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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI PAVAN KUMAR GADALE, JM
and 7762/Mum/2019 is filed by Gopal Nihchaldas Pariani [ the Assessee/ Appellant ] for A.Y. 2014-15 and 2015-16 against the combined appellate order passed by the learned Commissioner of Income-tax (Appeals)-36, Mumbai [ the learned CIT (A)] dated 30th October, 2019, wherein the addition of ₹5,18,95,425/- for A.Y. 2014-15 and ₹2,10,02,400/- for A.Y. 2015-16 under Section 68 of the Act was confirmed.
For assessee has raised following grounds of appeal: -
a) The Ld. CIT (A) has erred in confirming the addition made by the Ld. AO for Rs. 5,18,95.425/- w/s 68 of the Income Tax Act, 1961 being the amount of Long Term Capital Gains on Sale of Shares of Pine Animation Limited without considering the facts and circumstances of the case. The same be considered and the additions be deleted. b) The Ld. CIT (A) has erred in treating the transaction for sale of shares of Pine Animation Limited, a listed entity as bogus and proceeded to continue to confirm the addition made by the Ld. AO without considering the facts and circumstances of the case. The same be considered and the additions be deleted. c) The CIT(A) has erred in confirming the addition made for Rs. 5.18.95,425/- of the Ld. AO u/s 68 of the Income Tax Act, 1961 without appreciating that the assessee had duly proved the Identity and Nature of the Source of the credit of sale proceeds were explained and proved. The additions made are merely on assumptions, which are not sustainable in law. d) The CIT (A) has failed to appreciate that the Ld. AO has made the additions by merely relying on external data, information from BSE, third party statements etc. without proving assessee's involvement in the price rigging. The Order passed on such basis is bad in law and needs to be quashed. e) The Ld. CIT (A) has failed to appreciate that nowhere do the information available prove the assessee as a beneficiary of the alleged bogus entry. g) The Ld AO as well as the Ld. CIT(A) failed to consider that the assessee was exonerated by SEBI in the case of Pine Animation Limited stating that he had no nexus/connection or collusion with the Company, its directors or promoters. The same be considered and the additions be deleted. h) The Ld AO as well as the Ld. CIT(A) has failed to consider that when SEBI, who monitors and regulates the stock exchange & stock market and when their investigation, which was the subject matter of investigation, did not reveal any price or volume manipulation by the assessee, the said transactions are to be considered in the normal course and through proper channels. The same be considered and the additions be deleted. i) The Ld.AO as well as the Ld. CIT(A) has nowhere in their respective orders pointed out non-fulfillment or non- compliance of any conditions of Section 10(38) of the Act. Hence rejecting the claim u/s 10(38) without giving justifiable reasons is contrary to the provisions of the law. The same be considered and the exemption be granted. j) The Ld AO as well as the Ld. CIT(A) merely relying on the general study report of the investigating wing rejected the assessee's claim and held that the entire transactions undertaken by the assessee were merely accommodation entries taken for the purpose of securing bogus long term k) Neither the Ld. AO nor the CIT (A) has provided any concrete evidence to establish any link between the report of the investigating authority and the assessee. Hence, the addition is required to be deleted. l) The Ld. AO had relied on the statement on oath of Mr. Anuj Agarwal wherein nowhere has the AO mentioned that the assessee's name was referred by Mr. Anuj Agarwal. The Ld. AO has made the addition based on the general statement without considering the facts and circumstances of the case. The same be considered and the additions be deleted. m) The Ld. AO had not granted an opportunity to the assessee for cross-examination of evidences in his possession. The same be considered and the additions be deleted. n) The Ld. AO has failed to prove with evidence that any unaccounted money was received by the operators from the assessee. The same be considered and the additions be deleted. o) The Ld. AO as well as the Ld. CIT (A) has failed to consider that the assessee had filed complete set of documents for preferential allotment of share and trading in shares for past many years. The same be considered and the additions be deleted. p) The Ld. AO as well as the Ld. CIT (A) has failed to consider the fact that the assessee till date holds 12, 00,000 equity shares of the alleged penny stock Company, Pine Animation Ltd. Had the assessee been the intentional beneficiary to the said price rigging he would q) The Ld CIT(A) has failed to consider the fact that even if the buyers are doubtful or of suspicious character, it does not affect the transaction of sale of shares by the assessee through recognized stock exchange by the registered broker and that the payments are duly received. The same be considered and the additions be deleted. r) The Ld. AO as well as the Ld. CIT(A) has failed to consider that by submitting the relevant documents for the sale of the said shares, the assessee has duly complied with the provisions of Section 68 of the Income Tax Act, 1961 in establishing the creditworthiness and the genuineness of the transaction. Since the said shares are sold through the registered broker on the BSE platform and not off-market, the source being BSE's clearing system is also established. The same be considered and the additions be deleted. s) The Ld.AO as well as the Ld. CIT (A) has failed to consider the fact that when the shares are sold through the stock exchange, the identity of the buyer is not known to the seller. The same be considered and the additions be deleted.
