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आयकर अपील"य अ"धकरण,च"डीगढ़ "यायपीठ “ए” , च"डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH "ी एन.के.सैनी, उपा"य" एवं "ी संजय गग", "या"यक सद"य BEFORE: SHRI. N.K.SAINI, VP & SHRI , SANJAY GARG, JM
आयकर अपील सं./ ITA No. 706, 707 & 709/Chd/2018 "नधा"रण वष" / Assessment Year : 2008-09, 2010-11 & 2012-13
Shri Sanjay Singhal The DCIT बनाम 3- Industrial Area, Phase-1 Central Circle-1 Chandigarh Chandigarh "थायी लेखा सं./PAN No: ANRPS7985C अपीलाथ"/Appellant ""यथ"/Respondent आयकर अपील सं./ ITA No. 712, 713 & 715/Chd/2018 "नधा"रण वष" / Assessment Year : 2008-09, 2010-11 & 2012-13 Smt. Aarti Singhal The DCIT बनाम 3- Industrial Area, Phase-1 Central Circle-1 Chandigarh Chandigarh "थायी लेखा सं./PAN No: ANRPS7985C अपीलाथ"/Appellant ""यथ"/Respondent
"नधा"रती क" ओर से/Assessee by : Shri S.K. Tulsiyan, Advocate Shri Ashwani Kumar, C.A Ms. Abha Aggarwal, C.A Ms. Bhoomija Verma, Advocate Mr. Aditya Kumar, C.A राज"व क" ओर से/ Revenue by : Shri. G.C. Srivastava, Special Counsel सुनवाई क" तार"ख/Date of Hearing : 04/02/2020 उदघोषणा क" तार"ख/Date of Pronouncement : 07/02/2020 आदेश/Order PER BENCH:
All the above appeals filed by the different Assessees are arising out of the common order dt. 31/03/2018passed by the Ld. CIT(A)-3, Gurgaon.
These appeals were earlier heard on 01/10/2019, at that time, one of the contention of the Ld. Counsel for the Assessee was that these appeals are squarely covered vide order dt. 31/10/2018 of the ITAT Delhi Bench in the case of Shri Brij Bhushan Singal & Ors Vs. ACIT in ITA Nos. 1412-1414, 1476-1478, 1482, 1485- 1487/Del/2018. To clarify this fact that as to whether the said order has been confirmed or reversed by the higher forum, these cases was fixed for clarification on 04/02/2020 i.e. the date on which another cases of the same group to which these assessees belong are fixed. The Ld. Counsel for the assessee clarified that the Departmental appeals against the said order dated 31/10/2018, were belated by approximately 200 days and till date those appeals had not been admitted by the Hon'ble Juri ictional High Court and as such the said order dt. 31/10/2018 in the case of another persons belonging to the same group and decided by the ITAT Delhi Bench, is intact.
1 Since the issues involved are common having similar facts in all these appeals which were heard together, so these are being disposed off by this consolidated order for the sake of convenience and brevity.
At the first instance we will deal with the appeal in ITA No. 706/Chd/2018 wherein following grounds have been raised:
That order dated 31.03.2018 passed u/s 250(6) of the Income Tax Act, 1961 (hereinafter called the "Act") by the Ld. Commissioner of Income Tax (Appeals)-3, Gurgaon is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assessing Officer in initiating proceedings u/s 153A of the Act despite the fact that no incriminating material was found during the course of search u/s 132 conducted on 21-02-2014 whereby the order passed is without juri iction, bad in law and void ab-initio.
That the Ld Commissioner of income Tax (Appeals)-3, Gurgaon gravely erred in upholding the action of the Ld. Assessing Officer in making an addition of Rs. 40,05,419/- representing the sale proceeds of listed equity shares held by the Appellant for more than 12 months by invoking the provisions of Sec. 68 of the Act by ignoring the relevant specific facts and circumstances of the case and by relying on extraneous arguments and evidences, including in particular, circumstantial evidence, which has no bearing and applicability to the case.
That the Ld Commissioner of Income Tax (Appeals)-3, Gurgaon was not justified to uphold the action of the Ld. Assessing Officer in treating the transactions relating to purchase and sale of equity shares as ingenuine transactions.
That the Ld Commissioner of Income Tax (Appeals)-3, Gurgaon further gravely erred in upholding the action of the Id. Assessing Officer in making an addition of Rs. 2,40,956/- on account of alleged commission expenses paid by the Appellant for arranging the alleged entries in respect of Long Term Capital Gains by invoking the provisions of Sec. 69C of the Act on sheer presumptive basis.
That the Ld. Commissioner of Income Tax (Appeals)-3, Gurgaon while adjudicating the appeal, has dismissed various grounds of appeal raised by the Appellant by relying on statements of various persons and data without affording any opportunity to cross examine such persons thereby ignoring the basic principles of natural justice despite the fact that a specific ground was raised to this effect.
The ground nos. 1 & 5 are legal grounds vide which the assessee had challenged the juri iction of the A.O. in initiating the proceedings under section 153A of the Act when no incriminating material was found during the course of search. These legal grounds were argued at the first instance by both the parties.
Facts relating to the issue as emerging from the order of the authorities below in brief are that a search and seizure operation under section 132(1) of the Income Tax Act (here-in-after referred as "Act"), was carried out by the Department at the business premises of the assessee Group i.e; Bhushan Power & Steel Group (BPSL in short) alongwith residential / business premises of its Directors and other related entities & persons on 03/03/2010. 6. During the course of search certain incriminating documents, papers, books of accounts etc. were found and seized. The A.O. mentioned that the assessee being the Director and key person of the Group filed letter dt. 18/06/2010 before the Investigation Wing surrendering an amount of Rs. 302 Crores in the hands of various Group Companies, his wife and himself as undisclosed income emanating from the seized documents. The surrender was made as under:
Sr. Name of the person making Amount of Assessment Yeatr of No. disclosure disclosure made Surrender 1 Shri Sanjay Singal Rs. 110 Crores 2010-11
2 Smt. Aarti Singal Rs. 140 Crores 2010-11 3 M/S Bhushan Power & Steel Ltd. Rs. 8 Crores 2010-11 4 M/S Diyajyoti Steel Pvt Ltd Rs. 10 Crores 2010-11 5 M/S Vision Steel Pvt Ltd Rs. 9 Crores 2010-11 6 M/S Marsh Steel Pvt Ltd Rs. 12 Crores 2010-11 7 M/S Jasmine Steel Pvt Ltd Rs. 13 Crores 2010-11
1 Later on the settlement application was filed by the Company M/S Bhushan Power & Steel Group (BPSL)but the Department took a view in the Rule- 9 report submitted by the Ld. CIT(Central) that the income surrendered in the hands of the individuals assessee was actually the income of M/s BPSL and that the income not disclosed by the Assessee should have been taxed in the hands of the M/s BPSL, therefore the protective assessment was made in the hands of the assessee. Thereafter, the Settlement Commission passed the order dt. 30/06/2013 under section 245D(4) for the A.Y. 2004-05 to 2011-12 in the case of M/s BPSL and gave the following decision relating to income surrendered by the Assessee in the individual capacity:
“19.5 It may be mentioned that Shri Sanjay Singhal and Smt. Arti Singhal have in their individual hands made a declaration of Rs. 239,11,90,780/-. After examining the facts on record, it is not possible to accept the contention of the Department that both credit and debit entries be added, as in our view this goes against the basic accounting principles. After hearing both the parties we are of the view that the income of the applicant company can be quantified at the amount of Rs. 239,11,90,780/- minus Rs. 168,26,80,893/- (amount of opening balance pertaining to Smt. Arti Singhal and Shri Sanjay Singhal in the seized Annexures) and balance amount of Rs. 70,85,09,887/- is treated as undisclosed income of the applicant company. As the said income of Rs. 70,85,09,88 7/- has been declared in the hands of Shri Sanjay Singhal and his wife Smt. Aarti Singhal which is to be shifted in the hands of applicant company on the basis of stand taken by the Department, we direct that this income will be excluded from Shri Sanjay Singhal and Smt. Aarti Singhal in the ratio of 107:32 respectively. We further direct that the taxes paid by Shri Sanjay Singhal and his wife Smt. Aarti Singhal in the ratio o f 107:132 on income of Rs. 70,85,09,887/- will be given credit to the applicant company. For this direction, we are guided by the decision of Hon'ble Supreme' Court in the case of Bachu Lal Kapoor Kewal Ram 60 ITR 74 (SC) in order to avoid taxation of the same income." By following the order of the Settlement Commission the AO revised the assessment order on 01/08/2013. 6.2 In the present case the another survey was conducted on 27/12/2012 in M/s BPSL Group by DIT(Investigation), Chandigarh which resulted in voluntary disclosure of Rs. 70.36 Crores for the A.Y. 2013-14 on account of unexplained credits, cash payment for land purchase and interest disallowance in the hands of various Group concerns. Thereafter, another search and seizure operation on 21/02/2014 was initiated by the Department at the business premises alongwith residential / business premises of the Directors and other related persons of BPSL.
3 The AO also observed that various new evidences in the form of soft as well as hard data including statements of Numerous Entry Operators were found / recorded which prime facie indicated that bogus Long Term Capital Gain (LTCG), accommodation entries in the case of individuals of BPSL group and One Time accommodation (OT) towards share capital /share premium in the case of group concerns were obtained which suggested that BPSL Group had been continuously involved in introducing its unaccounted income in garb of LTCG, OT etc. The AO pointed out that during the course of search and seizure action on 22/02/2014 the key person of the BPSL Group Shri Sanjay Singhal i.e; the assessee was confronted with the various incriminating evidences alongwith the statement of various connected persons and his statement under section 132(4) of the Act was recorded wherein in reply to last question he disclosed additional income of Rs. 250 crores for the A.Y’s. 2011-12 & 2012-13 which included the following income:
Mrs. Aarti Singal 82.38 crores
Mr. Sanjay Singal 55.57 crores
Sanjay Singal (HUF) 21.66 crores Total 159.61 crores It was also stated that the details of balance amount were to be submitted after examining the seized material.
