Income Tax Appellate Tribunal - Pune
Narendra Shrikishan Agrawal,, Jalna vs Assistant Commissioner Of Income-Tax, ... on 5 November, 2019
आयकर अपील य अ धकरण "ए" यायपीठ पण
ु े म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, PUNE
BEFORE SHRI R.S. SYAL, VICE PRESIDENT
AND
SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER
आयकर अपील सं
. / ITA No.257/PUN/2019
नधा रण वष / Assessment Year : 2015-16
Shri Narendra Shrikishan Agrawal,
Sagar Paridhan, Near Jindal Super Market,
Jalna - 431203
PAN : AATPA5348Q
.......अपीलाथ / Appellant
बनाम / V/s.
The Assistant Commissioner of Income Tax,
Jalna Circle, Jalna
...... यथ / Respondent
Assessee by : Shri Abhay Agarwal
Revenue by : Shri Jeevan Bachhav
सन
ु वाई क तार ख / Date of Hearing : 15-10-2019
घोषणा क तार ख / Date of Pronouncement : 05-11-2019
आदे श / ORDER
PER S.S. VISWANETHRA RAVI, JM :
This appeal by the assessee against the order dated 01-11-2018 passed by the Commissioner of Income Tax (Appeals)-1, Aurangabad ['CIT(A)'] for assessment year 2015-16.
2ITA No.257/PUN/2019, A.Y. 2015-16
2. The assessee raised ground Nos. 1 to 7 involving the same issue questioning the action of CIT(A) in confirming the addition made by the Assessing Officer on account of Long Term Capital Gain in the facts and circumstances of the case.
3. The brief facts as emanating from the record are that the assessee is an individual and also a Director in M/s. Sagar Paridhan Pvt. Ltd. The assessee filed its return of income on 31-03-2017 declaring total income of Rs.18,90,300/- and has shown income from professional fee, house property, business income, capital gain and income from other sources. Notices u/s. 143(2) and 142(1) were issued. In response to which, Authorized Representative appeared on behalf of the assessee in the assessment proceedings.
4. In the assessment proceedings, it is noted, while dealing with the issue relating to Capital Gain, the Assessing Officer found that the assessee purchased 25,000 shares of Lifeline Drugs and Pharma Limited for short hereafter as LD&PL for Rs.15,00,000/- and after conversion the same were become 2,50,000 shares, out of which 43,000 shares were sold which resulted Capital Gain of Rs.1,04,02,303/-. According to Assessing Officer the Long Term Capital Gain as claimed by the assessee is not natural and it is an arranged one. To elicit truth, the Assessing Officer conducted verification of activities of LD&PL by visiting its website.
5. Further, the AO examined summary of financials of LD&PL and observed that the total number of paid shares was increased by 151 times 3 ITA No.257/PUN/2019, A.Y. 2015-16 and there was no material corporate investment to support price rise of its scrip. On examination of trading frequency he was of the opinion that the transactions were conducted in a circular fashion involving the trade frequency, volume generation, contribution to price rise and buying behaviors and no demand for the shares of LD&PL which is a little known trading company during 2011-12 and price rise gained only during 2013- 14 and held no justification for such price rise.
6. Regarding the assessee, the AO held that there was no substantial activity nor any investment in shares during the previous year records, thereby, the AO doubted the investment activity of assessee in purchasing 25,000 shares of LD&PL for Rs.15,00,000/- , was of the opinion that the purchase of shares of LD&PL is a predetermined action to book Long Term Capital Gain by way of dubious methods with a specific intention, held the Long Term Capital Gain shown by the assessee is not genuine.
7. Regarding the pattern of transactions, he observed that the suspected entities linked to LD&PL created the demand against the supply from the preferential allottees and provided huge profitable exit to the allottees. The buyers are related/connected entities of preferential allottees. The preferential allottees, LD&PL and suspected entities were hand in glove to launder black money and raking in tax free profits. The AO, thereby, treated the said amount of Rs.1,04,03,303/- as unexplained cash credit and added the same u/s. 68 of the Act. The CIT(A) in First Appellate Proceedings held the Capital Gain was manipulated and the 4 ITA No.257/PUN/2019, A.Y. 2015-16 claim of assessee u/s. 10(38) of the Act is bogus and confirmed the view of the AO in adding the impugned amount u/s. 68 of the Act.