2. Without prejudice to the above, the Ld. CIT (A) has erred in confirming the addition made by the Ld. AO for Rs. 15, 56,863/- u/s 69C of the Income Tax Act, 1961 being the amount assumed to be the commission paid for the aforesaid sale of shares of Pine Animation Limited without considering the facts and circumstances of the case. The same be considered and the additions be deleted.
Similarly, in A.Y. 2015-16, assessee has raised following grounds of appeal:-
“a) The Ld CIT (A) has erred in confirming the addition made by the Ld. AO for Rs. 2,10,02,400 us 68 of the income Tax Act, 1961 being the amount of Long Term Capital Gains on Sale of Shares of Pine Animation Limited without considering the facts and circumstances of the case. The same be considered and the additions be deleted. b) The Ld. CIT (A) has erred in treating the transaction for sale of shares of Pine Animation Limited, a listed entity as bogus and proceeded to continue to confirm the addition made by the Ld. AO without considering the facts and circumstances of the case. The same be considered and the additions be deleted.
C) The CIT(A) has erred in confirming the addition made for Rs. 2,10,02,400/- of the Ld. AO u/s 68 of the Income Tax Act, 1961 without appreciating that the assessee had duly proved the Identity and Nature of the Source of the credit of sale proceeds were explained and proved. The additions made are merely on assumptions, which are not sustainable in law. d) The CIT (A) has failed to appreciate that the Ld. AO has made the additions by merely relying on external data, information from BSE, third party statements etc. without proving assessee's involvement in the price rigging. The Order passed on such basis is bad in law and needs to be quashed. f) The Ld. AO as well as the Ld. CIT(A) has failed to consider that SEBI vide their Order dated 28.09.2017 has confirmed that there were no adverse findings against 114 parties of which the assessee was one of them with respect to their role in manipulation of the script of Pine Animation Limited. The same be considered and the addition be deleted. g) The Ld AO as well as the Ld. CIT(A) failed to consider that the assessee was exonerated by SEBI in the case of Pine Animation Limited stating that he had no nexus/connection or collusion with the Company, its directors or promoters. The same be considered and the additions be deleted. h) The Ld AO as well as the Ld. CIT(A) has failed to consider that when SEBI, who monitors and regulates the stock exchange & stock market and when their investigation, which was the subject matter of investigation, did not reveal any price or volume manipulation by the assessee, the said transactions are to be considered in the normal course and through proper channels. The same be considered and the additions be deleted. i) The Ld.AO as well as the Ld. CIT(A) has nowhere in their respective orders pointed out non-fulfillment or non-compliance of any conditions of Section 10(38) of the Act. Hence rejecting the claim u/s 10(38) without giving justifiable reasons is contrary to the provisions of the law. The same be considered and the exemption be granted. j) The Ld AO as well as the Ld. CIT(A) merely relying on the general study report of the investigating wing rejected the assessee's claim and held that the entire transactions undertaken by the assessee were merely accommodation entries taken for the k) Neither the Ld. AO nor the CIT (A) has provided any concrete evidence to establish any link between the report of the investigating authority and the assessee. Hence, the addition is required to be deleted. l) The Ld. AO had relied on the statement on oath of Mr. Anuj Agarwal wherein nowhere has the AO mentioned that the assessee's name was referred by Mr. Anuj Agarwal. The Ld. AO has made the addition based on the general statement without considering the facts and circumstances of the case. The same be considered and the additions be deleted. m) The Ld. AO had not granted an opportunity to the assessee