Income Tax Appellate Tribunal - Chennai
Mahendra Kumar Bhandari, Chennai vs Ito Non Corporate Ward 5(3), Chennai on 6 April, 2018
आयकर अपील य अ
धकरण, 'सी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
' C' BENCH : CHENNAI
ी अ ाहमपी.जॉज , लेखा सद य एवं
ी जॉज माथन, या यक सद
य के सम
BEFORE SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A.No.2003/CHNY/2017
नधा रण वष /Assessment year : 2014-15
Mr.Vimalchand Gulabchand, Vs. The Income Tax officer,
36, First Floor, Non-corporate ward - 6(4),
Reddy Ramman street, Chennai
Sowcarpet, Chennai 600 079.
[PAN AAFPJ 7904 H ]
(अपीलाथ%/Appellant) (&'यथ%/Respondent)
अपीलाथ क ओर से/ Appellant by : Mr.T.Banusekar,C.A
यथ क ओर से /Respondent by : Mr.B.Sagadevan, JCIT,D.R
आयकर अपील सं./I.T.A.No.1721/CHNY/2017
नधा रण वष /Assessment year : 2014-15
Mr.Praveen Chand, Vs. The Income Tax officer,
38,Narayana Naicken street, Non-corporate ward - 5(4),
Old Washermanpet, Chennai
Chennai 600 021.
[PAN AAHPP 9556 H ]
(अपीलाथ%/Appellant) (&'यथ%/Respondent)
अपीलाथ क ओर से/ Appellant by : Mr.T.Banusekar,C.A
यथ क ओर से /Respondent by : Mr.B.Sagadevan, JCIT,D.R
:- 2 -: ITA No.2003,2293,1721 &
2748/CHNY/2017
आयकर अपील सं./I.T.A.No.2293/CHNY/2017
नधा रण वष /Assessment year : 2014-15
Mr.Gatraj Jain & Sons (HUF), Vs. The Income Tax officer,
No.97,Narayana Mudali street, Non-corporate ward - 11(4),
5th floor, Chennai 600 001. Chennai
[PAN AACHG 0312 B]
(अपीलाथ%/Appellant) (&'यथ%/Respondent)
अपीलाथ क ओर से/ Appellant by : Mr.T.Banusekar,C.A
यथ क ओर से /Respondent by : Mr.B.Sagadevan, JCIT,D.R
आयकर अपील सं./I.T.A.No.2748/CHNY/2017
नधा रण वष /Assessment year : 2014-15
Mr.Mahendra Kumar Bhandari, Vs The Income Tax officer,
No.10/2,Devaraja Mudali street, . Non-corporate ward - 5(3),
Park town, Chennai
Chennai 600 057.
[PAN AAFPB 8526 M ]
(अपीलाथ%/Appellant) (&'यथ%/Respondent)
अपीलाथ क ओर से/ Appellant by : Mr.Anandd Babunath,C.A
यथ क ओर से /Respondent by : Mr.B.Sagadevan, JCIT,D.R
सन
ु वाई क तार$ख/Date of Hearing : 04-04-2018
घोषणा क तार$ख /Date of Pronouncement : 06-04-2018
आदे श / O R D E R
PER ABRAHAM P GEORGE, ACCOUNTANT MEMBER
Assessees in these appeals assail denial of claim of exemption u/s.10(38) of the Income Tax Act, 1961 (in short 'the Act'), on the gains earned by it from the sale of equity shares of one M/s.Kailash Auto Finance Ltd.
:- 3 -: ITA No.2003,2293,1721 &
2748/CHNY/2017
2. Since the facts in all these cases lie within the same compass, the appeals are disposed off through a common order. Appeal of the assessee Vimalchand Gulbchand on ITA No.2003/CHNY/2017 is taken as the representative case.