8. Before us, Shri Abhay Agarwal, the ld. AR submits that the Assessing Officer merely based on the presumptions, suspicion and surmises treated the Capital Gains from sale of listed equity share as non- genuine and denied the claim of exemption u/s. 10(38) of the Act. He submits that the LD&PL is a public limited company listed with Bombay Stock Exchange and regularly complying with the exchange procedure. He submits that all the documentation and formalities regarding allotment of shares were duly furnished in the assessment proceedings and the AO has not doubted the purchase of the shares which were supported by documentary evidences. The said shares were sold on Stock Exchange through registered stock broker Adinath Stock Broking Pvt. Ltd. and all documents relevant to the said transactions were filed before AO as well as CIT(A) to substantiate the genuineness of purchase and sale of shares of LD&PL. The ld. AR submits that the share transactions entered by the assessee are genuine, supported by documentary evidences, giving rise to Capital Gains. The third party statements had no relevance as there was no reference to the assessee or its transactions in said statements. The AO could not demonstrate as to how the assessee had any nexus with any of the alleged share brokers and purchasers. The assessee does not know any such persons or entities, the statements and references made by such persons or entities were general in nature and did not have any reference or nexus to the assessee. He submits that there are many factors having impact on the price of share listed in stock exchange and the said LD&PL 5 ITA No.257/PUN/2019, A.Y. 2015-16 had share capital and reserves of Rs.21.27 croers as on 31-03-2014 and had shown revenue of Rs.40.85 crores during F.Y. 2013-14. The assessee had nothing to do with the alleged modus operandi as discussed by the Assessing Officer and it had no connection with the persons or entities mentioned by the Kolkata Investigation wing. The assessee did not know and had not dealt with any of the persons and entities alleged to be involved in the above said modus operandi.
9. Shri Abhay Agarwal, further submits that the assessee does not know the buyer of the shares sold by the assessee and does not know the entity by name Divyadrishtri Traders Pvt. Ltd. for short hereafter as DTPL and neither have entered into any transactions with it nor with Gateway Financial Services Ltd for short hereafter as GFSL.
10. Further, Shri Abhay Agarwal, the ld. AR referred to Paper Book-II (Legal) has placed reliance on the orders of ITAT, Kolkata and Delhi Benches in the cases of Shri Narendra Kumar Sarogi and Smt. Radhika Garg reported in 55 CCH 2, respectively. He submits that both the Co- ordinate Benches dealt with the issue relating to LD&PL and deleted the additions made by AO on account of Capital Gains and argued the finding rendered by the said Co-ordinate Benches is very much applicable to the facts and circumstances to the present case.
11. In reply, Shri Jeevan Bachhav, the ld. DR submits that the assessee made investments in a private placement and referred to profit and loss accounts of LD&PL at page 20 of the paper book and submits that there was no revenue on business operation for financial year ending on 6 ITA No.257/PUN/2019, A.Y. 2015-16 31-03-2012 and 31-03-2013. Further, he referred to page No. 26 and submits the LD&PL has shown revenue from business operation of Rs.40,07,78,249/- for the financial year ending on 31-03-2014, but did not show any expenditure relating to earning of the said revenue. Further, referred to page No. 31 the said LD&PL has shown major expenses involving legal and professional fees and office rent only and no expenditure involving salaries, transportation etc. were shown as it stated to have been involved in the business of textiles.
12. Further, he referred to page No. 39 of the paper book and submits that the dividend as declared by the said LD&PL is very negligible and the AO and CIT(A) rightly doubted the transactions between the assessee and LD&PL as ingenuine. Further referred to page No. 9 of the AO's order at middle tabular form and submitted that the LD&PL has declared only profit after tax for Rs.0.01 crore for F.Y. 2010-11, Rs 0.03 crore for F.Y. 2011-12, Rs.0.14 crore for F.Y. 2012-13 and Rs 0.65 crore for F.Y. 2013- 14 and argued that there is no credibility between the transactions of assessee purchasing shares of LD&PL at low price, booking Capital Gain thereon by selling the same shares at exorbitant price. For analysis of cash trail, he referred to pages 20 and 21 of the AO's order and submitted the cash deposits were credited to the account of DTPL the buyer of shares of assessee and the same were transferred to KORP Securities Ltd for short hereafter as KORP SL. The said KORP SL has been managed by Anuj Agarwal and submitted the said Anuj Agarwal while giving reply to Q. No. 14 to the DDIT (Inv.), Kolkata admitted that the DTPL is being controlled and managed by KORP SL.
7ITA No.257/PUN/2019, A.Y. 2015-16
13. Further, Shri Jeevan Bachhav, the ld. DR referred to Q. Nos. 15 and 17 and submitted that LD&PL is a paper company which provides accommodation entries, referring to answer to Q. No. 27 and submitted that the Mr.Anuj agarwal admitted that all the companies mentioned therein were using the same address as their registered office and no books of account are maintained. Further, he submits that Shri Soumen Choudhary an employee of GFSL in response to Q. No. 7 replied that GFSL provide Capital Gains/loss entries to various entities thorough different jamakarchi companies and the LD&PL is one of the major scrip dealt by the GFSL for bogus Long Term Capital Gain purpose. The ld. DR placed reliance on the orders of Co-ordinate Benches of Pune and Delhi Tribunal in the cases of Rajkumar B. Agarwal Vs. DCIT in ITA Nos. 1648 & 1649/PUN/2015 for A.Ys. 2005-06 and 2006-07 and Shri Dandeep Bhargava Vs. ACIT in ITA No. 420/Del/2019 for A.Y. 2015-16 respectively.
