MR. RAJAN AGGARWAL (HUF),LUDHIANA vs. ACIT, C-2, LUDHIANA

आदेश/ORDER

The present appeal has been filed by the assessee assailing the correctness of the order dated 02.07.2018 of CIT(A)-I Ludhiana pertaining to 2015-16 assessment year on the following grounds :

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presumptions without bringing a single evidence on record that the Appellant had incurred amount of Rs. 1,29,564/- by way of Brokerage. 7. That both the above additions made by the Assessing Officer are on the basis of preponderance of probabilities, surmises and conjectures. 8. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.” 2. The ld. AR inviting attention to the impugned order submitted that full facts on record have not been considered by the CIT(A). Relying upon synopsis filed, it was his submission that before CIT(A) following arguments, had been argued : a) Most Important point - M/s Goldline International Finvest Limited (in short "M/s Gold Line") currently being traded at the Bombay Stock Exchange > Current Master Data from MCA Website furnished before your honour > The Company is incorporated in the Year 1992. b) The company not shut down as Shell Company by SEBI. c) M/s Gold Line had its Registered Office at Flat No. 116, Ist Floor, Hemkunt Chamber 89, Nehru Place, New Delhi – (copy of Master Data taken in 2016 from MCA Webside enclosed at pages No. 35 & 36 of the Paper Book. d) The Copy of Assessment Order dated 31.12.2016 in Case of M/s Gold Line for the A/Y 2014- 2015 is a part of Assessment Record -» The Income of M/s Gold Line ASSESSED at its RETURNED INCOME by Ld. ITO, Ward-10(2), New Delhi -> Copy of Assessment Order at Page No. 83 of the Paper Book -» WORTH NOTING that Address mentioned on Assessment Order same on which Ld. AO sent Notices u/s 133(6) -> MEANS M/s Gold Line was working at that Address e) The Assessment Case of M/s Gold Line for the A/Y 2015-2016 also fixed with Ld. ITO, Ward- 10(2), New Delhi -> Time barring date to be 31.12.2017, same as in our Case. f) The Assessment Case of M/s Gold Line for the A/Y 2013-2014 also fixed with Ld. ITO, Ward- 10(2), New Delhi -> Time barring date to be 31.12.2015. This means that the Company is regularly assessed with Department. 3. It was also his submission that the said company which is stated to be a bogus company by the Revenue, still continues to trade at the Bombay Stock Exchange and current Master Data from the MSA sought to be filed by the ld. AR, it was submitted, evidenced this fact. The said company, it was submitted was incorporated in 1992. Referring to page 11 of the assessment order para 4.10 and 4.11, it was his submission that out of the six companies which had been considered to be non-genuine by the Investigation Unit of the Income Tax Department, the SEBI vide its order dated 29.06.2015 held that only four companies were non-genuine and M/s Goldline International Finvest Ltd. wherein the assessee had invested in shares was not held to be non-genuine by SEBI. It was seen that on a reading of para 4.10 and 4.11, the facts as argued by the ld. AR are not coming out as it merely records that out of the six companies considered four were held to be not genuine. Which were the two genuine concerns is not clearly spelt out. The ld. AR was required to address as to how the assessee who has never invested in shares as

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noted by the tax authorities came to invest in a company which admittedly had no supporting facts justifying such a venture. Referring to the record, it was pointed out that the AO has faulted the assessee on these grounds also and that the assessee has failed to furnish evidence in regard to purchase of these shares stated to have been made in cash wherein the assessee has failed to address at which place the payment was made and how he came across the person Shri Gagan Kumar of Bangalore from whom shares are stated to have been purchased. The ld. AR submitted that the assessee has addressed these issues in his statement recorded on 14.12.2017 by the AO in the course of the assessment proceedings itself. This has been responded to in specific question No. 6 that he came across Shri Gagan Kumar in a club in Ludhiana. The recording of selective facts in the orders was assailed. The specific question No. 6 referred to and the answer thereto is extracted hereunder : Q6. How did you come to know about the shares of Pvt. Unlisted company M/s Goldline International Finvest Limited (when you bought theshares).