4 The AO pointed out that in the return of income filed in response to notice under section 153A of the Act, it was found that the surrendered income had not been reflected. The AO thereafter issued the notices under section 143(2) and 142(1) of the Act. The Assessee objected to the assessment proceedings initiated under section 153A of the Act on the ground that no incriminating evidences were found from him and that the books of accounts and other data maintained in the server of the Assessee Group at 3, Industrial Area Phase-I, Chandigarh was cloned and thereafter seized. The AO observed that the details of the cheques / RTGS transactions of assessee as well as group concerns with the paper entities of entry providers were mentioned in the cloned data seized from the assessee and those details matched with the data seized from the various entry providers located at various places which suggested that OT accommodation entries and LTCG were obtained by the Assessee Group in lieu of cash and with the nexus of the assessee with the entry providers and incriminating nature of data seized was established, therefore the objection of the assessee was not accepted. The A.O. observed that during the course of investigation and assessment proceedings, it was exercised that the assessee had shown Long Term Capital Gain(LTCG) as exempt income, through sale of share of various companies from A.Y. 2008-09 to 2014-15, details of which were as under:
Sl. Amount of capital gain as per information with this office (In Rs. Crores) No. Name of the Script Companies A.Y. A.Y. A.Y. A.Y. 2011- A.Y. A.Y. 2013- A.Y. 2014- 2008-09 2009-10 2010-11 12 2012-13 14 15 1 54.36
20 M/s Pranneta Industries Ltd. (now known as Aadhar Ventures India Limited) 2 15.66
3 Blue Circle Services Ltd. 40.43 4 3.18
75 Unisys Software &Holding Indust. Ltd. 5 Nouveau Multimedia Ltd. 0.37 6
72 Action Financial Services (India ) Ltd. 7 Rutron International Ltd. 9.62 8 Rander Corporation Ltd. 9 P.L. Enterprises Ltd. now known as Mantra
Kausal Enterprises Ltd. 10 Matra Kaushal Enterprises Ltd. 11 Grandma Trading & Agencies Ltd. 35.04 12 Asiallak Capital & Finance Ltd now known as Glot>al Infratech Ltd. 13 Global Infratech & Finance Ltd. 13.99 14 G-tech Info
23 Total 0.37 0.00 0.23 54.36 60.48 8.48 58.65
5 The A.O. asked the assessee to furnish the complete details of exempt LTCG earned in the various assessment years and the details of bank accounts in which exempt income earned was deposited. He further observed that the assessee failed to furnish information in this regard, however, the Department gathered various evidences during the course of search and seizure proceedings which primafacie proved that he transaction of LTCG were not genuine. According to the A.O. the evidences gathered were confronted to the assessee and the explanation was sought. As regards to the evidence relating to the accommodation entries in respect of share of M/s Praneta Industries Ltd. (PIL), the A.O. observed that the search and seizure operation under section 132 of the Act was conducted in the case of Shri Shrish Chandrakant Shah (SCS) on 09/04/2013 and it was found that M/s BPSL Group had received huge amount of accommodation entries from the cartel of companies managed and controlled by SCS and various other entry operators. He also pointed out that following evidences were in possession of the Department:
DOCUMENTRY EVIDENCES IN POSSESSION OF THE DEPARTMENT:-
S.No File description Particulars of the Evidence Path in case of digital Hereinafter referred to as evidence
Final all ot up "OT ENTRIES" Cheque Sheets for the period F:' Shetty\c Documents and 310312.xls O1.O4.2009 to 31.03.2012. Settings\user2\Destop
""Kedia 2" sheet up1 Account of R.K. Kedia in the "Kedia 2" sheet in MS Excel F:\pen drive back books of Shirish Shah Removable Disk/ Bips backup file ac 1 .xls maintained in MS Excel format 14.02.12 (till 14.02.12)
"Cheque received from Cheque received Cheque received from Singal singals" from Singals Group by SCS
Group by SCS
ORAL EVIDENCE IN POSSESSION OF THE DEPARTMENT :-
Sr.No. Name of the Persons Association with SCS Date of statement and section under which recorded 1 Shinsh Chandrakant Shah 132(4) dated 13.04.13, 03.06.13, 11.06.13 and u/s. 131(1 A) dated 25.11.13 and 13.01.14 (SCS) (Relevant Parts) 2 Rajan Kachalia Main person handling the accounting and 09.04.2013 u/s. 132(4); 11.04.2013 u/s. 131(1 documentation part. A) 3 Chandan Kumar Singh Mam person handling cash and bank transactions 09.04.2013 u/s. 132(4) and 10.04.2013 and preparation of primary receipt payment u/s. 131(1 A) documents. 5 Damodar Attal 09.04.2013 u/s. 131(1 A) Main person handling share trading and synchronized trading work. 6 Devang D. Master Key- associate handling the compliance work and 09.04.2013 u/s. 132(4) and 10.04.2013 involved in legal planning u/s. 131(1 A) 7 Devang Jhaveri u/s. 132(4) dated 09.04.2013 Key associate handling day to day compliances and verification of documents. 8 Prakash Dave Employee of Shirish Shah u/s. 132(4) dated 09.04.2013 9 Naresh Parmar u/s. 132(4) dated 10.04 2013 Employee of Shirish Shah, prepares cash and cheques sheets. 10 u/s. 131(1 A) dated 09.04.3013 Kumar Raichand Madan Person supplying Directors and Addresses for the companies of 1 Shirish Shah. He has also been found to be Director in many of the companies of Shinsh Shah u/s. 131(1 A) dated 11.10.2013 11 Praveen Kumar Jain (alias Accommodation entry provider, facilitated Pintu alias Chintan) conversion of cash into RTGS/cheques in the accounts of Shirish Shah's entities. 12 Satish Saraf u/s. 131(1 A) dated 05.10.2013 Accommodation entry provider, facilitated conversion of cash into RTGS/cheques in the accounts of Shirish Shah's entities. 13 u/s. 132(4) dated 30.05.2013 Om Prakash Promoter and Director of M/s. Prraneta Industires Anandilal Limited, a listed company found and accepted to be Khandelwal controlled by Shirish Shah. 14 u/s. 131(1 A) dated 26.12.2013 Yogendra Kumar Promoter and Director of M/s. Mahan Industires Gupta Limited, a listed company found and accepted to be controlled by Shirish Shah. 15 u/s. 131(1 A) dated 10.02.2014 Jayesh Raichand Promoter and Director of M/s. Prabhav Industries Limited, a listed company found and accepted to be Thakkar controlled by Shirish Shak. 16. u/s. 131 (1 A) dated 26.10.2012 Director of Avance Technologies Limited, listed Shri Satyaprakash Goel company controlled and managed by Shirish Shah.
6 The A.O. also observed that during the course of search and seizure at the office premises of SCS, backup of the books of accounts was taken and than an excel sheet named “Kedia 2” was impounded in which details of the shares of M/s PIL sold by the assessee and his family had been recorded under the heading “ new account” which contained details of cash received by the SCS from Kedia (i.e. Shri Raj Kumar Kedia or R.K. Kedia of Delhi) on behalf of the BPSL Group against the payment made on the purchase of shares. The A.O. mentioned names of the entities to whom the shares of M/s PIL held by the assessee and his family were sold at page no 10 of the assessment order, for the cost of repetition the same are not reproduced herein. The A.O. pointed out that the analysis of the time difference between the order placed and the trade execution by the assessee and his family had been carried out on the data received from the BSE which revealed that out of the total 3138 share sold, transactions entered into by the assessee and his family i.e. 48% of the total traded were executed within one minute of the order placed in the exchange and more than 71% orders were executed within five minutes of placing the orders on the Exchange. He also pointed out that modus operandi followed by the SCS for providing exempt LTCG had been explained in details in his various sworn statements recorded during the course of search and post search proceedings which had been corroborated and collated with the evidences found and seized / impounded during the course of search and survey proceedings conducted in the case of SCS at various premises. The evidences and the statements of employees of SCS were confronted to him during the course of search and in the post search proceedings and SCS in his statement admitted to have provided various types of accommodation entries against receipt of cash from the clients either directly or through intermediaries and also admitted to be engaged in synchronized trading in the shares of various listed companies managed and controlled by him so as to facilitate LTCG to the clients against receipt of cash from them. The A.O. mentioned that the modus operandi followed by SCS for providing accommodation entries of LTCG was as under:
o The preferential shares are allotted by way of private placement by the listed companies controlled and managed him me to various
clients/beneficiaries who approach him for getting accommodation entry of long term capital gains. o In certain cases the clients purchase shares from the companies under his control on BOLT at low prices. o Thereafter, the price of share of the listed companies is artificially raised by way of purchase and sale of shares through the web of companies. o When the share prices are raised to high levels, the shares of these clients are purchased by the companies and individuals under his control on BOLT using the cash received from the clients that has been layered in the buyer company/individual's bank account after layering the funds through the group companies.
7 According to the A.O., SCS in his statement recorded on 11/06/2013 under section 132(4) of the Act admitted to have provided LTCG entries in the shares of M/s PIL of around Rs. 560 Croes against receipt of cash to various clients and that the details of the shares purchased by him through companies and persons controlled by him were recorded in various files in the “Bips Folder”. The A.O. observed that during the course of search on M/s PIL at Ahmedabad on 09/04/2013 it was established that the said company was only a paper company without any activities and was being used by SCS for providing various types of accommodation entries including LTCG and in this regard statement of MD, Shri Omprakash Anandialal khandelwal (OPK)was recorded under section 132(4) of the Act wherein he mentioned that M/s PIL had been engaged in providing accommodation entries for providing LTCG against receipt of cash. The A.O. summarized the modus operandi stated by SCS and OPK as under:
o SCS approaches promoters of defunct listed companies and enters into an arrangement with them to use their companies for giving accommodation entries. He then appoints dummy Directors in such companies and opens a bank account of such companies in Mumbai which is operated by him. With regard to PIL it is clear from the statement of SCS and OPK, discussed above. o To have effective control over the shares of the penny stock companies, the share capital of these penny stock companies is structured by SCS by allotting a large number of fresh shares through private placement. The structuring of share capital involves two types of allotment:
b. Majority of the shares are allotted a number of private companies which too are under control of SCS. The investment is made by the private limited companies in the shares of listed companies following two modus operandi:
■ Firstly, the unaccounted cash received from clients is layered into the investing private company which invests in the shares of the listed company and the listed company in turn provides accommodation entry of share capital/premium to the client from whom cash was received. ■ Secondly, an artificial structure of share capital of the listed company is created, wherein, a private limited company managed by SCS subscribes to the shares of the listed company. The listed company in turn advances these funds to another private limited company managed by SCS. This money so received by the second private limited company is layered in the web of companies managed by SCS and another private limited company invests in the share capital of the listed company. In this manner the cycle of layering and increasing the share capital of the listed company is repeated several times. In this way the share capital of the listed company is artificially structured without actual flow of funds into the entities under the control of SCS.
8 The A.O. pointed out that the share’s price in the case of PIL jacked up from Rs. 2.25/- per share to Rs. 87.10/- per share during the period April 2009 to March 2011. The A.O. mentioned that it was clearly established from the statement of Shri Omprakash Anandialal Khandelwal that :
o PIL is a paper company with no activities. o PIL has been engaged in providing various types of accommodation entries. o The entire turnover of the company is /paper turnover. o The share capital recorded to have been raised in the books of the company is mere accommodation entry. o The shares of the company held by the promoters were transferred to the persons under control of Shirish Shah by Omprakash Khandelwal so as to provide LTCG in the shares of the company through synchronized trading. o The Directors of the company are dummy directors and the effective control and management of the company was with SCS.
9 The A.O. observed that SCS had accepted these facts during the course of his statement recorded on 13/04/2013, 03/06/2013, 11/06/2013, 25/11/2013 and 13/01/2014 that the synchronized trading was resorted to so as to jack up the price of the shares to buy the shares from the clients and to provide them payout against receipt of cash from them and that the beneficiary clients were the assessee, his family and group concern.
10 The A.O. also observed that the key employees of SCS namely Shri Chandan Kumar Singh and Shri Rajen Kachaliya stated in their statement that day to day receipt of cash was recorded in the cash sheets which were maintained in the computer at the office of SCS situated at “Dwarka Ashish Building” and the physical copies of the printouts were also maintained at the said office which were found during the course of survey conducted on 09/04/2013 at the office of Shri SCS. The A.O. pointed out that the name, code name or the initials of the client/intermediary from or through whose reference, cash had been received or paid was recorded in the column “PARTY”, and the amount of cash received/collected by or on behalf of SCS from /through the person mentioned in the “Party” column was entered in the column “Received”. The A.O. also pointed out that in the most of instances the cash received by SCS from the assessee & Group had been paid to Pintu alias Chintan (Praveen Kumar Jain) and the same had also been found to have been recorded in the books independently maintained by Pintu, seized during the course of search conducted in his own case. The A.O. reproduced the details of new accounts in Kedia 2 Sheet at page no. 19 to 27 of the assessment order, the contents of the same was extracted as under:
Date DETAILS QTY Rate AMT DEPOSIT PAID Balance RECEIVE D 1 2 3 4 5 6 7 8 9 22.07.10 P RAN ETA NEW 100000 46.25 46.25,000.00 -50,000.00 45,75,000.00 22.07.10 COMM 1,94,607.50 47,69.607.50 COMM ON 40.97 @ 4.75 % 22.07.10 CASH RCD 50,00.000.00 -2,30.3 92.50 22.07.10 ANGAD1A CHRG 12,500.00 -2,17,892.50 26.07.10 CASH RCD 50,00,000.00 -52,17,892.50 26.07.10 ANGADIA CHRG 12,500.00 -52,05,392.50
o At Column No. (1), the date of transaction is recorded, o At column No. (2) the nature of the transactions for which the amounts have been credited and debited in the said sheet has been recorded. • "Prraneta New" refers to transaction of purchase and sale of shares of M/s. Prraneta Industries Limited (PIL)
• "4.75%" represents commission charged on the LTCG provided to the client (This was charged From Mr. Kedia who charged at higher rate from clients).
• "cash red" represents cash received from the client and credited to the account of the client at Column No. (8)
• "Angadiya charges" refer to the cash courier expenses debited to the account of the party/client.
o At column No. (3), the quantity of shares of the company mentioned at Column No (2) sold or purchased is recorded. The + Ve sign denotes purchase of shares of the company recorded at Column No. 2 by SCS though persons and companies controlled by him wherein the counterparty is the seller which has provided cash to SCS and has received payout through synchronized trading. In this case Rs. 1,00,000/- shares of M/s Pranneta Industries Ltd. have been purchased by SCS from counter party from whom cash has been received. o At column No. (4), the rate per share (in certain cases the average rate of the shares purchased by SCS through synchronized trade from the client) of shares of the company mentioned at Column No (2) is recorded. In this case the rate per share is Rs. 46.25 per share.
o At column No. (5), the total trade value of the shares sold by the client and purchased by SCS (through persons controlled by him on BSE) is recorded. In this case the total trade value of the purchase of shares of M/s Pranneta Industries Ltd.from the client is Rs. 46,25,000/-. This column represents the debit made by SCS to the account of the client. In this case the account of BPSL Group has been debited by Rs. 46,25,000/-.
o At column No. (6), the commission debited to the account (Rs. 194607.5/- in this case) of the client on the total LTCG facilitated to the client by SCS is recorded. In the present case the rate of commission has been charged at 4.75% of the net LTCG (Refer column No.2). The value of LTCG has been computed by SCS at Rs. 40.97 (Lakhs) (i.e. sale price per share minus the purchase price multiplied by the number of shares sold by the client to SCS. In the present case the purchase price is Rs. 2.25 per share and the sale price is Rs. 46.25 and the no of shares sold by BPSL Group is 100000. Thus, LTCG is 44 X 100000 = 44,00,000/-) . o At Column No. (7) the details of any amount paid by SCS to the client Sanjay Singal have been recorded. The entries recorded in this column are also of the nature of debit made by SCS to the client account. o At column No. (8), the amount received by SCS from the client is recorded. The entries recorded in this column are in the nature of credits made by SCS to the clients account. For instance the cash of Rs. 50,00,000/- received by SCS from the client in this case is credited to his account at column No. (8). The nature of credit or the mode of receipt is recorded at Column No. 2 (Details) of the sheet.
o At column No. (9), the balance in the account of the client BPSL Group is recorded. Positive balance represents debit balance i.e. the amount receivable by SCS from the client and vice versa.
According to the A.O. the entries in the Kedia 2 Sheet completely correlated with the shares trading data of M/s PIL as obtained from the BSE which revealed that 3,00,000 shares of M/s PIL had been traded on 14/02/2011 @ Rs. 68.75/- per
share and exactly total 3,00,000 shares had been sold by the various individuals to M/s BPSL Group as per following details:
Date Rate Name of the buyer No. of Payout Amount Name of the Shares (Rs.) seller 1510 68.75 103812.5 14-02-2011 Kinita Real Estate Sanjay Singal Pvt. Ltd. HUF 14-02-2011 23490 68.75 1614937.5 Kinita Real Estate Sanjay Singal Pvt. Ltd. HUF 25000 68.75 1718750 14-02-2011 Kinita Real Estate Pvt. Sanjay Singal Ltd. HUF 25000 68.75 1718750 Kinita Real Estate Pvt. Aarti Singal 14-02-2011 Ltd. 25000 68.75 1718750 Aarti Singal 14-02-2011 Kinita Real Estate Pvt. Ltd. 25000 68.75 1718750 Aarti Singal 14-02-2011 Kinita Real Estate Pvt. Ltd. 25000 68.75 1718750 Aarti Singal 14-02-2011 Kinita Real Estate Pvt. Ltd. 25000 68.75 1718750 Aarti Singal 14-02-2011 Kinita Real Estate Pvt. Ltd. 25000 68.75 1718750 Aarti Singal 14-02-2011 Kinita Real Estate Pvt. Ltd. 14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Sanjay Singal Ltd. 14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Sanjay Singal Ltd. 14-02-2011 25000 68.75 1718750 Kinita Real Estate Sanjay Singal Pvt. Ltd. 14-02-2011 25000 68.75 1718750 Kinita Real Estate Sanjay | Singal Pvt. Ltd. Total 3,00,000/- Rs. 2,06,25,000/-
11 On the basis of above the A.O. observed that the rates, number of shares and the amount of total payout received by various individuals of M/s BPSL Group exactly matched with the entries as recorded in the Kedia 2 Sheet as impounded during the course of survey in the case of SCS. The A.O. also reproduced transaction record in the Kedia 2 Sheet vis a vis trade data of M/s PIL at page no. 32 to 34 of the assessment order which revealed that M/s PIL paid Rs. 3,73,52,500/-, Rs. 4,53,52,250/- and Rs. 2,09,53,899/- to various individuals of the BPSL Group on 15/03/2011, 16/03/2011 and 17/03/2011 respectively. The A.O. also observed that the search and seizure action was again conducted at the office and residential premises of Shri R.K. Kedia Group on 13/06/2014 and all the evidences and findings of search action on SCS Group and other related groups were confronted to Shri R.K. Kedia who stated on oath that he had arranged LTCG accommodation entries for the various individuals of M/s BPSL Group on the request of assessee and Shri R.P. Goyal. He also pointed out that Shri Praveen Kumar Jain (Pintu) admitted on oath that he was in business of providing accommodation entries and used to collect cash from angadias on behalf of SCS and then equal amount through cheques / RTGS were paid to SCS. The comparative analysis of Kedia 2 Sheet in the books of SCS and the SCS account in the books of Pintu was mentioned by the A.O. at page no. 35 to 58 of the assessment order for the cost of repetition the same is not reproduced herein.
12 The A.O. pointed out that the details which were found in the books of accounts of SCS entities matched with the details found in books of accounts and document seized from Shri R.K. Kedia who admitted that the code language has been used and a dot(.) had been placed before two zeroes (.00) while recording the amount of transaction in the books of accounts. The same fact was admitted by the employees of Shri R.K. Kedia in their statements recorded on oath. He also observed that the details of LTCG accommodation entries arranged by Shri R.K. Kedia through listed paper entities like M/s PIL of SCS had been found seized in the case of Shri R.K. Kedia. The AO prepared a cash trail showing the flow of unaccounted cash from various individual of BPSL Group to SCS through Shri R.K. Kedia at page no. 60 of the assessment order and observed that the evidence in the form of seized books of accounts from three independent searches on SCS Group, Kedia Group and Pintu Group at different point of time, having the exactly same details of accommodation entries in lieu of unaccounted cash established beyond any doubt that various individuals of the BPSL Group had taken LTCG accommodation entries with the help of accommodation entry operators. He also pointed out that the documents revealed that SCS had charged commission @4.75% for arranging LTCG accommodation entries from Shri R.K. Kedia in whose case the search and survey action was taken on 21/02/2014 and he was asked to explain his role in arranging the accommodation entries for various individuals of the BPSL Group, he was also confronted the evidences found during the search action on SCS and his statement was recorded under section 132(4) of the Act on 09/04/2013, 03/06/2013, 05/06/2013, 11/06/2013, 25/11/2013 and 13/01/2014. The A.O. also observed that the search and survey action was again carried out on the residential / business premises of Shri R.K. Kedia on 13/06/2014 and certain incriminating documents pertaining to his business of providing accommodation entries were found in the custody of his accountant Shri Manish Arora who was asked to decode the books of accounts maintained in tally pertaining to business of accommodation entries. Shri Manish Arora stated on oath that books of accounts found and seized during the search at his residence were related to the accommodation entries business of Shri R.K. Kedia on whose instructions he used to enter the transactions in the books of accounts. The A.O. pointed out that statement of Shri R.K. Kedia was again recorded under section 132(4) of the Act on 13/06/2014 in which it was admitted that he was in the business of providing accommodation entries after charging certain percentage of commission and arranged accommodation entries for various beneficiaries like BPSL group from different entry operators.
The A.O. on the basis of statement of Shri R. K. Kedia and his accountant Shri Manish Arora was of the view that the Shri R.K. Kedia had provided accommodation entries from his paper concerns and had arranged accommodation entries for various beneficiaries from different entry operators in lieu of unaccounted cash after charging certain percentage of commission in cash and that he also told the name of persons who contacted him for taking accommodation entries on behalf of various beneficiaries who delivered
unaccounted cash to his employees on behalf of the beneficiaries. The A.O. on the basis of statement of Shri R.K. Kedia observed as under:
o Sh. R.K. Kedia was in the business of providing accommodation entries in lieu of unaccounted cash receipts. o Sh. R.K. Kedia also arranges various kind of accommodation entries from different entry operators (SCS in this case) for his different client beneficiaries various individuals of the BPSL group in this case, after charging a fixed percentage of commission in cash. o Out of the total percentage of commission received in cash (6 - 7%) from Bhushan Power & steel Group he paid around 4.50-4.75% of commission to SCS and 0.25% to angadias for cash courier.
13 The A.O. observed that Shri R.K. Kedia and his employee Shri Manish Arora admitted on oath that they were in the business of providing accommodation entries and had arranged various kinds of accommodation entries for the various individuals of the BPSL Group and received commission @ 6% of the entries provided by them and that upon being confronted with the evidences the assessee disclosed additional income of Rs. 250 Crores under section 132(4) in the sworn statement recorded on 22/02/2014 and backed it up with disclosure letter, however he could not give any satisfactorily reply to the question asked by the authorized officers and reiterated the disclosure of unaccounted income of Rs. 250 Crores under section 132(4) of the Act in the whole group. The A.O. pointed out that aforesaid surrenderred amount included Rs. 159.61 crores of LTCG earned through M/s PIL for the A.Y. 2011-12 and in the hands of the assessee (Rs. 55.57 Crores) Sanjay Singhal HUF(Rs. 21.66 Crores) and Smt. Aarti Singhal (Rs. 82.38 Crores) for the A.Y. 2012-13, however no further bifurcation for the remaining amount was submitted by him. The A.O. also observed that the assessee and his family members claimed exempt income on account of sale of shares of various listed penny stock companies other than M/s PIL in different assessment years, the details of which was given as under:
SI. No. Name of the company 1
2 Blue Circle Services Ltd. 3 Unisys Software &Holding Indust. Ltd. 4 Nouveau Multimedia Ltd. 5 Action Financial Services (India ) Ltd. 6 Global Infratech & Finance Ltd. now known as Asian Lak Capital & Finance Ltd. 7 Rutron International Ltd. 8 Rander Corporation Ltd. 9 Matra Kaushal Enterprises Ltd. Grandma Trading & Agencies Ltd.
14 The A.O. pointed out that Shri R.K. Kedia in his statement dt. 13/06/2014 stated that the most of the companies were paper companies controlled and managed by various accommodation entries operators and those companies were not doing actual work but were being used for providing LTCG to various beneficiaries. The A.O. reproduced the relevant part of statement of Shri R.K. Kedia at page no. 66 to 69 of the assessment order, for the cost of repetition the same is not reproduced herein. The A.O. also mentioned the names of the listed paper companies alongwith names of the entry operators controlling and managing the affairs of such companies as under:
Sr. No. Name of the Company Name of entry operator controlling and managing the affairs of the company 1 Pranneta Industries Ltd. Sh. Shirish Chandrakant Shah 2 DB International Stock Brokr Ltd. Sh. S.N. Daga 3 Blue Circle Services Ltd. Sh. Jagdish Prashad Purohit 4 Unisys Software & Holding Ltd. Sh. Jagdish Prashad Purohit 5 Action Financial Services (India) Ltd. Sh. Bakul Parikh 6 Global Infratech Ltd. Sh. Jagdish Prashad Purohit 7 Rutron International Ltd. Sh. Anil Aggarwal 8 Matra Kaushal Enterprises Ltd. Shri Krishan Kumar Khadaria 9 Rander Corporation Ltd. Sh. Natwar Lai Daga and Krishan Kumar Khadaria 10 Grandama Trading Agencies Ltd. Sh. Sawan Jaju 11 Nouveau Multimedia Ltd. Shri Krishan Kumar Khadaria 12 PS Infrstructure & Services Ltd. (Parag Sh. Jagdish Purohit Shilpa Invesments Ltd)
15 The A.O. observed that during the post search investigation various information related to the above named companies was collected which proved that all these companies were paper companies doing no actual business and were being used for giving exempt LTCG accommodation entries by various entry operators. The A.O. discussed the investment pattern in the case of M/s Blue Circle Services Ltd. (BCSL) used for providing accommodation entries to various beneficiaries at page no. 70 to 75 of the assessment order for the cost of repetition the same is not reproduced herein. The A.O. observed that most of the beneficiaries booked bogus LTCG between October 2011 to November, 2012 and after that the prices had fallen to rock bottom, therefore the study of share prices history of BCSL also proved how this company had been used for providing accommodation entries to various beneficiaries. He also observed that the trade details of BCSL revealed that the most of the share brokers through whom most of the purchases had been, done had admitted on oath that they helped various beneficiaries in arranging bogus LTCG accommodation entries which were artificially jacking up the prices of a defunct listed paper company. The said company was controlled and managed by Shri Jagdish Prasad Purohit, but various other entry operators like Shri Anand Sharma, Shri Deepak Patwari, Shri Praveen Agarwal and Shri R.K. Kedia etc. also helped in raising the prices of the shares to the desired level and after one year the beneficiary handed over the unaccounted cash to the entry operators who had contracted for arranging LTCG accommodation entry. He also pointed out that statement of Shri Deepak Patwari an entry operator from Kolkata was recorded on oath under section 131 of the Act on 22/07/2013 wherein he stated that he had traded in shares of listed penny stocks for helping in providing LTCG accommodation entries, and that Shri Praveen Agarwal who was a known entry operator from Kolkata also helped in providing bogus LTCG accommodation entry by using his paper entities. The A.O. observed that during the search action on Shri R.K. Kedia various evidences related to manipulation of share price of BCSL and providing bogus LTCG accommodation entry to various beneficiaries, were found and seized which revealed that Shri R.K. Kedia
sold 2,00,000 shares of BCSL held in the name of Shri Aniket Singal @ an average rate of Rs. 79.93 for approx. Rs. 1,59,86,000/- on 13/09/2012, also 2,00,000 shares @ an average price of Rs. 79.88 for approx Rs. 1,59,76,000/- and on 17/09/2012, 13,000 shares @ an average price of Rs. 79.87 for apporx Rs. 1,03,83,100/- were sold. The A.O. also mentioned that in the pages found during the course of search at Shri R.K. Kedia, the details of Chopra Account /BPSL Account, reconciliation of the said accounts had been given wherein the details of the cash received by Shri R.K. Kedia from Shri Suresh Gupta on behalf of BPSL Group and cheque payments to and from the entities of BPSL Group for providing various kind of accommodation entries were given and details of commission charged/premium received @6.5% for arranging bogus LTCG accommodation entry on account of sale of shares of BCSL were also given.
16 The A.O. also pointed out that the SEBI had carried out investigation in few listed companies on the basis of common trading pattern, identical developments like stock splits, preferential allotments, insignificant economic activity and exorbitantly high stock prices. Some of the companies which had been investigated by SEBI were as under:
Sr. Name of the Company No.
M/s Greencrest Financial Services Ltd. (GCFS) (Earlier known as Mangold Glass Industries Ltd.)
M/s Maa Jagdambe Tradelinks Ltd (MJTL)
Ms Mishka Finance and Trading Ltd(MFTL)
M/s Parag Shilpa Investments Ltd (PCSL)
M/s Surabhi Chemicals & Investment Ltd (SCIL)
M/s Premier Capital Services Ltd. (PCSL)
M/s Global Infratech & Finance Ltd (GIFL)
M/s Dhenu Buildocn Infra Ltd
M/s First Financial Services Ltd
M/s DB (International) Stock Broker Ltd.
M/s Dhanleela Investments Trading Company Ltd
M/s Grandma Trading & Agencies Ltd
M/s Matra Kaushal Enterprises Ltd
M/s Pine Animation Ltd.
M/s Rajlaxmi Corporation Ltd
M/s Rander Corporation Ltd.
M/s Shreekrishna Biotech Ltd.
17 The A.O. also pointed out that out of the above 17 companies, BPSL group had taken bogus LTCG accommodation entries by trading shares of companies at Sr. No. 2,4,7,10,12,13,16 & 17. The A.O. observed that the investigation carried out by SEBI, an independent agency also indicated and supported the investigation findings of the department and that it had specifically investigated the role of the assessee and his family members. The A.O. also observed that Shri R.K. Kedia was an entry operator who had arranged various kinds of accommodation entries for different beneficiaries which was clear from the following facts.
o Admittance by Sh. R.K. Kedia himself on oath u/s 132(4) of Income Tax Act, that he is in the business of providing accommodation entries, o Statement by Sh. Manish Arora on oath that Sh. R.K. Kedia is in the business of providing accommodation entries, o Hand written cash receipt and payment account related to accommodation providing business of Sh. R.K. Kedia found and seized from the residence of Sh. Manish Arora. o Coded tally books of accounts pertaining to accommodation entry business of Sh. R.K. Kedia found and seized from the residence of Sh. Manish Arora, Accountant of Sh. R.K. Kedia. o Date and time wise mail communications between Sh. R.K. Kedia and other entry operators for providing various kind of accommodation entries found as printouts and seized. These mails printouts also establishes beyond doubt that Sh. R.K. Kedia has provided accommodation entries. These mails printouts also have details to decipher the codes used while entering transations in tally in coded language. o Coded SMS communication (generally currency notes numbers) while receiving and delivering cash from beneficiaries to entry operators through angadias from the phone of Sh. Manish Arora. o Statement on oath given by Sh. San jay Kumar and Sh. Bishu Jain two employees of Sh. R. K.Kedia, that they used to collect cash and deliver that to angadias on the instructions of Sh. R.K. Kedia.
18 The A.O. observed that the evidence seized from Shri Parveen Agarwal an entry provider based at Kolkata revealed the modus operandi adopted to provide various accommodation entries in collusion with Shri R.K. Kedia. He also produced the Flow Chart of modus operandi of accommodation entries and correlation of data between Shri Kedia and Parveen Agarwal. However, the assessee submitted that statement of Shri R.K. Kedia and Shri Manish Arora were not reliable.
19 The A.O. also observed that the Director of M/s Safal Reality Pvt. Ltd., Shri Uday Hasmukhlal Vora and Partner of M/s Safal Developers, Shri Dhiren Hasmukhlal Vora, filed affidavit dt. 26/11/2015 before their A.O. and disclosed additional income which was also offered for taxation before the Income Tax Settlement Commission, Mumbai in their application and that they had accepted that this income was ploughed back through companies managed and controlled by Shri Shirish C. Saha (SCS) by making investment in preferential share capital in one of their group concern namely M/s Andura Infrastructure Products Pvt. Ltd. which clearly revealed that the companies managed and controlled by SCS were mere paper companies and all the financial dealings of the assessee group with SCS and his companies were in the nature of accommodation entries. The A.O. further observed that in the case of SCS, on the basis of entries recorded in the evidence seized / impounded during the search, details of year wise commission and deposits supposed to have been received by SCS for providing accommodation entries were prepared which was quantified at Rs. 92.79 Crores and the same was not challenged by SCS, who however claimed that various expenses were incurred against such commission.
20 He also observed that Shri Praveen Agarwal had been assessed as being in business of providing accommodation entries and he admitted unaccounted income of Rs. 25 Crores, the disclosure was mainly commission income earned through his activities of providing various kind of accommodation entries and that all the financial dealings of BPSL group with the companies managed and controlled by Shri Praveen Kumar Agarwal were in the nature of accommodation entries.
The A.O. mentioned that various incriminating documents in the form of Hard/Soft data were found and seized on 13/06/2014 by the investigation wing which were confronted to Shri R.K. Kedia whose sworn statement were recorded from 13/06/2014 to 16/06/2014 and detailed statement of his accountant Shri Manish Arora were also recorded on various dates in which he described the whole modus operandi of providing accommodation entries and also explained each and every papers alongwith the code words mentioned on them and when there was no escape route Shri R.K. Kedia accepted all the facts mentioned by Shri Manish Arora. However Shri R.K. Kedia vide letter dt. 20/10/2014 retracted from the sworn statement given earlier and stated that those were given under mental stress. The A.O. again recorded the statement of Shri R.K. Kedia under oath on 26/03/2015 wherein he was confronted with the evidences gathered and he again confirmed that he was an entry provider and also confirmed all the sworn statements given earlier. The A.O. did not accept this contention of the assessee that the department put a lot of pressure on Shri Manish Arora to receive favourable remarks from him. He therefore asked the assessee to show cause as to why the receipts credited in the books of account on account of sale of shares should not be brought to tax under section 68 of the Act and that as to why the commission @ 6.5% paid in cash to get accommodation entries of exempt LTCG from various bogus scripts / companies should not be brought to tax under section 68 of the Act as unaccounted expenditure. The Assessee was also required to produce all the persons (including contra parties and brokers) from whom money was received, along with their books of accounts, ITR details, relevant vouchers and ledger account etc. The A.O. issued a detailed show cause notice dt. 23/10/2015 to the assessee on the issue of bogus LTCG accommodation entries received from M/s Praneeta Industries Ltd.(PLI) (Now known as Aadhar Ventures India Ltd. ).
In response the assessee submitted that he had invested in the share warrants of PIL and subsequently these shares were converted to equity shares
and all the shares were credited to DEMAT account, the shares of PIL were held for more than 12 months and the sales were affected on various dates during the year under consideration and all the shares were sold through stock broker registered with Bombay Stock Exchange(BSE) through recognized stock exchange and that the Securities Transaction Tax (STT) on the entire sale was duly paid, as such, the assessee had earned LTCG on sales of shears of PIL which was claimed as exempt under section 10(38) of the Act. It was also submitted that all the proceeds from the sales of shares were received through banking channels from stock broker through whom the shares were sold and duly credited to the assessee’s bank accounts, copies of the contract notes and sale bills as an evidence towards sale of shares of M/s PIL claimed as exempt under section 10(38) of the Act were furnished. It was submitted that the assessee did not know any person by the name Shri Shirish Chandrakant Shah (SCS) and had nothing to do with the contents of various documents found and seized from the possession of Shri SCS and that no cash was ever paid to any person and no accommodation entries had been received. As regards to the issue relating to the counter parties purchasing the shares of M/s PIL from the assessee were controlled by SCS, it was stated that there were various other counter parties which were not included in the list of 212 companies managed and controlled by SCS. As regards to the analysis of the timing difference that most of the trades were executed within one minute and majority of orders were executed within five minutes of placing of order. It was stated that no adverse inference on the basis of analysis of trade data could have been made. As regards to the fact that corroborative sworn statements had been given by the dummy directors of 212 companies controlled by SCS, it was stated that the assessee did not know any of those persons and was not aware as to why and under what circumstances these statements were given by those persons. It was also stated that cross examination of SCS and all other persons which were covered
alongwith SCS and gave sworn statements, should have been allowed to the assessee.
As regards to the decision of investment in M/s PIL the assessee submitted as under:
Regarding the decision of investment in M/s PIL, the assessee submitted that, “Investment was made on the perception that M/s Prraneta Industries Limited was planning to setup big projects in Gujarat, Mumbai and overseas. The Assessee further came to know that M/s Prraneta Industries Limited was getting a huge contract for land development work from PACL. The company planned to undertake expansion programmes by looking for prospective Mergers/Acquisitions, and promoting companies in the financial sectors. The company was also planning to enter into new areas of information technology sector like Software development, Internet, Mobile, Networking related solution etc. The Assessee was attracted by the low price and huge expansion plans of the company. Considering it as a low risk investment, the assessee decided to invest in the shares o f Prraneta Industries Limited. The Assessee's belief to invest in the shares o f Prraneta Industries Ltd. was further strengthened due to the reason that even the I promoters/promoter group companies were subscribing to preferential allotment of share warrants of Prraneta Industries Ltd. Since the promoters were hiking their stake in the company and the share price was very low, the Assessee was attracted to invest in the shares of Prraneta Industries Ltd. When the share price of Prraneta Industries Limited appreciated, the Assessee decided to dispose o f f the shares through his brokers. As already mentioned in the earlier para of reply, the entire sale was through registered stock broker and the sale transactions of shares of Prraneta Industries Ltd. were effected online and the payments against the same were received through banking channels from the stock broker. "
As regards to the detail of cash as recorded in BIPS folder, it was stated that the assessee was not aware of the basis / purposes of maintaining those records and that no adverse inference could have been drawn merely on the basis of statement of SCS and that he was not aware of the transactions between SCS and Shri R.K. Kedia.
As regard to the transactions recorded in the form of cash sheets and cheques sheets seized from the premises of SCS, the assessee submitted that he was not aware of nor was he in any way concerned with the transactions recorded in the seized documents. He denied to know SCS, Praveen Kumar Jain and any other person except R.K. Kedia. On the issue that the transaction
mentioned on various documents seized from Shri Kedia, SCS and Praveen Kumar Jain tallies exactly between themselves and independently with the transactions recorded in the books of the assessee group , it was stated that the documents nowhere contained the name of the assessee or his family members. However it was acknowledged that the amount and number of shares recorded in the data seized from entry providers matched with the actual sale of shares of M/s PIL by the assessee and his family members, but stated that no conclusion could have been drawn against him on that basis.
With regard to the admission of Shri R.K. Kedia being an entry provider the assessee submitted that Shri R.K. Kedia was not a reliable person and he had taken different stands during the course of statement recorded on various dates i.e. 22/02/2014, 20/03/2014, 13/06/2014 and his letter filed on 20/10/2014. Regarding the maintenance of data of LTCG transactions of BPSL family and group by Shri R.K. Kedia the assessee submitted that he was not aware of the purpose of maintaining such records by him and that he might have been expecting some commission since he had advised for investment in the shares of PIL and the assessee had earned a handsome amount from the said investment. However no such commission was ever agreed or paid to him.
As regard to the voluntary surrender of Rs. 250 crores made by the assessee during the course of search proceedings, it was submitted before the A.O. that during the course of search on 21/02/2014 the assessee was under a lot of mental stress and psychological pressure and hence a letter offering an amount of Rs. 250 Crores as additional income in the entire group of cases was made to avoid litigation and to purchase peace of mind. It was further submitted that offer of Rs. 159.61 crores pertaining to LTCG on shares of M/s PIL was made without any factual basis and there was no admission or acknowledgment that any accommodation entry was received or any unaccounted income had been earned. It was also submitted that the offer of additional income had been made under mental stress, and psychological
pressure, so, it was withdrawn. However the A.O. after considering the submissions of the assessee observed that the assessee had not commented or offerred any explanation on the merits of the evidence/documents seized from Mr. Kedia, SCS and Praveen Kumar Jain which tallied exactly between themselves and independently with the transactions recorded in the books of the assessee group. He further observed that upon being confronted with solid evidence establishing the transaction of sale of shares of penny stock companies as sham transaction undertaken through a syndicate of entry providers, the onus cast on the assessee doubles under section 68 of the Act to prove that the transactions were genuine and mere filing of Demat account, bank account, contract notes, bills etc was not adequate to discharge the heavy onus cast upon the assessee. He also observed that the assessee was required to produce the brokers through whom transactions were undertaken in stock exchange, produce the counter parties who purchased the shares and the directors of penny stock companies etc for examination to prove identity, creditworthiness, genuineness of transaction which the assessee failed to do.
Therefore the income was taxable under section 68 of the Act. The reliance was placed on the following case laws:
i. CIT Vs. N.R. Portfolio Pvt. Ltd. in ITA No. 1018,1019/2100 (Delhi) dt. 22/11/2013 of capital assets in the normal course of business. Therefore, the stand taken by the assessee that he did not know any person named as Sirish Chanrakant Shah was baseless and contrary to his own submissions. The A.O. observed that nexus between different entry providers operating from various locations had been adequately established and it was not necessary that only one entry provider worked on share for jacking up the price of share and that the evidence found, suggested that different entry operators worked in tandem in trading of shares of penny stock companies for jacking up the price for final purchase. Therefore, he was of the view that the assessee’s contention that various parties other than the ones controlled and managed by SCS group purchased the shares of PIL had no relevance. The A.O. pointed out that during the course of assessment proceedings and after the submission of the assessee on 03/02/2016 some other incriminating documents were noticed which had huge evidentiary value regarding flow of funds between flagship company M/s BPSL and various companies of an entry operator Shri Praveen Kumar Agarwal, based at Kolkata from whose possession the documents were found and seized on13/09/2012 by Kolkata Investigation Unit and the data seized contained four excel sheets found in a hard disc which contained date wise details of cheques/RTGS received from various parties and cheque/RTGS paid to various parties including M/s PACL India Ltd. (PACL), Axis Structurals Pvt. Ltd. and various companies of BPSL Group in F.Y. 2010-11 & 2011-12. The A.O. also pointed out that trail of funds from M/s PACL, Axis Structurals Pvt. Ltd. etc to various concerns of BPSL Group was made which establish that multiple layers were created among the group concern of Shri Praveen Kumar Agarwal before remitting the funds to the final beneficiaries including BPSL Group companies and that data also established that OT (One Time) Entries were received by BPSL Group from the entries managed and controlled by Shri Parveen Kumar Agarwal whose modus operandi was that the beneficiaries wanting to book bogus expenses were linked through a maze of paper concerns with the beneficiary wanting to plough back their unaccounted income back into business as share capital / premium and that the need to deposit cash into the bank account was bypassed. The A.O. mentioned the details of all the cheques received from and paid to various parties as found on an excel sheet seized from Shri Praveen Agarwal at page no. 116 to 120 of the assessment order, for the cost of repetition the same is not reproduced herein.
2 The A.O. on the basis of the aforesaid excel sheet observed that in the column of ‘Party’ various names were mentioned like Roshan, Mishra, Pramod, Kabra, SKJ, Sunil, Subhas, Ravi, NSE, LKS etc and the particulars mentioned in the ‘Account’ were important to note wherein abbreviations like BB, W, Billing contract, Advance billing, Donation, Shares sales, Share purchase, Property surrendered, Property Sale, Property forfeited etc were mentioned which gave the true nature of transaction of beneficiary with Shri Praveen Agarwal’s entities in respect of cheque received / issued and conclusively proved that Shri Praveen Agarwal had been in the business of giving accommodation entries for various purposes like share capital, LTCG, bogus bill etc. for earning commission. The A.O. was of the view that M/s PACL India Ltd. siphoned off its funds in garb of land development for which bogus bills were arranged through the companies managed and controlled by Shri Praveen Kumar Agarwal. The A.O. also observed that the assessee had stated that investment in the shares of M/s PIL was made on the perception that it was planning to set up big projects in Gujrat, Mumabi and overseas and that he had knowledge about land development contract awarded to M/s PIL by M/s PACL India Ltd., therefore, he decided to invest in the shares of that company. The A.O. observed that the details found maintained by Shri Praveen Kumar Agarwal established that all those contracts were completely bogus and it was a network created for benefit of all the beneficiaries indulged in tax avoidance practices. Therefore the contention regarding decision of investment in M/s PIL was base-less without any supporting evidence. He also observed that the assessee remained silent
with regard to the cash transactions against accommodation entries recorded in BIPL folder and did not comment or offerred any explanation. The A.O. also mentioned that the data seized from various persons and location matched among themselves and with the entries recorded in the assessee’s books, authenticated the correctness of the data and if the seized data suggested that accommodation entries had been taken in lieu of cash then it was a conclusive proof. As regard to the assessee’s stand that Shri R.K. Kedia was not a reliable person, the A.O. observed that Shri Kedia backed up his statement by filing an affidavit dated 31/03/2015 confirming the facts narrated in the statement dt. 26/03/2015, therefore the assessee’s contention do not hold much ground, particularly when the assessee could not satisfactorily explained the reason for maintaining data pertaining to details of share capital / premium received by the assessee group, details of advances paid and details of shares sold by it, clandestinely by Mr. Kedia who had long association with BPSL group and delt directly with the key person like assessee.
With regard to the disclosure of Rs. 250 Crores mae under section 132(4) of the Act by the assessee and its retraction, the A.O. observed that during the course of search and seizure operation the assessee was confronted with various documentary evidences and statements of various entry operators like SCS, Omprakash Anandilal Khandelwal (director of PIL), R K Kedia etc. and when the assessee found himself cornered by the department, he admitted undisclosed income of Rs. 250 Crores and a surrender letter was also furnished wherein it was stated that the detailed bifurcation would be submitted later and that the assessee on 06/03/2014 furnished a letter clearly stating that out of the surrender of Rs. 250 Crores, Rs. 159.61 Crores had been surrendered for the LTCG shown from M/s PIL in the assessment year 2011-12 and 2012-13 in the hands of the assessee, his HUF and his wife Smt. Arti Singal. Therefore the claim of the assessee that the surrender was without any basis was itself baseless and factually incorrect.
1 The A.O. also mentioned that the documents seized from the possession of the entry providers contained details of RTGS/Cheque payments which tallied with the bank account of BPSL group concerns and family members then it was deemed that all the contents of the documents were true and correct. The A.O. reiterated the explanation of the assessee at page no. 124 and 125 of the assessment order and mentioned that the assessee stated that the statement of all the persons were recorded at the back and if the department wanted to rely on any part of the statements for drawing any adverse inference against the assessee, then he may be intimated regarding the specific charge made against the assessee out of their statement and he may also be allowed an opportunity to cross examine and that how the conclusion was drawn from financial statements of penny stock which were not doing any meaningful business activity, it was stated that various things regarding those companies attracted him to make investments and that he was not aware of the activity of any entities / individuals involved and nor was assessee in any way connected with the activities if any of such entities / individuals. The A.O. observed that assessee did not elaborate or explain the things which attracted him about those companies and did not file any supporting documents.
2 The Assessee submitted to the A.O. that he did not know any of the person whose statements were recorded and was not in any way connected with their activities and that the statement of those brokers / sub brokers / employees/ associates of broker were recorded at the back of the assessee and reliance sought to be placed for drawing any adverse inference against the assessee on the basis of statements recorded without the presence of the assessee was unwarranted. The assessee also submitted that he did not know any person by name Shri Manish Arora with whom he never dealt either directly or through any of his employees. It was also alleged that the statements given by Shri Manish Arora were not out of free mind and had been given under enormous pressure as the same continued for a period of almost 25 days,
therefore, he was bound to be under a lot of stress and psychological pressure and his statement recorded under those circumstances could not be relied upon. The assessee also stated that he was not aware for what purposes “Chopra Account” was prepared by Shri R.K. Kedia and Shri Manish Arora to whom he never paid any cash and had nothing to do with the cash transactions recorded in “Chopra Account” in the books of JMD Associates.
With regard to the observations regarding payment of commission @ 6% to 7% in cash for receiving the accommodation entries through Mr. Kedia, the assesse outrightly denied this fact. The A.O. however observed that most of the entry providers had specifically admitted that they were in the business of providing entry through various companies managed and controlled by them and that the actual activity of their companies was to provide accommodation entries and no genuine business activities were undertaken and that the thousands of persons across country were benefitted from their activities in evading tax and the assessee was one of them. The A.O. also observed that the assessee had not explained how and what specific information he had which prompted him to make huge investments in the companies particularly when he did not file any evidence to substantiate his claim and that the Balance Sheets of these companies revealed that there was no significant fixed assets, capital work in progress was NIL, bank balance was almost NIL, funds received as share capital / premium or unsecured loans were immediately advanced as loan or invested as share capital / premium, the profit & loss account of those companies suggested only trading activity wherein the employee cost, administrative expense, finance charge etc which were necessary to conduct genuine activity were negligible and no dividend was ever declared by those companies and the earning per share was almost NIL. He also observed that the financial statement of all the penny stock companies from which the assessee earned huge profits had similar pattern and that any investor could see that there was no future prospects and no meaningful activities in those companies,
therefore no prudent person would invest any money in shares of those companies, yet the assessee alongwith his family choose to invest not in one but in at least 15 such companies and earned extraordinary income of approx Rs. 750 crores on sale of shares over a period of five years which was beyond human probability and hence the transactions were treated as sham.
With regard to the issue of jacking up the price of shares the A.O. observed that there were direct and circumstantial evidences which established that the price of those penny stocks were artificially jacked up the cartel of various entry providers and this fact had duly been accepted by SCS in his sworn statements. He also observed that the statement of S/Shri R.K. Kedia, Manish Arora, Shrish Chanderkant Shah(SCS), Jagdish Purohit, Parveen Jain (Pintu alias Chintan), Parveen Kumar Agarwal etc were based on the clinching evidences in the form of various hard & soft documents which directly established that the assessee group was one of the major beneficiaries of their activities and the statements of those brokers / sub brokers were only corroborative & circumstantial evidence to prove the case of the department. He also observed that the detailed statements of Shri Manish Arora was recorded over a period of 25 days which strengthens the authenticity of the statements which remained consistent throughout the period and that the evidences found and seized from Shri R.K. Kedia, SCS and Shri Praveen Jain established that those people were working hand in glove in providing various types of accommodation entries to various beneficiaries including BPSL group and that the entries recorded in the name of “JMD Associates” and “Chopra Account” were described at length by Manish Arora and those entries were cross matched from the actual transaction recorded in the assessee’s books, therefore, the authenticity of the documents seized from the possession of Shri Kedia and Manish Arora could not be doubled and since Mr. Chopra was an employee of BPSL and working for this group for a long time, therefore, “Chopra Account” was not mere imaginary creation of Shri. Kedia and Manish Arora.
With regard to commission paid in cash to the entry providers, the A.O. observed that commission @ 6% to 7 % was being paid to Shri Kedia was based on the entries recorded in various excel sheets by Shri R.K. Kedia and the assessee could not satisfactorily explained the reason for maintaining data pertaining to him clandestinely by Shri Kedia and his accountant Shri Manish Arora and that Shri Kedia had long association with BPSL group and delt directly with the key person i.e; the assessee. Therefore there was no inconsistency in charging of the commission from the beneficiaries.
With regard to the cross examination of persons whose statements were relied upon by the Department, the A.O. observed that vide order sheet entry dt. 05/02/2016 the authorized representative of the assessee was asked to give the names of the persons whom the assessee wanted to cross examine, but nothing was submitted and after taking more than 15 days, authorized representative of the assessee submitted that the assessee wanted to cross examine all the persons whose statements had been relied upon and provided to the assessee. The A.O. was of the view that cross examination was required only where there were no documentary evidence and where the addition was made merely on the basis of statement of a third person but in this case solid evidences were found and the statement only corroborated the evidences found in the form of electronic data seized from various entry provider located at various part of the country which was collected independently from remote locations, tallied and matched not only with each other but also with the regular books of account of the assessee and its group concerns. He further observed that the assessee was confronted with all the data and evidences collected by the department but he could not explain or comment on merits of the evidences. The A.O. pointed out that none of the persons to whom summons were issued appeared for cross examination coupled with the fact that the assessee failed to offer any reasonable explanation on merits of the hardcore evidences established the unholy nexus between the entry providers
and beneficiaries, and that for the service of providing accommodation entries hefty commission was charged from the beneficiaries by entry providers which had been disclosed by some of them and offered to tax and once service was provided for money, a contractual nexus was created between the service providers and the beneficiary which could not be easily broken. Therefore, the request for cross examination and non compliance of summons exposed the unnatural bonding between the assessee and entry operators being used by the assessee to thwart income tax proceedings in the name of natural justice. The A.O. also observed that no natural justice required that there should be kind of a formal cross examination which is a procedural justice and is governed by rule of evidence, reference was made to the following case laws:
• • • • • • Satellite Engineering Ltd. Vs. Union of India & Ors. (1983 ELT 2177 Bom) • Kanungo & Co. Vs. Collector of Central Excise (1983 ELT 1486 SC) • Union of India & Anr. Vs. Tulsiram Patel (AIR 85 SC 1416) • • • CIT Vs. Nova Promoters & Finlease (P) Ltd. reported at 342 ITR 169 (Delhi) • Smt. Kusum Lata Thakral Vs. CIT, Karnal reported at 185 Taxman 237 (P&H)
1 The A.O. observed that in the aforesaid cases the Hon'ble court held that the rules of natural justice are not rigid rules, they are flexible and their application depends upon the background of statutory provisions, nature of the right which may be effected and the consequences which may entail its application depending upon the facts and circumstances of each case and that the natural justice is mistress and not the master of justice and it is used to support the cause of justice and can never be used to defeat the cause of justice. The A.O. was of the view that the cross examination is required to support the cause of justice and can never be used to defeat the cause of justice and that in the present case evidences gathered proved that assessee had taken accommodation entries, the statement of the entry provider corroborated the primary evidence, those documentary evidences and the statements were provided to the assessee for his explanation but in response the assessee had not offered any explanation on the merit of the evidences but merely denied any such transactions and knowledge of existence of such evidence. He sought cross examination of the entry providers whose statements were relied upon by the department. The A.O. also pointed out that the summons under section 131 of the Act were issued to 20 such persons but none responded. The A.O. held that having confronted with the evidence indicating sham transaction, the burden of proof shifted back on the assessee and heavy onus was cast on him under section 68 of the Act to prove his case beyond doubt by producing so called investors but the assessee had failed to do so.
Therefore the cross examination was not relevant and not necessary for the finalization of the assessment. The A.O. also held that the pattern of movement of funds for layering, non existence of genuine business activities of such investors etc. coupled with the fact that the assessee failed to produce the investor for examination could safely lead to conclusion that share capital / premium received from companies against which there was no direct evidence was also taxable under section 68. The reliance was placed on the following case laws:
• Sumati Dayal Vs. CIT (1995) 125 CTR (SC) 124 : 1995 Supp. (2) SCC 453(SC) • CIT Vs. P. Mohanakala & Othrs reported in 291 ITR 0278 (2007)(SC) • of the assessee under section 68 of the Act, alongwith unaccounted commission expenditure @ 6.5% of the total LTCG of the year for arranging those entries. The A.O. made the addition of Rs. 42,46,375/- in the following manner:
Total Sale proceeds u/s 68 Rs. 40,05,419/- Rs. 2,40,956/- 6.5% of NET gain (LTCG) u/s 69C towards commission expenses Rs.42,46,375/- TOTAL Addition to the returned income
Being aggrieved the assessee carried the matter to the Ld. CIT(A) and challenged the validity of the initiation of proceedings under section 153A of the Act as no incriminating material was found during the course of search under section 132 of the Act on 21/02/2014 and submitted as under:
(1) It is humbly submitted that as on the date of search i.e. 21-02-2014, assessment proceedings for A/Y 2012-13 had already been completed vide order no CPC/1213/P4/1306877063 dated 19/01/2014 passed u/s 143(1) of the Act (copy enclosed) and no incriminating material had been found during the course of search with respect to the year under appeal. (2) In this connection, Your Honour's attention is invited to the provisions of Section 153A of the Act the relevant parts of which read as follows; - 153A. (1) Notwithstanding anything contained in Section 139, section 147, section 148, section 149, section 151 and section 153, the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall- (a) issue notice to such person requiring him to furnish within such period as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made:
Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment year: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this [sub section] pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. (3) It is implicit in the above provisions that where an assessment order has already been passed for a year within the relevant six assessment years, then the Assessing Officer is duty bound to reopen those proceedings and reassess the total income but by taking note of the undisclosed income if any, unearthed during the search. The legislative intent behind incorporating the said provisions into the statute book was to establish a live link/ undeniable nexus between some incriminating material/document etc. found/unearthed/discovered in the course of search u/s 132 and undisclosed income arising there from. (4) In this regard, it is humbly and respectfully submitted that the provisions of law, as enshrined in Section 153A of the Act and as interpreted by various Courts, including the Delhi High Court, and juri ictional Income Tax Appellate Tribunal, Chandigarh from time to time, in a number of cases clearly lay down that only those assessment proceedings which are pending before an Assessing Officer on the date of initiation of the search shall abate and merge into assessment proceedings initiated u/s 153A of the Act Undoubtedly, in such cases the scope of assessment is wide open and would cover matters reflected in the original return of income and also matters reflected from the material seized in the course of search u/s 132 of the Act
(5) However, importantly and pertinently it should be noted that completed proceedings will not merge with the proceedings initiated u/s 153A but will survive and their sanctity will , inviolably, have to be respected unless indelibly violated by any incriminating material found during the course of search u/s 132 of the Act. To put it differently completed proceedings, whether u/s 143(3) or even u/s 143(l)(a) of the Act can be interfered with by proceedings u/s 153A only on the basis of some positively incriminating search material found during the course of action u/s 132 of the Act. (6) In view of the same since no incriminating document pertaining to the year under appeal i.e A/Y2012-13 has been found during the course of search, it is submitted that no cause lies for the issue of the said notices by resort to the provisions of section 153A of the Act and accordingly the said notices are void ab-initio rendering them infructuous. (7) In this connection reference may also be made to the judgement passed by Hon'ble Delhi High Court in the case of Commissioner of Income-Tax (Central) - III vs. Kabul Chawla [(2016) 380 ITR 573 (Delhi)] wherein it has been clearly held that completed assessments can be interfered with by Ld Assessing Officer while making assessment under section 153A only on basis of some incriminating material unearthed during course of search which was not produced or not already disclosed or made known in course of original assessment. While delivering the aforesaid judgement Their Lordships have analyzed the provisions of Section 153A as following:- i. Once a search takes place under Section 132 of the Act, notice under Section 153A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.
ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as afresh exercise.
iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".
iv. Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment 'can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this Section only on the basis of seized material"
v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the juri iction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO
vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. (8) Since in the instant case since no incriminating documents/material or information of any sort has been unearthed/discovered in the search operation u/s 132A of the Act the completed assessments cannot be interfered with and accordingly the assessment order is bad in law void and infructuous. In this connection, Your Honour's attention is also invited to the following decided case laws: -
> Commissioner of Income -tax vs Anil Kumar Bhatia [(2013) 352 ITR 493 (Delhi)]; > Commissioner of Income -tax vs Chetan Das Lachman Das [(2012) 254 CTR 392 (Del)]; > Sanjay Aggarwal vs Deputy Commissioner of Income -tax, Central Circle -5, New Delhi [(2014) 150ITD 692 (Delhi-Trib)] > Smt Rashmi Wadhwa vs. DCIT, Central Circle-8, New Delhi [order dated 18.01.2016 in ITA No. 5184/Del/2014 passed by the Hon'ble ITAT Delhi Bench', New Delhi;
> M/s Siriago Pharma (P) Ltd. vs. DCIT, Central Circle-3, Jaipur [order dated 13.01.2016 in ITA No. 1010/JPI/2013 passed by the Hon'ble ITAT Jaipur Bench, Jaipur; > [order dated 18.01.2016 in ITA No. 3187/Mum/2014 passed by the Hon'ble ITAT "H"Bench ", Mumbai.
(9) In particular, it may be noted that the juri ictional Chandigarh Bench of the Hon'ble Income Tax Appellate Tribunal in the case of Mala Builders (P) Ltd vs ACIT, Central Circle -II, Chandigarh vide order dated 23/08/2016 in ITA Nos. 433 to 437 of 2014 has also unequivocally affirmed the above interpretation of law. It is respectfully prayed that the above ground may kindly be adjudicated in the light of the submissions made above.
As regards to the merits of the case relating to the addition by invoking the provisions of Section 68 of the Act the submissions of the assessee had been reproduced by the Ld. CIT(A) at page no. 124 to 154 of the assessment order, the same are reproduced verbatim as under:
(1) The Appellant had, from time to time, invested in shares/share warrants (which were subsequently converted into equity shares) of various companies and which were subsequently credited to his DEMAT account, the details of which are as under:-
SNo. Name of the Company No of Shares Purchase Year of Amount Investment M/s Pranneta Industries Ltd 8000000 18000000 2009-10 (i) (Now known as Aadhar Ventures India Limited) DB (International) Stock Brokers 1750000 10150000 2009-10 (ii) Ltd (iii) Blue Circle Services Ltd 5500000 8250000 2010-11 Unisys Software & Holding 575000 10647949 2009-10 (iv)
(2) During the assessment year under appeal, the Appellant sold the shares of the said companies, as per the following details:-
SNo. Name of the Company No of Shares Sale Long Term consideration Capital Gains M/s Pranneta Industries Ltd (Now 198487 12488355 12041759 (i) known as Aadhar Ventures India Limited) DB (International) Stock Brokers Ltd 1750000 166846614 156696614 (ii) (iii) Blue Circle Services Ltd 5500000 412557740 404307740 (iv) Unisys Software & Holding Industries Ltd 157290 34746157 31833434
(3) The sale was effected on various dates during the year and the details alongwith copies of contract notes alongwith the requisite documentary evidence for the same were duly filed before the Id Assessing Officer vide letters dated 29/02/2016 and 11/12/2015 (copies again being enclosed herewith). The entire sale of shares, which had been undisputedly held by the Appellant for more than twelve months before the date of sale, was affected through a broker registered on a recognized Stock Exchange, (BSE in this case) and Securities Transaction Tax (STT) was duly paid on the transaction. (4) As a result of the said sale of shares, the Appellant had earned Long Term Capital Gain(LTCG) ofRs 60,48,79,547/ which was claimed as exempt u/s 10(38) of the Act since all the conditions laid down therein stood duly fulfilled and complied with. (5) However, ignoring the specific provisions of law and the facts of the case, the Ld Assessing Officer has proceeded to unjustifiably add back the entire sale proceeds aggregating to Rs. 62,66,38,865/- to the income of the Appellant u/s 68 of the Act as an alleged unexplained cash credit by denying exemption u/s 10(38) of the Act notwithstanding the fact that all the conditions specified therein for grant of exemption were duly satisfied. (6) While passing a voluminous and, ostensibly, detailed reasoned order justifying the aforesaid action, the Ld Assessing Officer has relied on various reasons and factors including statements of various persons recorded during the course of search/survey actions (on the Appellant as well as other unrelated independent entities/persons), and documents/information allegedly recovered/found therein, analysis of the financial and trade data of the Companies, elaborate but largely irrelevant discussion on the modus-operandi followed by entry operators, application of the principle of preponderance of probabilities etc. by disregarding the documentary evidence/submissions filed/made on behalf of the Appellant. However, it may be prima-facie submitted that whatever data has been used by the Ld. Assessing Officer in making the impugned additions does not even remotely suggest that the Long- Term Capital Gains earned by the Appellant were allegedly not genuine and the result of alleged sham transactions. (7) While passing the impugned assessment order the Ld. Assessing Offer has relied solely upon the findings of the Investigation Wing and information that he came to be in the know of from other sources and has not carried out any independent enquiry on his own thereby indicating, to some extent, a non- application of mind. (8) At the outset, it is submitted that the shares of the companies on which LTCG has been earned were allotted to the Appellant by way of a preferential allotment or directly purchased from the open market and were subsequently credited to the Appellant's DEMAT account. Moreover, their sale (undisputedly after being held by the Appellant for a period of more than twelve months) was effected through a broker registered on a recognized Stock Exchange and Securities Transaction Tax was duly paid on the transaction. The sale proceeds for the sale of shares were received through normal and regular banking channels from the stock broker through whom the shares had been sold (who, in turn, received the same from the Stock Exchange through its designated payout mechanism) and stood duly credited to the Appellant's Bank Account(s).
(9) In order to evidence the said transactions, copies of share purchase documents, DEMAT account, share certificates, contract notes and bank statements highlighting the relevant entries regarding payments made against the purchase of share and receipts against sale of shares and ledger accounts of the Appellant in the books of the Broker through whom the shares have been sold were duly filed before the Ld. Assessing Officer and are again being enclosed herewith. (10) In this connection, before proceeding further, Your Honour's kind attention is invited to the provisions of Section 10(38) of the Act as per which "any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity-oriented fund where (a) the transaction of sale of such equity share or unit is entered on or after the date on which Chapter VII of the Finance (No 2) Act, 2004 comes into force; and (b) such transaction is chargeable to securities transaction tax under that Chapter.
shall not form part of the total income."
(11) The above section provides that any long-term capital gain arising from the transfer of equity shares shall not form part of the total income provided the twin conditions referred in Section 10(38) viz the transaction having been entered into on or after 1st October, 2004 and Securities Transactions Tax (STT) having been duly paid thereon are cumulatively satisfied. In the given case, the transactions giving rise to the LTCG entered by the Appellant duly comply with the said conditions specified in Section 10(38) of the Act in as much as while they have been entered in the F/Y 2011-12 i.e. much after 1st October, 2004 (the date on which the provisions came into force) they were also chargeable to Securities Transaction Tax (STT) which fact also stands duly documented and is not disputed. Accordingly, the LTCG earned by the Appellant are undisputedly covered by the provisions of Section 10(38) of the Act and will therefore not be a part of his total income.
(12) It should be noted and strongly emphasized here that any long-term capital gain arising from the transfer of equity shares in a company which fulfils the aforesaid conditions specified in Section 10(38) of the Act cumulatively would not form a part of the total income. It cannot be over-emphasized, to any extent or degree, that the Act (as amended from time to time and for the time being in force) being an independent sovereign statute should be read, interpreted and implemented "only" with reference to the conditions prescribed therein and reference or extrapolation to any other statute/rule/regulatory body even miniscule is permissible only if expressly mandated by the relevant provisions of the Act. To put it differently any reference to any law, rule or even the results of any investigation carried out by any other body cannot be used/referred to, unless expressly and specifically permitted while administering the provisions of the Act It should be noted that the Act is a fiscal statute enacted by the Parliament to provide a framework for the levy and collection of taxes on income and providing the administrative and judicial apparatus relating thereto as opposed to it being an instrument of public policy and accordingly its reach, functions, applicability and juri iction should be limited thereto.
(13) The provisions of Section 10(38) of the Act also need to be viewed in conjunction with the manner of functioning of the securities market, in particular stock exchanges. With the advent of online-trading, the trades on any stock- exchange (NSE/BSE etc) are conducted online through a registered broker on the respective exchange. The entire dealing in securities takes place electronically whereby there is no physical contact/communication and all the transactions get consummated through online matching of the bids and pffers of the respective parties viz buyers or sellers. The securities traded, being invariably held in De-materialized (DEMAT) form, are transferred from/to the accounts of the relevant parties involved and the accounts (Delivery of shares as well as financial) are settled inter-se brokers and with their clients, both with respect to the delivery of shares and settlement of accounts due as per in the mechanism of the concerned exchange. It may be mentioned here that the securities markets function with the framework of the rules/regulations/procedures of the relevant exchange and also under the strict regulation, control and monitoring of the Securities and Exchange Board of India, statutory body which functions as the market regulator and watchdog.
(14) With the above background, albeit brief, on the functioning of the stock exchanges, and the fact of the manner, mode and procedure for the purchase of shares having not been disputed, it may be mentioned here that the shares in question sold, were of a listed company, and were sold at the prevailing rates through the Bombay Stock Exchange Online Trading (BOLT) platform of the Bombay Stock Exchange and all the payments against the same were received through account payee cheques/RTGS from the stock broker, through whom the shares were sold, who, as already stated above, in turn received the payment from the stock exchange as per the specified designated payment mechanism. It may be mentioned that under the online web-based trading platforms of the relevant exchanges as per the applicable, recognized and prevalent procedures and practices, the broker only acts as the intermediary in the online market place where, in the absence of any physical interaction between the parties, the identity of the counter- party (whether buyer or seller) is not available and is consequently also not known to the party (ies) entering into the transaction thereby almost completely eliminating the possibility of any collusion between the parties. The entire transaction is documented and evidenced by contract notes/bills of the relevant brokers issued in the form and in a manner as prescribed by the regulatory authorities. (15) In such a regulated and formalized scenario, the possibility of rigged trading to generate allegedly bogus LTCG accommodation through a syndicate of accommodation entry operators through dummy entities was not only negligible, but well-nigh impossible. (16) Carrying on the above argument further it should be noted here that the transactions were entered into by the Appellant as an investor with a view to earn profit from the appreciation, whether long term/short term, in the price of the underlying shares. The Appellant did not have any kind or degree of relationship/ or control with/over the said companies, save as that of a passive investor, and neither was he involved in the management thereof at any point of time what to talk of its capital market operations or influencing to any degree or extent its stock market prices. The transactions were entered into as a stock market investor on the basis of information available, the Appellant's perception
and anticipation as to future price movements, performance of the Company etc. and as soon as in his opinion they reached a particular level, considered as optimal, the same were divested. The objective of the Appellant was to keep a track of the prices of the securities only, which formed the sole pivot for all his actions related thereto. (17) It may be submitted that in the case of the Appellant, the acquisition of shares, through a preferential allotment/purchase from the open market and which were subsequently duly credited to his DEMAT account, stands duly and comprehensively documented. Further, the sales of the securities took place through a registered broker on the NSE/BSE in accordance with the prescribed regulatory procedures, rules and applicable laws whereby both the limbs of the transaction vis purchase and sale of shares gets duly authenticated. The transactions were also, in all cases, concluded through regular banking channels. The said facts and circumstances, though not relevant from the point of view of determining the taxability or otherwise of the Capital Gains under the Act, are decisive determinants as to the genuineness and validity of the transactions and their being in compliance with all the applicable relevant statutory provisions, rules, procedures and practices. (18) A large part of the Ld Assessing Officer's arguments are based on the perceived and alleged price-manipulation and rigging through a perceived arrangement between various parties/brokers and individuals. Given the above discussion on the functioning of stock-exchanges, it should be noted that since the Appellant, who is just an investor and a minor player on the stock exchange was not only but also could not be aware of the person/entity buying the shares there was no way formal, informal or even collusive, what to talk of legal whereby he could have any control to ensure that the shares could be sold to a particular person/entity or to any price manipulation therein. In such a regulated and formalized scenario, the possibility of rigged trading to generate allegedly bogus LTCG accommodation through a syndicate of accommodation entry operators through dummy entities is not only negligible, but well-nigh impossible. (19) With the above background the various, arguments both legal and factual, garnered by the Ld Assessing Officer in support of his action are being countered separately and seriatim as under: - A LTCG from Penny Stocks (i) The Ld Assessing Officer has relied upon certain, which can at least be termed extraneous and largely irrelevant, factors and circumstances to hold that the LTCG earned from the alleged penny stocks is actually "Income from undisclosed sources". The factorstaken into account while arriving at the aforesaid conclusion include the following :- > Huge LTCG from penny stock companies operated by entry operators by investing a minuscule amount; > Onus on assessee to substantiate genuineness of exempt income; >
Analysis of financial and manipulation in market price; > Transfer of shares in a collusive manner with predetermined parties. > Investment in these companies is not prima facia a rational investment behavior; > In the whole process principle of price discovery kept aside and market lost its purpose.
(ii) At the outset, it may be vehemently emphasized that the investment in the shares of the various companies was made on the basis of their expected growth potential, the information in respect of which came to be known to the Appellant through various sources. Simply because the share price of a small Company had appreciated substantially, and the Appellant had earned substantial capital gains therefrom does not call for the entire transaction to be viewed prejudicially with a jaundiced eye/ prejudicial mind. The fact that any person was able to earn substantial gains, translating, may be, into astronomical rate of returns, could be the result of various factors including the Investors foresight, ability to exploit any bits and pieces of information that he may become privy to or even sheer fortitude - none of which call for a negation of the entire transaction so as to strike at the roots of its authenticity, nature and character. (iii) The Ld Assessing Officer has also placed reliance on the fact of the apparently phenomenal rise in the prices of the shares compared to their revenues/ operating results / assets base/ business health and the apparent absence of any new development which promises bright future for the shareholders which apparently defies logic of share trading pattern of primary or secondary markets. The said argument goes against the basic grain, manner and functioning of the capital market wherein price discovery of the underlying security and its movement is the result of the complex interplay of a set of intricate and diverse set of factors, sometimes mutually exclusive, sometimes competing and sometimes even-conflicting and on almost all of whom an investor has no control and of which revenues/operating results is just one solitary factor. The movement of price on the stock exchanges and the underlying indices are dependent on a host of factors including the general economic sentiment, political situation, specific sectoral growth, liquidity, future growth prospects, reputation of the promoters, industrial situation etc. all of which act in tandem and correlation to determine the movement of prices. (iv) In fact, in the modern day inter connected world wherein global linkages and factors have acquired prominence, several intricate and even notional factors come into play. The behavior of the stock exchanges is also influenced by global sentiments and cues, cross-border movement of funds, international political developments, perception ofFII's, crude prices, economic indices in various countries across the glo be, domestic as well as international political developments and a host of other tangible/intangible/perceptual and even sentimental factors. (v) An analysis of the security price movements of companies on the stock exchange would make it clear that in no case have the prices been determined solely or even majorly/predominantly by their sales/revenue/profits. In fact, even companies in the same industry/sector, with similar profiles and operating in almost identical environments can and do invariably exhibit extremely divergent stock-market behavior as would be evident from the highly divergent P/E ratios of companies listed in the securities markets. The LdAssessing Officer has, through graphical representations and charts relied on the apparent divergent trends in the stock market prices of the impugned companies by ignoring the fact that such trends are observed in all the companies on the stock exchange at some point of time or the other. (vi) Given the fact that the entire process functions within the framework of the rules/regulations of the stock exchange(s) and ever watchful eyes of the market regulator and watchdog viz the Securities and Exchange Board of India (SEBI) and the fact that the Appellant does not have any role direct, indirect or even notional in the management of the subject companies or any degree of control thereon, he cannot even nationally have any role to play in the movement of prices of the said companies. In such a situation, the Appellant cannot be deemed to be a part of any wrong doing/non-compliance, including price manipulation, to which the company or any its promoters may be a part. It should be noted that in a free-market environment, fluctuation in share price(s) is a natural phenomenon and cannot be made the basis for doubting any transaction for the purchase/sale of shares. (vii) It is pertinent to mention here that the process of preferential allotment of shares as well as follow up public issue(s) is the culmination of a rigorous exercise wherein various statutory/regulatory bodies such as SEBI, the Stock Exchanges etc are involved. The entire process involves a multi-stage, rigorous, coordinated and time-bound process involving comprehensive due-diligence, vetting of documents, background check of the promoters, compliance with well-laid out guidelines and parameters etc. An already listed or an unlisted company intending to go in for a public issue can allot shares by way of a preferential allotment only after getting the approval of SEBI. In fact, in the entire process, SEBI also approves the list of persons/entities to whom shares are to be allotted on preferential basis, also incorporating therein the terms and conditions including, lock in, if any subject to which the share are to be issued. (viii) In this background and situation, to disregard an entire process the foundation of which is laid on a comprehensive multi-stage process, multi-agency approval is not only the negation of an act committed with due compliance of law but also exhibits, we may submit with respect, a complete di ain therefor. The Appellant cannot be faulted for relying on a commercial proposition which was duly compliant with law, including approval of SEBI and which has resulted in huge profits. A large part of the arguments of the Learned Assessing Officer are based on the apparently unrealistic high rate of returns and supernormal profits ignoring the fact that the rate of return is a function of various factors on only some of which an entity/person can have some control. The fact of a high rate of returns should not, by itself, prejudice the mind of any person while judging the transaction. (ix) To disregard the activities conducted by a Company as dummy when its entire spectrum of activities has been pre-scrutinized and approved by various agencies, including the capital markets regulator SEBI would be disregarding the functioning of bodies operating under a law enacted by the Parliament of India. It may be noted that actual activities, both in nature and quantum, are bound to vary, sometimes even widely, from that forecasted/planned and the benefit of hindsight cannot be used to negate the results therefrom.
(x) In this connection it is also vehemently submitted that while there is no statistically acceptable definition of the term "penny stocks", the said findings/ investigations/ recommendations cannot ipso-facto and unilaterally be applied to the Appellant since there is no evidence of any degree, or form whatsoever that he was a part of any organized system whereby artificial long term capital gains were created through manipulative means. The said findings, if any, cannot be unilaterally and in the absence of concrete authoritative evidence,
extrapolated to apply to the Appellant. Moreover, the various documents/reports/findings/order have been relied upon by the Ld Assessing Officer only generally and no specific case has been made out against the Appellant. There is not an iota of evidence to suggest that the Appellant indulged in the price rigging since he was neither connected with the alleged unusual price movement of shares nor there is any concrete evidence of his complicity in this regard and there is no allegation of any wrong -doing with regard to the Appellant.
(xi) The efforts of the Ld Assessing Officer, rather unfairly, seek to conjure a negative image with respect to "penny stocks". In fact globally, in the context of the working of the securities markets and in the normally used and colloquially accepted terminology of people trading/advising in securities, "penny stocks" are those which trade at a very low price and have very low market capitalization whereby although there is a high-risk, the probability of a rapid upside and the opportunity to gain from even a small rise in price is very high. In this situation, it is a common practice among investors to look for suitable (penny) stocks where the possibility of earning higher returns with a comparatively lower investment is very high. Such an investment behavior, although somewhat risky, and not generally recommended by conservative investment advisors, is not unusual or unheard of and does not carry the taint of illegality or wrong doing in any manner. Accordingly, it would not be correct to look at any transaction in the so called "penny stocks" with even a slightly suspicious or slanted view since not only are they perfectly legal but also can be a part of any traders/investors legitimate portfolio. In fact, to better appreciate the legality and legitimacy of trading in "penny stocks" it should be noted that the respected national daily "Economic Times", which has the widest circulation among economic newspapers in the Country, carries out a weekly survey of penny stocks vis-a-vis their price trends, market capitalization etc.
(xii) In this connection it is also submitted that the provisions of the Act must be implemented administered and interpreted only with reference to its specific provisions and any income-tax authority is estopped from stepping into the shoes of any assessee so as to question its rationality, prudence or acceptability from a common-sense point of view. So long as any action/transaction meets the specific conditions laid down in the Act an attempt to seek to negate it or interpret it by applying the yardsticks of rationality, prudence etc. which in any case are highly and extremely subjective, would not meet the ends of justice and basic tenets of judicial interpretation/ tax administration. The same argument would hold good regards variation in the volume of transactions in the shares of the companies on different dates, over which again an Assessee has no control whatsoever. It should be again emphasized, even at the cost of umpteen repetitions, that the Assessee has only transacted in the shares of the said companies to the limited extent as an investor with a view to benefit from the long-term appreciation in the price of underlying shares with absolutely no control decisive or even persuasive or say, even minuscule or notional say in the management thereof, what to say in its share market price. (xiii) It should be noted here that the Ld Assessing Officer has not disputed any part of the transaction relating to the purchase of shares in any manner -whether payment, allotment, conversion or any other aspect/limb related thereto. His entire case, almost solely, rests on the procedure for sale and the alleged,
somewhat conjectural, manipulation in the sale thereof and other circumstantial/third-party evidence, the entire gamut of which is being negated hereinafter. Notwithstanding the said arguments, it should be noted that any action based and conclusion drawn on a partial view of the entire transaction, where the other part has not been disputed, even microscopically, can only be of questionable quality. B Documentary evidence gathered during search, statements of entry/exit provides and Investigation of PIT (Inv) Kolkata and Mumbai (i) At the outset the charge that the Appellant had been the beneficiary of allegedly bogus LTCG entries is vehemently denied. The LTCG arising to the Appellant arose from genuine transactions carried out in accordance with the prescribed procedures and duly compliant with the relevant regulatory laws and regulations. (ii) The action of the Ld. Assessing Officer relies, almost solely, on independent search and survey operations carried out by the Department on some entities, alleged entry operators, the findings of the Investigation Wing and orders passed by SEBI whereby it has been concluded generally that the huge capital gains earned within a very short period of time, by investing in a penny stock whose fundamentals/ financials had no support, was neither the result of a coincidence nor of a genuine investment activity but allegedly created through a well planned and executed scheme in which the company, the brokers and the buyers and sellers of the scrip worked deliberately to achieve predetermined objectives. The Ld. Assessing Officer has not made any independent enquiries in this regard and has relied solely upon the information provided by the Investigation Wing and that which came to his knowledge from other sources. (iii) The conclusion arrived at by the Ld Assessing Officer is based upon the statements of different persons recorded by the Investigation Wing of the Income-tax Department, during the course of separate search/survey proceedings carried out on various persons unconnected with the Appellant at various stages, geographical locations at different time periods. The Ld Assessing Officer has rather erroneously stated that various evidences were gathered during the course of search and seizure proceedings which, allegedly, prove that the transactions resulting in LTCG were not genuine whereas the fact of the matter is that no such evidence/material/ evidence was found during the course of search at the premises of the Appellant. While the legal validity of the reliance on such statements, being in violation of the principles of natural justice, is itself disputed and argued separately, the specific arguments with respect to the various securities are being dealt with as follows: -
(I) M/S PRANNETA INDUSTRIES LTD (NOWAADHAR VENTURES INDIA LIMITED) (a) With respect to the above Company an adverse conclusion has been sought to be drawn on the basis of investigations carried out and statements recorded ofS/Sh Shrish Chanderkant Shah (SCS), R K Kedia, Manish Arora, Om Prakash, Anandilal Khandewal, Radhey Shyam Sharma, Kumar Rai Chand Madan, Deepak Shanghani, Damodar Atal and Praveen Kumar Jain (alias Pintu). (b) At the outset it is vehemently stated that the Appellant does not know, what to talk of having any kind or degree of relationship with and has not entered into any dealing either directly, indirectly, peripherally, tangentially and no cash has ever been paid by the Appellant to SCS either directly or through
any intermediary(ies). SCS also did not have any role, whatsoever in the investment made by the Appellant in various shares. The said fact has also been reiterated by the Appellant in various replies filed before the Ld. DDIT (Inv) during the course of post-search investigation and before the Ld Assessing Officer in assessment proceedings. (c) With regard to the allegation that payments were made through RTGS by BPSL to various companies alleged to be managed and controlled by SCS, it is submitted that as per the information available with the Appellant, the said payments were made through Sh. RK Kedia and not to SCS. There is no contradiction in the stand taken by the Appellant during the course of the assessment proceedings which remains that the payments were in the nature of advances for purchase of capital assets made by BPSL in the normal course of business to various companies apparently and allegedly controlled by SCS, a fact which was definitely never in the knowledge of the Appellant. To be clear and succinct as per the information available with the Appellant, the capital advances paid by BPSL were made through Sh RK Kedia to various companies which as it comes out are, perhaps, allegedly controlled by SCS with whom the Appellant does not have any dealing directly or even indirectly. (d) Without prejudice to the above, as regards the allegation that the transactions recorded in "Kedia 2" sheet found in the search proceedings against SCS are exactly same as recorded in bank account of BPSL with Punjab National Bank and as such the transactions recorded therein are authentic, it is submitted that these transactions in Kedia 2 sheet were recorded at a separate location and the Appellant is not aware of the purpose of recording the entries therein and even as to how they came to be recorded. The payments representing advances against purchase of capital goods by BPSL were made through Sh. RK Kedia which probably could explain the reason for recording such transactions by SCS. However, the Appellant does not and cannot be expected to have details/knowledge as to the reasons why such details were kept by SCS/RK Kedia and of the internal dealings among them, if any. (e) It may also be reiterated here, a fact also emphasized before the Ld Assessing Officer that BPSL being a separate legal entity and an independent assessee, running a separate business can only be privy to, in full control of and explain the transactions entered into by it, if any. (f) The Ld Assessing Officer has also relied on the fact that "Kedia 2" sheet seized from the premises of Shri Shirish Chander Shah during the course of search and survey at his premises allegedly pertains to the Appellant and his family. In this regard while it is again, emphatically and vehemently, denied that any cash has been paid to anybody against the sale of shares ofPIL, it is also submitted that the said account, pertaining to shares ofPIL, has no relevance to or relationship with the Appellant or his family members and the alleged cash entries do not match with the corresponding sale of shares of PIL by the Appellant or his family members. Moreover, more pertinently and topically, the said sheet nowhere contains the name of the Appellant or any of his family members. Simply because the amount and number of share of some transactions entered therein match with the sale of shares of PIL by the Appellant and/or his family members does not and cannot motivate any thought process culminating in taking a slanted/prejudicial view of the facts. The Ld Assessing Officer's averment that the said sheet contains details of cash received by RK Kedia on behalf of the Bhushan Group is not backed by facts since the name of the Appellant / any of his family members/ group company(ies) does not figure in the said sheet and Ld Assessing Officer's assertion is just an apprehension/ assumption bordering on suspicion.
(g) While the Appellant is not and cannot be expected to be aware of the purpose/need of maintaining the said record particularly with regard to the entries regarding sale of shares of PIL, which incidentally matches with the Appellant's transactions, it can only be speculated that, since as alleged, SCS was managing and controlling the affairs of PIL, he may have maintained the said record for his own purpose or analysis. It is common, normal and definitely not unusual for persons in control of and managing the affairs of listed companies to keep a track of not only the share price movement but also the volume and number of transactions therein. The data could have been obtained from Bombay Stock Exchange or the stock brokers through whom the transactions had been entered into. The name of the Appellant or any of his family members does not figure anywhere in the said documents. Without prejudice it is also submitted that certain transactions of chequefsj received which have been entered therein on various dates such as 01-11-2010, 10-11-2010, 19-11-2010 do not pertain to the Appellant or any of his family members or group companies which further proves the fact that said sheet has no relevance with the Appellant or any of his family members and any adverse inference sough to be drawn on the basis of said excel sheet is neither warranted and in any case nor sustainable. (h) In particular, the charge in the statement ofSh. RK Media recorded on 14/06/2014 regarding "Kedia 2" sheet and delivery of unaccounted cash by Sh. Alkesh Sharma and Sh. Suresh Gupta is vehemently denied since no credence can be given to the statements given by Sh. RK Kedia. While it is once again reiterated that no cash was paid to Sh. RK Kedia or his employees either directly or through any intermediaries, it may be submitted that the stand taken by Shri RK Kedia, in this regard, is also contradictory as is clear from the shifting stands taken by him in his statements recorded on various dates viz. 22-02-2014, 20-03-2014,13- 06-2014 and his letters fded on 20-10-2014 and 26/03/2015. Moreover, a review of the statement of Sh R K Kedia recorded on 13-06-2014 itself reveals inherent inconsistencies in as much as with regard to companies mentioned at point no 3, and 5 namely M/s Matra Kaushal Enterprises Ltd., Vishjyoti Trading Ltd. and P.S. Infrastructure and Services Ltd. he has stated that he had arranged investment in shares of these companies. However, with regard to the same companies at Q no. 29 of the said statement, he has again and contradicted himself by replying that he has never arranged any investment in the said companies. The rapidly and radically shifting stands and the contradictions inherent in the statements and letters fded by Sh R K Kedia cast serious questions as to the authenticity thereof and decisively dent the extent to which reliance can be placed thereon. (i) Regarding the statement of Sh. Manish Arora, it is submitted that the Appellant neither knows any person by the name ofSh. Manish Arora nor has any dealing with him. While going through his statement, as provided by the Ld Assessing Officer, it has been observed that no reference regarding M/s PIL has been made therein. As such no adverse inference on the basis of his statement is warranted with regard to the transactions of the Appellant in the shares of PIL. It is also submitted that from a cursory look at the statements of Sh. Manish Arora as provided by the Ld Assessing Officer, it seems that the statements have not been given by him in a free and undisturbed mind but obviously under enormous pressure and a state of extreme mental stress. The process of recording his statement which started on 13-06-2014 continued right up to 09/07/2014 with only
small breaks in between. It needs to be appreciated that any human being required to make a statement before investigating authorities for a period of almost 25 days is bound to be under a lot of stress and psychological pressure whereby the possibility of errors, contradictions and inconsistencies can definitely arise casting a serious doubt on their accuracy/reliability and the extent of reliance that can be placed thereon. (j) The action of the Ld Assessing Officer also relies to a large extent on the statement ofSh. Omprakash Anandilal Khandelwal and Shri Radhey Shyam Sharma, Manager of PIL. In this connection it is submitted as follows: - (i) As regards, his statement that the shares of PIL, under his control, were transferred to various companies and persons off market or through the stock exchange as directed by SCS, it may be mentioned that no shares were purchased by the Appellant off market. It is also submitted that the entire purchase was through preferential allotment made by the Company, after following the due procedure as laid down by SEBI and the other applicable statutes including the Companies Act, as in force at the relevant point of time. (ii) With regard to the inference drawn by the Ld Assessing Officer on the basis of the statement of Sh. Omprakash Anandilal Khandelwal that LTCG was generated through the shares ofPIL against payment of cash, it is submitted that the same is against facts since no cash was ever paid by the Appellant to SCS or any entities/persons against sale of shares of PIL. Moreover, there is no concrete evidence to support such an allegation and the corresponding conclusion drawn is only presumptive and conjectural. (iii) The Appellant did not have any role to play in the movement of the share price of PIL and was neither aware nor could have been aware of any understanding nor was in any way concerned with any understanding, if any, between Sh. Om Prakash Khandelwal and Sh SCS, if any. (iv)
As regards the inferences sought to drawn by the Ld. Assessing Officer on the basis of their statement that PIL is a paper company, all the directors of the company are dummy directors, the entire turnover of the company is paper turnover, the share capital of the company is a mere accommodation entry and the effective control and management of the company was with SCS it is submitted that the investment in PIL was made considering its expansion plans and huge growth forecasts. As an investor, the Appellant was not and could not be aware that the turnover and share capital of the company was not genuine or the expansion plans of the company would not materialize. It may be submitted here, by way of a vociferous counter, that to dub a Company existing on the records of the juri ictional