14. Heard both parties and perused the materials available on record. We note that the Assessing Officer doubted the credibility of LD&PL and its operations and how the assessee would make such a huge investment in LD&PL which is not a large cap or mid cap scrip in conventional market sense, was of the opinion that the purchase of shares of LD&PL by the assessee is a predetermined action with specific intention to book Capital Gain by dubious method. He conducted detailed enquiry by visiting website of LD&PL, pattern followed by the assessee in purchasing and sale of shares, financial of LD&PL, investigation report of DDIT, Kolkata containing statements of concerned persons who controlled and managed 8 ITA No.257/PUN/2019, A.Y. 2015-16 jamakarchi companies and their modes operandi, held such Capital Gain shown by the assessee is not genuine.
15. Let us examine the sequence of events which led to the denial exemption u/sec 10(38) of the Act. We find from the submissions of Shri Abhay Agarwal, ld. AR, the transactions are as under :
Date Particulars
29-11-2012 Assessee purchased 25,000 shares for a consideration of
Rs.15,00,000/-
29-12-2012 The same has been credited into Demat Account of
assessee.
19-11-2013 Conversions took place as each share of Rs.10/- split into
share of Re.1/- each and accordingly 25,000 shares were become Rs.2,50,000/-.
10-06-2014 Assessee sold 21,000 shares. 11-06-2014 2,000 shares sold at Rs. 248/- each 23-06-2014 10,000 shares sold at Rs.250/-each 19-01-2015 10,000 shares sold at Rs.248.8/- each
16. We note that the assessee purchased the above said scrip of LD&PL through preferential allotment for Rs.60/- per share. The face value of each share at the time of purchase was Rs.10/- and the assessee paid premium @ Rs.50/- for each share to costing Rs.60/- per share and admittedly the value of each share in Bombay Stock Exchange was around Rs.2.13/- and sold on an average of Rs.248/- per share and booked profit of Rs.1,04,03,303/- under capital gain.
9ITA No.257/PUN/2019, A.Y. 2015-16
17. It is seen that the scheme adopted by the related parties i.e assessee the beneficiary, LD&PL a paper compnay, DTPL is exit provider, KORP SL and GFSL the brokers, the shares were allotted on preferential terms to the entities connected and related directly to LD&PL. There is no dispute period in which the prices of LD&PL during the period January, 2011 to 2013 trading between Rs.0.80 per share to Rs.0.85/- per share and in October, 2014 the prices went up to between Rs.280/- to Rs.290/-. It is needless to say the appreciation is about 350 times. We note that the Assessing Officer examined the financials of LD&PL and as rightly pointed out by the ld. DR, the profit of loss account as on 31-03-2013 which is at page 20 clearly shows that LD&PL no revenue was shown from business operation. Therefore, it is clear when the assessee got shares of LD&PL on preferential basis, there was no business activity of LD&PL as clearly evident from the profit and loss account as discussed above, in spite of which purchase of shares of said entity supports the view of AO and CIT-A that it is a predetermined action with a specific intention to derive Long Term Capital Gain by dubious method. Accordingly, we hold the same.
18. Further, to support the above view, we note that in tabular form in page 9 of the AO's order wherein the share value for F.Ys. 2010-11, 2011- 12 and 2012-13 is only Rs.2.40 lakhs, Rs.2.40 lakhs and Rs.30.70 lakhs, respectively. The shares of LD&PL were not in demand during F.Ys. 2010- 11, 2011-12 and 2012-13, but however the trading suddenly went up between 2013-14, the paid up shares increased by many times to Rs.362.40 lakhs. It means to say that in spite of having no revenue from business operations the assessee preferred to make huge investment in 10 ITA No.257/PUN/2019, A.Y. 2015-16 LD&PL which has a poor financials, having no major corporate announcement, this could only be possible that the suspected entities and its promoters such as assessee the beneficiary, paper company like LD&PL, exit provider DTPL, the brokers KORP SL and GFSL were hand in glove with each other, in our opinion, is a predetermined intention designed and devised to deceive the authorities by laundering black money and raking in tax free profits.