A6 At that time a private Club was running in Dhyan Singh complex, near Ludhiana Bus Stand. There I met Sh. Gagan Kumar, who was selling the shares of M/s Goldline International Finvest Limited. I enquired about the company on MCA website (without login, general enquiry) and I decided to invest Rs. 15,000/-. 3.1 It is pertinent to note that the ld. AR did not refer to question No. 10 and 11 which were also put across to the assessee at the said point of time. These are also extracted hereunder for the sake of completeness : Q10. Do you have membership card of the club running in Dhyan singh Complex near Ludhiana Bus Stand A10 I did not have any membership of the club and I am not sure whether the club was registered or not. Q11. Kindly give the name of the members or organizers of the above club. A11 At this time I cannot recall.

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concluded that the growth was based on managed transactions and the claim of Long Term Capital Gain was added as pre arranged bogus capital. The brokerage expenses were also added as it was held to be an expense incurred to convert black money into Long Term Capital Gain. As a result thereof, addition was made u/s 69C of the Act. 6. The CIT(A) confirmed the addition holding that the assessee has been a functionary of an organized racket. He has held that the assessee was a beneficiary of an organised racket of providing bogus entries of long-term capital gains on exchange of an equivalent amount of unaccounted and untaxed money or along with a mark-up for commission or brokerage. Referring to general facts he observed that a penny stock company is generally a company without any significant trading, manufacturing or service activity, or with high-volume low margin transactions-to give it a colour of a normal business company, used as a vehicle for various financial manoeuvres which makes it illegal and not permissible. He observed that these companies have a semblance of a genuine company - existence of identity, a statutory documentation as necessary for a legitimate business concern and other documentation trail as a legitimate company would normally have. The only thing, he observed which sets such companies apart from the genuine company is lack of genuineness in its actual operations. The operations carried out by these companies, he observed were only to facilitate financial manoeuvring for the benefit of its clients, or, with the predominant underlying objective, to give a colour of genuineness to these entities. The penny stock companies, he noted were routinely used to launder unaccounted money and these were hard facts of life and a part of the underbelly of the financial world like many other evils afflicting the society. Expounding further on how the rigging is done, the CIT(A) noted that; “A beneficiary of this racket is one who is desirous of laundering his unaccounted and untaxed money. On his request, he is made to buy some shares of a predetermined penny stock company controlled by the operators. The shares of such companies are transferred to the beneficiary at a very nominal price, mostly off-line, through preferential allotment or off-line sale, mostly to save on STT. The beneficiary holds the sharefor one year, which is the statutory period after which long-term capital gains is exempt under the provisions of section 10 (38) of the Act. In the meantime, the operators rig the price of the stock by circular trading and gradually raise its price manifold. This is done through low-volume transaction indulged in by the dummies of the operator at a predetermined price. When the price reaches the desired level, the beneficiary who bought the shares at a nominal price, is made to sell it to a dummy paper company maintained by the operator. For this, unaccounted cash is

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provided by the beneficiary which is routed through a few layers of paper companies by the operator and is finally parked with the dummy paper company that ultimately buys the shares”. Thereafter he made a reference to some order of SEBI, the addition has been confirmed: “14. Now coming to the specifics of the instant case, it is noted with concern that the appellant HUF is not a regular investor in as much as it has not, in the past, spent any considerable amount on purchase of shares of companies. This purchase is an isolated transaction. The purchase of 10,000 shares of an entirely unknown company, M/s GIF Ltd., which had no credentials at all, from a person located at Bangalore @ Rs.1.50/- per share in cash for an amount of Rs.15,000/-is, decidedly, a pre-meditated act with dubious motives. Such isolated investment cannot, in the circumstances now known, be cloaked with a cover of genuine transaction aimed at reaping benefits either by way of any dividend or general appreciation of the price of the shares in due course. The intention behind such a purchase is not far to seek. It was only meant to encash it after holding it for a year, when the price of the share would be manipulated and ngged and would be sold through the good offices of a broker who is part of the racket. Merely because the appellant HUF received the sale consideration through banking channels does not establish the genuineness of the transaction. From the circumstances, it can safely be deduced that despite the apparent compliance to the formalities in terms of sale through registered share brokers and receipt of sale consideration by banking channels, sale on the screen of stock exchange and payment of STT thereon, the appellant HUF actually and in reality only indulged in laundering its unaccounted money through the cartel of brokers and operators/The probability of the appellant HUF indulging in this nefarious act is heavily stacked against it. When the shares of M/s GIF Ltd. was purchased from Shri Gagan Kumar of Bangalore for a pittance, it was quite known to the appellant that it was only a paper company. There was a meeting of minds regarding the conspiracy of buying shares at a negligible value and holding it for a year to escape the rigours of taxation on the sale proceeds which would be many times higher than the purchase amount. There was no worthwhile business in the said company which could have attracted the appellant HUF, who was not even a regular investor in the stock market. The credentials of the company, M/s GIF Ltd. was not such as to persuade anybody to invest for ultimate advantage in terms of either dividend or genuine appreciation in the price of the shares. With the manipulation indulged in by the operators and brokers, the appellant was successful in laundering its unaccounted money. There was no business in the company, whose shares lead to such a huge gain to the appellant HUF.” 7. Aggrieved the assessee is in appeal before the ITAT. On a consideration of the facts recorded it is seen that no specific finding has been given by the CIT(A) on the issue whether M/s Goldline International Finvest Ltd. was held to be a non-genuine company by SEBI or not. In the facts on record, it is seen that the assessee has claimed that M/s Goldline International Finvest Ltd. is a company which continue to trade at the Bombay Stock Exchange. It is the claim of the assessee that M/s Goldline International Finvest Ltd. has not been held to be a bogus company. The assessment orders dated 31.12.2015, 31.12.2017 and 31.12.2016 pertaining to 2013-14, 2015-16 and 2014-15 assessment years in the case of M/s Goldline

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International Finvest Ltd. have also been relied upon to show that it is a company which is doing genuine business. It has been argued that these claims have been made before the CIT(A) and thus the addition be deleted. However, I find that in the absence of any discussion on these issues, it would be appropriate to remand the issues back to the CIT(A) with the direction to pass a speaking order in accordance with law addressing the specifics of the present case. The remand is made taking note of the fact that the tax authorities in the light of the discussion in the impugned order of the manipulative practices of dubious companies, I hold were fully justified on facts to be vigilant, alert and alive to the possible money laundering activities of some parties, however the facts available i.e. that no action adverse to the said company has been taken by SEBI and it continues to trade on the Bombay Stock Exchange as on date are claims made in support of the transactions. These claims need to be addressed by categoric findings. Accordingly, while directing a remand, it is advised that the assessee shall make full and proper compliances before the CIT(A) as in the eventuality of abuse of the trust reposed, the CIT(A) shall be at liberty to pass an order on the basis of material available on record and carrying out necessary enquiries etc. Said order was pronounced in the Open Court at the time of hearing itself. 8. In the result, the appeal of the assessee is remanded with the above observations. Order pronounced in the Open Court on 3rd June, 2019. Sd/-

(�दवा �संह ) (DIVA SINGH) �या�यक सद�य/Judicial Member “पूनम” आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : अपीलाथ�/ The Appellant - 1. ��यथ�/ The Respondent - 2. आयकर आयु�त/ CIT 3. आयकर आयु�त (अपील)/ The CIT(A) 4. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड� फाईल/ Guard File 6. आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar