KRISHNA DEVI,NEW DELHI vs. ITO, WARD- 38(3), NEW DELHI

Per Dr. B. R. R. Kumar, Accountant Member:

This appeal has been filed by the assessee against the order of ld. CIT(A)-13, New Delhi dated 25.06.2019.

Jurisdictional Ground: Assessment is void ab initio

“1. That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without appreciating that assumption of jurisdiction u/s 148 was by Ld A.0 was in violation of mandatory jurisdictional conditions stipulated under the Act;

1.1 That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without appreciating that “rubber stamp” reasons in present case are based on borrowed satisfaction and are without independent application of mind This is further evident from following features of reasons recorded:

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i) That in reasons recorded in column no 8(a) it is incorrectly stated that assessee has not filed return of income where as factually return was filed on 02/02/2015 which itself vitiates the belief formed;

ii) That in reasons no tangible material is narrated or described so as to form valid belief u/s 148 of the Act;

iii) That mere DIT information is mentioned in reasons recorded which is nowhere corroborated by any independent material;

iv) That merely for verification and examination case is reopened u/s 148 which is not permissible u/s 148 and for verification only possible option is recourse to section 143(2) of the Act which is missed here (refer para 3 & 5 of reasons recorded);

v) That as stated in opening para of reasons recorded mere suspicion created by investigation wing information is made as sole basis to form belief which is proscribed in law;

vi) That to make deep scrutiny reopening u/s 148 is made as stated in penultimate para of reasons recorded;

vii) That existence of information relied in reasons before Ld AO at the time of reasons recording is disputed and seriously questionable;

1.2 That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without appreciating that no back material like investigation wing report details vis a vis assessee, etc, was lawfully confronted to assessee thus invalidating entire reopening (much less cross examined as per due process of law);

1.3 That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without valid approval from superior authority under the Act;

1.4 That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the

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order passed by Ld AO u/s 147/143(3) without valid notice u/s 143(2) on basis of return filed u/s 148 on 04/10/2018 (also in assessment order no mention made to notice u/s 143(2) of the Act) ergo orders of Ld AO/Ld CIT-A may please be quashed.

1.5 That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) as none of the assessee submission is appreciated while adjudicating the appeal;

Other grounds on merits qua addition of Rs.24,69,636

2.1 That order pas sect by Ld AO dated 29/12/2018 and further order passed by Id CIT A dated 25/06/2019 are bad in law in as much as addition of Rs 24,69,636 /- is made violating principles of natural justice without confronting any investigation wing report relevant extract, statements recorded by investigation wing, etc and without offering cross examination of revenues witness whose statements is extensively relied in impugned orders, which is sufficient to quash the assessment order and order passed by Ld CIT-A.

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transaction is bogus/sham has remained un-discharged from side of revenue and contrary findings of Ld CIT-A are repudiated at length.

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without any independent application of mind (like a rubber stamp order).

Humble Prayer: i) To quash reopening made without authority of law merely for verification and scrutiny and without valid notice u/s 143(2) of the Act. ii) To delete the addition of Rs 24,69,636/- on a/c of alleged bogus LTCG. iii) To quash assessment order and Id CIT-A order for being passed in serious violation of audi altrem partem.

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iv) To hold section 68 etc does not apply to sale of shares and that too sans credit in books of account maintained by assessee; v) To restore returned income vi) Any other appropriate relief”

Excerpts from the Assessment Order:

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Sl. No. No. of shares Sate of Shares Date Sale Price Esteem Bio (EBFL) 1. 1200 21.02.14 4,09,786.83/- 2. 2400 28.02.14 9,36,407.93/- 3. 2400 06.03.14 10,05,839.59/- 6000 Total Sale 23,52,034.35/- . 9. During the course of assessment, the assessee has furnished purchase bill debit note of offline purchase of shares, bank account statements, DP statements and broker notes for sale of above mentioned stock to strengthen the claim of Long Term Capital Gain, which has been claimed as exempt from taxation u/s 10(38) of the Income Tax Act, 1961.

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the apparent was real. 11. The scrip were thoroughly examined and the following facts emerged:

Facts of the Share namely M/s Esteem Bio (EBFL)

Weak Financials and absence of any real financial credentials/ business activities:

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earned meager revenues. From the information available in the public domain, it is not difficult for any genuine investor to arrive at a conclusion that the company prima-facie is involved in non-economic activities. Even an investor with risk-appetite on a higher side is highly unlikely to invest in such a script unless the investor is in possession of specific information or is certain about the assured return.

Balance Sheet of Esteem Bio Organic Food Processing ------------------------in Rs. Cr. -------------------- Mar 14 Mar 13 Mar 12 Mar 11 Mar 10 12 mths 12 mths 12 mths 12 mths 12 mths Sources of funds Total Share Capital 14.92 14.92 0.30 0.05 0.05 Equity Share Capital 14.92 14.92 0.30 0.05 0.05 0.00 0.00 0.00 0.00 Share Application Money 0.00 Reserves 12.40 10.56 8.26 4.94 2.80 Net worth 27.32 25.48 8.56 5.89 3.75 Unsecured Loans 0.39 0.73 3.24 3.38 3.47 Total Debt 0.39 0.73 3.24 3.38 3.47 Total Liabilities 27.71 26.21 11.80 9.27 7.22

Application of Funds Gross Block 13.32 12.69 6.18 5.33 4.24 Less: Accum. Depreciation 1.10 0.52 0.00 0.00 0.00 Net Block 12.22 12.07 6.18 5.33 4.24 Investments 3.15 2.73 0.24 0.24 0.24 Inventories 0.16 0.38 3.13 2.75 1.99 Sundry Debtors 0.32 2.45 1.70 0.14 0.00 Cash and Bank Balance 0.37 0.04 0.55 0.81 0.00 Total Current Assets 0.85 2.87 5.38 3.70 1.99 Loans and Advances 13.49 8.59 0.00 0.00 0.75 Total CA, Loans & Advances 14.34 11.46 5.38 3.70 2.74 Current Liabilities 1.98 0.03 0.00 0.00 0.00 Provisions 0.03 0.02 0.00 0.00 0.00 Total CL & Provisions 2.01 0.05 0.00 0.00 0.00 Net Current Assets 12.33 11.41 5.38 3.70 2.74 Total Assets 27.70 26.21 11.80 9.27 7.22 Book Value (Rs.) 18.31 17.08 285.43 998.86 570.38

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Profit & Loss Account of Esteem Bio Organic Food Processing ------------------------in Rs. Cr. -------------------- Mar 14 Mar 13 Mar 12 Mar 11 Mar 10 12 mths 12 mths 12 mths 12 mths 12 mths Income Revenue From Operations 3.20 6.43 0.90 0.23 0.00 (Gross) Revenue From Operations 3.20 6.43 0.90 0.23 0.0 (Net) 6.43 0.90 0.23 0.00 Total Operating Revenues 3.20 Other Income 0.11 0.08 0.00 0.00 0.00 Total Revenue 3.31 6.51 0.90 0.23 0.03 Expenses Operating and direct 0.00 0.00 0.10 0.05 0.00 Expenses Changes in Inventories of 0.21 2.75 -1.07 -0.92 0.00 FG, WIP and Stock-in-Trade Employee Benefit Expenses 0.08 0.16 0.13 0.07 0.00 Depreciating and 0.59 0.50 0.06 0.04 0.00 Amortization Expenses Other Expenses 0.56 0.50 0.06 0.04 0.00 Total Expenses 1.44 3.94 -0.79 -0.76 0.01 Profit/Loss for the period 1.84 2.55 1.69 0.99 0.02

Script price movement being unrealistic and reflecting the typical Bell shape Curve:

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Pattern of Thin Trading through large volumes:

Dividend history of the Scrip

Rejection of Vague & General Facts & Submission of the assessee

a. Assessee purchased shares of a company/script which is devoid of any basic fundamentals and was suspended by the BSE for trading previously as well as afterward. A regular and genuine investor would hardly know-that such a company to even listed on BSE.

b. From the Audited financials filed by the company with BSE, it is a matter of fact that the listed company does not have any significant/real business as seen from its last many P&L accounts and do not have any significant fixed assets or

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plant and machinery most of assets being either investment or loans.

c. The price movements of scrip are unrealistic and typically Bell shaped that means huge rise over a short span, staying at peak over a short span of time and then sharp decline in price of share. And not matching with overall movement of share market to general and movement of other scripts in same line of business.

d. Price movement of scrip upward and down word done mainly through thin volume and all/most entities involved in the same are related in some way and are mainly operated by some entry operator and are bogus.

e. There is hardly any history of dividend pay-outs.

f. There existed circumstantial factors such as splitting of shares, change in name and address of the listed company, which is generally done in cases of pre-arranged manipulation o scrip prices to avoid SEBI’s eyes.

g. It is self-evident that the scrip price movement was mainly on account of manipulation in a pre-arranged synchronized fashion to book accommodation entries in form of Bogus LTCG as well as provide Short-term Capital loss to a huge number of beneficiaries.

h. In such circumstances, given the facts of the case, the onus was on assessee to explain satisfactorily and establish that claimed LTCG was genuine. It is distinctly evident that she has failed to provide any cogent or rational explanation in this regard. Not only are the replies self-contradictory, evasive and unbelievable for any reasonable triad but starkly fail the test of

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human probabilities. The explanations made therefore are unsatisfactory.

Just to cite a few instances of such unbelievable and unsatisfactory statements.

i. The shares were purchased off-market from a Private Party and not through exchange, whereas the scrip was listed in stock exchange in complete contrast with regular investments made by the assesses. j. The assessee has not given any information with regard to the details of the person who advised him to invest in the said scrip. Yet the assessee invested immediately without any further enquiry.

k. No analysis was done in this case before investing whatsoever and no cross verification was done in this case.

l. The assesses has no idea what the listed company did or does.

m. If the AR of the assessee’s version is to be believed, the assessee seem to be having amazing sense to distinguish between various, penny stocks so much so she made above mentioned investments as a regular investor in order to buy the shares of such script.

n. The assessee bought the share at a rock bottom price and exited near the peak of the scrip price curve.

o. In the replies, the assessee has mainly contended that since sale were made through exchange and the payment was received through banking channel, it was a genuine transaction. Secondly, sale was made online after paying STT

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at the market rates therefore sale transactions were also genuine. The contention of the assessee was examined. It is not the case of this office whether purchase of shares through preferential placement did actually took place or shares were sold on the exchange at the prevalent market rates after paying STT or not. What this office has come to conclude on the basis of above analysis, documentary evidences, circumstantial evidences, human conduct and preponderance of probabilities is that what is apparent in this case is not real, that these financial transactions were sham ones and that this entire edifice was only a colorable device used to evade tax.

During the financial year 2012-13 the appellant purchased 6000 shares of M/s Esteem Bio Organic Food Processing Ltd. (EBFL)

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@ Rs. 26.55 per share on 11.02.2013 through the broker ISF Securities Ltd. for a sum of Rs. 1,59,300/-.

Chronology of Events/Transactions Date Event Amount 11.02.2013 Purchase of 6000 shares online of EBFL @ 1,59,300/- 26.55 per share through ISF Securities Ltd. 25.02.2014 Sale of 1200 shares @ 341.62 per share 4,09,944/- (through Demat account) 04.03.2014 Sale of 2400 shares @ 390,32 per share 9,36,768/- 10.03.2014 Sale of 2400 shares @ 419.26 per share 10,06,224/-

During the appellate proceedings, the AR gave his written submission. The objections raised by her are summarized below:

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The Ld.CIT(A) held that The principle of "preponderance of probability" is judiciously followed as against "beyond reasonable doubt."

It is also to be borne in mind, that Directorate of investigation, Kolkata in coordination with other Directorates of Investigation at other places, carried out a major exercise and unearthed the massive racket of entry operators and manipulators to launder the black money and tax evasion. During the said exercise various statements were recorded. Certainly, simultaneous action was not taking place in each and every beneficiary's case. Therefore every beneficiary or his representative was not available at the time of recording of those statements. This situation is unlike a normal court of law where at the time of recording of the statement, the other party or his representative is present in the same court and at the same time and his offering of the said cross examination does not pose any practical difficulty. It was not so in the present case. There is one more aspect of the matter. The Investigation Wing of the Income Tax department in course of discharge of the

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official duty, has generated a report which is almost akin to an expert opinion. Therefore, if necessary, the author of the report could be cross-examined. However, at no point of time there was demand to cross examine the author of the report. During the hearings conducted in connection with the present appellate proceedings, the AR did not accept the idea to cross examine the author of the report. Therefore the evidentiary value of the said report is very much there like any other documentary evidence.

4.5 In the present instance, the referred Investigation Report of Investigation wing Kolkata was available on the public domain and the assessee had free access to the said documents. As regards cross examination, there are numerous rulings which support the case of revenue observing that "so long as the party charged has a fair and reasonable opportunity to see, comment and criticize the evidence, statement or record on which the charge is made against him the demands and the test of natural justice are satisfied." Nokia India Pvt. Ltd. vs. DDIT of Hon'ble ITAT Delhi which has relied upon the decision of Hon'ble Calcutta high Court in the case of Kisan Lal Agarwal vs. Collector of land customs AIR 1967 and CAL 80.

GTC industries vs. ACIT of Hon'ble ITAT Bombay which held that "principles of natural justice do not require formal cross examination Therefore, it cannot be laid down as a general proposition of law that the revenue could not have relied on any evidences which had not been subjected to cross examination."

The LD.CIT(A) held that the assessee has emphatically stated that all the requirements of section 10(38) have been covered and the assessee wes entitled to the exemption. Further that

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all the documentary evidences in support of this transaction have been disregarded treating the transaction as sham. To address this objection a background of this entire gamut of the scam is briefly stated below.

Outcome of investigations by the Investigation wing • Total 84 BSE listed companies were identified as penny stocks. • More than 60,000 PAN of the beneficiaries was involved. • More than 5000 paper/shell companies involved in providing bogus accommodation entries were detected. • Statements of the directors of the companies were recorded. • Cash trail reflected how unaccounted/undisclosed cash of beneficiaries was routed through to convert black money into LTCG/STCG.

IMPORTANT OBSERVATIONS OF NSE/SEBI/SIT

• 11 member Special investigation Team (SIT) of Hon'ble Supreme Court on Black Money has also pointed out the Misuse of exemption on Long Term Capital Gains tax for money laundering in the Third SIT report on Black Money. • Order of BSE of January, 2015 showing the list of 22 banned penny stock companies for trading. The Ld. AR, on behalf of the appellant has reiterated, that the various searches and investigations conducted by the IT Dept, Inv Wing Kolkata found no material against the Appellant, hence he has no role and is thus an innocent investor.

Prima facie, it may appear to be so but, Income tax Act follows the juridical principle of 'preponderance of probability' and not 'beyond reasonable doubt'. More so in a scam of such a

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massive scale, with so many players involved, the laws of evidence have to be accordingly applied. Even the AO has drawn strength from judicial pronouncements which specially address such peculiar circumstances and facts. All the circumstantial evidences point to the active or passive connivance of one and all who were part of it and were beneficiaries from this dubious plan.