3. Facts apropos are that assessee a trader in coated & uncoated paper and paper boards, had filed his return of income for the impugned assessment year declaring income of `7,63,350/-. Assessee had admitted long term capital gains of `9,40,273/- on sale of shares of one M/s.Kailash Auto Finance Ltd., but claimed it as exempt u/s.10(38) of the Act. ld. Assessing Officer relying on certain information received from the Investigation Wing of the Department was prima facie of an opinion that the said M/s.Kailash Auto Finance Ltd., was a Penny Stock Company, and required the assessee to explain why the exemption claimed by it u/s.10(38) of the Act, should not be disallowed, and considered as undisclosed income. Reply of assessee was that he had acquired one lakh number of equity shares of one M/s.Panchshul Marketing Ltd.,(in short 'M/s.PML' ) on 17.10.2012 for which payment was made by cheque drawn on Andhara Bank, Sowcarpet branch, Chennai. As per the assessee, such equity shares were dematerialized (in short dematted) on 03.11.2012. Contention of the assessee was that M/s.PML subsequently merged :- 4 -: ITA No.2003,2293,1721 & 2748/CHNY/2017 with M/s.Kailash Auto Finance Ltd., through a scheme of amalgamation sanctioned by Hon'ble Allahabad High Court vide its order dated 09.05.2013. As per the assessee, equity shares of M/s.Kailash Auto Finance Ltd., was received in lieu of the shares held by him in M/s.PML, on merger of the latter with the former. Assessee also submitted that the gains of `9,40,273/- claimed as exempt u/s.10(38) of the Act, arose on sale of the shares of M/s.Kailash Auto Finance Ltd., on 22.03.2014 through a recognized stock exchange and through recognized stock broker. Further, as per the assessee, the period of holding of the shares was more than 12 months and hence, he was eligible for claiming exemption u/s.10(38) of the Act, on the capital gains arising from sale of such shares. Assessee also pointed out that the transaction had suffered Securities Transactions Tax (STT).
3. However, the ld. Assessing Officer was not impressed by the above reply. According to him, investigation carried out by the Revenue had revealed an organized Racket of generating bogus entries for sale of shares facilitating a claim of exemption given to long term capital gains under the Act. As per the ld.A.O., the modus operandi adopted was to buy shares of what was called Penny Stock Companies at very nominal price through off-line transaction. Such Penny Stock Company, as per ld. Assessing Officer, either got merged with another company, through a scheme for amalgamation, which :- 5 -: ITA No.2003,2293,1721 & 2748/CHNY/2017 received approval from Hon'ble High Court, or its prices were jacked up through artificial trading by its shareholders who were few in number. Further, as per the ld. Assessing Officer, Securities and Exchange Board of India (SEBI) had conducted enquiries with regard to such transactions undertaken by operators of Penny Stock Company and had also examined the money trail of the transactions. According to ld. Assessing Officer, in the case of M/s.Kailash Auto Finance Ltd., SEBI had passed an order on 29.03.2016, numbered as WTM/RKA/SD/42/2016, where the modus operandi of the amalgamation methodology and manipulation in the share price were clearly explained. According to ld. Assessing Officer, there were about 25 groups involved in providing accommodation entries for long term capital gains of which SEBI had conducted investigation on eleven.
4. Tracking the trail of transactions in shares relating to M/s.Kailash Auto Finance Ltd., ld. Assessing Officer found that one M/s.Sanskriti Vincom Pvt Ltd., was originally allotted 2,50,00,000 shares of M/s.PML on 16.03.2012 through a private placement. As per the ld.A.O, assessee had acquired the shares of M/s.PML from M/s.Sanskriti Vincom Pvt Ltd. Further, as per ld. Assessing Officer M/s.Kailash Auto Finance Ltd., in which PML got merged was not having any office nor did it have any officials to man its business in its :- 6 -: ITA No.2003,2293,1721 & 2748/CHNY/2017 given address. According to the ld. Assessing Officer, the management and control of M/s.Kailash Auto Finance Ltd., was later acquired by one M/s.Careful Projects Advisory Ltd. ( hereinafter referred to as 'CPAL') and M/s.PML through a share Purchase Agreement dated 02.05.2012. Thereafter, as per the ld. Assessing Officer, there was a reduction in the share capital of M/s.Kailash Auto Finance Ltd., and a merger of CPAL & PMC with M/s.Kailash Auto Finance Ltd. On such merger of CPAL & PMC with M/s.Kailash Auto Finance Ltd., holder of each equity share of Rs.1/- in CPAL and M/s.PMC received one equity share of `1/- of M/s.Kailash Auto Finance Ltd. As per the ld. A.O, acquisition of shares of M/s.Kailash Auto Finance Ltd., by M/s.PMC & M/s.CPAL through the share purchase agreement was at a huge premium. Coupled with this, as per the ld. Assessing Officer, there was considerable reduction in the share capital of M/s.Kailash Auto Finance Ltd., which resulted in an unjustified increase in the value of its shares. The finding of the SEBI, in its order dated 29.03.2016 which has been considered by the ld. Assessing Officer is reproduced hereunder:-
"(r) Considering the operating performance and net profit of CPAL and PML in the year of incorporation 2010-11 and F.Y 2011-
12, it was noted that despite having weak operating results during the said F.Ys. CPAL and PML had issued bonus shares in an unrealistic and disproportionate ratio (viz.1:55 and 1: 65 respectively) :- 7 -: ITA No.2003,2293,1721 & 2748/CHNY/2017
(s) From the bank statement of the aforesaid primary allottees of CPAL and PML for the period, of December 2010 to June 2011, it was observed that same funds were being chrned among CPAL, PML and their respective primary allottees. Further, from the annual report of 2010-11 of CPAL and PML it was observed that these companies, in concert with their primary allottees had developed a mechanism by virtue of which CPAL, PML and their primary allottees made book entries of purported investment in each others equity shares. Accordingly, there was no infusion of cash in respect of private placement by CPAL and PML but it resulted in generation of fictitious share premium value in the books of accounts of CPAL and PML.
