MANISHA KAMAL KHETAN ,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 3(4), MUMBAI, MUMBAI

At the outset, learned Authorized Representative (in short ‘ld. AR’) representing the assessee opted to not press ground no. 1 of the present appeal, accordingly, the same has been treated to be dismissed as withdrawn.

The next contention by the ld. AR was that the ld. CIT(A) has erred in confirming the action of the ld. AO in disallowing the long-term capital gain claimed u/s. 10(38) of the Act. It is submitted that the sale consideration of equity shares of M/s. ACI Infocom Limited has been treated as unexplained cash credit without considering in a justified manner, the facts and circumstances of the case, thus the addition u/s. 68 for Rs. 1,72,05,856/- on account of unexplained cash credit was without any basis. Another grievance pertains to the consequential addition on account of commission u/s. 69C for Rs. 5,16,176/-. It was the request that such additions are liable to be vacated.

Aggrieved with the aforesaid additions, the assessee preferred an appeal before the ld. CIT(A). However, with no success, the appeal of the assessee has been dismissed by the ld. CIT(A) under the following observation: “6.4 Decision 6.4.1 The findings of the AO, the submission of the appellant and the overall factual matrix of the case has been considered. The appellant has quoted several decisions of different appellate forums. In this connection it is my considered view that the various case laws relied upon by the appellant are specific to the particular case and the ratio decidendi in these cases do not lay down any binding judicial principle that may be applied in a blanket manner. These cases may lay down a guiding principle to follow but the ultimate test of Section 68 shall lie within the facts of the transaction doubted by the AO. It may also be mentioned here that the additions made u/s 68 of the Act are fact specific. It depends upon the details and evidences produced by the appellant to discharge the initial onus and the inquiry and investigation of the AO in the course of assessment proceedings. Thus, carte blanche application of the any judgment to the case would not be justified. While the appellant has quoted decisions that are in favor of the assessee there are several other decisions in which the appellate authorities have dismissed the appeal of the assessee. 6.4.2 The appellant has further emphasised that he has furnished all the relevant documents related to purchase and sale of the shares, none of which has been doubted by the AO. In this connection it would be important to bear in mind that it is not the case that the AO has doubted the transaction but rather the genuinety of the transaction has been doubted. The documents furnished by the appellant in the form of contract notes, bank statement, bhav book etc are therefore not required to be rejected by the AO since in any type of accommodation entry, these documents are always there, though the evidentiary value of the same is questionable. 6.4.3 At this point of time reference may also be made to the observation of the SIT on Black Money constituted by the Apex Court which took note of the money laundering being done through bogus LTCG and made the following recommendations: A company with very poor financial fundaments in terms of past income or terms of past income or turnover is able to raise huge capital allotment of Preferential allotment of shares is made to various entities. There is a shop rise in price of scrip once the preferential allotment is done. This is normally achieved through circulating shares of shares among a select group of (A.Y. 2013-14) Manisha Kamal Khetan companies. These groups of companies often have common promoters/directors. The scrips with thus artificially inflated price rise are offloaded through companies whose funding is provided by the same set of people who want to convert black money into white. There is an urgent need for having an effective preventive and punitive action is such matters to prevent recurrence of such instances. This finding of the SIT is an important aspect to be kept in mind while analysing the circumstantial evidences in penny stock cases. 6.4.4 Coming to the facts of the instant case. (i) the appellant has acquired the shares through the preferential allotment route but has not been able to furnish and explain as to how the appellant came to know about this preferential allotment nor did the appellant furnish any invitation letter or offer from the said company. (ii) The share in question, M/s ACI Infocom Ltd was not traded at all prior to the issue of preferential shares with the general public not being interested in it and thus there is no question of any market sentiment, future projections etc influencing the appellant to opt for the preferential allotment. (iii) The share was trading at Rs.2.63/-in August 2011 and it went upto Rs.22/- in February 2013. Thus, there was a whopping profit to the tune of 836% in this period when the general market sentiments were bearish and there was no such reflection in the Sensex. (iv) SEBI took note of the irregular trading pattern and conducted its own enquiry into the alleged rigging of shares of M/s ACI Infocom Ltd and has also imposed penalty for non- compliance with regulatory requirements by M/s ACI Infocom Ltd. While the order does not explicitly label M/s ACI Infocom Ltd. as a penny stock, the non-responsiveness of the company to SEBI notices raises concerns about its credibility. (v) The Directorate of Investigation's report has identified M/s ACI Infocom Ltd. as being used for accommodation entries and tax evasion through artificial price manipulation. The AO has relied on credible data, including analysis of stock market trends, statements of directors, and trading patterns, to conclude that the transactions were pre-arranged. 6.4.5 In view of the detailed investigation and enquiry done by the Investigation Wing which has clearly established the modus operandi of bogus LTCG, I am of the considered view that the peculiar facts stated in para 6.4.4 above and in particular, the fact that the acquisition of shares was through the preferential allotment route and without any business/investment logic and prudence, make it apparent that the transaction being disguised as LTCG is nothing but a colorable device. Although the appellant has submitted certain documents, merely providing demat and bank statements does not establish the genuineness of the transaction. The AO has noted the unusual rise and fall in share prices, which suggests price rigging. The appellant has not provided any satisfactory explanation regarding this volatility. The absence of direct evidence linking the appellant to entry (A.Y. 2013-14) Manisha Kamal Khetan operators does not negate the possibility of involvement in the broader scheme of tax evasion. The burden of proving the legitimacy of transactions lies with the appellant. Given the findings of the investigation wing and the SEBI order, the AO's conclusion that the LTCG claim is not genuine is justified. Courts have held that tax authorities can disregard transactions if they are found to be dubious, even if they are executed through formal banking channels. The appellant has failed to provide sufficient and conclusive evidence to rebut the findings of the AO. In view of the above findings, it is determined that the AO has correctly made additions under Section 68 of the Income Tax Act by treating the alleged sale proceeds of M/s ACI Infocom Ltd. as unexplained cash credits. Therefore, the addition of 1,72,05,856/- is hereby confirmed, and these grounds of appeal

