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TMI Blog2024 (10) TMI 991X X X X Extracts X X X X X X X X Extracts X X X X ..... manipulative objective. Following this principle laid down supra, there was nothing wrong in the Revenue s doubt about the genuineness of the transaction, considering the volatile fluctuation in share price of GCM Securities Ltd. It is difficult to get direct information or evidence in respect of manipulative activities of price rigging and accommodation entry which happens with prior meeting of minds between the beneficiary and the stock broker. As held in the case of Swati Bajaj [ 2022 (6) TMI 670 - CALCUTTA HIGH COURT] that a holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, we cannot lose sight of the fact that the shares of very little-known companies with in-significant business had a steep rise in the share prices within the period of little over a year. The thrust of the assessee s argument is that the sale consideration was received by cheque on which STT was paid and, therefore, the LTCG earned was genuine cannot be accepted in view of multiple adverse evidences collected by the Revenue and the assessee cannot be treated as a passive beneficiary of the transactions. We are of the considered opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital gains u/s 10(38) to the tune of Rs. 49,65,431/- arising out of manipulations and rigging in the shares of GCM Securities Limited to create exempt bogus long term capital gains for beneficiaries. The statements were recorded by the Kolkatta Investigation wing of the persons involved in manipulation of shares of GCM Securities Limited, wherein its was admitted by accommodation entry operators that shares of GCM Securities Limited were manipulated and artificial bogus accommodation entries were facilitated in the shares of GCM Securities Limited to the desired beneficiaries, and the assessee being one of beneficiaries of bogus accommodation entries by way of exempt long term capital gains. The said company GCM Securities Limited is stated to be having a meager assets, and the prices have risen from Rs. 2.88 in March, 2013 to Rs. 86.90 per share(that too after stock split in the ratio of 10:1) in November, 2014, leading to a huge exempt long term capital gains of Rs. 49,65,431/- in short span of time and without any backup of the financials and fundamentals of the said company GCM Securities Limited which could support such an astronomical rise in price. The Assessing Officer wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment Ld. PCIT relies on the report of Director of Investigation, Kolkata, wherein the share of M/s. GCM Securities Ltd. is held as a penny stock and copy of the report as available with the A.O. at the time of finalization of assessment. But, the Ld. A.O. did not confronted the report to the assessee or the facts surrounding the case as the return of the assessee being put under scrutiny on account of reasons of Suspicious sale transactions in shares and exempt long term capital gains shown in the return (Penny stock tab in ITS ) . The AO ought to have itself called for the report of the investigation wing, Kolkatta, if at all he was not in possession of the said report and ought to have made proper enquiries keeping in view facts and circumstances of the case as were warranted in such cases. However the assessee requested the PCIT to furnish copy of the Report of Director of Investigation, so as to make proper reply after going through the Report. However, in the Revision order, the Ld. PCIT stated that Investigation Report contains confidential and incriminating information about numerous tax-payers and their financial transactions including details of several penny scrips a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has applied the shares in an IPO of the company and she was allotted 6000 shares @ 20/- per share. The following details are being submitted: (i) Copy of allotment letter dated 04.04.2013 of the registrar M/s. Purva Sharegistry (India) Pvt. Ltd. showing allotment of 6000 shares in IPO. (ii) Copy of HDFC Bank Statements for March 2013 showing payment of Rs. 1,20,000/- being purchase price of 6000 share @ 20/- per share. (iii) Copy of demat statement from HDFC Bank Ltd. showing credit of 6000 shares in her demat account. 4.2. Thus the ld. Counsel contended that the Assessing Officer during the course of assessment proceedings made thorough enquiry of the investment of shares by the assessee including GCM Securities Ltd. Thus the Ld AO has thoroughly verified the investment of shares by the assessee and then accepted the sale of shares as genuine and allowed the deduction u/s. 10(38) of the Act. Thus the assessment order passed by the Ld. AO is neither erroneous nor prejudicial to the interest of Revenue and the Revision order is liable to be quashed. 5. Ld. Counsel further brought to our notice that Co-ordinate Bench of the Kolkata Tribunal in the case of Smt. Rachna Agar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, VAT Registration of the sellers their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s. Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs. 19,39,60,866/-, is directed to be deleted. The ITAT by its judgment dated 16th May, 2014 relied on the self same reasoning and dismissed the appeal of the revenue. Likewise, the High court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT. 23. Similarly in the Hon ble Supreme Court in the case of PCIT vs. Teju Rohit Kumar Kapadia (2018 (7) TMI 590 SC) order dated 04.05.2018 upheld the following proposition of law laid down by the Hon ble Gujrat High Court as under: It can thus be seen that the appellate authority as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct especially in the context of judgment of the Calcutta High Court in the case of Swati Bajaj. Thus the assessment order passed by the Assessing Officer is an erroneous order and prejudicial to the interest of Revenue having not made necessary enquiry about the investment by the assessee in penny stock. 