19. In this regard the AO brought not on record the investigation conducted county wide by the DDIT, (Inv) Kolkata to unearth the organized racket of generation of bogus entries of Long Term Capital Gain. It is noted that the operators is to make the beneficiary buy shares of a predetermined penny sock company controlled by them. The initial transfer of shares in the name of beneficiary can be an off market transaction or online transaction. Thereafter, the issue of preferential shares at nominal rates or issue of bonus shares even though there is hardly any profit or business activity in the said companies. The beneficiary holds the shares for one year and thereafter the operators rig the price of the stock up to 500 to 1000 times. This practice is effected through low volume transaction indulged in by the dummies of the operator at a predetermined price and when it reaches the desired level the beneficiary who bought the shares at a nominal price is made to sell it to a dummy paper company of the operator. For this unaccounted cash through a few layers of paper companies by the operator and finally is parked with the dummy paper company that will buy the shares. It means to say that by applying the above said scheme of method to the present 11 ITA No.257/PUN/2019, A.Y. 2015-16 case that the assessee is a beneficiary who has been issued preferential shares of LD&PL though there is no profit business activity of the said company.
20. The assessee beneficiary held the preferential shares from 29-11-2012 to 19-11-2013 in which year the 25,000 shares have become Rs.2,50,000/- shares by conversion and started selling the said shares from 10-06-2014 to a dummy paper company of the operator and assessee the beneficiary provided unaccounted cash by many layers to the operators. To prove above scheme of method, Shri Jeevan Bachhav, the ld. DR brought our attention to page No. 19 of the Assessing Officer's order and submitted that the paper company the DTPL is the buyer of shares of assessee which were transferred to KORP SL which is managed by Anuj Agarwal.
21. In this regard we note that the DDIT, Kolkata Investigation wing recorded statement of Mr. Soumen Choudhary representing the GFSL in reply to Q. No. 7 at page 32 of AO's order he clearly explained the mode of method share broking activity. He stated that he is an employee of M/s. Gateway Financial Services, the GFSL which is engaged in the business of share broking through the Bombay Stock Exchange platform. It is active in the equity segment. The firm buys and sell shares for client upon request with full adherence to pay in and pay out of shares and funds and maintaining SEBI norms. The firm is also engaged in providing long term capital gains/loss entry through trading of different scrips by different 12 ITA No.257/PUN/2019, A.Y. 2015-16 jamakharchi companies and earn brokerage/commission partly in cash and partly in cheque and it is registered office is at Kolkata.
22. In reply to Q. No. 8 at page 32 of AO's order he answered that he dealt major scrips of 40 jamakarchi companies. The rates of all the scrips were either artificially raised or lowered through manipulative transactions, wherein we find the name of LD&PL at serial no: 25 having client code of 506113. Further, in reply to question no.9 that Soumen Choudhury stated that all the clients listed therein in page 33 of the A.O. are jamakharchi companies and engaged in trading in scrips for clients as per their instruction and all the said transactions are bogus involving manipulation of scrips. Further, to the reply in question no.12, he stated that Shri Praveen Kumar Agrawal is the director of GFSL. Further, in answering the question no.18, at page no.36 of A.O. wherein he narrated the sequence of modus operandi involved in this bogus transactions. For better understanding the same is reproduced herein below :-
"Q.18 It is explained the modus operand of long term capital gain/loss entry provided to the beneficiaries.
A. The long term (LT) entry beneficiary approaches an entry operatorwho is having a listed copany through some agent/mediator are directly. Beneficiary then on the instruction of entry operator buyes the shares of a listed paper company (generally not doing any business or with a miniscule business activity) at a very low price. The share price of the listed company are then jacked up to a desired level with the concerted and regular buying and selling of the shares by the other dummy persons or other paper companies/HUF (genrally controlled and managed by same entry operator). Sometimes a cartal is formed by various entry operators for jacking up the price of the shares and thus paper companies of various entry operators are used for buying and selling of shares and raising the price of shares to a desire level. When finally the shares held by the beneficiary of the listed company reached the desired level/price then the beneficiary is intimated by the operator or an agent of the operator to provide cash which can be routed to some other jamakharchi company/entity to buy these shares from the beneficiary. The cash received from the beneficiary is then hand over to the operator through agents are directly. The entry operator then routs and layers back this cash so received into various paper entities that are controlled and managed by him. This paper entities that have received layered money are then used as dummy buyers (counter parties) for buying the rigged/artificially jacked up shares from the beneficiary. When the buyers (counter parties) are ready, then the entry operator intimates the beneficiary to sell specific number of shares at a specific price and a specific time. This ensures that the shares of only the beneficiary as directed by 13 ITA No.257/PUN/2019, A.Y. 2015-16 the operator are bought through the dummy buyer. The transactions takes place through stock exchange and brokers and some nominal commission is charged in cash on the net pre-arragneged bogus capital gain accruing to the beneficiary. This pre- arranged bogus capital gain income so earned through rigging of shares is claimed as exempt in the books of the beneficiary."
23. On perusal of the above, we note that the modus operandi between the beneficiary, exist provider and stock brokers clearly visible to book long term capital gain/loss with specific intention to launder the black money in order to evade tax through this jamakharchi companies which created for the purpose of above said specific intention, managed and controlled by same persons, having offices at the same premises is clearly proved to support the finding of both authorities below.
