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TMI Blog2024 (9) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... y booked bogus losses, during the impugned year under consideration. In the case of Satish Kishore v. ITO [ 2019 (11) TMI 402 - ITAT DELHI] the assessee, an individual, filed return of income claiming long-term capital gain on sale of shares as exempt under section 10(38). AO held that it was found that assessee failed to justify manifold increase in prices of shares despite weak financials of companies. Further, investigation carried out by Department had brought facts on record that share prices had been manipulated artificially, purchased by a set of accommodation entry provider companies controlled by cartel of brokers, entry operator, etc. Moreover, fact that prices of all shares purchased by assessee went up, that too without any corresponding profit or prospects of company, and not even in single case price of share came down, was against human probabilities and impugned year was an isolated year of such profits with no such profits made in earlier or subsequent years. In such circumstances, the Tribunal held that assessee failed to prove genuineness of transaction and long-term capital gain on sale of shares by assessee was an arranged affair to convert its own unaccounted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter being busy in preparation of filing of time barring returns till 30.11.2023, the appeal against CIT(A) s order went completely unnoticed. In view of the above and having perused the application duly supported by an Affidavit, we are of the considered view that there exists sufficient cause for not filing the present appeal within the limitation period and therefore, we condone the delay in filing the appeal by the assessee. A.Y. 2011-12:- 3. The assessee has taken the following grounds of appeal: ITA No. 14/Ahd/2024(A.Y. 2011-12) [I] Addition on account of disallowance of loss in trading of shares of Chandni Textile Engineering Industries Ltd. Rs. 1,52.20.891/- 1. That on facts, and in law, the learned CIT(A) has grievously erred in confirming the addition of Rs. 1,52,20,891/- on account of disallowance of loss in trading of shares of Chandni Textile Engineering Industries Ltd. based on allegations/observations which are not only contrary to facts of the case but are irrelevant. 2. That on facts, and in law, the learned CIT(A) has grievously erred in not appreciating the fact that the trading in shares of Chandni Textile Engineering Industries Ltd. is genuine and has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. (-)10,08,593. A notice u/s. 148 of the Income Tax Act was issued on 25.03.2015, requiring the assessee to file the return of income within 30 days. The assessee responded on 30.04.2015 stating that the original return should be treated as the return in response to the notice u/s. 148 of the Act. The assessee also requested the reasons for reopening the case for A.Y. 2011-12. The reasons for reopening were provided to the assessee on 11.05.2015. The assessee objected to the reopening and the objection was disposed of on 14.09.2015. The assessee filed a writ petition before the Hon'ble High Court of Gujarat on 29.10.2015 challenging the reopening of the cases. The writ petition was dismissed by the Gujarat High Court on 14.06.2016. 5. Thereafter, notice u/s. 142(1) was issued on 01.08.2016, and a show cause notice on 20.09.2016 regarding the proposed disallowance of Rs. 1,99,01,199/- on trading in Chandni Textiles Engineering Industries Ltd. shares. The assessee filed replies on 29.09.2016 and 04.10.2016. The Ld. Assessing Officer noted that a search and survey action was conducted at the residence and offices of Shri Shirish Chandrakant Shah (SCS) on 09.04.2013. It was found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions were considered but rejected by the Ld. Assessing Officer. The Ld. Assessing Officer held that transactions in Chandni Textile Engineering Industries Ltd. shares though were at prevailing rates and through banking channels, however, evidence from the search conducted on Shirish Chandrakant Shah showed that he manipulated share prices and volumes via synchronized trading to provide Long Term Capital Gains (LTCG) entries to clients. These trades were linked to groups like Amrapali and Vaswani, with Rajesh Jhaveri acting as an intermediary. The assessee's request for cross-examination of Shah and Damodar Attal was denied as the decision was based on evidence, not just their statements. The Ld. Assessing Officer held that the trades were not genuine business transactions, but a part of accommodation entries, thus the loss of Rs. 1,52,20,891/- on Chandni shares was disallowed and added to the total income. The Ld. Assessing Officer made the following observations while passing the assessment order: 5.5 The contentions of the assessee have been duly considered, but the same is not acceptable. It is not disputed that the transactions in the shares of Chandni Textile Engineering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng decided mainly on the basis of various evidences found during the course of search on SCS to the effect that the trading in the shares of Chandni during the relevant period is not genuine, but manipulated through synchronized trading. Cross examination is required only where the addition is made merely on the basis of statement of a third person. In this case, the statement is only of corroboratory to the evidences found. 5.7 In view of the facts discussed above, it is clearly established that the trading in the shares Chandni Textile Engineering Industries Ltd. was not carried out in the course of normal business transaction, but has been done with a view to book losses or to help Shirish C Shah to keep the scrip active through synchronized trading. Therefore, the loss incurred on such activities cannot be allowed as business loss. From the details filed during the course of assessment proceedings, it is seen that the assessee incurred losses/earned profit on trading of these two scripts as under. Chandni Textile Engineering Industries Ltd. [Loss] Rs. 1,52,20,891/- 5.8 The findings of the search on Shri Shirish Chandrakant Shah clearly established that Shri Rajesh N Jhaveri is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imate was rejected by Ld. CIT(Appeals), as these companies were found to be bogus and used for accommodation entries. Additionally, the registered offices of these companies were merely professional arrangements for correspondence. The statement by Damodar Attal, a key