The appellant's vociferous assertion may for a moment appear reasonable, but then the careful reading of Investigation Wing Kolkata's report gives the true perspective. The predetermined plan was executed with perfection which would not in any case falter with the rules/documentation. But allowing misuse of provisions was never the intent of legislature and least of all judiciary.

Based on principles on reasonableness, preponderance of probability and normal human conduct, it is only fair to holistically appreciate the mindful efforts of the Investigation Wing, SEBI and other agencies in establishing and unravelling the true intent of all the beneficiaries, including the appellant.

This further goes to prove that all the connected parties were hand in glove in violating rules, laws of the land and thereby defrauding the exchequer. Since, the assessee is also a beneficiary, her connivance in the larger scheme of things, in view of surrounding circumstances cannot be wished away behind the garb of meticulous documentation. The Supreme Court observation in the McDowell case befittingly supports the AO's view which stated that "colourable devices cannot be part of tax planning……”.

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There could be an argument that the sale was a screen based transaction on the Bombay Stock Exchange platform whose genuineness could not be doubted.

It is worthwhile to mention here that the Apex Court of the country has rejected this plea that every trading activity done on BSE platform does not have scope of manipulation. Hon'ble Supreme Court in a recent judgment dated 8th February 2018 in the case of Securities and Exchange Board of India versus Rakhi Trading Private Limited (civil appeal number 1969 of 2011 with civil appeals number 3174-3177 of 2011 and civil appeal number 3180 of 2011) has observed as under:

"Considering the reversal transactions, quantity, price and time and sale, parties being persistent in number of such credit transactions with a huge price variations it will be too naive to hold that the transactions are through screen-based trading and hence anonymous. Such conclusion would be overlooking the prior meeting of minds involving synchronization of buy and sell order and not negotiated deals. The impugned transactions are manipulative/deceptive device to create a desired loss and oblique or profit."

Thus, the screen based transaction would not necessarily make it sacrosanct especially in a scam ridden case of such massive proportion involving thousands of crores of rupees.

Ld.CIT(A) relied on the following recent rulings of the ITAT in similar cases involving bogus capital gains through transactions in Penny Stocks:

i) Pune ITAT:- Rejects capital-gains claim on 'penny stock' sale; Disregards paper-trail through contract-notes.

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Pune ITAT upheld undisclosed income addition for sale proceeds received by assessee-individual on sale of shares & rejected asessee's short term capital gains ['STCG'] claim for AY 2006- 07: Based on the enquiries conducted by BSE/SEBI, AO observed that the shares of a company dealt in by assessee were tainted by penny stock in as much as its prices were manipulated, Accordingly he held that the STCG brought into books was nothing but income from undisclosed sources. It was noted that assessee had claimed huge STCG of Rs. 22 lakh in respect of penny stock purchased for a paltry sum of Rs. 75,000/, further noted that broker from whom assessee purchased the shares was visited with the penalties by SEBI and was debarred from acting as a share broken On assessee's completion of paper-trail by producing contract notes, ITAT remarks that "mere furnishing of contract notes etc. and more specifically when seen in the background of the above noted facts, does not inspire any confidence and cannot be a ground to delete an addition, which is otherwise made on the solid bedrock of detailed enquiries". It therefore concluded that the assessee obtained only accommodation entries in the garb of STCG from transfer of penny stock and also sustained addition to the extent of 2% on account of commission for arranging deal of share-sale. [TS-5-ITAT-2019(PUNE)] ii) Hon'ble ITAT New Delhi in the case of Anip Rastogi & Anju Rastogi [TS- 5007-ITAT-2019(Delhi)] has upheld addition u/s 68 on account of credits arising on sale of penny stock on the ground that assessee had generated bogus entries of long term capital gains on sale of penny stocks.

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iii) Very recently Hon'ble Delhi High Court in 1TA No. 49/2018 pronounced on 17.01.2019 in the case of Pr. CIT Vs. NDR Promotors Pvt. Ltd. almost similar circumstances held that "we have no hesitation in holding that the transactions in questions were clearly sham and make belief with excellent paper work to camouflage their bogus nature….. the reasoning given is contrary' to human probabilities for in the normal course of conduct, no one will make investment of such huge amount without being concerned about the return and safety of such investment. Accordingly the appeal is allowed."

iv) Hon'ble Nagpur ITAT while delivering judgment dt.10.04.2017, in l.T.A. No. 61/Nag/2013. Assessment Year: 2006-07, in case of Saniav Bimalchand Jain L/H of Smt. Shanti devi Bimalchand Jain Vs. Pr.CIT-1, Nagpur has dealt with this issue and observed as under:-

v) Hon'ble Nagpur ITAT while delivering judgment dt.10.04.2017, in I.T.A. No. 61/Nag/2013. Assessment Year: 2006-07, in case of Sanjay Bimalchand Jain L/H of Smt. Shanti Devi Bimalchand Jain Vs. Pr. CIT-I, Nagpur has dealt with this issue and observed as under:

"7. In this regard I may gainfully refer to the decision of Hon'ble jurisdictional High Court in the case of Major Metals Ltd. vs. Union of India and others in Writ Petition No. 397 of 2011 vide order dated 22nd February, 2012. The Hon'ble jurisdictional High Court in this case has held that a company cannot command disproportionate and huge share premium and such receipt of bogus share application money even though through banking channel can be held to be assessee's undisclosed income received in the garb of unjustified share application money. In the present case I find that there is no

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justification whatsoever that the shares of an unknown company of Rs.5/- can be sold within two years time at Rs. 485/- without there being any reason on record. This unexplained spurt in the value of unknown company shares is beyond preponderance of probability. It has been held by Hon'ble Apex Court in the case of Durga Prasad More and Sumati Dayal that the test of human probabilities have also to be applied by the authorities below. In the case of Sumati Dayal 214 ITR 801, it was held that during the year 1970-71 (pertaining to the assessment year 1971-72) between April 6, 1970, and March 20, 1971, the appellant claims to have won in horse race a total amount of Rs. 3,11,831/- on 13 occasions out of which ten winnings were from jackpots and three were from treble events. Similarly in the year 1971-72, the appellant won races on two occasions and both times the winning were from a jackpot. These receipts were tested on the touch stone of human probability and it was found that apparent was not real. That it was contrary to statistical theory and experience of the frequencies and probabilities. The exceptional luck enjoyed by the assessee was held to be beyond preponderance of probability. Hence the Hon'ble Apex Court has affirmed the view that it would not be unreasonable to infer that the appellant had not really participated in any of the races except to the extent of purchasing the winning tickets after the events presumably with unaccounted funds. 8. When the present case is examined on the touch stone of above case law, it is clear that these transactions of the assessee can by no stretch of imagination be considered as investment transactions. They are only make believe transaction. Hence I do not find any infirmity in the revenue taxing the receipt in this regard.

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4.8 The A.O. has applied section 68 of Income Tax Act, 1961. The relevant provisions of section 68 are reproduced as under:

"68. Cash credits

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Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year.”

4.9 It may be seen that whether explanation of the appellant is satisfactory or not is to be seen with reference to the opinion of the assessing officer. The legal position in this regard is discussed in the following paragraphs.

In the context of section 147, Ld.CIT(A) held that Hon'ble Supreme Court while delivering judgment in the case of Raymond Woollen Mills Ltd Vs. Income-Tax Officer And Others [1999] 236 ITR 34 (SC) laid down a ratio that the sufficiency or correctness of the material is not a thing to be considered by the courts. This view is reaffirmed by Hon'ble SC, in case of Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. 291 ITR 500(5C). The Hon'ble SC has stated as under:

"This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)]; Raymond Woollen Mills Ltd. v. ITO [1999 (236) ITR 34 (SC)]."

4.11 In Anant Kumar Saharia Vs. CIT [1998] 232 ITR 533 (Gauhati), it was held as follows (page 539):

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"The belief is that of the Assessing Officer and the reliability or credibility or for that matter the weight that was attached to the materials naturally, depends on the judgment of the Assessing Officer. This court in exercise of power under article 226 of the Constitution of India cannot go into the sufficiency or adequacy of the materials. After all the Assessing Officer alone is entrusted to administer the impugned Act and if there is prima facie material at the disposal of the Assessing Officer that the income chargeable to income-tax escaped assessment this court in exercise of power under article 226 of the Constitution of India should refrain from exercising the power. In the instant also, the case of the petitioner was fairly considered and thereafter the above decision is taken." (emphasis supplied).

4.12 In Phool Chand Bajrang Lai v. ITO [1993] 203 ITR 456, Hon'ble apex court has held as under (page 477):

"From a combined review of the judgments of this court, it follows that an Income-tax Officer acquires jurisdiction to reopen an assessment under section 147(a) read with section 148 of the Income-tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must; record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the

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facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief is not for the court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by the Income-tax Officer and examined whether there was any material available on the record from which the requisite belief could be formed by the Income-tax officer and further whether that material had any rational connection. Or a live link for the formation of the requisite belief..."

4.13 Hon'ble Delhi High Court, while delivering the judgment, in case of Dalmia Pvt. Ltd. Vs Commissioner of Income Tax Delhi [2011] 14 Taxmann.com 106 (Delhi), on 25 September, 2011 has uphold this principle. The Hon'ble HC stated as under:

"..The sufficiency or correctness of the material is not a thing to be considered at this stage as held by Supreme Court in the case of Raymond Woolen Mills Ltd. V ITO (1999) 236 ITR 34 (SC), Green Arts (P) Ltd. V ITO (2005) 257 ITR 639 (Delhi). The assessee cannot challenge sufficiency of belief-ITO V. Lakhmani Mewal Das (1976) 103 ITR 437 (SC)..."

4.14 Therefore, Ld.CIT(A) came to a conclusion that if the subjectivity of 'reason to believe' cannot be subject matter of consideration of the appellate courts, the subjectivity in 'opinion' of the A.O. can never be subject matter of

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consideration of the appellate courts because certain incriminating material having some evidentiary value is required to form 'reason to believe' and there is less chance of subjectivity, however, 'opinion' can be formed' on the basis some material which , strictly speaking, may not have any evidentiary value and has much more (inherent) subjectivity. What can be examined is whether there was material which has been appreciated and whether the opinion formed is logical and one of the possible opinions which could have been formed in the given set of facts and circumstances.

DECISIONS RELIED UPON BY ITAT/COURTS IN FAVOUR OF REVENUE ON THE ISSUE OF CIRCUMSTANTIAL EVIDENCE APPLICABLE IN PENNY STOCK CASES

• CIT vs. Durga Prasad More [1971] 82 ITR 540 (SC) • Sumati Dayal 214 ITR 801 (SC) • Mc Dowell & Co. 154 ITR 148 (SC) • SornNath Maini 306 UR 414 (HC) • Ashok Mahendru & Sons (HUF) vs. CIT 173 TAXMANN 178 (HC) • Hersh Win Chadha Vs. DCIT 135 TTJ 513 (ITAT Delhi) • Arvind M Kariya Vs. ACIT IN ITA No. 7024/Mum/2010 (ITAT Mumbai)

5.2 DECISIONS ON THE ISSUE OF - RULE OF EVIDENCE

AO is a quasi - judicial authority and rigor of the rules of evidence contained in the evidence act are not applicable. There is no presumption in law that the AO is to discharge an impossible burden to assess the tax liabilities by direct

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evidence only and to establish the evasion beyond doubt as in criminal proceedings.

• Dhakeshwari Cotton Mills Ltd. Vs. CIT (1954) 26 ITR 775 (SC) • S.S. Gadgil vs. Lal & Co. (1964) 53 ITR 231 (SC) • CIT vs. Jay Engineering Works Ltd. (1978) 113 ITR 389 (Delhi HC) • Dinshaw Darabshaw Shroff vs. CIT (1943) 11 ITR 172 (Bom.) • Hersh win Chadha Vs. DCIT 135 TTJ 51 (ITAT Delhi)

DIRECT DECISIONS OF HON'BLE COURTS/TRIBUNALS IN THE CASE OF PENNY STOCK COMPANIES

• M.K. Rajeshwari vs. ITO in ITA No. 1723/Bang/2018 vide order dated 12.10.2018 • Abhimanyu Soin vs. ACIT in ITA No. 951/Chd/2016 vide order dated 18.04.2018 • Sanjay Bimalchand Jain vs. ITO in ITA No. 61/Nag/2013 vide order dated 18th July, 2016 Han'ble ITAT Nagpur Bench confirmed by Hon'ble Bombay High Court vide order dated 10.04.2017 (89 taxmann.com 196) • Dinesh Kumar Khandelwal, HUF vs. ITO in ITA No. 58 & 59/Nag/2015 vide order dated 24h August, 2016 • Ratnakar M. Pujari vs. ITO in ITA No. 995/Mum/2012 vide order dated 03.08.2016 • Disha N. Lalwani vs. ITO in ITA No. 6398/Mum/2012 vide order dated 22.03.2017 • ITO vs. Shamim M. Bharwoni [2016] 69 taxnnann.com 65 • Usha Chandresh Shah Vs. ITO in ITA No. 6858/Mum/2011 vide order dated 26.09.2014

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• CIT vs. Smt. Jasvinder Kaur 357 ITR 638 order dated 12.06.2013 (Gauhati HC)

The Ld. CIT(A) held that while Ld. AR has supported his contention citing various decisions of Hon'ble High Courts and ITATs but the final interpretation of the legislative intent and law of the land has been clearly put forth by the Hon'ble Supreme Court in the following three landmark judgments:

• Durga Prasad More [1971] 82 ITR 540 (SC) • Sumati Dayal 214 ITR 801 (SC) • Mc Dowell & Co. 154 ITR 148 (SC)

As can be seen from the magnitude, volume and surgical precision of the entire operation, it was an exercise which was targeted to introduce unaccounted money into the books, that too without paying taxes, by abusing the exemption provisions u/s 10(38) of the statute, to circumvent the law of the land, evade taxes and deprive the exchequer of its rightful due. The plethora of cases quoted by the AO all lend support to his decision, especially in such scam ridden cases, wherein it is essential to pierce the veil of legitimacy and innocence/ ignorance and look behind the charade woven to evade taxes. On the other hand, after due consideration of arguments put forth by the appellant, it is held that the Ld. AR has not been able to controvert/ successfully distinguish the judicial pronouncements quoted by the AO. Accordingly, the addition of Rs. 23,52,034/- u/s 68 r.w.s. 115BBE made by the AO, is confirmed.

Ld. CIT(A) held that the AO has also made further addition of Rs. 1,17,602/- @ 5% of the total transaction amount of Rs. /- by way of brokerage/commission paid to the entry operator as

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admitted by persons who were involved in such share manipulations. However, the addition made by the AO u/s 68 is erroneous and may be treated as unexplained expenditure u/s 69C. While the appellant denies the sale expenditure it is known fact that there are no free lunches in the commercial world. Even the judicial authorities have upheld the incurring of such expenditure for arranging tax exempt income of such a sizable amount. Accordingly, the addition of Rs. 1,17,602/- is hereby confirmed.

Write up of our arguments for your honors kind consideration in forthcoming hearing

Ground No. 1 & 1.1 on validity of impugned reopening u/s 148 on basis of reasons recorded in extant case (typed copy placed on records)

In reasons recorded u/s 148(2) in present case, it is submitted that same are based on mere vague information which remains totally un-described and inchoate, that too for mere purpose of scrutiny/verification and examination of long term capital gains disclosed in ITR as exempt u/s 10(38) of the Act, impugned reopening u/s 148 is made, which as per coordinate bench decision in case of SBS Realtors (G bench order ITA 779l/Del/2018) is impermissible and similar reasons as

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recorded in present case have been hitherto quashed in aforesaid order of coordinate bench.