(t) This circulation of funds between CPAL PML and their primary allottees is briefly presented.
(u) It was noted that as a result of these private placements to the primary allottees of CPAL and PML on March 31 2011, CPAL and PML had purportedly raised share premium of Rs.19,47,91,450/- and Rs.23,24,61,000/-, respectively. This share premium was raised through the circulation of funds as mentioned hereinabove. Further CPAL and PML had issued bonus shares by using this fictitious share premium. After the issue of bonus share capital of CPAL and PML.
(v) As a result of the schemes of reduction in share capital of Kailash Auto and amalgamation of CPAL and PML the market capital of Kailash Auto on May 2013, was Rs.10,48,52,545/- consisting of 38,05,900 equity shares of Rs.37/- each. Thus the schemes of reduction of share capital and thereafter the amalgamation, the market capital of Kallash Auto had increased by 20615.97%, e., (approximately 206 times) BSE had permitted listing and trading in the shares of Kailash Auto that were issued as consideration in the scheme of amalgamation with effect from July 22, 2013 Just after change In the promoter group of Kailash Auto :- 8 -: ITA No.2003,2293,1721 & 2748/CHNY/2017 from Padma Impex Pvt Ltd. to PML and CPAL., within a short span of time the price of the scrip increased significantly which continued till July 22, 2013 when new category share (after amalgamation) of Kailash Auto was listed and permitted for trading on SSE.
(w) The above findings indicate that CPAL and PML were incorporated with a dubious plan and premeditated arrangement and artifice to Increase number of shares therein through sham and non- genuine transactions with regard to issuance of their shares which resulted in fetching exorbitant and unrealistic consideration in the scheme of amalgamation.
7.3 In order to analyse the price volume pattern, the trading in the scrip of Kailash Auto was analysed in the aforesaid three patches with a focus on the following:
(a). trading frequency, (b). trading volume generated; (C). contribution to price rise 7.4 During the analysis it was 'noticed that certain entities related/connected to Kailash Auto were found to be the net buyers to the beneficiaries and thereby created artificial demand for the supply of shares from beneficiaries From the Know Your Client (KYC) details, their bank statements, off-market transactions amongst them and the Information available on the website of the MCA, it was observed that these entities were connected to each other.
7.5 The order of the SEBI further analysed the transfer of funds from some of the promoter/promoter related entitles of Kailash Auto to the entities of Kailash Auto Group I and Kailash Auto Group II immediately after receipt of funds in the above manner, the entities of Kailash Auto Group I and Kailash Auto Group II traded in this scrip only through purchase transactions from beneficiaries In Patch II and created substantial traded :- 9 -: ITA No.2003,2293,1721 & 2748/CHNY/2017 volume during this period. These entities had transferred these funds, directly /indirectly to trading members through whom they had traded in this script end other scripts involving transactions for the purpose of alleged bogus long term capital gains tax exemption. Considering the income of these entities as shown in their KYC documents and the volume of their transactions it was noted that their transaction were riot commensurate with their disclosed income. Thus, it was observed that such fund transactions between promoter/promoter related entities of Kailash Auto and the entities of Kailasi, Auto Group i and Kailash Auto Group II were primarily for the purchase of equity shares of Kailash Auto by them from beneficiaries who are also connected/related directly or indirectly with CPAL and PML."