employee of Shirish Chandrakant Shah, recorded during a survey on April 9, 2013, revealed that he handled trading on BOLT under SCS s instructions. Attal stated that SCS managed the volume and price of shares through synchronized trading, providing bogus accommodation entries for capital gains and trading profits/losses. Evidence from the search confirmed that Shah used BOLT to manipulate share prices and provide these entries to clients, with Rajesh Jhaveri acting as an intermediary. The trades were carried out by entities controlled by SCS, and experienced traders like Rajesh Jhaveri were involved. The purchase and sale of shares in Chandni Textile Engineering Industries Ltd. was held by CIT(A) to be part of SCS s accommodation entry business. The CIT(A) also confirmed that Rajesh Jhaveri was a key associate of SCS, introducing clients for accommodation entries and helping keep the scrip active through synchronized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of synchronized trading and incur share trading loss/share trading profit, in such process. The main person of the group Shri Rajesh N. Jhaveri and other entities/family members were mainly engaged in the business of trading share, securities, derivatives etc. over a period of time and were well experienced in the field. Therefore, it is not expected from such a prudent investor/traders like appellant to purchase the shares of these paper companies in huge quantity and i incur loss. Thus, it can be concluded that the purchase and sale of shares of above scrip namely M/s. Chandni Textile Engineering Industries Ltd. was clearly made as a part of accommodation entry business of Shri Shirish C. Shah. 31.4 It is further observed from the assessment order that the findings of the search on Shri Shirish C. Shah clearly established that Shri Rajesh N. Jhaveri was one of the key associates of Shri Shirish C. Shah and he had introduced various clients of accommodation entries to Shri Shirish C. Shah. Shri Rajesh N. Jhaveri along with his associates (including appellant) has also helped Shri Shirish C. Shah in keeping the scrip active on the bourses and in synchronized trading, by trading on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les was involved. 9. In response, D.R. relied upon the observations made by the assessing officer and Ld. CIT(Appeals) in their respective orders. The D.R. submitted that both the assessing officer in Ld. CIT(Appeals) have highlighted in detail the modus operandi in which an organized modus operation was taking place and SCS was systematically providing accommodation entries in the form of bogus profits/losses in respect of penny stock companies to various persons. SCS in a statement before the tax authorities had categorically admitted to providing accommodation entries to various persons. The assessee was one of the beneficiaries of this operation and the assessee had taken bogus accommodation entries not with respect to one but several scrips including Chandni textiles, Prraneta industries and Gujarat Meditech Ltd. which prove that the assessee was clearly involved and was a beneficiary of such accommodation losses. 10. We have heard the rival contentions and perused the material on record. On going to the facts of the instant case, we have made several observations. Firstly, we are of the considered view that the reliance placed by the assessee on the case of Jhaveri Trading an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of stock trading, has systematically incurred losses on sale of three companies, which have no financial standing to set off profits on sale of shares of the entities. The detailed modus operandi unearthed by the tax authorities clearly reveal that SCS has been engaged in systematically providing bogus accommodation entries to various clients, through a systematic operation, involving various persons. Therefore, in the light of these facts, the totality of circumstances need to be looked into, before coming to the conclusion whether it can be inferred that the assessee has incurred bogus losses, through the method of obtaining bogus accommodation entries. Though, admittedly, the entire transactions were carried out through banking channels, Chandni textiles has not been declared to be a shell entity/penny stock company by SEBI, the name of assessee has also not been pointed out specifically by SCS in any of the statements, however, there are other noteworthy facts and the totality of circumstances which need to be looked into before coming into a conclusive decision on this. Firstly, the assessee is engaged in the business of purchase and sale of shares as a professional st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,43,500/- from selling 250,000 shares of Chandni Textile Engineering Industries Ltd., against the payment of cash. Consequently, it was believed that income amounting to Rs. 2,00,43,500/- had escaped assessment due to the assessee's failure to disclose all necessary facts. The relevant extracts of the Reason to Believe is reproduced for ready reference: Reasons for reopening the Assessment Shailesh S Jhaveri (ADTPJ0210B) - A.Y. 2011-12 A search and survey action was carried out at the residence and offices of Shri Shirish Chandrakant Shah (hereinafter referred to SCS) and at the residence of his key employees and associates on 09.04.2013 and subsequent days. luring the course of search, it was found that SCS is engaged in providing accommodation entries of share capital, share premium, share application money, unsecured loans, Long Term Capital Gains, Short term capital gain wherein cash is received by him from various clients and against this cash he ides accommodation entries. The records of providing accommodation entries are maintained by SCS in vaeious excel sheets maintained in the name of intermediaries who have introduced clients to SCS. Perusal of these sheets and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded in the n Navkar bips 30.10.12.xls sheet. From the entries recorded in n Navkar bips 30.10.12.xls it is seen that the assessee has received pay out of Rs. 2,00,43,500/- on sale of 250000 shares of Chandni Textile Engineering Industries Ltd. As recorded in the n Navkar bips 30.10.12.xls the payout has been received against payment of cash. In view of the above facts, I have no reason to believe that income amounting to Rs. 2,00,43,500/- chargeable to tax has escaped assessment within the meaning of section 147 of the Act by reason of the failure of the assessee to disclose fully and truly all material facts necessary for assessment. 11. In the case of Sumati Dayal vs. Ld. CIT(A) 214 ITR 801 (SC) , the Hon ble Supreme Court has stressed upon the surrounding circumstances and application of test of human probabilities in the given set of facts in the following words:- The transaction about purchase of winning ticket took place in secret and direct evidence about such purchase would be rarely available. An inference about such a purchase had to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appellant as disclosed in her swor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t etc., cannot be accepted keeping in view of the facts and circumstances of the case brought on record by the Assessing Officer after proper examination of the material facts and taking into account the corroborating evidences. The onus was on the assessee to prove the transaction leading to claim of long-term capital gain was a genuine transaction. The assessee failed to justify manifold increase in the prices of the shares despite weak financials of the companies. Initial investment in the company of unknown credential and subsequent jump in the share prices of such a company, cannot be an accident or windfall but could be possible, because of manipulation in the share prices in a preplanned manner, as brought on record by the Assessing Officer. In view of the failure on the part of the assessee to discharge his burden of proof and explain nature and source of the transaction and huge profit in all shares traded by the assessee against the human probability, it is opined that the Commissioner (Appeals) has rightly confirmed the addition in dispute, which does not require any interference. This action of the Commissioner (Appeals) on the issue in dispute is upheld and the grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding of fact that the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. While so observing, the authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth such less value had jumped to much higher amount in no time. The Income Tax Appellate Tribunal held that the fantastic sale price was not at all possible as there was no economic or financial basis as to how a share of a little known company would jump from lesser amount to higher amount. The findings recorded by the authorities are pure findings of facts based on a proper appreciation of the material on record. The findings do not give rise to any substantial question of law. 16. Accordingly, looking into the facts of the assessee s case, the detailed the modus operandi unearthed by the tax authorities, there is no explanation as to why the assessee during the impugned years under consideration invested in shares of three companies having no financial standing, the assessee has not furnished any reason as to why under what circumstances the assessee deliberately sold shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntenance of books of accounts was being done by Shirish Chandrakant Shah. Shri Omprakash Anandilal Khandelwal, the Managing Director of the company had also stated that the company is engaged in providing accommodation entires and no actual business activity is being undertaken. The affairs of the company being managed and controlled by Shirish Chandrakant Shah and the bank accounts of the company are being used to provide accommodation entries. The two more directors of company viz. Jyoti Dhiresh Munver and Jils Raichand Madan had also filed declarations stating that they were dummy directors. 18. Accordingly, in these facts, the Gujarat court upheld the validity of issuance of notice under section 147 of the Act, by holding that the assessing officer had reasonable belief on the basis of the aforesaid facts that the income had escaped assessment. This decision of Gujarat High Court was affirmed by the Hon ble Supreme Court in 76 taxmann.com 97 (SC). 19. Accordingly, in our considered view, Prraneta industries is a sham/bogus company and therefore, in the light of the observations made by the Hon ble Gujarat High Court in the case of Vicky Rajesh Jhaveri76 taxmann.com 96 (Gujarat) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Calcutta)[14-06-2022] held that the genuinity of unreasonable rise in the price of the shares of penny stock over a short period needs to be established, and the onus is on the assessee to do so as mandated in Section 68 of the Act. That onus is not discharged by merely citing the opinions of an expert who issued a buy call on the penny stocks. Nor is it discharged by the assessee being a regular investor who has also earned profits from blue-chip stocks when the claim for long-term capital gains is limited to the profits from the sale of penny stocks which saw huge unreasonable price rises in just over a year. While passing the order, the High Court observed as under: However, the assessee had an opportunity to prove that there was no manipulation at the other end and that whatever gains the assessee had reaped were not tainted. This has not been proved or established before us. Therefore, the assessing officers were well justified in concluding that the explanation offered by the assessee was not to their satisfaction. Thus, the assessee having not proved the genuineness of the claim, the creditworthiness of the companies in which they had invested and the identity of the persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f transaction and huge profit in all shares traded by assessee against human probability. AO held that it was found that assessee failed to justify manifold increase in prices of shares despite weak financials of companies. Further, investigation carried out by Department had brought facts on record that share prices had been manipulated artificially, purchased by a set of accommodation entry provider companies controlled by cartel of brokers, entry operator, etc. Moreover, fact that prices of all shares purchased by assessee went up, that too without any corresponding profit or prospects of company, and not even in single case price of share came down, was against human probabilities and impugned year was an isolated year of such profits with no such profits made in earlier or subsequent years. In such circumstances, the Tribunal held that assessee failed to prove genuineness of transaction and long-term capital gain on sale of shares by assessee was an arranged affair to convert its own unaccounted money and thus, exemption claimed under section 10(38) on sale of shares had rightly been disallowed. 25. In view of the above judicial precedents as applied in the assessee set of fac ..... 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