7. We have given our thoughtful consideration and perused the materials available on record. We have observed from the SCN issued by ld. PCIT u/s 263 and the revisionary order passed by the ld. PCIT had a genesis with that the case was selected for complete scrutiny under CASS with one of the reasons being Suspicious sale transactions in shares and exempt long term capital gains shown in the return (Penny stock tab in ITS ) , and the investigations were conducted by Directorate of Investigation, Kolkatta which unearth an organized racket/syndicate of accommodation entry providers for generating fictitious long term capital gains and its manipulations on a very large scale with respect to many listed companies which included the name of GCM Securities Limited , and the assessee was one of beneficiary of availing exempt long term capital gains u/s 10(38) with respect to manipulations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its claim that the long term capital gains claimed as exempt are genuine. We have observed from the perusal of the assessment order as well the enquiries conducted by the AO, that the AO never confronted the assessee about the investigations conducted by the Directorate of Investigation, Kolkatta. The AO even did not refer to the assessee about the unearthing of a racket/syndicate by accommodation entry providers in manipulating/rigging the share price of GCM Securities Limited to generate exempt long term capital gains to the beneficiaries. Thus, the AO did not made the enquiries as were warranted under the fact situation and Explanation 2 to Section 263 is clearly applicable. We find that the assessee has purchased the shares of M/s. GCM Securities Ltd. in IPO and the Letter of Allotment is produced before us at Page No. 52 of the Paper Book wherein 6000 shares at a price of Rs. 20/- was allotted vide application form No. 11999163 vide Demat account and the payments are duly made to assessee s HDFC account vide transaction dated 19.03.2013 which is available at Page No. 53 of the Paper Book. It is seen from the HDFC Bank Account a sum of Rs. 1,20,000/- deposited by the assessee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings is not correct in law. 9. The genuineness of transactions can be tested on the principle of preponderance of human probability as settled by the Hon ble Apex Court in the case of Smt. Sumati Dayal vs. CIT, (1995) 214 ITR 801 (SC). The documentary evidences in themselves, cannot be held as conclusive evidence of the transaction. When someone is deliberately entering into a transaction in shares of penny stock company, it is obvious that all the documentary evidences will be in order. After all, one has to establish the transactions with reference to the documentary evidences so as to claim the benefit of exemption of LTCG available under the Act. Therefore, while examining such evidences, surrounding circumstances also has to be taken into account in order to unravel the true nature of the transactions. The Hon ble Supreme Court has observed in the case of CIT vs. Durga Prasad More, [1971] 82 ITR 540(SC) that the taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. Moroever, in the instant ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess had a steep rise in the share prices within the period of little over a year. To reproduce from the said order: 69. Thus, the legal principle which can be culled out from the above decision is that 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 circumstances surrounding the events on which the charges/allegations are founded so as to reach a reasonable conclusion and the test would be what inferential process that a reasonable/prudent man would apply to arrive at a conclusion. Further proximity and time and prior meeting of minds is also a very important factor especially when the income tax department has been able to point out that there has been a unnatural rise in the price of the scrips of very little known companies. Furthermore, in all the cases, there were minimum of two brokers who have been involved in the transaction. It would be very difficult to gather direct proof of the meeting o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave set out in the proceedings paragraphs. To reiterate, the assessee we 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 assessee s 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 assessee s 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 of the Act. Thus, the assessee s 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 tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cept of working backward leading to the assessee s. While at that relevant stage the sounding circumstances, the normal human conduct of a prudent investor, the probabilities that may spill over, were all taken into consideration to negative the claim for exception made by the assessee. Therefore, the department was fully justified in taking note of the prevailing circumstances to decide against the assessee s. 11.1. The Hon ble Calcutta High Court thus endorsed that surrounding circumstances has to be taken into account and the matter can t be decided only on the basis of documentary evidences brought on record by the assessee. The Hon ble High Court also upheld the approach of the Department by working backwards to reach to the beneficiaries who had taken accommodation entries. Further, the Court re-iterated that the onus was squarely on the assessee to prove the genuineness of the credit entry appearing in the form of LTCG in their books of accounts. 12. The thrust of the assessee s argument is that the sale consideration was received by cheque on which STT was paid and, therefore, the LTCG earned was genuine. This cannot be accepted in view of multiple adverse evidences collect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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