5. For the reasons aforesaid, ld.A.O held that the entire process whereby each of the beneficiary, who received shares in the Penny Stock Company at very low price, made artificially inflated profits exceeding 3400% of their original investments on sale of such shares, and made a bogus claim for exemption u/s.10(38) of the Act was a sham. Ld. Assessing Officer took note of the sworn in statement recorded from one Mr.Sunil Dokania, Managing Director of M/s.Kailash Auto Finance Ltd., by the DDIT(Inv.), Unit-1(2), Kolkatta on 12.06.2015 when he had given the following answers to certain questions posed to him:-
"Q.9. Please furnish the list of companies which are engaged in providing accommodation entry and controlled and managed by you.
:- 10 -: ITA No.2003,2293,1721 &
2748/CHNY/2017
Ans. Sir. I here are various paper companies which are engaged in providing accommodation entry and controlled and managed by me. Some of them are as under:
1. M/s Vishesh Plastics Pvt Ltd.
2. M/s UP & UP Traders Pvt Ltd.
3. M/s SNR Trading Co. Pvt Ltd.
4. M/s Key Dealers Pvt Ltd.
5. M/s Gopalka Savings & Investment Pvt Ltd.
6. M/s Rima lmpexPvt Ltd.
7. Balasaria Holdings Pvt Ltd.
8. Kailash Auto Finance Ltd.
Sir, I will submit the details of rest of the companies within 7 days. Q. 10. Please furnish names of other Directors being appointed by you for various paper companies.
Ans. Sir. Ashok Kumar Singh (DIN 01078674). GanguliYadav (DIN 06696943). Basarit Agarwal (DIN 03559991). Manisha Dokania (01077857) and Mr.Sumit Kumar Dokania (DIN 00725225) are dummy directors. They use to sign cheques/papers on my instructions.
Q.11. Please furnish the details of addresses being used by you for various paper companies controlled and managed by you.
Ans. Sir. I use the following addresses:
1. 16, G. C. Avenue. Kolkata.
2. 7/1 A. Grant Lane. 2/ui floor. Room No. 205. Kolkata-700012.
3. 13 No.. Mall Road. Dum Dum. Kolkata-700080.
Q. 12. As you stated above, you are engaged in providing accommodation entry in form of share capital, Share premium, unsecured loan and LTCG/STCG/STCL. Please furnish the details of scrips being controlled and managed by you for providing bogus LTCG/ STCG/STCL.
:- 11 -: ITA No.2003,2293,1721 &
2748/CHNY/2017
Ans. Sir. Accommodation entry in form of bogus LTCG/STCG/STCL was provided through the scrips of Kailash Auto to various clients. Sir, these scrips are controlled and managed by me. No actual business activities are carried out by these companies.
Q. 13. Please state who are Directors of Kailash Auto Finance Limited. Ans. Sir. Mr.Dipan Patel Jesingbhai. Vanita Mansukh Parmar. Babalu Prasad Keshari. Deepak Kunjbihari Dave. Probir Kumar and Vidisha Gehani are Directors in Kailash Auto Finance Limited. However, they are only dummy directors and company is controlled and managed by me. Q. 14. It is seen that these directors have their residential addresses at Gujrat, Maharashtra, Jharkhand and Kolkata. Please explain the reason for selecting dummy directors from various part of India. Ans. Sir. accommodation entry in form of LTCG in the scrips of Kallash Auto was provided to various beneficiaries of India so by appointing directors from various part it is easier for us to access various beneficiaries from that part. Q.15. Please explain the modus operandi of getting bogus long term capital gain through Scrips controlled and managed by you. Ans. Generally beneficiaries approached to the broker/entry operators in search of generation of capital in an easier manner without paying any tax on it. Brokers identify the various bogus scrips to provide LTCG as the same is exempt from the tax. Kailash Auto is such scrips which is engaged in providing accommodation entry in form of LTCG/STCL to various beneficiaries, Beneficiaries are allotted the shares at nominal price and the price of the shares rise artificially by using loopholes of stock exchange mechanism and the shares were sold at desired level to various bogus entities. These bogus entities are paid by the unaccounted money of the beneficiaries in cash. As a result, unaccounted income plouged back in the :- 12 -: ITA No.2003,2293,1721 & 2748/CHNY/2017 file of individuals and HUFs in the form of bogus LTCG without paying income tax on it. In process the bogus Short term Capital Loss is also booked by the entities who wants to reduce their taxability. Q. 16. Please specifically mention modus operandi of providing bogus LTCG in scripts of Kailash Auto Finance.