We reproduce the said order here for sake of completeness:

M/s SBS Realtors (P) Ltd ITA No.7791/Del/2018 Date of pronouncement: 01.04.2019

“6. From a perusal of the above reasons, it is seen that the Investigation Wing has supplied certain information to the Assessing Officer with regard to receipt of cheques by the assessee from various companies who are considered to be S.K. Jain group companies by the Investigation Wing. As per the Investigation Wing, the above cheques paid by S.K. Jain group companies were accommodation entries to M/s SBS Realtors Pvt. Ltd. i.e., the assessee. However, what is the material found during the course of search of S.K. Jain group cases which had led to form the belief that all those companies are providing accommodation entries is not mentioned in the reasons recorded. It is also not mentioned whether any of the directors of the above companies have provided accommodation entries to M/s SBS Realtors Pvt. Ltd. It is also not mentioned whether any document was found which led to the belief of giving of accommodation entries by those twelve companies to the assessee. On receipt of above information, the Assessing Officer compared the figures in the balance sheet of the assessee filed for assessment year 2009-10 and he found that the share capital has increased by Rs.2,35,00,000/-. After recording the above factual finding, the Assessing Officer has concluded “The same has escaped assessment on account of failure on the part of the assessee to truly and fully disclose all material facts necessary for assessment for the AY 2009-10. In order to verify the genuineness, identification and

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creditworthiness of the aforesaid transaction the case needs to be reopened u/s 147 of the I.T. Act 1961.” The conclusion of the Assessing Officer at the end of the reasons recorded as noted above is contradictory. In the first two lines, the Assessing Officer has recorded the finding that the sum of Rs.2,35,00,000/- has escaped assessment but in the last two lines, he has recorded that the case is being reopened to verify the genuineness, identification and creditworthiness of the aforesaid transactions. If the case is being reopened for the purpose of verification of the genuineness, how can there by satisfaction of escapement of income. Any satisfaction with regard to escapement of income or otherwise can be recorded only after the verification of genuineness, identification and creditworthiness of the transaction and not earlier. Thus, we are of the opinion that the Assessing Officer has reopened the case under Section 147 for the purpose of verification of genuineness, identification and creditworthiness of the transactions mentioned in the information supplied by the DIT (Investigation) and this is what the Assessing Officer has concluded at the end of the reasons recorded for issue of notice under Section 148. Now, the question remains whether an assessment can be reopened under Section 147 for the purpose of verification of genuineness, identification and creditworthiness of any transaction. In our opinion, the reply is clearly NO. Thus, if the Assessing Officer considered it necessary to ensure that the assessee has not understated the income, he can issue the notice under Section 143(2). However, proviso to above Section provides the time limit within which such notice can be issued. Once that time limit is expired, in our opinion, the Assessing Officer cannot invoke Section 148 just for the purpose of verification. Therefore, in our opinion, in the case under consideration, the reopening of

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assessment for the purpose of verification of genuineness, identification and creditworthiness of the transaction is not permissible under law and is liable to be quashed.”

Further in above order on reference to investigation wing information for reopening of the case, it is succinctly held that:

“The learned counsel for the assessee has also mentioned that the notice has been issued mechanically without application of mind and the satisfaction by the Assessing Officer is only the borrowed satisfaction of the Investigation Wing. The Assessing Officer, without applying his mind, has simply on the basis of information of the Investigation Wing jumped to the conclusion that there is escapement of income. From a perusal of the aforesaid reasons, we do not find any application of mind by the Assessing Officer for reaching to the conclusion that there was escapement of income except the information from the Investigation Wing. After getting the information from the Investigation Wing, the Assessing Officer compared the figures in the balance sheet and has found that the assessee has issued share capital of Rs.2,35,00,000/-. The issue of share capital by itself is not sufficient to reach to the conclusion of escapement of income. The Investigation Wing has alleged that 12 companies who have given cheques to the assessee company were accommodation entries. However, the basis of such allegation is not mentioned in the reasons recorded. Whether such conclusion is reached by the Investigation Wing on the basis of statement of director of any company or on the basis of some material seized during the course of search of those companies, is not mentioned in the reasons recorded. Whether there was any material with the Assessing Officer while issuing notice under Section 148 is not clear. Therefore,

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from the reasons recorded, we do not find any basis for reaching to the conclusion that there was escapement of income by the Assessing Officer...."

Even Delhi Bench of ITAT in case of Gopal Chand Mundhra in similar reopening u/s 148 where allegation of bogus Long term capital gains was there while quashing the similar reasons/reopening, Hon’ble bench observed as under (after considering Bombay high court decision and above SBS realtors case) (ITA 1375/Del/2019) (Order: 21.08.2019):

Reasons recorded in above case: Subsequently, the Assessing Officer recorded the following reasons for reopening of the assessment u/s 147 of the Act:

"Information has been received from Investigation Wing of the Income tax Department that large scale, manipulation had been done in the market price of shares of SPLASH MEDIA by a group of persons acting as a syndicate in order to provide entries of tax exempt long term capital gains to the assessee (beneficiary). According to the information available, the assessee had traded in the above scrip to the tune of Rs.23,74,500/- during the financial year 2010-11 and bogus LTCG amounting to Rs.21,16,776/- had been facilitated to the assessee during the financial year 2010-11. Hence, I have reason to believe that the above income of Rs. 21,16,776/- chargeable to tax has escaped assessment for the asst, year 2011-12, within the meaning ofsec.147 of the Income-tax Act."

Held:

Even otherwise also, a perusal of the reasons recorded show that the notice has been issued in a mechanical manner without

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independent application of mind by the Assessing Officer and the satisfaction by the Assessing Officer is based on borrowed satisfaction of the Investigation Wing. The Assessing Officer, without applying his mind, has simply, on the basis of the information of the Investigation Wing, jumped to the conclusion that there is escapement of income. The reasons so recorded do not show that there is any application of mind by the Assessing Officer for reaching the conclusion that there was escapement of income except the information from the Investigation Wing. The Hon'ble Delhi High Court in a number of decisions has held that reopening of assessment on the basis of report of the Investigation Wing without independent application of mind by the Assessing Officer is not in accordance with law and accordingly the reassessment proceedings have been quashed. The Hon'ble Bombay High Court recently in the case of South Yarra Holdings vs. ITO, vide Writ Petition No.3398 of 2018, order dated 1st March, 2019, at para 7 of the order has observed as under:-

“7. It is a settled position in law that re-opening of an assessment has to be done by an Assessing Officer on his own satisfaction. It is not open to an Assessing Officer issue a reopening notice at the dictate and/or satisfaction of some other authority. Therefore, on receipt of any information which suggests escapement of income, the Assessing Officer must examine the information in the context of the facts of the case and only on satisfaction leading to a reasonable belief that income chargeable to tax has escaped assessment, that re- opening notice is to be issued.”

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"19. A perusal of the reasons as recorded by the AO reveals that there are three parts to it. In the first part, the AO has reproduced the precise information he has received from the Investigation Wing of the Revenue. This information is in the form of details of the amount of credit received, the payer, the payee, their respective banks, and the cheque number. This information by itself cannot be said to be tangible material.

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bare minimum mandatory requirement of the first part of Section 147(1) of the Act."

I find the coordinate Bench of the Tribunal in the case of M/s SBS Realtors (P) Ltd. vs. ITO vide ITA No. 7791/Del/2018 order dated 1st April 2019 has also quashed the reassessment proceedings based on the information provided by the Investigation Wing without any independent application of mind. It was held that there was no tangible material which formed the basis for the belief that income has escaped assessment. The various other decisions relied by the id. Counsel also supports his case. Since, in the instant case, the reopening of the assessment has been made on the basis of information received from the Investigation Wing and there is no independent application of mind by the Assessing Officer and such reopening is made on the basis of borrowed satisfaction, therefore, such reopening is not in accordance with law and ha to be quashed. Accordingly, such reassessment proceedings have to be treated as not in accordance with law and has to be quashed.”

Prayer on legal /jurisdictional challenge: We humbly request your honors to follow the above rulings, in present case and quash the impugned reopening action u/s 148 of the Act which in our humble submission is clearly without authority of law and merely for purpose of verification/scrutinizing and examination impugned reopening is made which is held to be impermissible and for that provisions of section 143(2) must have been used if at all which is nowhere done as mandated in law.

Plea on merits of the case: Addition of Rs. 24,69,636 (break up : addition u/s 68 Rs 23,52,034 on ground of alleged bogus

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LTCG and addition of Rs 117,062 on ground of alleged unexplained expenditure u/s 68 of the Act)

Brief facts: During the period under consideration appellant assessee earned, long term capital gains of Rs.23,52,034/- on sale of 6000 shares of M/s Esteem Bio Organic Food Processing Ltd (EBFL) (date of sale February and March 2014) which were acquired online for Rs.1,59,000/- on 07.02.2013 for which reference may be made to paragraph 4.2 & 4.3 of impugned assessment order. For which relevant contract notes are enclosed in our paper book at pages 9-12, Entire sale proceeds for share sale has been added back u/s 68 of the Act of Rs.23,52,034/- and further Rs.1,17,062/- has been added on alleged brokerage /commission paid @5% of Rs.23,52,034/-. So total addition made in assessment order was Rs.24,69,636/- which was sustained at CIT-A level, and same is impugned here before this Hon’ble Tribunal.

With this brief factual introduction we wish to humbly submit straightway that in identical /same facts in assessee’s own case for AY 2015-2016, this Hon’ble ITAT (A bench Delhi ITAT in ITA 1070/Del/2019) vide order dated 06/08/2019 has deleted the identical addition for which we reproduce relevant paragraphs from said order to display present matter is fully covered by that order:

"3. The appellant purchased shares of following companies:-

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order. There is nothing on record to show that the brokers were suspended by the SEBI nor there anything on record to show that the two brokers of the appellants mentioned here in above were involved in the alleged scam. The Assessing Officer has not even considered examining the brokers of the appellants. It is a matter of fact that SEBI looks into irregular movements in share prices on range and warn investor against any such unusual increase in shares prices. No such warnings were issued by the SEBI.

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Prayer: Since same script is involved namely EBFL and same online purchase and sale is there. with same broker M/s ISF Securities Limited, so we request your honors to apply above decision in present case and please delete the addition of Rs.24,69,636/-.

For sake of completeness we humbly draw your honors attention to some more orders from this Hon’ble Tribunal which supports our above prayer for deletion of addition:

In case of Riaz Munshi Delhi F bench vide order dated 11.03.2020 on issue of whether company EBFL for whom shares were sold in that case (also same here), for AY 2014-2015 (same period here), can it be called penny stock company, answer to this is given in paragraph no. 6 of the order of Hon’ble Tribunal which is reproduced below for sake of ready reference:

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“6. We have considered the rival submissions and perused the material on record. The assessment order clearly show that the A.O. merely reproduced the modus operandi of the entry providers who booked bogus long term capital gains through penny stock companies in which either there is no business or they have accumulated losses or a Company is floated only for that purpose. Learned Counsel for the assessee has filed financials of M/s EBFL from A, Ys. 2011-2012 to 2017-2018 and for the assessment year under appeal the financials are reproduced above, which clearly show that this Company is dealing in actual business activities. Its financials are very heavy and as such the modus operandi of this type of penny stock companies would not be available in the case of M/s EBFL. The findings of the A. O. are entirely based upon interim order of SEBI. However, it is an admitted fact that interim order of the SEBI have been later on revoked by the SEBI on assessee as well as M/s EBFL have been cleared from all allegations and charges.... ” Above holding squarely applies to present facts.

Further, Chennai bench of ITAT in two decisions where online purchase of share were made, whether allegation of penny stock can sustain on consequential online sale (same facts in present case) it is succinctly held as under:

Shri Nirav Kumar Mahendra Kumar Sapani ‘A’ BENCH, CHENNAI ITA No.2032/Mds/2017 Date of Pronouncement: 08.02.2018

“5. We have considered the rival submissions on either side and perused the relevant material available on record. The purchase of shares of Swaca Business Machines Ltd. by both

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the assessee was evidenced by way of Contract Note issued by the recognized stock broker ASE Capital Markets Ltd. It is not in dispute that ASE Capital Markets Ltd. is one of the recognized stock brokers by Security Exchange Board of India. The shares were also sold through ASE Capital Markets Ltd. The Contract Notes for purchase and sale of shares were filed by both the assessees before the Assessing Officer at the time of assessment proceeding. The assessment proceedings were completed on the ground that one Shri Chandrakant Shah provided accommodation entry to various persons. The question arises for consideration is whether the assesseee transaction in respect of purchase of shares and sale of shares through ASE Capital Markets Ltd. is a bogus transaction? This Tribunal is of the considered opinion that when the fact that ASE Capital Markets Ltd. is a recognized stock broker is not in dispute and the assesseee have also purchased the shares at the market rate and sold the same at market rate through recognized stock broker of Security Exchange Board of India, it cannot be said that the transaction was a bogus one.

When the fact that the purchase and sale of shares through recognized stock broker is established and the shares were purchased and sold at market rate, this Tribunal is of the considered opinion that both the authorities below are not justified in disallowing the claim of the assessees. Accordingly, orders of both the authorities below are set aside and the additions made by the Assessing Officer in respect of both the assessees are deleted.”

Vijay Kumar Baid (HUE), I.T.A. No.2300/CHNY/2018 Date of Pronouncement: 24-01-2019

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However, records produced by the assesses before me in the nature of contract note: issued by M/s. MSE Financial Services Ltd and certificate of M/s. Stock Holding Corporation of India Limited clearly indicate that the shares were purchased by the assessee through on-market transactions, and that too in demat form. Payments were made by the assessee were also through bank. Ld. Counsel for the assessee has certified that these records were with the lower authorities. It is a matter of record that SMIL had issued bonus shares in the ratio of 3:1 and thereafter split their shares. Sale made by the assessee was also through stock exchange and consideration received through bank only. In similar circumstances in the case of Nirav Kumar Mahendra Kumar Sapani (supra) this Tribunal had held as under:-

“5. We have considered the rival submissions on either side and perused the relevant material available on record. The purchase of shares of Swaca Business Machines Ltd. by both the assessees was evidenced by way of Contract Note issued by the recognized stock broker ASE Capital Markets Ltd. It is not in dispute that ASE Capital Markets Ltd. is one of the recognized stock brokers by Security Exchange Board of India. The shares were also sold through ASE Capital Markets Ltd. The Contract Notes for purchase and sale of shares were filed by both the assessee before the Assessing Officer at the time of assessment proceeding. The assessment proceedings were completed on the ground that one Shri Chandrakant Shah provided accommodation entry various persons. The question arises for consideration is whether the assessee’s transaction in respect of purchase of shares and sale of shares through ASE Capital Markets Ltd. is a bogus transaction? This Tribunal is of the

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considered opinion that when the fact that ASE Capital Markets Ltd. is a recognized stock broker is not in dispute and the assesses have also purchased the shares at the market rate and sold the same at market rate through recognized stock broker of Security Exchange Board of India, it cannot be said that the transaction was a bogus one”.