for cross-examination of evidences in his possession. The same be considered and the additions be deleted. n) The Ld. AO has failed to prove with evidence that any unaccounted money was received by the operators from the assessee. The same be considered and the additions be deleted. o) The Ld. AO as well as the Ld. CIT (A) has failed to consider that the assessee had filed complete set of documents for preferential allotment of share and trading in shares for past many years. The same be considered and the additions be deleted. p) The Ld. AO as well as the Ld. CIT (A) has failed to consider the fact that the assessee till date holds 12.00.000 equity shares of the alleged penny stock Company, Pine Animation Ltd. Had the assessee been the intentional beneficiary to the said price rigging he would have sold all the shares held by him. The fact that the assessee has sold only part shares retaining a major lot till date q) The Ld CIT(A) has failed to consider the fact that even if the buyers are doubtful or of suspicious character, it does not affect the transaction of sale of shares by the assessee through recognized stock exchange by the registered broker and that the payments are duly received. The same be considered and the additions be deleted. r) The Ld. AO as well as the Ld. CIT(A) has failed to consider that by submitting the relevant documents for the sale of the said shares, the assessee has duly complied with the provisions of Section 68 of the Income Tax Act, 1961 in establishing the creditworthiness and the genuineness of the transaction. Since the said shares are sold through the registered broker on the BSE platform and not off- market, the source being BSE's clearing system is also established. The same be considered and the additions be deleted. s) The Ld.AO as well as the Ld. CIT (A) has failed to consider the fact that when the shares are sold through the stock exchange, the identity of the buyer is not known to the seller. The same be considered and the additions be deleted.
2. Without prejudice to the above, The Ld. CIT (A) has erred in confirming the addition made by the Ld. AO for Rs. 6, 30,072/-/- u/s 69C of the Income Tax Act, 1961 being the amount assumed to be the commission paid for the aforesaid sale of shares of Pine Animation Limited without considering the facts and circumstances of the case. The same be considered and the additions be deleted.
The assessee craves leave add, alter or delete to the grounds of appeal at the time of or before hearing.”
First, we state the facts of the case for A.Y. 2014-15. For A.Y. 2015-16, facts are similar except the change in the amount. The arguments of both
The facts shows that the assessee is an individual carrying on the business earned capital gain and income from other sources. Assessee filed its return of income on 29 July 2014 at a total income of ₹6, 89,160/-. In the return of income, assessee has claimed exempt income because of Long Term Capital Gain on sale of shares. The return was processed under Section 143(1) of the Act and was never scrutinized.
Subsequently, notice under Section 148 of the Act was issued on 13 September 2016, which was replied by the assessee on 26 November 2016, reiterating the original return filed on 29 July 2014. The reason for reopening was provided to the assessee. The objections were filed on 6 December 2017, which was disposed on 8 December 2017.
Assessee has sold 555,000 shares of Pine Animation Limited of purchase value of ₹5, 55,000/- and earned a Long Term Capital Gain therein of ₹5, 11, 39,061/-, which was claimed as exempt. The learned Assessing Officer asked the assessee to prove the genuineness of the above transactions.
Assessee submitted the purchase bill of shares, bank account statements, and Demat Account and broker notes for the sale of shares. It was contended that the shares were sold on a stock exchange through the broker and payments have been received also through the stock exchange by the broker and in turn paid to the assessee.