Ans. Sir. In this scrips of Kailash Auto Finance we have followed amalgamation method. Initially beneficiaries were allotted shares of Panchshul Marketing Pvt Ltd and Careful Projects Advisory Ltd. on high premium. Later, on these two companies got amalgamated vide Hihh court order into Kailash Auto Finance Ltd., By the virtue of amalgamation shareholders of Panchshul Marketing Pvt Ltd and Careful Projects Advisory Limited got shares of Kailash auto Finace. Valuation of shares are so arranged that beneficiaries of LTCG get higher number of shares of Kailash Auto Finance in place of Panchshul Marketing Pvt Ltd and Careful Projects Advisory Limited. After holding the shares of Kailash Auto for one years, we direct our clients to sell the shares of KALFIN on abnormally higher rate. At this stage we get equal amount of cash from the beneficiaries and get it deposited to various undisclosed proprietorship concerns and get it layered through various accounts and finally transfer it to bogus/shell companies who purchases shares from our beneficiaries." Thus, he concluded that there were considerable circumstantial evidence, which proved the transactions claimed by the assessee, giving rise to long term capital gains to be sham. He denied the exemption claimed by the assessee u/s.10(38) of the Act. An addition was made for the sale consideration claimed to have been received on :- 13 -: ITA No.2003,2293,1721 & 2748/CHNY/2017 sale of the equity shares of M/s.Kailash Auto Finance Ltd., under the head income from other sources, relying on section 68 of the Act.
6. Aggrieved, assessee made in appeal before the Ld.CIT(A). It was argued by the assessee before the Ld.CIT(A) that the original purchase of equity shares of M/s.PML, though it was through off- market transaction, payments were made only through bank. Contention of assessee before the Ld.CIT(A) was that all the transactions were done through bank. As per the assessee, sale of equity shares was through a recognized stock exchange, using a recognized stockbroker. Further contention was that the sale of equity shares having been done through a recognized stock exchange, it was not necessary and not possible to ascertain the source and identity of the purchaser of equity shares. As per the assessee, it had proved the transactions through sufficient documentary evidence and exemption u/s.10(38) of the Act could not have been denied.
7. However, the Ld.CIT(A) did not accept any of the above contentions. According to him, there was an artificial hiking of the selling price of the shares of M/s.Kailash Auto Finance Ltd. Ld.CIT(A) also relied on the decision of Mumbai Tribunal in the case of I.T.O Vs. Shamim M.Bharwani reported in (2016) 69 Taxmann.com 65 (Mum.).
:- 14 -: ITA No.2003,2293,1721 &
2748/CHNY/2017
8. Now, before us, ld.A.R strongly assailing the orders of authorities below submitted that the enquiry conducted by the SEBI and the investigation wing of the Department did not in any way show that the transactions done by the assessee was sham. As per the ld.A.R, the purchase of equity shares of M/s.PML was proved through transfer of such shares from the name of M/s.Sanskriti Vincom Pvt Ltd., to the assessee. According to him, amalgamation of M/s.PML, with M/s.Kailash Auto Finance Ltd., could not be questioned, since it was approved by the Hon'ble Allahabad High Court. Contention of ld.A.R was that sale of shares having been done through Kolkotta Stock Exchange by a recognized stock broker and the payments having been received through bank channels, the transactions could not have been disbelieved.
9. Continuing his submissions, the ld.A.R urged that undue reliance was placed by the lower authorities on the statement given by Mr.Sunil Dokania. As per the ld.A.R, assessee had never purchased any share from Mr.Sunil Dokania and statement of Mr.Sunil Dokania was never given to the assessee, nor the assessee given an opportunity to cross-examine the said person. Further, as per the ld.A.R, Bangalore Bench of the Tribunal in the case of Vimala Devi Chhajer and Others Vs. DCIT (ITA No.513 to 518/Bang/2010, 519 to 526/Bang/2010, 946 to 949, 955, 956, 970/Bang/2010, 1000 to 1005 :- 15 -: ITA No.2003,2293,1721 & 2748/CHNY/2017 /Bang/2010 and 1071/Bang/2010, vide order dated 23.03.2011), had held capital gains arising on similar transactions as not bogus. Reliance was also placed on a decision of Kolkata Bench of the Tribunal in the case of Manish Kumar Baid and Mahendra Kumar Baid Vs. aCIT (ITA No.1236 & 1237/Kol/2017 dated 18.08.2017) and that of Mumbai Bench of the Tribunal in the case of I.T.O Vs. Arvind Kumar Jain (ITA No.4862/Mum/2014, dated 18.09.2017).