24. Coming to the statement of Pawan Kumar Kayan at page no.39 of A.O., who is Managing Director of M/s PKC Commodities Ltd. and M/s. Shub Stock Broking Pvt. Ltd. wherein he categorically admitted that he is involved in providing bogus long term capital gain/short term capital loss to his clients for which he get commission in cash at the rate of 0.25%. In reply to the question no.5, he clearly said that he along with his wife have booked bogus LTCG in the penny stock of LD&PL which is managed and controlled by Shri Manish Baid. We find that the statement of Pawan Kumar Kayan establishes the price hike of shares of LD&PL created for the purpose of giving bogus LTCG for interested beneficiaries.
25. Regarding the statement of Shri Anuj Agrawal who is a stock broker and is a director/partner/proprietor/substantial shareholder in KORP SL, Asteriods Infra LLP and Silky Moon Infra LLP. In reply to the question no.14, which is at page no.45 of A.O.'s order that he clearly stated names 14 ITA No.257/PUN/2019, A.Y. 2015-16 of seven (7) companies which are paper companies controlled and managed by him and we find DTPL is a one such company amongst the seven (7) companies stated by him which clearly proves that the DTPL is a paper company wherein we already discussed the role of the said company in the aforementioned paragraphs wherein the said company purchased shares from assessee the beneficiary and transferred to KORP SL a Stock broker managed by Shri Anuj Agrawal. We find that the statement of Shri Anuj Agrawal and the view of both the authorities below that the assessee beneficiary, the DTPL the exist provider and KORP SL are connived to book bogus long term capital gain/loss by dubious method. Further, in reply to question no.13, he stated as under :-
"Q.13 Please state the nature of business activity being carried out the companies mentioned above.
Ans. Sir KORP Security Limited is a share trading company. Apart from this no actual business activities being carried out by the abovementioned companies. These companies were created for sole purpose of providing accommodation entries in form of long term capital gain to various beneficiaries.
Q. 15 Please state who are the directors in Divyadrishti Traders Pvt. Ltd. and Divyadrishti Merchant Pvt. Ltd.
Ans. Sir, we have created these companies to provide accommodation entries in the form of LTCG. Sir, Kinkar Bhatcharya and Sukhanta Chatergy are dummy directors in these companies. These are papers companies and having its office address at 163B, M.G. Road, Third Floor, Kolkata-700007.
Q. 16 Please provide modus operandi of providing accommodation of long term capital gain.
Ans. Various clients used to approach ask to get long term capital gain for the securities holded by them for years. He used to charge brokerage for arranging above transaction. After holding the equity share for more than one year clients used to sell such shares on very higher rates. Such shares are bought from beneficiary clients by our client and also some company controlled and managed by me like M. Distributor Pvt. Ltd, Spark Commondeal Pvt. Ltd., Fare Link Housing Pvt. Ltd., Esquire Pvt. Ltd., Divydrishti Traders Pvt. Ltd., Divydrishti Merchant Pvt. Ltd., D. Vincom Pvt. Ltd., Triton Overseas Pvt. Ltd., Wheelers Developers Pvt. Ltd. and Ridhi Vincom Pvt. Ltd.. When party/beneficiary approaches to get accommodation entry, we used to get cash from them got a deposited from various bank accounts and then finally we used to transfer it to party beneficiaries bank account. For arranging the accommodation entries in form of long term capital gain we used to get commission in cash from party at 50 paise per 100 rupees of cheque amount."15 ITA No.257/PUN/2019, A.Y. 2015-16
26. In furtherance to the above statement, we find his answer to question no.17 wherein he furnished the list of scrips provided accommodation entry of LTCG wherein at sl.no.9 we find the LD&PL and DTPL suggesting that the assessee booked long term capital gain by dubious method through these paper companies which in turn provided bogus LTCG to assessee. In answering question no.20, he stated the list of beneficiaries is huge and can be obtained from the trade data as available with stock exchange. We note that the BSE provided information to the A.O. stating that the trading in the securities of 20 companies are suspended with effect from 20.08.2015 based on the parameters provided by SEBI and under provisions of Rules, by laws and regulation of exchange as an interim preventive and remedial measure to maintain orderly development in the stock market. The ld. AR submitted that the interim suspension is in still force in respect of LD&PL.
27. Further, in support to the above view to prove that LD&PL and DTPL are jamakharchi companies, we find the answer to question no.27 by the Anuj Agarwal is here under :-
"Q. 27 During the course of survey operation u/s 133A of the Act, 1961 an enquiry was conducted at 163B, M.G. Road, Third Floor, Kolkata which is the registered office of the following companies Divydrishti Traders Pvt. Ltd., Divydrishti Merchant Pvt. Ltd., D. Vincom Pvt. Ltd., Triton Overseas Pvt. Ltd., Wheelers Developers Pvt. Ltd. and Ridhi Vincom Pvt. Ltd.. However, during the course of enquiry statement of Mr. Anupam Bajoria, Son of Vinod Kumar Bajoria was recorded u/s 131 of the Income Tax Act, 1961. Please go through the statement of Mr. Anupam Bajoria and offer you comments?
Ans. Sir, I have gone through the statement as I have already stated that these companies are controlled and managed by me in which Mr. Kinkar Bhatacharya and Sukanta Chatergi are directors. Mr. Rajesh Jain is my part time accountant and looks after the accounts of aforesaid mentioned companies. In fact, the companies are using the address as it registered office, however, no books of accounts are maintained there."16 ITA No.257/PUN/2019, A.Y. 2015-16
28. On perusal of the above answer of Anuj Agarwal, clearly demonstrates that the above jamakharchi companies like in the present case LD&PL, DTPL, KORP SL and GFSL are created for the purpose of accommodation entries in respect of booking bogus long term capital gain/loss for a prospective beneficiary having no credible financials and economic foundations, which clearly supports the view of both the authorities below in doubting a transaction lead to claim long term capital gain in the hands of assessee the beneficiary, is bogus. In view of the above, we find the reply provided by the DTPL in response to the information called for u/s 133(6) of the Act is contrary to the evidence brought on record by the A.O. from many authorities like BSE, SEBI and the Investigation conducted by the DDIT, Kolkata. Therefore, we give no credence to the information given by the DTPL through e-mail in response to section 133(6) of the Act.
29. We note that the assessee has been examined u/s 131 of the Act and the said statement is reproduced by the A.O. in his order at page no.52 to 54 wherein we find the statements of Soumen Choudhury, Pawan Kumar Kayan and Anuj Kumar Agarwal were confronted to the assessee, in our opinion, are very much in the knowledge of assessee, but, however, the assessee failed to controvert the same by brining cogent evidence on record. Therefore, we reject the contentions of ld. AR that there was no opportunity for the assessee to cross-examine the aforesaid persons attains any significance, accordingly, the arguments in that regard advanced by the ld. AR are rejected.
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30. Coming to the decision of Hon'ble High Court of Bombay, Nagpur bench at Nagpur in the case of Sanjay Bimal chand Jain, the facts are that the assessee made investments in two unknown companies, are penny stock companies. The assessee purchased @ Rs.5.50/- and Rs.4/- and sold shares @ Rs.486.55 and Rs.485.65 through two brokers who are located in Kolkata. The authorities below i.e AO and CIT-A recorded a clear 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 and the assessee failed to tender cogent evidence to explain as to how the shares in an unknown company worth Rs.5/- had jumped to Rs.485/-. The ITAT, Nagpur Bench held that the fantastic sale price was not at all possible as there was no economic or financial basis as to how a share worth of Rs.5/- of a little known company would jump from Rs5/- to Rs.485/-. The Hon'ble High Court of Bombay at Nagpur held the findings recorded by the all the authorities below are based on pure findings of facts based on a proper appreciation of the material on record and upheld the order of ITAT, Nagpur Bench in confirming the orders of CIT-A and AO in denying exemption claimed u/section 10(38) of the Act by the assessee therein. We find the facts and circumstances of the present case and the issue involved before us is identical to the substantial question of law raised before the Hon'ble High Court of Bombay at Nagpur, the ratio laid down therein is, in our opinion, applicable to the present case. Thus, grounds raised by the assessee are liable to be dismissed.
31. Regarding the decision of Hon'ble High Court of Delhi in the case of Suman Poddar, we find that the assessee claimed long term capital gain as 18 ITA No.257/PUN/2019, A.Y. 2015-16 exempt income u/s.10(38) of the Act. The AO doubted the said transactions in purchasing the shares of M/s. Cresenta Solutions Ltd. and on examination of details of financials of said company the AO treated the said transaction as bogus and denied the exemption as claimed by the assessee u/s.10(38) of the Act. The CIT(A) confirmed the view of the AO. The ITAT in the Second Appellate proceedings confirmed the order of CIT(A) in denying the exemption claimed by the assessee u/s.10(38) of the Act. The Hon'ble High Court of Delhi while dealing with the substantial question of law was pleased to observe, that to gain benefit of long term capital gain at the rate of 491% over a period of five months is beyond human probability and defies business logic of any business enterprise dealing with share transactions. Further, the Hon'ble High Court observed that it is the duty of the Tribunal to scratch surface and probe documentary evidence in depth in the light of conduct of assessee and other surrounding circumstances and held the ratio laid down by the Hon'ble Supreme Court in the case of Sumati Dayal is applicable and upheld the order of ITAT by holding the profits earned by the assessee therein are part of major scheme of accommodation entries.
32. Let us examine the decision of Hon'ble Supreme Court in the case of Sumati Dayal reported in 214 ITR 801 as relied by the Hon'ble High Court of Delhi in the case of Suman Poddar supra, the facts therein are that the assessee was engaged as a dealer in art pieces, antiques and curious during the year under consideration. The assessee claimed to have received a total amount of Rs.3,11,831/- by way of race winnings in jackpots and treble events in races at Turf Clubs in Bangalore, Madras and 19 ITA No.257/PUN/2019, A.Y. 2015-16 Hyderabad. The said amount was shown by the assessee in the capital account in the books. The ITO, held the sum of Rs.3,11,831/- is not winnings in races and he treated the said receipt as income from undisclosed sources and assessed the same as income from other sources. The appellate Assistant Commissioner confirmed the view of ITO. Though appeals were filed before the ITAT, were eventually withdrawn by the assessee, consequently filed an appeal before the Settlement Commission. The Two Members of the Commission upheld the orders of both the authorities below but however, the Chairman, Settlement Commission dissented the majority view rendered by the Two Members of the Commission. The Hon'ble Supreme Court upheld the majority view taken by the Two Members of the Settlement Commission
33. The Two Members of the Settlement Commission, constituting the majority view, came to the conclusion that the apparent is not the real and the assessee's claim of winning in races is contrived and not genuine for the reasons i.e (i) that the assessee's knowledge of racing is very meager,
(ii) having winning a number of jackpots in three or four seasons at three different centers and it is wild and contrary to the statistical theories and experience of the frequencies and probabilities. (iii) The books did not show any drawings on race days or on the immediately preceding days for the purchase of jackpot combination tickets. (iv) The gross amounts were credited with capital account with no debits and (v) did not show interest in races from 1972 onwards. The Hon'ble Supreme Court by referring to a decision in the case of Durga Prasad More reported in 82 ITR 540 (SC) held that the issue is to be considered by applying the test of human 20 ITA No.257/PUN/2019, A.Y. 2015-16 probabilities taking into consideration the surrounding circumstances and upheld the majority opinion rendered by the Two Members of the Settlement Commission.
34. In the case of M/s. Royal Rich Developers Pvt. Ltd. of Hon'ble High Court of Bombay wherein the facts are that the assessee had issued 9,37,500 equity shares at a face value of Rs.10/- with a premium of Rs.30/- per share and received Rs.3.75 crores by way of share application money. The AO examined the source of said receipt and held the said receipt is assessee's unexplained cash credit. The CIT(A) confirmed the view of AO by considering detailed remand report. The Tribunal agreed with the findings of CIT(A). The Hon'ble High Court of Bombay observed that the above said entire issue is based on appreciation of evidence and record. The Hon'ble High Court agreed with the findings of Assessing Officer that there was no reason or explanation were shown by the assessee therein supporting the high premium being paid by the investors in the absence of any business during the said assessment year. We find the facts and circumstances of the case before the Hon'ble High Court of Bombay are similar and identical to the facts and circumstances of the case, as in the present case are already discussed by us hereinabove there was no business activity of LD & PL during the year under consideration, nor any explanation offered for huge investment in preferential allotment of shares by paying premium, the LTCG thereon is, in our opinion, is pre- determined arrangement to book benefit by dubious method and as such the ratio laid down by the Hon'ble Jurisdictional High Court of Bombay is applicable to the present case.
21ITA No.257/PUN/2019, A.Y. 2015-16
35. The orders of Coordinate Benches of ITAT, Kolkata and Delhi in the cases of Sri Narendra Kumar Sarogi and Smt. Radhika Garg respectively as relied on by the ld. AR, we find the orders of Coordinate Benches are distinguishable on facts and circumstances, therefore, cannot be relied in the present case.
36. In the present case, the foundation of doubt as laid by the AO which made him to enquire into the details of transactions of purchase and sale of shares of LD&PL, finding the same as bogus led to denial of exemption u/s.10(38) of the Act. We find when there was no business operation of LD&PL during the period of purchase and sale of shares and astronomical increase of share price of LD&PL which led to returns at 350%, in our opinion, is unjustified. The assessee failed to controvert and put forth any evidence rebutting the investigation report DDIT, Kolkata showing the transactions of purchase and sale of shares are genuine. The suspension imposed by the Bombay Stock Exchange on trading of LD&PL shares from 28-08-2015 is still in force. Therefore, we hold that the assessee is the beneficiary of bogus transactions by accommodation entries provided by the Jamakharchi companies i.e LD&PL, DTPL and brokers KORP SL and GFSL through multiple layering of transactions, in view of the discussion made by us hereinabove, in the facts and circumstances of the case and the decisions relied upon, that the assessee is not entitled to claim exemption u/s.10(38) of the Act. We find no infirmity in the order of CIT(A) and it is justified. Thus, ground nos. 1 to 7 raised by the assessee fail and are dismissed.
22ITA No.257/PUN/2019, A.Y. 2015-16
37. Ground No.8 is relating to confirmation of addition made on account of commission charged in the facts and circumstances of the case. It is noted that the AO on an examination found a commission @ 5% has was paid for arranging capital gain as payment of such a commission is a common practice. He, therefore, made an addition of Rs.5,20,115/- (Rs.1,04,02,303/- @ 5%) as unexplained expenditure u/s 69 of the Act. The CIT(A) confirmed the same.
38. In view of the fact that we have countenanced the conclusion of the authorities below in treating the long term capital gain from transfer of shares as bogus, the sequitur is that the assessee did pay commission for arranging the bogus capital gain. However, considering the totality of the facts and circumstances of the instant case, we are of the considered view that the rate of commission be reduced to 2% instead of 5%. Thus, ground No.8 raised by the assessee is partly allowed.
39. Ground No.9 is raised challenging the action of CIT(A) in confirming the addition made on account of set off of interest against professional fee in the facts and circumstances of the case. The assessee claimed set off of interest expenses to the tune of Rs.5,09,800/- against a professional receipt stated to have been from M/s. Sagar Paridhan Pvt. Ltd. According to the AO, the said receipt is a salary from M/s. Sagar Paridhan Pvt. Ltd. as the assessee is a Director in the said concern, accordingly held the set off is not available. The CIT(A) confirmed the view of AO for the reasons stated as under:-
"7. I have duly considered the submissions of the appellant. During the year under reference, the appellant has claimed interest expenses of Rs.5,09,800/- against the salary income received from M/s. Sagar Paridhan Pvt. Ltd. a company in 23 ITA No.257/PUN/2019, A.Y. 2015-16 which he is a director. The appellant had paid interest of Rs.44,62,400/- to Axis Bank. Out of above, interest of Rs.35,70,000/- was capitalized and the appellant had also received interest of Rs.3,58,410/- from various parties and interest of Rs.24,190/- was received from bank. Accordingly the interest expenses of Rs.5,09,800/- were claimed against the salary income received from M/s. Sagar Paridhan Pvt. Ltd. It was initially alleged that the appellant had received professional fees from M/s. Sagar Paridhan Pvt. Ltd. and accordingly, TDS u/s 194J was deducted on the same. However, during the course of assessment proceedings, the AR of the appellant i.e. Shri Rajesh Agrawal appeared on 06-12-2017 before the AO and admitted that by mistake, salary of Rs.24,00,000/- from M/s. Sagar Paridhan Pvt. Ltd. had been shown as professional fees. In view of this categorical admission by the AR of the appellant before the AO, there is no new material placed on record by the appellant to enable the undersigned to disturb the finding made by the AO in this regard. In fact, the appellant vide letter dated 08-12-2017 had admitted before the AO that he had received salary of Rs.24,00,000/- from M/s. Sagar Paridhan Pvt. Ltd. and it was not a professional receipt. Further, there is no corroborative evidence to show that such admission was made by the appellant or his AR under mistaken belief of facts or law. In these facts and circumstances, the addition of Rs.5,09,800/- made by the AO is sustained and this ground of appeal is accordingly, dismissed.
40. On perusal of above reasoning, we find no evidence whatsoever put forth by the Ld. AR showing the said Rs.24,00,000/- is a professional receipt from M/s. Sagar Paridhan Pvt. Ltd. Admittedly, the assessee is a Director of said M/s. Sagar Paridhan Pvt. Ltd. In the immediately preceding year also, similar amount was treated by the assessee as Salary and offered as such. In view of the same, we hold that the authorities below were right in treating the amount of receipt as chargeable to tax under the head `Salaries' and consequently, not allowing the set off of interest of Rs.5,09,800/-. Thus, the ground No.9 raised by the assessee fails and it is dismissed.
41. In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 5th November, 2019.
Sd/- Sd/-
(R.S. Syal) (S.S. Viswanethra Ravi)
VICE PRESIDENT JUDICIAL MEMBER
पुणे / Pune; दनांक / Dated : 5th November, 2019
RK
24
ITA No.257/PUN/2019, A.Y. 2015-16
आदे श क$ % त'ल(प अ)े(षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. आयकर आयु!त (अपील) / The CIT(A)-1, Aurangabad
4. The Pr. Commissioner of Income Tax-1, Aurangabad
5. $वभागीय 'त'न(ध, आयकर अपील य अ(धकरण, "ए" ब,च,
पुणे / DR, ITAT, "A" Bench, Pune.
6. गाड/ फ़ाइल / Guard File.
//स या$पत 'त// True Copy//
आदे शानस
ु ार / BY ORDER,
// True Copy //
'नजी स(चव / Private Secretary,
आयकर अपील य अ(धकरण, पुणे / ITAT, Pune