At the outset, the ld. AR reiterated the facts from the orders of authorities below and has submitted that the assessee indulged into the present transaction under the normal course of her investment along with certain other investments, the transaction should not be treated as tented transaction. It was the submission that the long-term capital gain arises from the alleged transaction has been duly shown as exempt income u/s. 10(38) of the Act, fully supported with the documentary evidence for purchase and sale of shares before the revenue authorities. However, the revenue authorities have relied on the investigation report and have described the modus operandi adopted in such transactions, without any independent enquiries to the subjected transaction. The ld.

Per contra, ld. Senior DR representing the revenue submitted that the statements of directors of M/s. ACI Infocom Limited is clearly showing that these directors are dummy directors, they do not have any knowledge about the business of the company, even they are unable to explain about the astronomical rise in the price of share, which was dropped down substantially after the sale of shares by the assessee. It is further submitted by the ld. Senior DR that as per ld. AO’s observation at page 18 of the assessment order, M/s. ACI Infocom Limited’s gross total income in F.Y. 2011-12, 2012-13, 2013-14 and 2014-15 was zero as stated by Mr. Omprakash Mohanlal Bohra, director of M/s. ACI Infocom Limited vide his statement recorded u/s. 131 on 11.03.2019. Such facts shows that the company is not even involved in activities of business during the relevant period. Ld. Senior DR further placed his reliance on the lower authorities and have submitted that the transaction is a preconceived and planned transaction, there was sudden growth in the price of shares of the company and the assessee has sold her entire shares holding in the company, thereafter, the price got dropped down. Under such circumstances, if the assessee placed the reliance that the ld. AO has not made any independent enquiries then either the addition should have confirmed or the matter should be restored back to the file of ld. AO for fresh examination.

We have carefully considered the rival submissions and perused the relevant finding given in the impugned orders and material available on record and also the case laws cited have also been taken into account. As pointed out on behalf of the assessee, the transaction of existence of purchase and sale of M/s ACI Infocom Ltd. giving rise to LTCG claimed to be exempt under section 10(38) of the Act was fully corroborated by the documentary evidences, which is not in dispute. The shares have been credited in the demat account and transferred out of demat account at the time of sale. Both purchase and sale transactions are carried out through banking channel and by transfer of shares. The prima facie bonafides of existence of transaction executed cannot thus be doubted. It is not the case of the revenue that the capital gain arising to Assessee in not in the nature of LTCG as the shares were held by the assessee more than one & half years. The case of revenue is that such transactions is an accommodation entry and thus it is a sham, which is based on report of Investigation wing in many scrips. The abnormal increase in prices of share has led to suspicion on bonafides of transaction and was treated as accommodation entry of sham nature. Ld. AO has relied upon the modus operandi as described by the Investigation wing without carrying out any independent investigation. To discard the documentary evidences filed by the assessee and to corroborate the findings or report of the investigation, there has to be either concrete information impinging assessee; or there is information about exit providers who have specifically confirmed the purchase of shares to facilitate the accommodation entry; or SEBI has found some discrepancy in manipulation of price in stock exchange or found something irregular leading to inference that this scrip was used for the benefit of person indulging in buying and selling of the shares and banning the trade of the scrip; or the company itself has been investigated and found to be indulged in such activity; or some direct evidence or material is found implicating assessee. Then preponderance of probability goes against the assessee that documents filed by the assessee cannot be conclusive. Presumption can be based against the assessee if all such factors are brought on record and not on some general report of Investigation Wing. Such report can be triggering point but not conclusive unless some inquiry has been done by the AO or something specific has been brought on record. That is the reason in all the judgments of Hon’ble High Court have held in favour of the assessee under these circumstances.

The Hon'ble Bombay High Court in case of Indravadan Jain HUF and Hon’ble Delhi High Court in the case of KarunaGarg as well as Krishna Devi has held that an astronomical increase in the share price of a company in itself is not a justifiable ground for holding the LTCG to be an accommodation entry. Here in this case it is not even astronomical increase of price. There has to be other materials to dislodge the claim of the assessee, when existence of purchase of shares and sale is through stock exchange on line is not disputed, then other factors have to brought on record to treat that it was an accommodation entry.

The whole basis of making the addition is standard modus operandi without there being any linkage with the assessee or any inquiry of the scrip or any adverse finding by agency like SEBI, which regulates the trading in stock exchange. It is trite law that additions merely on the basis of suspicious, conjectures or surmises could not be sustained in the eyes of law as held by Hon’ble Supreme Court in Omar Salay Mohamed Sait V /s CIT (1959 37 ITR 151). The suspicion however strong could not partake the character of legal evidence as held by Hon’ble Supreme Court in Umacharan Shaw & Bros. V/s CIT (1959 37 ITR 271). Therefore, we find that onus as cast upon revenue to corroborate the impugned additions by controverting the documentary evidences furnished by the assessee and by bringing on record, any cogent material to sustain those additions, could not be discharged by the revenue. The allegation of price rigging / manipulation has been levied without establishing the vital link between the assessee and various entities as stated by AO being exit providers. 13. In this backdrop and facts and circumstances of the facts on record and lack of inquiry by the AO, we are of the view that the addition is not justified based on conjecture and surmise and the assessee is discharged primary onus which lay upon it. The Revenue, on the other hand, could not dislodge the perception that apparent is not real. On the contrary the type of error in the assessment order as pointed (A.Y. 2013-14) Manisha Kamal Khetan out by the counsel of the assessee indicates that there is no application of mind at the end of the assessing officer and he is not even verifying before concluding whether the assessee has booked losses or offered LTCG in the shares of ACI Infocom. AO referred SEBI order on the issue which was not even subject matter of the said order. Huge addition made on the basis of borrowed finding can not be sustained.

In the light of factual matrix and case laws referred to before us, we see substance in the plea of the assessee that such capital gains arising on sale of shares cannot be regarded as sham profit and consequently, additions under made u/s 68 of the Act is not justified. The ld.AO has not provided anything on record to justify additions under section 69C of the Act either. As held above, modus operandi spelt by itself is not an adequate ground to impeach the transactions.

Therefore, considering the entirety of facts and circumstances, we are not inclined to accept the stand of Ld. CIT (A) in sustaining the impugned additions in the hands of the assessee. Resultantly, the addition on account of alleged Long Term Capital Gains as well as estimated commission against the same, stands deleted. The grounds of appeal, to that extent, stand allowed.