In the circumstances, I am inclined to follow the decision of Co- ordinate Bench in the case of Nirav Kumar Mahendra Kumar Sapani (supra). Transactions done through recognized stock exchanges where payments were made through bank cannot be doubted or disbelieved based on an investigation report of the Department, which at the best can be strong reason to suspect the veracity of the claim but not good enough to disbelieve it. I am therefore of the opinion that there is nothing concrete brought on record by the Department to show that transactions entered by the assessee in the shares of SMIL were bogus or sham. I therefore do not find any reason to uphold the orders of the lower authorities. Such orders are set aide and the addition is deleted.”

Prayer: We humbly submit that above inundated jurisprudence squarely applies to present facts where online purchase/sale of share remains undisputed so allegation of bogus LTCG cannot sustain as opined in orders of Hon’ble Tribunal.

Copies of all above decisions are enclosed herewith.

So we pray for quashing of impugned reopening proceedings u/s 148 of the Act and deletion of addition of Rs 24,69,636/-.

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 Gopal Chandra Mundhra in ITA No. 1375/Del/2019  Riaz Munshi order dated 11.03.2020  SBS Realtors in ITA No. 7791/Del/2018  Nirav Kumar Mahendra Kumar Sapani in ITA No. 2032/Mds/2017  Vijay Kumar Baid (HUF) in ITA No. 2300/CHNY/2018  Ishwar Chand Mittal in ITA No. 8706/Del/2019

“Smt. Krishna Devi is an existing assessee of this ward as per territorial jurisdiction. ITR has been filed by assessee for the assessment year under consideration in this ease.

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introduction of unaccounted income of members of beneficiaries in the form of exempt capital gain or short term capital loss in their books of accounts. It is noticed that the financial of the company for the relevant period do not show any substantial change so as to support such a huge price movement. Since the assessee is one of the beneficiary who has transacted with this company the issue of bogus short/long term capital gain cannot be examined /verified.

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Pr CIT 13 DELHI under amended provisions of section 151 of the Act w.e.f 01/06/2015.”

“Section 147:

Income escaping assessment.

Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:

Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:

Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.

Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not

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necessarily amount to disclosure within the meaning of the foregoing proviso.

Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :—

(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;

(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;

(ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;

(c) where an assessment has been made, but—

(i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;

(ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of section 133C, it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

(d) where a person is found to have any asset (including financial interest in any entity) located outside India.

Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.

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Explanation 4.—For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.”

“Section 148.

Issue of notice where income has escaped assessment.

Provided that in a case—

(a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and

(b) subsequently a notice has been served under sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, re-assessment or re-computation as specified in sub- section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice:

Provided further that in a case—

(a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and (b) subsequently a notice has been served under clause (ii) of sub- section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or re-computation as specified in sub- section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice.

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Explanation.—For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section.

(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.

“Section 151.

Sanction for issue of notice.

(2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.

(3) For the purposes of sub-section (1) and sub-section (2), the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or the Commissioner or the Joint Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself.”

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Pvt. Ltd. Vs. ITO, Ward-22(4) dated 26.03.2021 of Hon’ble High Court of Delhi.

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has to issue a notice and believe the escarpment of income have been duly adhere. Similarly, the provisions of Section 148 with regard to issue of notice before making the assessment has been duly served and the assessee within the due date and such notice has been served after taking due approval of the Pr. CIT in accordance with the provisions of Section 151. In our opinion, the formation of belief by the Assessing Officer that the income of the assessee chargeable to tax had escaped assessment was reasonable as well as rationale and related to the information received which is discernable from the bare reading of the reasons recorded by the Assessing Officer. While the reasons themselves are undisputable, there is no reason to find out fault with the approval given by the ld. PCIT which is based on the facts enumerated before him. We find nothing on record to dispute the approval given by the ld. PCIT u/s 151 for issue of notice u/s 148.

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“16……..for the purpose of Section 151(1) of the Act, what the Court should be satisfied about is that the Addl. CIT has recorded his satisfaction “on the reasons recorded by the Assessing Officer that it is a fit case for the issue of such notice”. In the present case, the Court is satisfied that by recording in his own writing the words: “Yes, I am satisfied”, the mandate of Section 151(1) of the Act as far as the approval of the Addl. CIT was concerned, stood fulfilled.”

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question of escapement of income. Once there exist reasonable grounds for the Income Tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. While the sufficiency of grounds which induce the Income Tax Officer to act is not justiciable, it is open to the assessee to contend that the Income Tax Officer did not hold the belief that there was such non-disclosure. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income-Tax Officer. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. In the instant case, we find that the information and the reasons to belief have tangible and rationale interconnection much needed for reopening of the case u/s 147.

“We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority.”

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On Merits:

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relied on the various orders of the Tribunal in ITA No. 1070/Del/2019 for the A.Y. 2015-16, MB Jain Vs ACIT SCA No. 16881 of 2018 the facts of which are not applicable to the instant case as the reasons recorded are at variance at the reasons recorded in the instant case. Similarly, the reliance placed by the ld. AR on the judgment of Hon’ble High Court of Bombay in the case of M/s Shodiman Investments Pvt. Ltd. in ITA No. 1297/2015, we find that the reasons recorded are in the said referred case are different from the instant case.

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transactions remain un-coloured or simple, straight and genuine.

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SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

UNDER SECTIONS 11(1), 11(4) AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 IN THE MATTER OF ESTEEM BIO ORGANIC FOOD PROCESSING LIMITED In respect of:

Sl. No. Noticees /Name of the entities PAN Accurate Buildwell Pvt. Ltd. AAGCA4053L 1 2 Shri Pawan Kumar Kaul APJPK8855K 3 Shri Vishal Yadav AJKPY8234D 4 Shri Ashwin Verma AKFPV6256L 5 Century Buildmart Pvt. Ltd. AADCC2898Q 6 Core Capital Services Limited AAACC2840D 7 River High Right Share Brokers Pvt. Ltd. AAGCR2643P Sure Portfolio Services Pvt. Ltd. AATCS2129L 8

Background in brief

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case, from accessing the securities market and from buying, selling or dealing in securities, either directly or indirectly, in any manner, till further directions.

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in the trading of the above mentioned scrips and to look into the trading activity of the entities so as to ascertain any price manipulation in breach of provisions of the securities law. The investigation into the trading activity of certain entities in the scrip of Esteem Bio has revealed that eight connected entities of the trading group have contributed to the price rise of the scrip of Esteem Bio by their positive contribution to LTP and establishing NHP in the scrip by trading amongst themselves in a concerted manner. It was observed that 8.89% to total market positive LTP during the period of investigation was contributed by the Noticees 1-8 who traded amongst themselves continuously. Similarly, 9.15% of total market NHP during the period of investigation was contributed by Noticee No. 1 to 7 by executing the trades amongst themselves. Accordingly, based on the above findings from the investigation where trades of these eight entities were found to be unusual they have been further proceeded against and the entities against whom nothing adverse could be found in the investigation were granted relief vide revocation order dated September 6, 2017 passed in the matter.

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Regulations). The Noticees have therefore been called upon to show cause as to why directions under sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 (SEBI Act) be not issued against them for the aforesaid alleged violations.

a) He does not know anything about Esteem Bio, its IPO and its preferential allotment or the fraudulent scheme or mechanism, if any. He is not connected or related to the company, its promoters/directors or to any company related to Esteem Bio. b) The trading account through which the alleged manipulative trades were done in the scrip was not opened by him but by some other person whom he does not know. Trades done in his name from this account were without his knowledge or consent. c) He is an investor and invests in securities market from his own savings and he is trading in securities market through his genuine trading accounts opened in the year 2010, 2013 & 2014. He is facing mental agony and harassment due to the

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restrictions imposed on him on buying, selling and dealing in any shares or commodities.

Consideration and findings:

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price of the scrip by successive contribution to positive LTP and by establishing successive NHP during the period of investigation. The SCN alleges that regulations 3(a), (b), (c), (d), 4(1), 4(2) (a) and (e) of PFUTP Regulations have been violated by the Noticees. The provisions of these regulations are reproduced hereunder:

Regulation 3. Prohibition of certain dealings in securities

“No person shall directly or indirectly —

(a) buy, sell or otherwise deal in the securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.”

Regulation 4. Prohibition of manipulative, fraudulent and unfair trade practices

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“(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:—

(a) indulging in an act which creates false or misleading appearance of trading in the securities market; (e) any act or omission amounting to manipulation of the price of a security;

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and relied upon in support of the allegations made in the SCN have also been furnished to the Noticees.

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respond to the SCN and even the Noticee who has filed a written reply, i.e., Noticee no. 4, has not disputed the connections and transactions as alleged in the SCN. The Noticee has also not disputed his relation with counterparties to the trades. Similarly, other Noticees have also not raised any disputes with regard to their connections as pointed out in the SCN. I find it relevant to refer a judgment of the Hon’ble Securities Appellate Tribunal (SAT) dated December 08, 2006 in the case of Classic Credit Ltd. vs. SEBI (Appeal No. 68 of 2003), wherein Hon’ble SAT have observed that, “...the appellants did notfile any reply to the second show-cause. This being so, it has to be presumed that the charges alleged against them in the show cause notice were admitted by them”. This finding was reiterated by Hon’ble SAT in a recent case decided on February 11, 2014 (Sanjay Kumar Tayal & Ors. vs. SEBI - Appeal No. 68 of 2013), where it was observed that, “... As rightly contended by Mr. Rustomjee, learned senior counsel for respondents, appellants have neitherfiled reply to show cause notices issued to them nor availed opportunity of personal hearing offered to them in the adjudication proceedings and, therefore, appellants are presumed to have admitted charges levelled against them in the show cause notices. ...”. Under the circumstances I can conclude that the relationships shared by the Noticees as observed in the SCN is undisputed.

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contributing to positive LTP and establishing NHP. It is noted that while positive contribution to LTP increases the price of the scrip, NHP is the price which is higher than the price already established in the scrip over a period which is under consideration. On the basis of LTP and NHP analysis carried out during the investigation it has been alleged that the Noticees contributed to substantial and unusual price rise in the scrip of Esteem Bio by trading amongst themselves. The details of trades executed amongst the Noticees and their resultant contribution to LTP and NHP are indicated as under:

Positive contribution to LTP by Noticees trading among themselves Buyer / Accurate Pawan Ashvin Vtslmi Sure counterparty Buildwell Kumar Verma Yackv Portfolio T oral Private KanJ (LTP (LTP (LTP Services (LTP Limited eontributi eontributi eontributi Private contributi (LTP on in oil in on in Limited on in eontributi Rope.es, Rupees, Rupees, (LTP Rupees, on in Number Number Number of contiibyti Number of Rupees, of trades of trades trades in on in trades in Number of In in bracket) Rupees) bracket) trades in bracket) bracket) Number1 bracket) of trades In bracket) Accurate Buildwell 0.05 (1) 24.75 (2) .. _ 24.80 (3) Private limited Century Buildmart 10.7 (1) 15.1 (2) - - 25.80 (3) Private limited Core Capital 14.50 (1) 14.50 (1) Services Limited Pawan Kumar Kaul 5.5 (t) - - - _ "■ River High Eight 10.1 (1) 1.85 (1) 11.95 (2) Share Brokers Private limited Vishal Yadav - - 7.85 (1) - 7.85 (1) Total 15.65(3) 35.45 (3) 22.95 (3) 14.50(1) 1.85 (1) 90.4 (11)

NHP contribution of the Noticees by trading among themselves Buyer / Accurate Pawan Kumar Ashvin Verma Vishal Total (NHP Counterparty Buildwell Pvt. Kaul (NHP Yadav (NHP contributi on Ltd. (NHP contribution in contribution in Rupees, (NHP contribution Rupees, in Rupees, Number of contribution in in Rupees, Number of Number of trades in Rupees, Number of trades in trades in bracket) Number of trades in bracket) bracket) trades in bracket) bracket)

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Accurate Buildwell 0.05 (1) 8.95 (1) 9 (2) Pvt. Ltd. Century Buildmart 10.1 (1) 8.1 (1) 18.2 (2) Pvt. Ltd. Core Capital 6.55 (1) 6.55 (1) Services Limited

Pawan Kumar Kaul 0.05 (1) - - - 5.5 (1)

River High Right 10.1 (1) 10.1 (1) Share Brokers Pvt. Ltd. Vishal Yadav 7.85 (1) 7.85 (1) Total 15.15 (3) 19.05 (2) 15.95 (2) 6.55 (1) 56.70 (8)

Details of trades in which Noticees were counter parties and

NHP contribution D a t e B o v e r Na m e S e l l e r N a m e B u r O rd e r N o . S e l l . O l d e r N o . Bu y O rd e r Se l l O r d e r T ra d e D i rt T ra d e T i m e T i m e P ri c e N H P Q t

1 6 /0 1 /1 4 C c at o r f B u i l d m a rt P re v a i l K u m a r 1 4 0 0 0 1 2 S 3 0 6 3 S 8 1 5 0 0 0 1 0 1 2 6 5 5 7 2 3 :0 9 : 5 PM 3 :9 9 : 5 3 P M 1 3 4 .9 T o T o 1 .2 0 0 P v t . L t d K au l 1 7 /0 1 /1 4 R i v e r H i g h R i g h t A c cu ra t e 1 2 0 0 0 1 0 5 1 3 0 3 1 1 1 9 0 0 0 1 2 4 0 8 9 5 2 4 1 0 :2 5 :4 9 1 0 :1 8 :3 5 1 4 5 1 0 . 1 0 1 2 0 0 S h a re B ro k e rs B u i l d w e l l Pv t , AM AM P v t L t d L t d 2 1 /0 1 /1 4 C o r e C a p i t al V i s f a a l Y a d a v 1 3 0 0 0 1 0 4 4 4 4 6 9 6 1 1 0 0 0 0 9 0 1 5 5 8 0 6 3 :0 3 : 1 9 P M 1 1 :3 3 :4 9 1 6 5 ,5 6 .5 5 1 2 0 0 S e r v i c e s L i m i t e d AM 2 2 /0 1 /1 4 V i s h a l Y a d av A s h v m Ve rm a 1 1 0 0 0 0 8 9 1 1 1 1 3 3 1 8 0 0 0 1 2 2 1 6 1 4 3 9 3 :0 4 : 2 6 P M 1 0 :4 3 :3 4 1 7 3 .8 5 7 .8 5 1 2 0 0 AM 2 3 /0 1 /1 4 P a w -i n K u m a r A c cu ra t e 2 3 0 0 0 0 6 1 4 8 0 8 6 9 1 9 0 0 0 0 8 3 0 8 8 3 4 5 3 :1 1 : 0 5 P M 3 :1 1 : 0 1 P M 1 8 2 5 9 0 1 2 0 0 K au l B u i l d w e l l Pv t L t d 2 7 /0 1 /1 4 C e n t u ry B u i l dn i ai i A s h v i n Ve rm a 1 7 0 0 0 0 7 9 4 6 8 1 0 4 1 8 0 0 0 0 7 9 5 4 1 8 0 0 3 :2 5 : 4 6 P M 3 :2 4 : 2 3 P M 1 9 3 .1 8 .1 0 4 8 0 0 P v t L t d 0 6 /0 2 /1 4 A c c u ra t e P a w an K u m a r 1 2 0 0 0 0 6 7 2 0 3 6 3 5 1 7 0 0 0 0 8 6 0 5 3 2 8 1 3 :1 1 : 4 0 P M 1 0 :2 5 :2 0 2 1 4 .7 5 8 .9 5 1 2 0 0 B u i l d w e l l P v t . L t d K au l AM 2 6 /0 2 /1 4 A c c u ra t e A c cu ra t e 1 7 0 0 0 1 2 3 7 0 2 1 6 6 1 2 0 0 0 1 0 5 0 7 5 2 7 2 3 :1 9 : 3 2 P M 9 :5 1 : 1 2 AM 3 8 4 0 .0 5 1 2 0 0 B u i l d w e l l P v t . L t d B u i l d w e l l Pv t . L t d

log for the above trades and the pre-order book positions for

both buy and sell orders were provided to the Noticees along

with the SCN. Noticees have not responded to the same,

therefore, it can be assumed that they have nothing contrary to

offer in their defence to the allegations made in the SCN

However, m order to examine whether the trades executed by

the Noticees were manipulative or not, the aforesaid trades

executed by the Noticees are discussed further hereunder.