10. Further continuing his submissions, ld.A.R submitted that lower authorities fell in error in relying on SEBI order dated 29.03.2016. According to him what was relied was an interim order and SEBI in its final order passed on 21.09.2017 had vacated such earlier order and held that the violations alleged against various entities, inter alia including M/s.Kailash Auto Finance Ltd., were not proved. In any case according to him, even the investigation report of investigation wing of the Department, based on which lower authorities had reached an adverse finding was never put to the assessee.
11. Ld.A.R also pointed out that assessee has filed an additional ground assailing the assessment done u/s.143(3) of the Act. According to him, an assessment could not be done under section 143(3) of the Act when its genesis was a search u/s.132 of the Act.
:- 16 -: ITA No.2003,2293,1721 &
2748/CHNY/2017
Reliance was placed on the following para appearing in the assessment order in support of this contnetion:-
"6. The written submissions filed by AR carefully considered but not accepted for the following reasons:
6.1 The Directorate of Investigation, Kolkata, carried out a country-
wide investigation to unearth the organized racket of generating bogus entries of Long Term Capital Gains (LTCG) which is exempt from tax. The modus operandi adopted by the operators was to make the beneficiary buy some shares of a pre-determined Penny stock company controlled by them. These shares are transferred to the beneficiary at a very nominal price mostly off-line, through preferential allotment or off-line sale, to save STT. The beneficiary (an Individual) holds the share for one year, the statutory period after which LTCG is exempt under section 10(38) of the Income tax Act, 1961. In the meantime, the prices of the shares of the penny stock companies are rigged and are raised through circular trading. This is managed by the "operator of the scrip.
6.2 The Directorate of Investigation, Kolkata investigated transactions in 84 such penny stock shares quoted on BSE, including the shares of Kailash Auto Finance Ltd., and examined on oath a large number of brokers, directors of companies that finally purchased the shares, the promoters of Penny stock companies, the entry operators, who managed the dummy companies and involved in price rigging. The money trail of the transactions was also examined arid, in a large number of transactions trail right from cash deposit account to the beneficiaries' account was unearthed. As a result of investigation, individuals who have taken such entry of bogus LTCG amounting to several crores have been identified. The result of the investigation in brief is as under:
:- 17 -: ITA No.2003,2293,1721 &
2748/CHNY/2017
i. Individuals throughout the country identified who have taken such bogus entries of LTCG amounting to several crores from 2010 to 2014.
ii. The result of the enquiry was also shared with the Securities and Exchange Board of India (SEBI) and the SEBI after investigating 11 cases have found the allegation to be correct. The balance cases are still being investigated by SEBI.
iii. The TPO 25 groups under each investigation directorate of the country were confronted in course of further investigation. Almost all of them, barring a few, have accepted having taken the entires for a commission.
iv. Several assessees have filed revised returns since the enquiry and have taken back their claim of exemption."
As per ld.A.R, assessee had filed an application under the Right to Information Act, 2005, to get information regarding the search and documents seized during the search, based on which the impugned assessment was done on the assessee. According to him, any assessment proceedings based on materials coming out of a search had to be done under sections 153A to 153D of the Act and not section 143(3).
12. Per contra, ld.D.R strongly supporting the orders of the lower authorities below, submitted that Mr.Sunil Dokania, M.D of M/s.Kailash Auto Finance Ltd., in his sworn statement given on 12.06.2015 had clearly admitted to the modus operandi of providing accommodation entries through various companies controlled and managed by him, by :- 18 -: ITA No.2003,2293,1721 & 2748/CHNY/2017 means of share capital, share premium, long term capital gains, etc. Further, as per ld.D.R SEBI had in its order dated 29.03.2016 clearly brought out such modus operandi whereby prices of the shares of penny stock companies were jacked up and circular trading indulged in by entry operators, for inflating the price of the equity shares in an artificial manner, in the process, converting black money to white money. As per ld.D.R, assessee could not show how he became aware of the availability of equity shares in M/s.PML when the said company was based in Kolkotta and its equity shares were not listed. Thus, as per ld.D.R, lower authorities were justified in disbelieving the series of transactions, which were all manufactured for evading tax.
13. I have considered the rival contentions and perused the orders of the authorities below. The ld. Assessing Officer as well as Ld.CIT(A) had relied on SEBI order dated 29.03.2016, in the case of M/s.Kailash Auto Finance Ltd.. It is true that in the above order, there is a detailed analysis of modus operandi adopted by about eleven numbers of companies, inter alia including M/s.Kailash Auto Finance Ltd. It also mentions how M/s.Kailash Auto Finance Ltd., had built up a huge share premium within a short time of its incorporation. SEBI had also analysed the financials of M/s.CPAN and M/s.PML, which were merged with M/s.Kailash Auto Finance Ltd.,and found that there was :- 19 -: ITA No.2003,2293,1721 & 2748/CHNY/2017 disproportionate issue of bonus shares by these two companies. Apart from the SEBI report, lower authorities had also relied on a statement obtained from Mr.Sunil Dokania on 12.06.2015 and the report of Investigation Wing of the Department. What I can discern from the orders of the lower authorities is that the statement given by Mr.Sunil Dokania, nor the report of the Investigation Wing relied on by the Assessing Officer, was made available to the assessee, during the course of assessment proceedings. Since these went against the assessee, rules of natural justice require that assessee is given an opportunity to explain what was mentioned in such statement and if necessary, an opportunity to examine Mr.Sunil Dokania. I also find that the AO had not enquired how the assessee had become aware of the availability of the equity shares of M/s.Panchshul Marketing Ltd., when the said company was not listed and entitled. The finding of the ld. Assessing Officer that the financials of M/s.Kailash Auto Finance Ltd., were not strong enough for justifying the high value of its share is also not supported by sufficient empirical data.
14. Now, coming to the argument of the ld.A.R that assessment having been done pursuant to a search, ought have been u/s.153A to 153D of the Act and not u/s.143(3), I am afraid I cannot toe this line of reasoning. Relevant para in the assessment order relied by the ld.A.R, for buttressing this argument reproduced at para eleven above, :- 20 -: ITA No.2003,2293,1721 & 2748/CHNY/2017 hardly suggest that the assessment done on the assessee was pursuant to a search. Just because an investigation was done by the investigation Department of the Department, based on some leads they might have had, reports of which were used against the assessee, would not ipso facto mean that the assessment was pursuant to any search. There is nothing whatsoever on record to suggest that the assessment was based on materials unearthed during a search.
15. However, as already mentioned by me, rules of justice do require that the reports of investigation wing, relied on bythe ld. Assessing Officer, as well as the statement recorded from Mr.Sunil Dokania are put to the assessee and its explanation sought, before deciding whether these are relevant in the assessment of the assessee. I also find the SEBI through its order dated 21.09.2017(supra) did vacate its interim exparte order dated 29th March, 2016 restraining 244 entities, inter alia including M/s.Kailash Auto Finance Ltd., from buying, selling or dealing in securities.
16. In the facts and circumstances of the case, I am of the opinion that the question whether the transactions claimed by the assessee, as giving rise to the long term capital gains exempt from tax u/s.10(38) of the Act, were real or sham, requires a re-visit by the ld. Assessing Officer. I set aside the orders of the lower authorities and remit the issue back to the file of the ld. Assessing Officer for consideration afresh in accordance with.
:- 21 -: ITA No.2003,2293,1721 &
2748/CHNY/2017
17. Similar directions are given in the case of the other assessees in appeal in ITA No.1721/CHNY/2017, 2293/CHNY/2017 and 2748/CHNY/2017,also, since in all these cases capital gains, which were claimed as exempt arose from sale of shares of M/s.Kailash Auto Finance Ltd.
18 In the result, appeals of all the assessees are allowed for statistical purposes.
Order pronounced on 06th April, 2018, at Chennai.
Sd/-
(अ(ाहमपी.जॉज ) ( ABRAHAM P GEORGE) लेखा सद य /ACCOUNTANT MEMBER चे नई/Chennai /दनांक/Dated: 06th April, 2018.
K S Sundaram आदे श क त1ल2प अ3े2षत/Copy to: 1. अपीलाथ /Appellant 3. आयकर आयु4त (अपील)/CIT(A) 5. 2वभागीय त न8ध/DR 2. यथ /Respondent 4. आयकर आयु4त/CIT 6. गाड फाईल/GF