The learned Assessing Officer noted that there is a specific investigation in several companies listed on stock exchange, the prices of such companies were rigged, and the transactions are not genuine. The learned Assessing Officer thereafter noted that the shares in which the assessee has traded was originally having a name of M/s Four K Animation Limited , later on merged with Pine Animation Limited, registered with Registrar of Companies (ROC), Chennai, since 1st August, 1989. He noted that assessee purchased shares of this company
The facts were noted by the learned Assessing Officer that on 13 December 2012, assessee purchased 2, 00,000/- shares of M/s Four K Animation Limited which later on merged into Pine Animation Limited. The shares were credited in HDFC Bank depository. Later on, these shares were sub-divided into face value of ₹1/- each with lock in period up to 14 December 2013 and therefore, the assessee is holding 20 lac shares of the above company. The learned Assessing Officer noted that average purchase of the shares was ₹1 per share where the average sale price is ₹93.50 per share. Therefore, there is an increase by 93 times of the purchase price for which no justification was given. Assessee also questioned that when the assessee is based at Mumbai, how he was able to purchase shares from a Chennai based company. He further noted the movement in the share price of Pine Animation Limited is also not supported by net worth of the company. He also extracted the financial results of that company and reached at a conclusion that the share price of this company have sky rocketed without having any profit, EPS, dividend, etc. Therefore, the shares of this company were artificially hiked to create non-genuine long-term capital gain in the hands of the assessee as well as the other beneficiaries. The learned Assessing Officer also reached at the conclusion that the return generated by these shares, without having any financial results itself is a substantial evidence to show that long-term capital gain earned is not genuine. The learned Assessing Officer further noted that statement of some persons were recorded by DDIT, Kolkata to show that Pine Animation Limited is a company engaged in providing bogus accommodation entries. According to the trading information, the learned Assessing Officer
The assessee submitted the copy of the bank passbook, sale bill of shares, purchase bill of shares, copies of the ledger of the broker, detail of application and copy of letter from the company for allotment of shares and copy of the order issued by Securities Exchange Board of India (SEBI) dated 19 September 2017. Assessee also asked cross- examination of parties whose statement is mentioned by the learned Assessing Officer. The assessee also categorically stated that none of the parties whose statements are recorded by the learned Assessing Officer or investigation wing Kolkata, has not at all named the assessee. The assessee also submitted that in the order of the SEBI, there is no allegation against the assessee or the broker through whom the sale has been made.
The learned Assessing Officer rejected all the contentions of the assessee stated that there is no justifiable reason that why assessee would investing in M/s Four K Animation Limited even though he had been investing in many companies. Further, in the price movement of this company accommodation, entry providers are involved and there are exit providers also in the trading of above shares. The learned Assessing Officer stated that the statements are not solely used for determining the true nature of Long Term Capital Gain but accessory of numerous other evidences available. Therefore, he rejected the request for cross- examination. Accordingly, he held that the Long Term Capital Gain earned by the assessee is bogus for the reason that there is an unusual rise in the price of the script and further the investigation wing has investigated the trading of this company and found that accommodation
Assessee aggrieved with that order of the learned Assessing Officer preferred the appeal before the learned CIT (A).
Similarly, for A.Y. 2015-16, the Long Term Capital Gain earned by the assessee of ₹2,10,02,400/- was added under Section 68 of the Act and further addition of ₹6,32,072/- was made under Section 69C of the Act on account of sale of 2,45,000/- shares of the above company at ₹2,10,02,400/- by passing an assessment order under Section 143(3) of the Act on 29th December, 2017, wherein the return of income filed by the assessee on 30th March, 2016 at ₹14,27,610/- was assessed at ₹2,30,06083/-.
Assessee also preferred the appeal against the assessment order for A.Y. 2015-16 before the learned CIT (A).
Therefore, as both the appeals i.e. appeal for A.Y. 2014-15 and 2015-16 were pending before the learned CIT (A) on similar ground; he passed a common order on 30 October 2019, dismissing the appeal of the assessee for both the years. Therefore, against the order of the learned CIT (A) for both the years, assessee is in appeal before us.
The learned Authorized Representative submitted that ii. On 4 February 2013, assessee was granted an allotment of two lac shares and the assessee was intimated through allotment advice that he has been allotted the above shares by virtue of resolution dated 13 December 2012 of the company. Share certificate no.30005 was also issued to the assessee. In the share certificates, there was also a lock in period.