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volume as the sell order of Noticee No. 1 and the trade for 1200 shares were executed at Rs.145.00. This trade also established a NHP and the difference of this high price from the last high price was Rs.10.10.

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price of Rs. 182.00. Before this sell order there was no other sell order or buy order pending in the system. At 3:11:05 PM, Pawan Kumar Kaul (Noticee No. 2), a connected entity, placed buy order at the same price and the same volume as the sell order of Noticee No. 1 and die trade for 1200 shares got executed at the rate of Rs.l82.00 per share. This trade established a NHP and the difference of this high price from the last high price was Rs.5.00.1 note that the orders were placed in the evening by the Noticees and the orders matched within a time difference of 4 seconds. Considering the absence of liquidity in the scrip and the negligible volume of trade and the timing of orders placed by the connected entities, I find that the trade was not executed in normal course of trading. The Noticee No. 2 by placing buy order to match the sell order of Noticee No. 1 contributed to price rise in the scrip and established another NHP which was Rs.5 more from the last high price in the scrip.

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equal quantity was placed by a connected entity matching the sell order price so as to get the trades executed and to establish a NHP on that day and also to make positive contribution to LTP. Further, on many days when sell orders were placed in the evening, matching buy orders were placed within few seconds or minutes by connected entities. Thus, the manner in which the orders were placed and matched shows that there was a continuous meeting of mind and the trades executed by the connected entities were premeditated in order to gradually raise the price of the scrip of Esteem Bio. I find from tire pattern of trading by the Noticees that one of them was invariably placing buy order chasing the pending sell order price of another Noticee in such a manner that the orders must end in matching with a known counterparty and result in establishment of NHP and in the process making positive contribution to LTP.

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“….Very fact that the appellant had indulged in self-trades/ LTP/ NHP without giving any justifiable reason, dearly justifies the inference dram by the .AO that the trades executed by the appellant were manipulative trades..."

“... but by purchasing shares at the higher price in LTP in most of the trades, the noticee bad given a wrong impression about the liquidity of the scrip in the market. It must not be forgotten that every trade establishes the price of the scrip and the Noticees trading at higher than LTP resulted in the price of the scrip going up and wm done with a view to set the price at a desired level and thereby influencing the innocent/gullible investors. By purchasing at a higher price m most of his trades, the noticee had given the wrong impression about the price of

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the scrip in the market. It is an accepted state of affairs that in cases of manipulation of the volume and / or price of a particular scrip, it is usually an arduous task to obtain direct evidence. However, the analysis of the trade and order logs as undertaken hereinabove, establishes the malafide intention of the appellant."

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are not trades executed in normal course of trading and investment in securities market. Noticees have deliberately .manipulated the price of the scrip and created a misleading appearance of trading in the scrip to induce innocent investors in the securities market thereby contravening the provisions of regulations 3 (a), 3(b), 3(c), 3(d), 4 (1), 4(2)(a) and 4(2)(e) of the PFUTP Regulations.

Directions:

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-Sd- Date: March 13, 2019 S. K.MOHANTY Place: Mumbai WHOLE TIME MEMBER

WTM/SM/IVD/ID3/9875/2020-21 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: S. K. MOHANTY, WHOLE TIME MEMBER ORDER Under Sections 11(1), 11(4)and 11B (1) of the Securities and Exchange Board of India Act, 1992 In respect of: Sl. No. Name of the Noticee PAN

1 Esteem Bio Organic Food Processing Ltd. AAACE1925D 2 Jai Kumar CSQPK1236G 3 Brij Kishore Sabharwal AAXPS6830P 4 Goldline International Finvest Ltd. AACCG6377M 5 Satendra Kumar & its Proprietorship firm viz. Nisha AWWPK8525E Traders, Bright Securities 6 Madhukar Dubey & its Proprietorship firm viz. N V Sales AIJPD7329J Corporation, A One Furniture 7 Ram Prakash & its Proprietorship firm viz. Khan Enterprise AXFPR4439L 8 Aavia Softech Pvt. Ltd. AAKCA4089N 9 Mayfair Infosolution Pvt. Ltd. AAFCM3716M 10 Avisha Credit capital Pvt. Ltd. AAACA5715D

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11 Nikky Printing Press Pvt. Ltd. AADCN5292K 12 Neel Kanth Trading Co. - 13 Ace Consultant ABGPK4707P 14 Amsons Apparels Pvt. Ltd. AAFCA3887K 15 Gracious Software Pvt. Ltd. AADCG0392F

(The entities mentioned above are individually known by their respective name or Noticee no. and collectively referred to as “Noticees”)

In the matter of Esteem Bio Organic Food Processing Limited

Background: 1.The present proceedings are arising out of a show cause notice dated August 14, 2017 (hereinafter referred to as “SCN”) alleging inter alia that a scheme was devised in the Initial Public Offer (hereinafter referred to as “IPO”) of equity shares of Esteem Bio Organic Food Processing Limited(hereinafter referred to as “Esteem Bio/Company”), wherein the applicants of the IPO were funded by entities connected with the Company itself and subsequently the IPO proceeds were not utilized towards the objects of raising funds and instead were allegedly transferred to few of the entities who had funded the applicants of the IPO. Before conducting the investigation in the IPO of the Company, a common ex-parte ad interim order dated June 29, 2015 was issued inter alia against the Company and to three other companies who were seen to have followed a common modus operandi in deploying a fraudulent scheme with respect to their respective IPOs.

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i. The Company came out with an IPO by offering 45,00,000 equity shares (30.20% of the post issue size) of INR10 each at an issue price of INR 25, to raise INR11.25 Crore. The equity shares of the Company were listed on SME segment of BSE Ltd. (“BSE”) on January 07, 2013.

ii. The Company had disclosed in the Prospectus that the funds so raised in the IPO shall be utilized in the following manner:

Table 1: Proposed Utilization Sr. Particulars Amount (INR in no. Lakh) 1 Setting up of Shade Net Cultivation 380.00 facility 2 Development of Farm land for 565.00 transition to Organic Farming 3 Procurement of farm tools and 30.00 equipments 4 Brand Building and General 80.00 Corporate purposes 5 Issue Expenses 70.00 Total 1125.00

iii. During the investigation conducted by SEBI, the Company was asked to provide the details of the utilization of the IPO proceeds. The Company, vide its letter dated December 25, 2015, submitted the following details of utilization of the IPO proceeds, as on March 31, 2015:

Table 2: Utilization of the IPO Proceeds (as per letter dated December 25, 2015 of Company) Sr. Particulars Utilized as on No. 31/03/2015 (INR in Lakh) Setting up of shade Net cultivation 375.00 facility

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iv. The Company was asked to furnish details of the utilization of funds raised through the issuance of securities with supporting documents to substantiate the utilization of funds as per its clam however, it did not provide the supporting documents.

v. The IPO of the Company was subscribed 1.06 times and it had received 512 applications for 47,88,000 equity shares (including market maker application for 750000 shares). Out of the said applications, 29 applications for 1,74,000 shares were rejected due to various reasons. After rejection of such applications, total valid applications remained 483 for 46,14,000 shares, which was 1.03 times of the offer size. Finally, out of those valid applications, the Company allotted 45,18,000 shares to 470 applicants. The Company, was able to raise an amount of INR11.29 Crore from 470 applicants. The details of applications received, shares allotted etc., are tabulated herein below:

Table 3: Break up of applications

Class of No. of No. of No. of No. of No. of shares applicant applicatio shares shares Allottees Application ns applied allotted whom rejected shares allotted Market Maker 1 7,50,000 7,50,000 1 0 HNI 32 11,64,000 11,46,000 32 0 RII 479 28,74,000 26,22,000 437 1,74,000 Total 512 47,88,000 45,18,000 470 1,74,000

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vi. It was also noticed during the investigation that certain entities had provided funds to several IPO applicants to enable them to make application under the IPO of the Company. Such entities were further noticed to be connected with the Company itself, based on various factors like fund transactions, common directorship in companies, etc. For the sake of convenience of reference, the said entities are hereinafter referred to as “funding group entities”.

vii. The investigation further revealed that applications of 270 Retail Individual Investors (RIIs) were funded by the funding group entities, out of which 238 applicants were allotted 14,28,000 shares. Similarly, in HNI category also, 60,000 shares allotted to one HNI were funded by the funding group entity. Further, in the market maker category, the application for 7,50,000 shares were funded by the funding group entities. In total, out of 45,18,000 shares allotted under the IPO, 23,34,000 shares allotted to 240 applicants (238 RIIs,+ 1 Market maker+ 1 HNI),were funded by the funding group entities, which comes to 51.66% of the total shares allotted under the IPO.

viii. It was further unearthed in the investigation that out of the total IPO proceeds of INR11.29 Crore (approx.), the Company had transferred an amount of INR11 Crore (approx.) to various entities. The details of such transfers are depicted in the following pictorial representation:

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ix. The details of funding by the funding group entities and the amounts of money received by such entities and inter se fund transactions amongst such entities are narrated as follows:

Table 4: Details of Fund Transactions Sr. Name Bank A/c Funding by funding group Details of funds N no. entity movement by o. funding group entity • • 1 Goldline ICICI Goldline had issued 42 It had received INR Internatio Bank cheques of INR 1.50 239.60 Lakh from nal – Lakh each to the the Company from Finvest 66300512 Company on behalf of IPO proceeds, and Ltd. 044 42 non ASBA allottees. INR 245 Lakh from (“Goldline 9 Also 8 non ASBA Eco Friendly ”) applicants directly Food Processing received INR 1.50 Lakh Ltd. each from Sr. Name Bank A/c Funding by funding group Details of funds N no. entity movement by o. funding group entity

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(Noticee Goldline to make (“ECO”) which was in no. 4) application in the IPO. (37 fact received by ECO allottees got allotment) from the Company. • • It had also funded INR It had received INR 187.50 Lakh to Guiness 206 Lakh from Securities Ltd and INR Mayfair 15 Lakh to Mr. Sanjeev Infosolution Pvt. Agarwal to make ASBA Ltd. (Noticee no. application. 9) on various dates. • • 2 Satendra Yes Bank Nisha Traders had It had received INR Kumar - issued 39 cheques of 37 Lakh from Proprieto 01368390 INR 1.50 Lakh each to Bright Securities rsh ip 000 the Company on behalf and INR 13.50 Lakh Firm 2254 of 39 Non ASBA retail from Magnum • Nisha investors.(38 allottees Industrial Trader got allotment). Corporation. • Bright s Yes Bank Securities had • Bright - fund movement with Securi 01368390 Nisha Traders, Magnum tie s 000 Industrial, N V Sales 2195 Corporation, A One (Noticee Furniture no. 5) (Proprietorship firms of Noticee no. 6), Goldline and AMS Powertronic Pvt. Ltd. • • 3 Madhukar Dhanlaksh N.V. Sales Corporation It had received INR Dubey mi Bank – had issued 16 cheques 10.60 Lakh from Proprieto 01910670 of INR 1.50 Lakh each Khan Enterprises rsh ip 000 to the Company on (Proprietorship firm Firm 1580 behalf of 16 Non ASBA of Noticee no. 7) • N V retail investors. (9 Sales allottees got allotment) • • Corpor Yes Bank A One Furniture had It had received INR at ion – issued 20 cheques of 16.50 Lakh from • A One 01368390 INR 1.50 Lakh each to Magnum Industrial Furnit 000 the Company on behalf Corporation and ur e 2266 of 20 Non ASBA retail INR 15 Lakh from (Noticee investors. (20 allottees Sumit Kumar. no. 6) got allotment) • • 4 Ram Tamilnad Khan Enterprise had It had received INR Prakash Mercantile issued 19 cheques of 22.40 Lakh from Proprieto Bank – INR 1.50 Lakh each to Shiv Traders & INR rsh ip 21115005 the Company on behalf 5 Lakh from Garg Firm 080 of 19 Non ASBA retail Traders & • Khan 0272 investors. (18 allottees Suppliers. • Enterpri got allotment) Shiv Traders (TMB se - 211150050800237) (Noticee had received INR no. 7) 81.50 Lakh from ECO, INR 67 Lakh from the Company in October and December,

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2012.

• • 5 Aavia Axis Bank Aavia Softech Pvt Ltd It had received INR Softech - had issued 10 cheques 15 Lakh from Pvt. Ltd. :9120200 of INR 1.50 Lakh each Mayfair (Noticee 240 to the Company on Infosolution Pvt. no. 8) 45250 behalf of 10 Non ASBA Ltd. (Noticee no.9), retail investors. (9 and INR 80 Lakh allottees got allotment) from ECO. • It also had fund movement with Goldline, the Company and other connected entities. Sr. Name Bank A/c Funding by funding group Details of funds N no. entity movement by o. funding group entity

• • 6 Mayfair Axis Bank It had given INR 1.50 Aavia Softech Infosoluti – Lakh each to 23 Non (Noticee no.8) has on Pvt. 91202000 ASBA applicants who received INR 15 Ltd. 412 had made application in Lakh & Gracious (Noticee 1565 the IPO of the Software Pvt. Ltd. no. 9) Company. (20 allottees (Noticee no. 15) got allotment) received INR 63 Lakh from Mayfair Infosolution (Noticee no.9). • • 7 Avisha HDFC It had given INR 1.50 It had received INR Credit Bank Lakh each to 15.50 Lakh from Capital – 3 Non ASBA applicants who IPO proceeds of Ltd. 05982740 had made application in the Company. • (Noticee 000 the IPO of Esteem.(3 Further, it had no. 10) 567 allottees got allotment) fund movement with ECO, Goldline, Mayfair Infosolution (Noticee no. 9). • • 8 Nikky Axis Bank It had issued 30 It had received INR Printing – cheques of INR 45 Lakh from Press Pvt. 91102003 1.50 Lakh each to the Mayfair Ltd. 414 Company on behalf of Infosolution (Noticee 3910 30 non ASBA allottees. (Noticee no. 9) and no. 11) (25 allottees got also had fund allotment) movement with

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Godline, AMS Powertronic, Madhukar Dubey (Noticee no. 6).

