MUKESH KUMAR JAIN,CHENNAI vs. ITO, CORPORATE WARD-4(2), CHENNAI

The assessee being aggrieved with this order preferred an appeal before the Ld. CIT (A) who in turn dismissed the appeal of the assessee on the ground of non- furnishing any details in support of his claims u/s. 10(38) of the Act. The assessee being further aggrieved with this order, preferred an appeal before the Coordinate Bench vide ITA No.2840/Chny/2017, wherein the Coordinate Bench has set aside the appeal to the file of the Ld. CIT (A), meaning thereby it is second round of appeal before us against the order of the Ld. CIT (A) passed u/s. 250 r.w.s. 254 of the Act.

It is observed that even in the second round of appeal before the Ld. CIT (A), the assessee did not furnish any submission and has been seeking adjournments only. Hearing notices have been issued on 06.07.2023, 21.03.2024, 29.08.2025 and 10.09.2025. But the assessee has not made any submission despite of the fact that the matter was restored on a specific request of the assessee before the Coordinate Bench. During the year under review, the Appellant had sold 8,000 shares of M/s. NCL Research & Financial Services Ltd. (NRFSL) for a total consideration of Rs. 1,52,48,000/- and long-term capital gain on sale of such shares amounting to Rs. 1,37,47,918/- was treated as exempt income u/s. 10(38) of the Act.

The AO proceeded to complete the assessment on the basis of the information received from the investigation wing and the documents submitted by the Appellant. The reasons for additions in the case of the assessee, on the basis of the

The exit providers in this case, have admitted and filed a submission that there was no genuine activity through their accounts. It is seen that the Appellant has made 9 transactions of sale of 8,000 shares of NRFSL worth Rs. 1, 52, 48,000/- during F.Y. 2013-2014. On aforesaid basis, it is evident that the Appellant was not bonafide in dealing these shares in the guise of LTCG. Thus, the LTCG on sale of shares claimed as exempt in A.Y. 2014-15 amounting to Rs. 1,37,47,918/- on sale of shares of NRFSL is bogus and has concealed income. We have gone through the paper book submitted by the assessee and considered the submissions before the lower authorities and before us also. The report submitted by the Investigation wing of the department could not be thrown out on the grounds urged on behalf of the assessee. The assessee has not been shown to be prejudiced on account of non- furnishing of the investigation report or non-production of the persons for cross- examination as the assessee has not specifically indicated as to how he was prejudiced, coupled with the fact as admitted by the revenue; the statements do not indict the assessee. That apart, the investigation has commenced targeting the individuals who dealt with the penny stocks and after examining the modus seeing the cash trail the report has been submitted recommending the same to be placed before the DGIT (Investigation) of all the States of the country. It is thereafter the concerned Assessing Officers have been informed to consider as to the bonafide

Therefore, the assessments have commenced by the Assessing Officers calling upon the assessee to explain the genuineness of the claim of LTCG/STCL made by them. In all the assessment orders, substantial portion of the investigation report has been noted in full. A careful reading of the same would show that the assessee has not been named in the report. If such be the case, unless and until the assessee shows and proves that she/he was prejudiced on account of such report/statement mere mentioning that non-furnishing of the report or non-availability of the person for cross examination cannot vitiate the proceedings. The assessee has miserably failed to prove the test of prejudice or that the test of fair hearing has not been satisfied in their individual cases. In all the cases, the assessee has been issued notices under sections 143(2) and 142(1) of the Act they have been directed to furnish the documents, the assessee has complied with the directions, appeared before the Assessing Officer and in many cases represented by Advocates/Chartered Accountants, elaborate legal submissions have been made both oral and in writing and thereafter the assessments have been completed.

Nothing prevented the assessee from mentioning that unless and until the report is furnished and the statements are provided, they would not in a position to take part in the inquiry which is being conducted by the Assessing Officer in scrutiny assessment under section 143(3) of the Act. The assessee was conscious of the fact that they have not been named in the report, therefore made a vague and bold statement that the non-furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee. If the report was available in the public domain as has been downloaded and produced by the revenue, nothing prevented the assessee who are ably defended by the Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defense.

A holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, the authorities below cannot lose sight of the fact that the shares of very little-known companies with in-significant business and net worth had a steep rise in the share prices within the period of little over a year. The revenue was not privy to such peculiar trading activities as they appear to have been done through the various stock exchanges and it is only when the assessee made claim for a LTCG/STCL, the investigation commenced. As pointed out, the investigation did not commence from the assessee but had commenced from the companies and the persons who were involved in the trading

To reiterate, the assessee was not named in the report and when the assessee makes the claim for exemption, the onus of proof is on the assessee to prove the genuineness of the transaction. Unfortunately, the assessee has been harping upon the transactions done by him and by relying upon the documents in their hands to contend that the transactions done were genuine. Unfortunately, the test of genuineness needs to be established otherwise, the assessee is lawfully bound to prove the huge LTCG claims to be genuine. In other words, if there is information and data available of unreasonable rise in the price of the shares of these penny stock companies over a short period of time of little more than one year, the genuineness of such steep rise in the prices of shares needs to be established and the onus is on the assessee to do so as mandated in section 68 of the Act. Thus, the assessee cannot be permitted to contend that the assessments were based on surmises and conjectures or presumptions or assumptions. The assessee does not and cannot dispute the fact that the shares of the companies which they have dealt with were insignificant in value prior to their trading. If such is the situation, it is the assessee who has to establish that the price rise was genuine and consequently they are entitled to claim LTCG on their transaction.

Until and unless the initial burden cast upon the assessee is discharged, the onus does not shift to the revenue to prove otherwise. It is incorrect to argue that the assessee has been called upon to prove the negative in fact, it is the assessee's duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuineness and identity. The assessee cannot be heard to say that their claim has to be examined, only based upon the documents produced by them namely bank details, the purchase/sell documents, the details of the D-Mat Account

We have considered the case laws relied upon by the assessee as well as the revenue and observed that the case laws relied upon by the revenue are more pertinent to the facts of the matter. Case laws relied up on by the Revenue: (i) Sanjay Bimalchand Jain v. Pr. CIT [2018] 89 taxmann.com 196 (Bombay) (ii) Suman Poddar v. ITO [2019] 112 taxmann.com 330/268 Taxman 320 (SC) In view, of the above factual matrix and law on this issue pronounced by the Hon'ble Apex Court and Jurisdictional High Court we are of the considered view that the transaction of LTCG claimed exempt u/s. 10(38) of the Act by the assessee is a colourable device in the guise of investment in listed shares. Entire transactions were stage managed with object to plough back his unaccounted income in form of fictitious long term capital gain (LTCG) and claim bogus exemption, Assessing Officer was justified in denying exemption under section 10(38) of the Act and treating such bogus LTCG in penny stock under purview of unexplained cash under section 68 of the Act. The prime evidence against the assessee is presence of the exit provider named in the assessment order, have admitted and filed a submission that there was no genuine activity through their accounts. This fact on the record remained unchallenged by the assessee and there is not even a whisper about it in addition to the fact that the share price of the share was moved from 180 per share and rigged to the peak of Rs. 1,906/- per share, which ultimately suspended by virtue of the SEBI’s action.

It is observed that the scrip under consideration i.e., NRFSL has amount of total trade amounting to Rs. 10, 473, 082, 439/- bifurcated amongst the key players of this malpractice as under; -

Moreover, the above observations are based on the facts of the case and grounds on merits raised by the assessee are dismissed. As far as legal grounds raised by the assessee are concerned it is brought to our notice by the Ld. DR that the same were relinquished by the assessee during the first round of the appeal and thereafter the matter was restored before the Ld. CIT (A) specifically to discuss the merits of the case only. In view of this, ground taken by the assesse on law are dismissed considering the factual statement of the Ld. DR along with relying on the decision of the Hon’ble Apex Court in the case of [2023] 151 taxmann.com 434 (SC) DCIT, (Exemption) v. Kalinga Institute of Industrial Technology, wherein the Hon'ble Apex Court held as under: “..The jurisdiction had been changed after the returns were filed. However, the records also reveals that the assessee had participated pursuant to the notice issued under section 142 (1) and had not questioned the jurisdiction of the Assessing Officer. Section 124(3) (a) precludes the assessee from questioning the jurisdiction of the Assessing Officer, if he does not do so within 30 days of receipt of notice under section 142 (1). [Para 1] In the present case, the facts did not warrant the order made by the High Court. At the same time, this Court notices that the High Court had granted liberty to the concerned authority to issue appropriate notice. It is clarified, therefore, that the Assessing Officer is free to complete the assessment (in case the assessment order has not been issued) within the next 60 days. In such event, the question of limitation shall not be raised by the assessee. [Para 2]...” 16. In the light of the above decision, it can be safely concluded that the ground raised by the assessee is identical to what has been discussed and decided by the