iii. The assessee thereafter got these shares dematerialize and held in Demat form. iv. Copies of the notice of extraordinary general meeting held by the above company was received by assessee, Assessee was the 27th non-promoter attendee out of 49 attendees in the extraordinary general meeting. He placed on record the copy of the meeting of the above company. v. Letter of Bombay Stock Exchange dated 16 January 2013, wherein the list of approval of 1, 50,000 equity shares of the above company for trading was granted. Prior to that all the shares were dematerialize. vi. A letter dated 4 February 2013 of Central Depository Services India Limited to the company secretary that the above shares were in lock in period up to 13 December 2013. viii. HDFC bank Depository statement of DPID no. IN30146 having Client ID of 10710005, wherein on 7 May 2013, 2, 00,000 shares of face value of ₹10 each were credited in his Demat Account. ix. Same Demat account there are many other companies whose shares are held by the assessee. x. Subsequently, there was a sub-division in the shares from ₹10 each to ₹1/- each and therefore, two lac shares became 20 lac shares. xi. These shares were sold starting from 2 January 2014 to 4 March 2014 of 5, 50,000 shares of the above company through its broker Manubhai Mangaldas Securities Pvt. Ltd., Mumbai. xii. Sales bill having date and time stamp, shares are sold at stock exchange, sale consideration is received through payout mechanism of stock exchange by the broker of the Assessee, and broker has in turn made payment to the assessee.
SEBI order dated 28th September, 2017 in case of Pine Animation xiii. Limited, wherein the Securities and Exchange Board Of India conducted an examination into the dealings in shares of Pine Animation Limited on Bombay Stock Exchange during the period from 22nd May, 2013 to 30th January, 2015 as there was a huge rise in the trading volume and price of the script. He submitted that there was an interim order passed by the SEBI in case of assessee also being one of the preferential allottees listed at Serial no.71. He further referred to paragraph no.9 of that order, wherein the SEBI had categorically held that its investigation did not find any adverse evidence against them to show any connection or nexus with Pine Animation Limited or its promoter’s directors or xiv. SEBI by that order has categorically held that violation of Provisions of SEBI Act, securities contract regulation Act as well as PFUTP regulations were not observed in the case of the assessee company. He specifically referred to page no.7 of that order wherein assessee name is mentioned at serial no.12 out of 114 entities. xv. Para no.10 of that SEBI order has categorically held that there is no adverse finding against the assessee. xvi. That when SEBI, who is the regulatory authority to find out any manipulation in the price of shares of any script has not found anything against the assessee, then the finding of the learned Assessing Officer and learned CIT (A) that assessee is involved in any manner in price manipulation etc. is devoid of any merit. xvii. No cross-examination was granted to assessee of statement of several persons recorded by Investigation wing Kolkata, which are used for making addition.
He submitted that assessee has discharged its initial onus cast upon him in showing the nature and source of receipt. Assessee the complete details of bank account held by the assessee together with the bank statement is a balancing the payments made for purchase of shares and sale proceeds credited in the bank account for sale of shares, payments made by regular banking channel for purchase of shares and investment made in shares were duly reflected in the books of accounts of the assessee in the year of the purchases. The allotment details were completely provided to the learned assessing officer. The allotted shares were converted into the dematerialize form by producing the statement from the depository. Further contract notes, sale bills raised by the share broker having the time and date stamp were also produced before the learned assessing officer on whom the assessee has paid the securities
He relied upon several judicial precedents to support that the addition cannot be made. He relied on the decision of honourable Bombay High Court in case of CIT versus Shyam S Pawar 54 taxmann.com 108, honourable Delhi High Court in case of principal Commissioner of income tax versus Krishna Devi and others ITA 125/2020 126 taxmann.com 80.
The learned departmental representative vehemently supported the orders of the lower authorities and submitted that the honourable Bombay High Court in case of Sanjay Bimalchand Jain 89 taxmann.com 196 and honourable Calcutta High Court in case of principal Commissioner of income tax versus Swati Bajaj 139 taxmann.com 352 as well as the honourable Delhi High Court in case of suman Poddar versus ITO 112 taxmann.com 329 squarely covered the issue in favour of the assessee.
We have carefully considered the rival contention and perused the orders of the lower authorities. We have also carefully considered the several judicial precedents relied upon by the rival parties.
In the present case, the addition has been made by the learned assessing officer under section 68 of the income tax act. According to the provisions of section 68, if the Assessee fails to prove to the satisfaction of the learned assessing officer about the 'nature and source' of the receipt, the learned that AO may treat sum so credited as unexplained income of the assessee. Therefore, it needs to be seen that whether the assessee has discharged its initial onus cast upon him or not.