• • 9 Neel Dhanlaksh It had issued 14 It had fund Kanth mi cheques of INR movement with Trading Bank – 1.50 Lakh each to the AMS Powertronic Co. 01910670 Company on behalf of Pvt. Ltd. (Noticee 000 14 non ASBA allottees. no. 12) 0717 (14 allottees got allotment) • Ace 10 Ace HDFC Consultant had - Consultan Bank funded INR 1.50 Lakh to t - 1 Non ASBA entities. (1 (Noticee 03142000 allottees got allotment) no. 13) 000 740 • • 11 Amsons Axis Bank It had issued 3 cheques It had received INR Apparels - of Rs. 1.50 Lakh each to 5.00 Lakh from Pvt Ltd. 91202001 the Company on behalf Core Capital (Noticee 496 of 3 non ASBA allottees. Services Pvt. Ltd. no. 14) 4077 (2 allottees got Further, it had fund allotment) movement with AMS Powertronic Pvt. Ltd., Goldline, Madhukar Dubey (Noticee no. 6). • • 12 Gracious Axis Bank It had issued 42 It had received INR Software - cheques of INR 63 Lakh from Pvt Ltd. 91202001 1.50 Lakh each to the Mayfair (Noticee 500 Company on behalf of Infosolution Pvt no. 15) 6932 42 non ASBA allottees. Ltd. Further, it had (42 allottees got fund movement allotment) with Goldline.

x. A summary of the amounts funded by various funding group entities, no. of allottees who got allotment of shares due to such act of funding made on their behalf by the respective funding entities etc., are presented in the table herein below:

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Table 5

Sr. No. Funding Entity Amount No. of Received No. of funded allottees back shares (Rs. in got from IPO allotted lacs) allotmen proceeds of t Esteem (Rs. in lacs) 1 Goldline International 277.50 39(2 484.60 10,32,000 Finvest Ltd. ASBA) (Noticee no. 4) 2 Satendra Kumar & 58.50 38 - 2,28,000 Proprietorship firm (Noticee no. 5) 3 Madhukar Dubey & 54.00 29 - 1,74,000 Proprietorship firm (Noticee no. 6) 4 Ram Prakash & 28.50 18 - 1,08,000 Proprietorship firm (Noticee no. 7) 5 Aavia Softech Pvt. Ltd. 15.00 9 40 54,000 (Noticee no. 8) 6 Mayfair Infosolution Pvt. 34.50 20 81 1,20,000 Ltd. (Noticee no. 9) 7 Avisha Credit capital 4.50 3 15.50 18,000 Pvt. Ltd. (Noticee no. 10) 8 Nikky Printing Press Pvt. 45.00 25 - 1,50,000 Ltd. (Noticee no. 11) 9 M/S. Neel Kanth Trading 21.00 14 - 84,000 Co. (Noticee no. 12) 10 ISF Securities Ltd. (Ace 1.50 1 - 6,000 Consultant- Noticee no. 13) 11 Amsons Apparels Pvt. 4.50 2 - 12,000 Ltd. (Noticee no. 14) 12 Gracious Software Pvt. 63.00 42 - 2,52,000 Ltd. (Noticee no. 15) 13 Indirect Funding 96000 Total 607.50 240 621.10 23,34,000

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achieve the threshold of minimum applications (90%) of the offer size required for listing of its scrip on the SME segment of BSE, as has been envisaged under Regulation 14(1) of SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2009, (ICDR Regulations)(hereinafter referred to as “ICDR Regulations”)

5.I note that the SCN was served on Noticee nos. 1, 2, 3, 4, 9, 10, 12, 13through SPAD and Notice nos. 5, 6, 7, 8, 11, 14 and 15,through affixation. It is noted that the Noticee nos. 1, 3, 4, 10and 15 had sought inspection of the documents which was granted to them. Later on, opportunity of personal hearing to the Noticees was granted on June 18, 2019 which was rescheduled to July 02, 2019. However, as inspection of documents was sought by few more Noticees, the personal

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hearing was again rescheduled to August 06, 2019. It is noted from the records that the hearing notice was served upon on various Noticees through substituted mode of service, viz., Newspaper publication, with the following details:

Table 6

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i. In compliance with the Regulation 106Pof SEBI ICDR Regulations, 2009, the IPO of Esteem Bio was 100% underwritten. The said fact reflects that the charges of arranging funds for subscription to the IPO cannot be sustained. In support, the copy of the underwriting agreement has been filed. ii. The transactions with various entities including Noticee no. 4 (Goldline International Finvest Ltd.) whichhave formed the basis of allegations in the SCN, were in commercial nature. The Company has no control on the transactions executed by other entities. Noticee no. 4is having business dealing in securities and corporate loans etc. iii. The IPO of the Company was launched in compliance with the applicable laws. Guiness Corporate Advisors Pvt. Ltd. was appointed as Lead Manager and Cameo Corporate Services Ltd. was appointed as the RTA. iv. The SCN has been issued after 4 years of the closure of the issue and due to the said delay, the charges should be dropped. v. There is no finding in the SCN to the effect that investigation conducted by SEBI was hampered due to lack of information. For certain other entities, proceedings initiated by passing of interim orders have been dropped by SEBI. vi. The charges of violating Section 12 A(a), (b), (c) of SEBI Act, 1992 and Regulation 3 (a), (b), (c) and (d) and 4(1) of PFUTP Regulations are not made out as no transaction in securities in the secondary market segment of capital market has been done.

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vii. The investigation conducted by SEBI has picked up selected financial transactions and financial transactions of third parties like Goldline have formed basis of making allegations. The case deserves re- investigation for appreciation of correct facts, as has been done in certain other cases. viii. IPO proceeds were utilized towards the stated objects and land development agreements for an amount of INR 5.66 Crore have been executed by the Company. ix. Apart from the above, the Company had spent INR29.00Lakh (approx.) towards expenses of IPO. The details of the said amount spent are: INR2.66 (approx.) Lakh to BSE; INR2.88 Lakh to SAP Printer Solutions Pvt. Ltd.; INR20.00Lakh (approx.) to Guiness Corporate Advisor (Merchant Banker); INR1.23 Lakh to NSDL and CDSL; and INR1.24 Lakh (approx.) to Innovative Communication. Also, INR 58.00 Lakh has been paid to Cameo Corporate Services. x. The Company has also extended an amount of INR 4.40 Crore in short term loans to various entities.

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examination of persons whose statement were recorded by SEBI during the investigation. Further, vide letter dated July 29, 2019, the Noticee no. 10sought time to file additional reply and has also sought certain documents. The said documents were already provided to the Noticee vide SEBI’s letter dated July 25, 2019, however, so far no further reply has been filed by the Noticee no. 10.

i. Ms. Sunita Khemka the proprietor of the Noticee firm has association in the field of financial and capital market as consultant for over 25years and has been dealing regularly in securities. ii. Ms. Sunita was a Designated Director in SEBI registered Stock Broker ISF Securities Ltd. (hereinafter referred to as “ISF”) and she, along with her husband hold 51% stake in ISF Securities Ltd. The stake in ISF was purchased in January 2012 (46.87%) and January 2014 (4.13%). The appointment as Designated Directors and Dominant Promoters of ISF has been done with the approval of BSE and NSE. iii. The SCN has alleged connection based on directorship of Noticee no. 3 (Brij Kishore Sabharwal) in ISF. Noticee no. 3was Director of ISF before ISF was acquired by Ms. Sunita and her husband. However, in order to maintain existing retail clients of ISF, Noticee no. 3continued to be a Director of ISF even after

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change in control and Noticee no. 3 resigned from the directorship of ISF on March 21, 2014. The relationship with the Noticee no. 3was purely professional. iv. The SCN alleges that Noticee no. 13(Ace Consultants) being a funding group entity has funded Ms. Sunita Khemka for subscription to the IPO of the Company. The said allegation is baseless as Ms. Sunita herself is the proprietor as well as signatory of the bank account of Noticee no. 13 and being a proprietorship firm, Noticee no. 13could not have applied for the shares under the IPO. v. The application under IPO was only for 6000 shares for a small amount of INR1.50 Lakh, which cannot be said to have made under instructions of anyone else, particularly in the absence of any evidence. vi. Ms. Sunita had also applied under the IPO of another company viz., Eco Friendly Food Processing Park Ltd. (“ECO”). The said application in the IPO was rejected and the refund amount of INR1.50 Lakh was utilized towards application of IPO of Esteem Bio. vii. In ECO also, Noticee no. 3(Brij Kishore Sabharwal), is one of the Directors. As her application for shares of ECO was rejected, the same shows that Ms. Sunita does not have any connection (except professional) with the Noticee no. 3. viii. There is no direct connection with Noticee no. 4 (Goldline International Finvest Ltd.). It has taken loan of INR50.00 Lakh from Noticee no. 4, which was a RBI registered NBFC, during FY 2012-13. The said loan has been repaid during FY 2014-15 with interest of INR 5.81 Lakh (approx.).

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ix. There is no allegation of receipt of IPO proceeds by Ace Consultants. x. For an act to be termed as ‘fraudulent’, inducement or misrepresentation needs to be present, as held by Hon’ble Supreme Court in the matter of Ram Chandra Singh Vs. Savitri Devi and Ors. [2003 8 SCC 319]. By the investment ofINR1.50 Lakh, there is no inducement caused to anyone nor any false statement has been alleged to be made. xi. Similarly, to prove an act to be manipulative, a mere single act is not sufficient and series of acts reflecting the manipulative intent is required, as has been held by Hon’ble SAT in the matter of Sterlite Industries (India) Ltd. Vs. SEBI. xii. The evidence to prove the allegation of ‘fraud’ requires stronger evidence as has been observed by Hon’ble Supreme Court in the matter of Bank of India Vs. Degala Surya Narayan (AIR 1999 SC 2407) 10. Noticee no. 15 (Gracious Software Limited), vide its letter dated June 12, 2019, has made identical requests for copies of documents, as have been made by other Noticees. Further, vide letter dated July 29, 2019, the Noticee no. 15 sought time to file written reply to the SCN, however, so far, no reply has been filed by the Noticee no. 15.

Consideration of Issues and findings

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and a copy of the entire investigation report etc. At the outset, it is observed that the Noticees have made a very generic request seeking all the documents pertaining to the present proceedings without specifying as to which document they need to defend their case on merit. Insofar as the copy of investigation report and alleged non-compliance of principles of natural justice is concerned, I refer to the observations made by the Hon’ble SAT in the case of Reliance Commodities Ltd Vs. National Commodity & Derivatives Exchange Ltd.(Date of decision: July 23, 2019). The relevant portion of the said observations are under:

“2. Having heard the learned counsel for the parties and having perused the list of documents so required for inspection we are of the opinion that the documents sought for is nothing but a roving and fishing enquiry. We accordingly do not find any merit in the submission of the learned counsel for the appellant that these documents are essential for the purpose of filing an appropriate reply.

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documents upon which no reliance has been placed by the AO, nor even the principles of natural justice require supply of such documents which has not been relied upon by the AO.” (emphasis supplied). Therefore, applying the ratio of the aforesaid orders in the present case, I observe that the demand of the Noticees to provide them with the copy of investigation report and other material collected during the investigation is devoid of merit and has to be rejected since in the extant case, all the documents that have been relied upon in the SCN to make the allegations against the Noticees have already been furnished to them along with the SCN itself. Moreover, as per the materials before me, no statement of any person has been recorded during the investigation, hence, the question of providing a copy of any statement does not arise. I find the SCN containing all the findings of Investigation relevant to the Noticees based on which the allegation have been made therein and in support of those allegations all the relevant facts and documents have already been conveyed to the Noticees through the SCN and its Annexures. Therefore, the demand of the Noticees for a copy of Investigation Report and all documents etc., are found to sans any merit, hence rejected.

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Issue I: Whether the Noticee nos. 4 to 15enjoy connection with the Company and the Company through its connected entities/Noticees devised a scheme to ensure the successful subscription of its IPO?

Issue II: Whether the proceeds of IPO have been utilized by the Company in terms of the Objects stated in the Prospectus?

SEBI Act, 1992

Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control

Section 12A. No person shall directly or indirectly—

(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive

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device or contrivance in contravention of the provisions of this Act or the rules or the regulations made there under;

(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange;

(c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder.

SEBI (PFUTP) Regulations, 2003

Prohibition of certain dealings in securities

Regulation 3. No person shall directly or indirectly—

(a) buy, sell or otherwise deal in securities in a fraudulent manner;

(b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made thereunder;

(c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange;

(d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any

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person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made thereunder.

Prohibition of manipulative, fraudulent and unfair trade practices

Regulation 4 (1)

Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009

Minimum Subscription

Provided that in the case of an initial public offer, the minimum subscription to be received shall be subject to allotment of minimum number of specified securities, as prescribed in sub-clause (b) of clause (2) of rule 19 of Securities Contracts (Regulation) Rules, 1957.

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common directorship in companies etc., to corroborate such connections amongst the Noticees. The said details of connections amongst various Noticees as have been narrated in the SCN, are highlighted herein below:

Sr. Particulars Connection - Fund Movement no. • Goldline had received IPO proceeds of INR 239.60 1 Goldline Internationa Lakh from Esteem Bio l Finvest (Company). Ltd. • Esteem Bio(Company)had transferred INR 245.00 (Goldline) (Noticee no. Lakh to Eco Friendly Food Processing Ltd. (“ECO”), 4) which was in turn transferred by ECO to Goldline. • Goldline had fund movement with Mayfair Infosolution Pvt. Ltd., Guiness Securities Ltd. and Sanjeev Agarwal. • Goldline had also fund movement with the entities who had funded to IPO allottees viz. AMS Powertronic Pvt. Ltd, Bright Securities, Columbia Sales. • Nisha Traders had received funds from Magnum 2 Satendra Kumar Industrial and Bright Sr. Particulars Connection - Fund Movement no. Proprietors Securities. hip • Bright Securities had fund movement with Nisha Firm Traders, Magnum Industrial, N V Sales Corporation, Bright A One Furniture, Goldline and AMS Powertronic Pvt. Securities Ltd. • A • Address: Plot No. 3, Gali No. 3, East Guru Angad R Enterpris Nagar, Laxmi Nagar, Delhi e - 110092. • Nisha • Proprietorship firm of Sumit Kumar, Madhukar Traders Dubey and Satendra Kumar were having common (Noticee no. address. 5)

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• N V Sales Corporation had fund movement with 3 Madhukar Dubey Khan Enterprises, AMS Powertronic Pvt. Ltd. Proprietors • A One Furniture had received funds from Magnum hip Firm • Alliance Industrial. Traders • Alliance Traders had received funds from AMS • N V Powertronic Pvt. Ltd., Mayfair Infosolution Pvt. Sales Ltd., A One Furniture, N V Sales Corporation, Nisha Corpora Traders. tion • Magnum Industrial had received funds from ECO • A One and A One Furniture. Furnitur • Address: Plot No. 3, Gali No. 3, East Guru Angad e Nagar, Laxmi Nagar, Delhi- 110092. • Magnum • Proprietorship Industri firm of Sumit Kumar, Madhukar al Dubey and Satendra Kumar were having common address. (Noticee no. 6) • Khan Enterprise had fund movement with Shiv 4 Ram Prakash Traders and Garg Traders & Suppliers. Proprietors • Aggrawal Traders had received funds from the hip Firm • Khan Goldline. Enterpri • Ram Prakash is the common Director in following ses companies (as per MCA Database); • Aggraw i. Aavia Buildtech Pvt. Ltd. al Traders ii. Aavia Softech Pvt. Ltd. (Noticee no. 7) • It had fund movement with Mayfair Infosolution 5 Aavia Softech Pvt. Ltd., ECO, Goldline and Esteem Bio. Pvt. • Aavia Buildtech Pvt. Ltd. and Aavia Softech Pvt. Ltd. (Noticee Ltd. have common address: 1/2486, Gali No. 26, no. 8) Ramnagar, Modern Shahdra, East Delhi - 110032. (MCA Website)

Sr. Particulars Connection - Fund Movement no.

