dummy director. Thirdly, during the survey action at the registered office of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arted decreasing and reached to its vanishing point. This bell shaped graph itself shows that there is no substance in the company to justify such a huge rise and fall of the shares especially when there are no factors as brought on record as to why the business of the said company were down or share prices felt too meager sum of Rs. 2/- in the year 2017 and later on wiped out from the stock exchange, in the sense there is no trading at all. This factor itself cast a doubt on the credentials of the scrip of M/s. Sunrise Asian Ltd. This further gets corroborated by the inquiry and investigation by SEBI and the order passed, which is discussed herein below. 25. The most important piece 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onderance of probabilities indicate a fraud. In this regard, the observations of Hon'ble Supreme Court of India in SEBI vs. Kishore R. Ajmera (2016) 6 SCC 368 - Judgment dated February 23, 2016, are referred to, wherein it had observed: It is a fundamental principle of law that proof of an allegation levelled against a person may be in the form of direct substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled. While direct evidence is a more certain basis to come to a conclusion, yet, in the absence thereof 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 sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tities (Noticee nos. 7-89) had manipulated the price of the scrip in four patches of trading during the Investigation period (see also Table III), thereby violating Regulations 3(a)-(d) read with Regulation 4(1) of the PFUTP Regulations, 2003. Further, as stated above, 77 out of the aforementioned 83 connected entities were counterparties to the sale of shares by 1059 entities/allottees at the artificially inflated/manipulated price thereby violating Regulations 3(a)-(d) read with Regulation 4(1), Regulations 4(2)(a) and (e) of the PFUTP Regulations, 2003. It is also noted that during the Financial Years 2013, 2014 and 2015, Sunrise Asian had registered a profit of only ₹ 0.27 Crore, ₹0.70 Crore and ₹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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dur Bhatt wherein he has admitted that he was providing accommodation entry and has explained the entire modus operandi. Though later on he has refracted his statement by way of an affidavit and assessee s objection was that since he was not allowed to be cross examined, therefore, his statement cannot be relied upon. In such cases, the statement alone is not edifice for making the addition but catena of various factors and circumstances surrounding the transaction as such needs to be taken into account. If the SEBI itself after considering the entire facts and materials on record and investigation and even the submissions of the various persons and entities have found 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 tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and later on subject to ban by SEBI on this scrip and also later no trading of the shares took place as the price failed to such a low, that post 2017 there has been no trading at all. 30. Even though SEBI has adjudicated this issue post passing of the ld. CIT (A) order, however, now it has been brought on record that the entire trading of the shares in the stock market was only a fraud to provide accommodation entries by these persons to the parties who had approach them to provide accommodation entry. This factor is crucial to induct the assessee also that it is not a simple purchase and sale of shares in a bonafide manner in the open market. Even though, there 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 va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejudice or that the test of fair hearing has not been satisfied in their individual cases. In all the cases, the assessees have been issued notices under sections 143(2) and 142(1) they have been directed to furnish the documents, the assessee have complied with the directions, appeared before the Assessing Officer and in many cases represented by Advocates/Chartered Accountants, elaborate legal submissions have been made both oral and in writing and thereafter the assessments have been completed. Nothing prevented the assessee from mentioning that unless and until the report is furnished and the statements are provided, they would not in a position to take 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, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and it is only when the assessees made claim for a LTCG/STCL, the investigation commenced. As pointed out the investigation did not commence from the assessee but had commenced from the companies and the persons who were involved in the trading of the shares of these companies which are all classified as penny stocks companies. Therefore, the argument of the assessee that the copy of the investigation report has not been furnished, the persons from whom statements have been recorded have not been produced for cross examination are all contention which has to necessarily fail. To reiterate, the assessee was not named in the report and when the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en of proof, the addition made by the Assessing Officer cannot be faulted. [Para 75] 31. We are not going into details of various judgments wherein additions have been deleted on this scrip of M/s. Sunrise Asian Ltd and statement of Shri Vipul Vidur Bhatt has been discarded on the ground assessee was not given cross examination. We have given our finding based on various other factors and the most crucial one, the order of the SEBI brought on record before us wherein there is detailed investigation and enquiry and finding in the case of M/s. Sunrise Asian Ltd. and how various other entities and persons connected with the manipulation and rigging of the prices in the stock exchange recommend to provide accommodation entry. Thus, the addition of Rs. 2,70,01,771/- made u/s. 68 is confirmed. 32. In so far as addition on presumption of brokerage of Rs. 8,10,053/- alleged to have been paid to the broker, though we have confirmed the aforesaid addition that assessee s transaction is not genuine based on the discussion made above, however, the presumptive addition on account of brokerage which assessee might have paid to the broker cannot be sustained without any actual material of outgoin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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