In CIT Vs. Oasis Hospitality Private Limited (MANU/DE/0287/2011 : 2011) 333 ITR 119 (Del) it was held that the initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68 and those are: (i) identity of the investors; (ii) their credit worthiness/investments and (iii) genuineness of the transactions and only when these three ingredients are established prima facie, the department is required to undertake further exercise
In the present case, assessee has submitted the details of purchase of the shares, payment for purchase of the shares through banking channel, receipt of the shares from the issuing company, dematerialization of those shares in the depository, sale of the shares through registered
As far as genuineness of transaction is concerned, it is not an empty formality when there are serious issues involved in the transaction. There is report of Investigation wing of Income tax Department Kolkata where in the companies are found to be operated by the accommodation entry providers by providing bogus long term capital gain in listed securities by price manipulations. That report is exhaustive, available in public domain, covers several companies and discuss modus operandi of the conversion of unaccounted income by coloring it with purported genuine transaction.
Addition with respect to provision of section 68 are required to be tested with respect to peculiar facts and circumstances of the person providing the credit and his financial standing and whether the transaction between the parties are not tainted. No judicial precedents can be said to give a straitjacket answer to these questions. The reason being these are facts specific issues. Applying one decision to the different facts will lead to violation that judicial precedent. In the case of Government of Karnataka v. Gowramma (2007), the Hon. Supreme Court held that reliance on the decision without looking into the factual background of the case before it is clearly impermissible. A decision is a precedent on its own facts. Each case presents its own features. It is not everything said by a Judge while giving a judgment that constitutes a precedent. The only thing in a Judge's decision binding a party is the principle upon which the case is decided and for this reason, it is important to analyze a decision and isolate from it the ratio decidendi. A decision often takes it colour from the questions involved in the case in which it is rendered. The scope and authority of a precedent should never be expanded unnecessarily beyond the needs of a given situation.
Thus, it is not relevant that trading in company titled/ branded as penny stock where addition made has been deleted by one or other court. It may happen that one transaction in the shares of that company is tainted and others not. It is also not relevant that transactions are accepted as genuine in case of Mr. X and therefore the transaction in the same scripts in all other assessee's case is genuine. Thus, each transaction needs to be tested on its own facts and circumstances. If it passes through the three tests as laid down u/s 68 of the Act, script, company and all other criteria are immaterial. It is also the facts that SEBI has exonerated the assessee for violation. It may so happen that SEBI might not have got any evidence, which is violation of that law, but LD AO might have got information, which is relevant for making addition u/s 68 of the Act. Needless to say, that SEBI Act, SCRA Act and PFUTP Regulations have different aspects to be tested. Findings of those may help the assessee in discharging his onus, but those matters does not sail the case of the assessee, if LD AO has material. Therefore, the prime important piece of evidence is inquiry by LD AO and his findings with evidences.
In this case, SEBI has given a clear-cut answer that assessee and other who are named as exit providers are not at all involved any kind of price rigging of shares of this company. This was available with lower authorities
When all these details have been produced by the assessee before the learned assessing officer, the assessee has discharged his initial onus under section 68 of the act. After that it is the duty of the learned assessing officer to throw back the onus back on assessee by making a concrete enquiry with respect to the evidence submitted by the assessee and if any adverse information is collected by him, to confront the assessee with that information.
i. SEBI carried out investigation in price rigging of shares of Pine Animation limited for the trading period May 22, 2013 to 30, January 2015. ii. It investigated Preferential Allotment made by it of Rs 24.7 Crores to 92 Allottees during 2012-13. Assessee is one of them. iii. Investigation was with respect to violation of SEBI Act 1992, SCRA 1956 and SEBI Prohibition of Fraudulent and Unfair Trade Practices Relating to - Securities Market 0 Regulation 2003. iv. Ad Interim ex parte order was passed on 8/5/2015 restraining 178 entities from accessing securities Market. Assessee is one of them. Assessee appears in that list at Sr No 71. v. Subsequently this order was confirmed. vi. Final order was passed on 19/9/2017 after detailed investigation by SEBI as mentioned in Para no 8 & 9 of that Order. vii. By that Final Order SEBI held that in case of 114 entities, preferential allottees, and alleged exit providers there is no evidence of any violation of above two acts and one Regulation [PFUTP Regulation 2003]. Assessee, exit providers name appears in that list. ix. One of the person challenged the orders of SEBI before SAT [ Umang Dhanuka V SEBI] APPEAL NOS. 44 AND 102 OF 2020 JUNE 8, 2021 where in SEBI held that :-
"27. If the preferential allottees that have made huge profits have been let off there is no reason why the appellants should not be let off. The WTM however, has taken an exception on the fact that the appellants had made huge profits. We are of the opinion that it is not a crime to make huge profits unless you show that the profits were made by manipulating the price in collusion and with fraudulent intent with other entities such as the Company and its directors and promoter related entities which in the instant case is lacking."
"31. The basic charge and investigation was one of LTCG. This charge has been dropped altogether which was part of the modus operandi of the whole scheme. The initial charge against the appellants was that they were "promoter related entities" and this charge has been dropped. The appellants have been restrained from accessing the securities market on the ground that the Company had weak fundamentals and on the ground that no one in their right mind would invest in the shares of the Company and since the appellants invested less than the face value of the shares it led to an irresistible inference based on the preponderance of probabilities that the appellants had purchased the shares with this pre-arranged scheme that they would reap in huge profits when the price of the scrip rises. In our opinion, this finding is perverse. We are of the opinion that the respondent are adopting dual standards. The issue of weak fundamentals would equally apply to the preferential allottees who were allotted the "36. The finding that the investments made by the appellants cannot be termed as a regular investment made in the ordinary course of business or trading as the Company had weak fundamentals and financials is based on surmises and conjectures and cannot be a ground to charge the appellants. The finding that the appellants had purchased the shares pursuant to a pre-decided scheme with an assurance of a profitable exit at a manipulated price is purely based on surmises and conjectures without any corroborative evidence. This finding cannot be based on a preponderance of probabilities especially in the absence of reasonable explanation as to why would anyone give the appellants an assurance of a profitable exit at manipulated price. Further, there is nothing on record to suggest as to who had given such an assurance to the appellants. Nothing has come on record to indicate that the six entities had sold the shares for some ulterior purpose. The six entities did not know these appellants directly and unless there was some intention of parting with the profits the charge of selling the shares with huge profits under a pre-decided scheme is farfetched."
Thus, the regulator who monitors, whether there is any irregularity committed by the assessee in transaction of shares has exonerated and categorically held that assessee is not at all involved any of the
The Decision of Swati Bajaj [Supra] does not apply in this case because a regulatory authority in this case has categorically held that assessee or exit providers if any are not involved in any price rigging of shares of this company. Thus by producing the order of SEBI where the assessee along with others have been exonerated in any manipulation, along with other documents clearly proves the genuineness of the transaction. The order of SEBI exonerating the assessee makes a distinguishing feature from the decision of Mrs. Swati Bajaj [ Supra] Such facts were missing in that decision.
The LD AO has not made any inquiry about the genuineness of theses transaction on the documents submitted by the assessee. The evidences collected by the DDIT Kolkata are good only for reopening of Assessment. For making an addition holding that transaction are bogus, the LD AO should have made inquiries on the documents submitted by the Assessee. Most important is the inquiry based on date and Time stamp of the transactions at stock exchanges. Buy and sale timing based on date and time stamp of trade would have led to exit providers and where the securities have travelled after sale, who provided the funds to the buyers, how the broker of buyer of shares are involved in these transactions. Synchronized trade of sale is generally not possible unless the brokers of the buyer and sellers in collusion. There is not even a single inquiry by the LD AO.
We are not at all impressed by the arguments of the assessee about the cross examination etc as we do not find that LD AO has made addition only on the basis of statements of third parties. When also it is the claim of the assessee that his name nowhere figures, in those statements, assessee does not have any reason to ask for their cross-examination.
In the result, we allow appeal of Assessee for both A.Y. s and direct LD AO to delete the addition.
Order pronounced in the open court on 24.02.2023.