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• Aavia Buildtech Pvt. Ltd. and Aavia Softech Pvt. Ltd. have common Director: 1) Kamal Singhal 2) Ramprakash • Mr. Ramprakash is the proprietor of M/s. Khan Enterprise and M/s. Aggrawal Traders.

• It had received IPO proceeds of INR 81.00 Lakh 6 Mayfair Infosolutio from the Company. n Pvt. Ltd. • It had fund movement with Aavia Softech Pvt. Ltd, (Noticee no. 9) Goldline, Esteem, AMS Powertronic Pvt. Ltd and Gracious Software Pvt. Ltd. • Director Name :1) Sumit Kumar 2) Vinay Kumar • Mayfair is connected with AMS Powertronic Pvt. Ltd., Nikky Printing Press Pvt. Ltd., through common Directors. • It had received IPO proceeds of INR 15.50 Lakh 7 Avisha Credit from the Company. Capital Ltd. • Further, it had fund movement with ECO, Goldline, (Noticee no. 10) ISF Securities Ltd., and Mayfair Infosolution.

• It 8 Nikky had fund movement with Goldline, Mayfair Printing Infosolution, AMS Powertronic and Madhukar Press Pvt. Dubey. Ltd. • Director Name: 1) Sumit Kumar 2) Vinay Kumar (Noticee no. 11) • Nikky Printing Press Pvt. Ltd. is connected with Mayfair Infosolution Pvt. Ltd, AMS Powertronic Pvt. Ltd., through common Directors. • It had fund movement with AMS Powertronic Pvt. 9 Neel Kanth Trading Co. Ltd. (Noticee no. 12)

• It had fund movement with the ISF Securities Ltd 10 Ace Consultant and Goldline. • Common Address with ISF Securities Ltd. (Noticee • Till March 2014, Brij Kishore Sabharwal (Director of no. 13) Eco & Esteem Bio) was the director in ISF Securities Ltd.

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• It had fund movement with AMS Powertronic Pvt. 11 Amsons Apparels Ltd., Goldline, Madhukar Dubey and Mayfair Pvt. Ltd. Infosolution Pvt. Ltd. (Noticee no. 14)

• It had fund movement with Goldline and Mayfair 12 Gracious Software Infosolution Pvt. Ltd. Pvt. Ltd. (Noticee no. 15)

• It had received IPO proceeds of INR 40.00 Lakh 13 Aavia Buildtech from the Company. Pvt. Ltd. • Aavia Buildtech Pvt. Ltd. and Aavia Softech Pvt. Ltd., were having common address: 1/2486, Gali No. 26, Ramnagar, Modern Shahdra, East Delhi - 110032.

• Aavia Buildtech Pvt. Ltd. and Aavia Softech Pvt. Ltd. have common Directors: 1) Sr. Particulars Connection - Fund Movement no.

Kamal Singhal 2) Ramprakash. • Mr. Ramprakash is the proprietor of M/s. Khan Enterprise and Ms/. Aggrawal Traders.

• Shiv Traders had fund movement with Mayfair 14 Shiv Traders Infosolution Pvt. Ltd., Khan Enterprise, Neelkanth Trading, AMS Powertronic Pvt. Ltd., Aavia Buildtech Pvt. Ltd., Esteem Bio.

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• It had received INR 325.00 Lakh from the IPO 15 AMS Powertroni proceeds of Esteem Bio. • It had fund movement with Mayfair Infosolution c Pvt. Ltd. Pvt. Ltd., Goldline, Amsons Apparels Pvt. Ltd., N V Sales Corporation, Aavia Softech Pvt. Ltd., Nisha Traders, Shiv Traders, ECO, Aggarwal Traders, Madhukar Dubey, Esteem Bio. • Director Name: 1) Sumit Kumar 2) Vinay Kumar • Sumit Kumar is the common Director in AMS Powertronic Pvt. Ltd., Nikky Printing Press Pvt. Ltd. & Mayfair Infosolution Pvt. Ltd.

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reason. As noted above that many of the Noticees have till date preferred to remain silent and have not filed any reply to the SCN. The Noticees who have responded to the allegations made in the SCN, are also found to have made only various bald assertions and their denial of having any connection with the Company or with other entities has not been backed by any credible supportive evidences, so as to inspire confidence in any of their explanations to counter the allegations of connections made against them in the SCN.

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such advances made, the subsequent recoveries of such advances with interest etc. have been made available to me to verify and get satisfied with their explanation. I would rather say that the said Noticee being a NBFC appears to have acted in unprofessional manner, as no documents pertaining to said fund transfers, like nature of loan, rate of interest, period of loan, copy of agreement, copy of ITR etc., pertaining to the purported loan/advances extended in pursuance of its non-banking financial activities were furnished during the proceedings. Further, the reply of the Noticee no. 10 is conspicuously silent on the allegation that it had received INR 15.50 Lakh from the IPO proceeds of the Company (Noticee no. 1).There is no doubt that had such transactions were entered into in due course of its genuine NBFC business transactions, the Noticee no. 10 would have certainly been able to substantiate its claim through its records, but it clearly has failed miserably to do so and therefore, I have no hesitation in rejecting the submissions of the Noticee in defense of its funding the IPO application as it has failed to disprove or controvert the allegations of its connection with the Noticee no. 1,as well as with other Noticees like Noticee no. 4 etc.

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note that the natural person (Ms. Sunita Khemka)behind the Noticee no. 13(as a proprietor of the firm), was admittedly also a Director and a majority shareholder in ISF in which Noticee no. 3 was also a Director. Undoubtedly, proprietorship of a firm is inseparable cannot be taken away from the proprietor of such firm, who in the present case also happened to be a Director and shareholder in ISF, hence the connection between Noticee no.13 (a proprietorship firm of Ms. Sunita Khemka) and Noticee no. 3(Mr. Brij Kishore Sabharwal) is inevitably clear and settled. It has been contended before me that in the initial transition days of acquisition of ISF by Ms. Sunita Khemka and her family, it was thought proper to let Noticee no. 3continue for a while as a Director of ISF to retain retail clients of the said company and the Noticee no. 3eventually ceased to be Director of ISF w.e.f March 21, 2014. I find such an explanation is completely baseless offering no justification of continuation of Noticee no.3 as a Director of a company acquired by the proprietor of Noticee no.13 since the services of Noticee no. 3 could have been availed in any other form also to retain retail clients, instead of allowing him to continue as a Director of the Company. Irrespective of the aforesaid, in my view a close connection between Noticee no.3and Noticee no.13, is now established beyond doubt.

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no. 7, more particularly in the light of the fact that basis of such alleged connections has been derived from tangible factual supports like common directorships, common addresses and fund movements etc., observed amongst these Noticees.

RII: Retail Individual Investor

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accounts on behalf of the applications filed by large number of third party unrelated applicants. It is pertinent to mention here that the Company has allotted shares to those applicants whose applications were supported by cheques issued by various third- party funding group entities (and not by the applicants themselves) which was grossly against the norms governing the issue of shares under IPO.

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transactions that have been imputed here have in fact led to allotment of huge number of shares under its IPO. I note that both the transferor and transferee of funds were under an obligation to furnish justification supported by documentary evidence so as to show that the transactions were genuine commercial transactions. However, there is a clear failure on the part of the Company as well as the funding group entities in defeating the allegations of SCN. In view thereof, I find the Company has miserably failed to demonstrate as to why it accepted the payments directly from third partyfunding group entities (instead of from the applicants). When the payment for applications was made on behalf of RIIs by third party entities, not only the Company accepted such applications, but also proceeded to allot shares to such RIIs under its IPO. The Company therefore ought to explain its misconduct and irregularities with justification to defend the bonafide of such transactions, but it has not been able to explain the rational of such transactions before me.

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no.10 has neither furnished any particulars of such advances having been made to such needy people who applied for shares of the Company under its IPO nor has provided any documentary evidence so as to substantiate its claim of having transacted with those people in course of its activities as a NBFC.

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Company with the financial backing of Ace Consultant and ISF Securities. In this connection, as has already been observed by me while adjudging the allegations of connections shared by Noticee no.13 with other Noticees, the three entities, viz., ISF Securities, Ace Consultants and Ms. Sunita Khemka are certainly and admittedly connected with each other since, Ms. Sunita Khemka is the proprietor of Ace Consultant and shareholder Designated-Director of ISF Securities.

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their covert act of providing funding to the large number of IPO applicants played their respective roles in the scheme that involved such a concerted effort by all the connected entities, the Company would have miserably failed to achieve the requisite minimum applications of 90% of the shares offered under its IPO. Consequently, the Company would have been forced to drop the issue of its equity shares and would have been statutorily liable to refund the rest of the money collected from the other non- funded subscribers/applicants and the IPO would have been declared as a failed IPO Hence, without the support from a pre-conceived scheme and the players (all the connected entities) who participated in the said scheme to make the IPO a success story, the issuance of equity shares of the Noticee no. 1 would not have seen the listing platform on the SME segment of the stock exchange.

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made by the funding group entities need no further discussion in this order, as the same have already been elaborated earlier and have been found to be uncontested by any of the submissions of the Noticees.

“2. Underwriting On the basis of representations and warranties contained in this Agreement and subject to its terms and conditions, the Underwriter hereby agrees to underwrite and/or procure subscription for the Equity Shares in the manner and on the terms and conditions contained in Section 5 of this Agreement. …… 5. Issue

Notwithstanding anything contained elsewhere or otherwise in this Agreement, the Company agrees that the maximum number of Equity Shares in the Issue that the Underwriter have to underwrite is 45,00,000 Equity Shares, which is allocated as under: Name of the Underwriter No. of Shares Underwritten GMBPL 37,50,000 GSL 7,50,000

In the issue, Underwriter shall only be responsible for ensuring completion of the subscription in respect of such applicants, including ensuring full payment of the issue Price in respect of the Equity Shares for which such applications are made, in the manner set forth in this Section.

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The default in full and timely payment of the Issue Price in respect of the Equity Shares for which the applicant has placed a application and received allocation in respect of such application; or

The withdrawal of a applicant, in respect of which an allocation of Equity Shares has been made, by the applicant prior to allotment of the Equity Shares subscribed by such applicant;

The Underwriter shall be liable to discharge its underwriting obligations as follow:

The Underwriter will be required for themselves, to the extent of applications procured by them, to make good any default by such applicants.”(underlines supplied)

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not been able to demonstrate as to how the Underwriting Agreement can lead to an absolute prima facie presumption that there was no necessity on the part of the Company to conceive any plan or scheme to arrange funding for its IPO applicants as alleged in the SCN, so as to absolve it from the charges of arranging funds with the connivance of connected funded group entities. Even after considering that the aforesaid clauses of the Underwriting Agreement did provide some comfort to the Company in the matter of subscribing against the defaults in making payment by some of the applicants, the unassailable facts remain that the Company and its connected entities were indeed involved in providing funding to as much as 51.66% of the total shares allotted and in the absence of such efforts made by the Company and its connected entities in an organized manner, the IPO of the Company was bound to fail.

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allegations made in the SCN. I shall now deal with the second issue to cover the next set of allegations that the after completion of the IPO process, the Company transferred the IPO proceeds to various funding group entities in deviation from the objects of IPO prospectus.

Issue II: Whether the proceeds of IPO have been utilized by the Company in terms of the Objects stated in the Prospectus?

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those entities which helped the Company in achieving the minimum subscription threshold of 90% to ensure a successful listing of its securities. In the aforesaid context, it goes without saying that the Company was under obligation to counter the charges made in the SCN with cogent reasons and supporting documents so as to substantiate the trail of funds out of the IPO proceeds, justifying the utilisation of IPO proceeds on the lines as stated under the object clause of the Prospectus. However, the Company has not been able to provide a complete picture of the utilisation of the entire amount of IPO proceeds in any of its replies.

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Table 8: Details of land development agreements Sr. Name of the Amount (in Supporting Dates of entity INR) documents no. transactions 1. Raj Marketing 1,84,41,000 Copy of 50 Lakh on India agreement; Copy 12.10.2012 of invoices; Ledger of the said company in 15 Lakh on the books of 20.10.2012 accounts of the Company, bank account 60 Lakh on January statement 15, 2013 2. Garg Traders 60.00 Lakh -do- 60 Lakh on and 15.01.2013 Supplies S.P. 1.00 Crore -do- 40 Lakh on 3. Enterprises 19.12.2012

60 Lakh on 15.01.2013

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Shiv Traders 2.16 Crore -do- 17 Lakh on 4. 05.10.2012 50 Lakh on 08.10.2012 50 Lakh on 12.10.2012 39 Lakh on 15.10.2012 60 Lakh on 15.01.2013 Total 5.60 Crore (approx.)

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based in Ghaziabad is meant for development of 97.34 acres of land, and it carries date of execution as April 02, 2012. It may be recalled here that the Company came out with its IPO only in January, 2013. Thus, after raising money through the IPO in January, 2013, a document which was purportedly executed almost 9 months prior to the IPO has been shown in support of the Company’s claim of having utilized the IPO proceeds (raised 9 months after the date of execution of the said document) for the aforesaid object of IPO. I observe that the said agreement, if was really executed prior to the IPO, should have been mentioned in the disclosures made by the Company in its IPO prospectus. However, the Prospectus filed by the Company does not contain any detail of such an agreement having been executed by the Company. The aforesaid observation assumes crucial significance in the calling the Company’s bluffs as the purpose behind executing the said invalid agreements, i.e., to meet the object of land development of farm land for transition to organic farming, is in fact the major object disclosed in the Prospectus. The Company’s claim of deploying the aforesaid amount of INR 5.60 crores to meet the above noted object of IPO through those invalid unenforceable agreements with the 4 entities, is clearly found to be a false, fictitious and concocted claim, without any substance.

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also not entered into any contract with contractors as specified in the Objects of the Issue. Any delay in entering into such agreements may delay the implementation schedule, which may also lead to increase in prices of the equipment and machineries in future affecting our costs, revenue and profitability.”

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same. It is also observed that each of the four agreements has been executed with respect to development of a small piece of land, out of the entire land admeasuring 295.80 Acres, owned by the Company. However, surprisingly enough, none of these agreements mentions any details with respect to the exact identification of those small parcel of land assigned to each of the 4 vendors entities and basic information such as survey numbers etc., are also conspicuously missing in those agreements.

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entrusted to those 4 entities under those fabricated agreements. Thus, I find that the claim of the Company that it has spent INR 5.60 Crore towards one of the most important stated objects, of its IPO i.e. development of land for organic farming, is grossly misleading, lacking any genuineness as the Company has not been able to produce even elementary evidentiary material and basic documentary support which could have substantiated the rationale behind transfer of such large sums of amounts out of IPO proceeds to various entities. Instead, the explanations offered by the Company to justify these transfers of funds to those entities are replete with contradictions, hence cannot hold any value.

Table 9: Details of advances extended by the Company

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Sr. Name of the entity Amount Documents no. (in INR)

1) GDR Finance and 2,80,68,0 Ledger account, bank Leasing 00 account Pvt. Ltd. statements and Form 26 AS 2) AGI Hospitalities 10,00,000 -do- Pvt. Ltd. 3) Mammon Concast 10,00,00, -do- Pvt. 00 Ltd. 4) Saroj Mittal 50,00,000 Ledger account and bank account statements Total 4,40,68,000

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transfer of IPO proceeds amounting to INR 4.40 Crore towards short term loans is certainly an act done by the Company outside the declared objects of IPO behind the back of the public shareholders. Further, the Company has also not bothered to provide any details on the recovery status of those so called short term loans which have remained outstanding for recovery even after 7 years of advancing them to those four entities. In sum, the Company has failed to satisfy me on utilization of the said amount of INR 4.40 Crore towards the stated objects of IPO as disclosed in the prospectus.

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to be confronted with the allegations of having transferred/diverted the IPO proceeds to various entities including the funding group entities who have funded the IPO applications of large number of applicants. The Company could have easily confronted the said charges with strong evidence to the contrary by showing that the utilization of the funds from the IPO proceeds has actually been made for the right purposes and declared objects as per IPO documents, but as recorded in detail above, none of the claims of the Company about utilization of IPO proceeds was found to be true and duly substantiated with any verifiable evidence and the explanation offered by the Company were found to be rather specious, manipulative and baseless. Under the circumstances, it becomes clear that the Company has fraudulently diverted the IPO proceeds towards some other inexplicable purposes which were never disclosed to the public shareholders in the IPO documents. Therefore, in this context it becomes crucial to discuss in detail the fund transfers made by the Company to various funding group entities, which would again contradict and demolish the claim of the Company about utilization of IPO proceeds as per the stated objects.

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other amounts which were transferred immediately after receiving in the IPO proceeds. Even if the aforesaid submissions of the Company are taken on their face value, the amounts of funds transfers as per the claim of the Company in the submissions at the stage of investigation and the amounts of funds transfer as per the explanation offered by the Company during the present proceedings do not reconcile at all. I note that even during the present proceedings, the Company has not been able to furnish any information whatsoever with respect to the expenses incurred towards setting up of net cultivation facility, purchase of tools, brand building etc., towards which, the Company had claimed to have spent INR 4.34 Crore, as on March 31, 2015 during the investigation proceedings. It is thus clear that the Noticee no. 1 (Company) has not come out with clean hands and has tried to mislead SEBI by coming out with different contradictory explanations and claims at different stages of the proceedings about the utilisation of IPO proceeds while none of the submissions made at different points of time have any strength to rebut the allegations made in the SCN.

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huge sum of public money and the Company has not even claimed if the above amounts transferred to Goldline were in compliance with any of the stated objects of IPO. It is observed that the said amount of INR 4.84 Crore constituted around 43% of the total amount raised by the Company but the Company has not been able to provide any justification for transferring such huge amounts to Noticee no.4. Similarly, the Company has also not been able to furnish the any supporting details for various other fund transfers like transfer of INR 3.25 Crore to an entity called AMS Powertronics; INR 40 Lakh to another entity viz., Aviva Buildtech; INR 81 Lakh to Noticee no. 9 and transfer of INR 15.50 Lakh to Noticee no. 10 etc. It is pertinent to mention here that all these transactions took place immediately after the receipt of IPO proceeds and within a short span of 11 days after the IPO exercise was over, the Company had transferred approximately INR 11.00 Crore to various entities, details of which have been enumerated in the pictorial representation under para 2 (viii) of this order. Thus, the gross inability of the Company to furnish any supporting details to substantiate the transfer of funds to various entities coupled with the evasive & misleading explanations offered by it from time to time as pointed out in previous paragraphs speak volumes of the unscrupulous misconduct of the Company and does not inspire confidence in any of the submissions made by the Company. 62. In terms of the charges made in the SCN, the Company had transferred INR 4.84 Crore to the Noticee no.4 (Goldline); INR 81 Lakh to Noticee no. 9 (Mayfair Infosolutions); and INR 15.50 Lakh to the Noticee no. 10 (Avisha Credit Capital), all of whom are called the funding group entities, out of the proceeds of the IPO. Thus, in total the Company had transferred INR 5.80 Crore to the aforesaid 3 funding group entities, all of

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which were found to be involved in providing funds to a large number of retail IPO applicants so as to ensure that the minimum mandatory subscription level is achieved thereby ensuring a successful listing of the equity scrip of the Company.

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any revenues have been generated out of those funds transfers or whether any recovery has been effected out of the funds so transferred 7 years ago etc., leave alone producing any documentary evidence to substantiate the purpose & objectives of those funds transfers. These unexplained transfers of IPO proceeds compounded by the fact that no satisfactory explanation is forthcoming from any of the notices to justify these funds transfers further strengthen the preponderance of probabilities that the Noticees have skillfully devised & successfully implemented the scheme of funding, both directly and indirectly, almost half of IPO subscriptions by a large number of IPO applicants in collusion with other funding Noticees.

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explained as to what were the constraining factors that prevented it from submitting all the information during the investigation nor has it explained to me what further details or information it wants to furnish now (which it could not furnish earlier) which will mitigate all its hardships and exonerate it from the allegations made in the SCN. The proceedings before me is a quasi-judicial proceedings and the Company is free to furnish any additional information or evidence as it wishes to give to defend itself against the allegations levelled in the SCN, for which there is no need for having another fresh round of investigation by SEBI.

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volition during the present proceedings, and none of the Noticees has expressed any constraint or handicaps now for furnishing information to me. Under the circumstances, no bonafide reason for permitting a re-investigation into the matter subsists. In view of the above, the Company’s grievance of bias or prejudice, if any, has been fully taken care of to ensure free and fair trial of the present proceedings. However, the fact remains that despite affording adequate opportunities to all the Noticees, and in spite of various factual submissions and documents submitted by the Noticees in their defense, neither the Company nor any other Noticees could come up with any tangible material or verifiable evidence (which they were deprived of furnishing during the investigation) to justify the huge sums of fund transfers made out of IPO proceeds in flagrant violation of the stated objects of the IPO as per the prospectus.

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be made possible only by their concerted action of funding the applications to the extent of 51.66% the shares allotted under the IPO but for which, the IPO would have certainly failed to meet the mandatory mark in terms of Regulation 14(1) of ICDR Regulations. Consequently, the application received under IPO and would have miserably fallen short of the pre-condition of 90% of offer size and the Company would have been under obligation to repay the rest of the subscription money raised by it from the non-funded applicants under the IPO. The scheme that the Company had crafted and implemented in coordination with other Noticees, especially the funding group Noticees to fraudulently ensure success of its IPO programme, is self- evident and explains why the Company had to transfer bulk of the IPO proceeds to a few of the funding group entities immediately after completion of the IPO and why the Company failed to deploy the IPO proceeds towards the objects of IPO thereby betraying the faith and trust of those genuine investors who had subscribed to its shares under the IPO relying in the misleading disclosures made by the Company. It also amply explains as to why the Company and other Noticees have not been able to produce any concrete reasons and tangible evidence to justify the transfers of such huge sums of money out of IPO proceeds to a number of entities including to certain funding group Noticees and despite their bald & superfluous claims of having utilized the IPO proceeds for the declared objects, why none of the Noticees has been able to substantiate such claims with even a shred of supporting evidence till the conclusion of the present proceedings. Eventually such specious claims about utilization of IPO proceeds remained far away from the actual utilization those IPO proceeds and till date, the objects of IPO have remained as unfulfilled promises to the innocent public shareholders who whole heartedly supported

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the Company’s SME listing with the expectation of a good performance from the Company.

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the SCN. It may be relevant to refer and rely upon the observations of the Hon’ble Delhi High Court that: “Clearly, given the manner in which fraudulent acts are undertaken under deceit and camouflage, if done with the affairs of a company/trust etc., the standards of proof required to prove such fraudulent conduct would necessarily be less stringent.” [SEBI Vs. CRB Capital Markets Ltd. (date of decision: December 05, 2019)]

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company. In the present case, the fraudulent scheme that was devised which led to achievement of the compliance with the Regulation 14 (1) of ICDR by way of funding the applications of large number of share applicants under the IPO of the Company to the extent of 51.66% its shares subscriptions and the way the funds raised in the IPO were diverted to various entities including funding group entities without utilizing the same for the objects of the IPO it can be said to be the handiwork of the Directors of the Company who managed the affairs of the Company during the relevant period of time.

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investors of the securities market, who are unaware of such dubious schemes conceived by the Directors to somehow get their companies listed on a stock exchange by short changing the interest of the investors, who would easily fall prey to such schemes and invest in the securities of the Company by relying upon the misleading IPO documents.

i. Noticee no. 3 (promoter of the Company) is directed to make a public offer through a merchant banker to acquire shares of the Company from public shareholders by paying them the value determined by the valuer in the manner prescribed in Regulation 23 of the SEBI (Delisting of Equity Shares) Regulations, 2009 and acquire the shares offered in response to the public offer, within three months from the date of this Order. ii. BSE is directed to facilitate valuation of shares to be purchased as directed at (i) above, and compulsorily delist the Company, if the public shareholding reduces below the minimum level in view of aforesaid purchase.

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iii. The Noticee no. 1 is hereby restrained from accessing the securities market by issuing prospectus, offer document or advertisement soliciting money from the public in any manner for a period of 8 years. iv. Noticee no. 3 is hereby restrained from holding post of director, any managerial position or associating himself in any capacity with any listed public company and with any public company which intends to raise money from the public, or with any intermediary registered with SEBI for a period of 3 years. v. The Noticees, as mentioned below are hereby restrained and prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in any manner whatsoever manner, for the period specified in their respective columns:

Table 10 Sr. Name of Entity Debarre Period of No. d vide debarment interim order 1 Esteem Bio Organic Food Yes Till date of this Processing Ltd. order 3 Brij Kishore Sabharwal Yes Till date of this order 4 Goldline International Finvest Yes Till date of this Ltd. order 5 Satendra Kumar & its Till date of this Proprietorship firm viz. Yes order Nisha Traders, Bright Securities 6 Madhukar Dubey & its Till date of this Proprietorship firm Yes order viz. N V Sales Corporation, A One Furniture 7 Ram Prakash & its Till date of this Proprietorship firm viz. Yes order Khan Enterprise 8 Aavia Softech Pvt. Ltd. No 1 Year 9 Mayfair Infosolution Pvt. Ltd. Yes Till date of this order 10 Avisha Credit capital Pvt. Ltd. Yes Till date of this

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order 11 Nikky Printing Press Pvt. Ltd. No 1 Year 12 Neel Kanth Trading Co. No 1 Year 14 Amsons Apparels Pvt. Ltd. No 1 Year 15 Gracious Software Pvt. Ltd. No 1 Year

vi. Obligation of the debarred Noticees, in respect of settlement of securities, if any, purchased or sold in the cash segment of the recognized stock exchange(s), as existing on the date of this Order, can take place irrespective of the restraint/prohibition imposed by this Order in respect of pending transactions, if any. Further, all open positions, if any, of the aforesaid debarred Noticees in the F&O segment of the stock exchange, are permitted to be squared off, irrespective of the restraint/prohibition imposed by this Order. vii. It is further clarified that during the period of the aforesaid restraint, the existing holding of securities, including the units of mutual funds shall remain under freeze. viii. The proceedings against Noticee no. 2 are abated and against Noticee no. 13 are dropped without any directions.

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party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. In situations like this case, one may fall into realm of “preponderance of probability‟ where there are many probable factors, some in favour of the assessee and some may go against the assessee, but the probable factors have to be weighed on material facts so collected. Prima facie, it may appear to be a case made on preponderance of probabilities but not beyond reasonable doubt. However, in this case a deeper examination of the facts reveal that in a scam of such massive scale many players and layers involved hence the judgments of Hon’ble Apex Court that the standards of proof required to prove such fraudulent conduct would necessarily be less stringent is squarely applicable and in the instant case the evidences cannot be said to be even less stringent rather they more strong.

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of PCIT-7 Vs. Bikram Singh in ITA No. 55/2017 order dated 25.08.2017 (supra), Hon’ble Calcutta High Court in the case of CIT Vs Korlav Trading Company Ltd. 232 ITR 280 and CIT Vs Precision finance P. Ltd. 208 ITR 495 (supra), in the instant case where they have been multiple evidences collected by the revenue, the claim of the assessee that she is a passive beneficiary of the entire operation without her involvement or role cannot be accepted. At this juncture, it is worthwhile to mention, the Hon’ble Apex Court judgment dated 08.02.2018 in the case of SEBI Vs Rakhi Trading Pvt. Ltd. wherein it was observed that based on the huge price variation of the transactions it will be too naïve to hold that the transactions are through screen based trading and hence anonymous. The Hon’ble Court held that such conclusion would be overlooking the prior meeting of minds involving synchronization of buy and sale orders and not negotiated deals. The Hon’ble Apex Court held that such impugned transactions are manipulative, deceptive device to create loss or profit. Thus, on going through the entire factum of the case, we hold that on merits also the profits earned by the assessee cannot be said to be genuine.

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“11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a preplanned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent’s unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that

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there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.” The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained.

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nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order.

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M/s Esteem Bio Organic Food Processing Ltd. was rigged and this company was involved in fraudulent scheme only for giving accommodation entries. This finding itself distinguishes the case before the Hon’ble High Court. The Hon’ble High Court has not laid down any principle albeit has confirmed the finding of ITAT based on facts which we have already and held as clearly distinguishable. Accordingly, reliance placed by the ld. Counsel on the said judgment is not relevant.

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held that formation of belief by the Assessing Officer is within the realm of subjective satisfaction. 8. In the instant case, the approval given u/s 151(1) cannot be faulted in accordance with the judgment of Hon’ble High Court (HP) wherein it was held that the Court is satisfied that by recording in his own writing the words: “Yes, I am satisfied”, the mandate of Section 151(1) of the Act as far as the approval of the Addl. CIT was concerned, stood fulfilled. 9. There has been an independent application of mind that the Assessing Officer which deciphered from the reasons recorded by the Assessing Officer. 10. In the backdrop of the facts of the case, the following judgments have also relied upon:

a. Raymond Woollen Mills Ltd. Vs. ITO 236 ITR 34 (SC) b. ACIT Vs. Rajesh Jhaveri Brokers Pvt. 291 ITR 500 (SC) c. ITO Vs. Selected Dalurband Coal Co. Pvt. Ltd. 217 ITR 597 (SC) d. Anant Kumar Saharia Vs. CIT 232 ITR 533 (Gauhati) e. Phool Chand Bajrang Lal Vs. ITO 203 ITR 456 (SC)

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Sd/- Sd/- (Amit Shukla) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 04/01/2022 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR