SMT. CHHAYA HASMUKHLAL RANAWAT,MUMBAI vs. ITO 18(1)(3), MUMBAI

O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2014-15 contest the order of Ld. Commissioner of Income Tax (Appeals)-29, Mumbai [CIT(A)], Appeal No.CIT(A)-29/628/ITO-18(1)(3)/2016-17 dated 10/04/2019. The assessment was framed by learned Assessing Officer u/s 143(3) vide order dated 29/12/2016. 2. Though the assessee has raised multiple grounds of appeal

, however in sum and substance, the assessee is aggrieved by confirmation of certain additions u/s 68 in view of the fact that the exemption claimed u/s 10(38) with respect to Long-Term Capital Gains (LTCG) earned on sale of certain shares was denied to the assessee and sale proceeds of shares was brought to tax as unexplained cash credit u/s 68. Consequently, another estimated addition on account of alleged commission expenses @ 4% against these transactions was also made which is also disputed under the appeal.

3. We have carefully heard the rival submissions and perused relevant material on record including written submissions and documents as placed in the paper book. The judicial precedents as relied upon during the course of hearing have duly been deliberated upon. Our adjudication to the subject matter would be as given in succeeding paragraphs. The Ld. AR, at the outset, relied on the recent favorable decision of this Tribunal in the case of Dipesh Ramesh Vardhan V/s DCIT (ITA Nos.7648/Mum/2019 & ors. Order dated 11/08/2020) to submit that the facts as well as issues are identical in all respect. It has been submitted that this case law deals with gains arising out of sale of shares of an entity namely M/s Sunrise Asia Limited (SAL) which is similar to the issue in the present appeal. The Ld. DR relied on the orders of lower authorities but failed to bring on record any contrary decision to rebut the submissions made by the Ld. AR. No distinction in facts could be pointed out. Proceedings before Ld. AO 4.1 To reiterate, an assessment was framed in the case of the assessee for the year under consideration u/s 143(3) on 29/12/2016. While framing the assessment, the assessee was denied exemption u/s 10(38) on certain Long-term capital gains (LTCG) earned on sale of shares of an entity namely M/s Sunrise Asia Limited (SAL). The said gains were ultimately added to the assessee’s income as unexplained cash credit u/s 68 of the Act. The assessee has also been saddled with addition u/s 69 for Rs.8.97 Lacs on account of estimated commission income which is consequential to the main addition. 4.2 The aforesaid gains arose on sale of 45000 shares of an entity namely M/s Sunrise Asia Limited (SAL). Since the gains so earned fulfilled the conditions of Sec. 10(38), the same were claimed to be exempt while filing the return of income. The shares were stated to be purchased by the assessee on 16/09/2011 for a sum of Rs.9 Lacs and the same were sold between the periods July to September 2013 thereby yielding Long-Term Capital gains (LTCG) in the hands of the assessee. In support of sale transactions, the assessee furnished contract notes issued by the brokers, demat statement and bank statements evidencing movement of shares from assessee’s account as well as receipt of sale proceeds through banking channels. Regarding purchase of shares, it was explained that initially the shares of another entity namely M/s Santoshima Lease Finance & Investment Ltd. were acquired by the assessee. However, the name of this entity was changed to M/s Santoshima Tradelinks Limited which ultimately got amalgamated with M/s Sunrise Asia Limited (SAL) with the approval of Hon’ble Bombay High Court. The shares were stated to be acquired through preferential allotment on private placement basis. In support of purchase transactions, copy of allotment advice and bank statement highlighting payment of purchase consideration through banking channel was also enclosed. Upon perusal of sale data, it transpired that the shares were sold to 41 different entities on various dates, which has already been tabulated in the assessment order. 4.3 However, in the background of investigation carried out by Kolkata investigation wing in the matter of penny stocks, it was alleged by Ld. AO that gains were arranged, premeditated and bogus. The aim of the scheme was to route the unaccounted money of beneficiaries as exempt income in the garb of LTCG by showing sale of shares of premeditated scrips on recognized stock exchanges. After making preferential allotment, the price of the shares would be rigged up and jacked up through circular trading by cartel of brokers acting in concert. This would be managed by the operator of the scrip which would manage overall affairs of the scheme. During the investigation, statements of various operators, entry providers and stock brokers were recorded wherein the said facts of their engagement in providing accommodation entries in the form of Long-Term Capital Gains (LTCG) / Short-Term Capital Losses (STCL) were admitted. 4.4 During search & seizure action u/s 132 in the case of Shri Anil Agarwal, director of M/s Comfort Securities Ltd. (a registered stock broker) and his group entities, his statement was recorded on 12/04/2015 u/s 132(4). In the said statement he admitted to be helping various persons in obtaining accommodation entries. He also admitted that he provided such entries with regard to the shares of M/s Sunrise Asia Limited (SAL) besides various other concerns. In the statement, he explained the modus operandi adopted by him with a view to provide bogus LTCG / STCL.

Similar statements were recorded from various sub-brokers of Kolkata who admitted to be indulging in similar activity of providing accommodation entries in lieu of commission. 4.5 Upon perusal of financial statements of M/s SAL, it was noted that its net worth was not significant and it incurred losses in few years. The price movement of shares reflected phenomenal increase over a short period of time. The number of trades done in the scrip between 17/08/2011 to 08/03/2013 was found to be 2481 trades and the shares was traded for 200 trading days. In assessee’s case shares were found to be sold between July to September, 2013 at average rate of Rs.500/- per share to various entities / persons. Notices u/s 133(6) were issued to all purchasers, the outcome of which is noted in para 10.3 of the order. In few cases no replies were received and in few cases the notices remained un-served by postal authorities whereas replies were received in few cases. As per the investigation finding, many of these entities were stated to be paper entities being controlled by one Shri Vipul Bhatt. His statement was recorded u/s 132(4) during search operations wherein he admitted to be acting as accommodation entry provider. He also admitted that M/s SAL was paper company which was being used to provide bogus accommodation entries to various beneficiaries through various intermediaries. He also stated the modus operandi, brokers involved and the name of the persons used as exit providers. 4.6 In the background of all these facts, the assessee was examined on oath u/s 131 on 20/12/2016 which is extracted at para-15 of the assessment order. In reply to question nos. 5 & 6, the assessee submitted that she was investing in shares since last 12-14 years. The detail of investments made by her was also elaborated. The investment in M/s Santoshima was stated to be made in preferential allotment on the basis of advice given by her brother-in-law. The LTCG so earned on this scrip were stated to be invested in a residential house as well as invested in one of her partnership firm. She denied having obtained any accommodation entry in the scrip of M/s SAL and also denied having paid any cash for the same. The assessee’s brother-in-law confirmed having subscribed to the shares of M/s SAL on the instruction of the assessee. 4.7 Finally, in the light of aforesaid facts, a conclusion was drawn by Ld. AO that the assessee resorted to pre-conceived scheme to procure LTCG by way of price difference in share transactions which was not supported by market factors. The commutative event in transactions would reveal that the same were devoid of any commercial nature and fell in realm of not being bona-fide and the LTCG so earned was not allowable. The assessee failed to discharge the onus of proving the unusual rise and fall of shares prices to be natural and based on the market forces. The stated transactions were alleged to be closed circuit transactions & structured one. Though the net-worth of M/s SAL was negligible but the share prices were artificially rigged to unusual high levels. 4.8 Ultimately, the sale proceeds as received by the assessee was held to be received against payment of equivalent cash paid by the assessee and therefore, the same was added to assessee’s income as unexplained cash credit. The commission against these transactions was estimated @4% which led to another addition u/s 69C for Rs.8.97 Lacs.

Proceedings before Ld. CIT(A) 5.1 Before Ld CIT(A), the assessee maintained that the findings of investigation wing and the observations of Ld. AO were general observation without any specific reference to the transactions of the assessee. These findings had no connection or relation with assessee’s case and do not have direct evidentiary value. The adverse statements being relied upon by Ld. AO were never confronted to the assessee nor any opportunity of cross-examine the person making those statements was ever provided to the assessee. The opinion formed by Ld. AO was without any basis. The stock prices fluctuate widely in the secondary stock market and the prices would be determined by market forces. There was no reference to assessee in the statement made by Shri Anil Agarwal u/s 132(4). The assessee never entered into transactions with any of these parties making the adverse statement. Further, the statement would have no value unless the cross examination of persons making those statements was provided to the assessee. The attention was drawn to the fact that the shares were sold in online mechanism i.e. BOLT of BSE which is monitored by Bombay Stock Exchange. The assessee also denied having any link with Shri Vipul Vidur Bhatt since the shares were sold in online mechanism through authorized stock broker of BSE. It was submitted that the allegation of price manipulation was based on mere suspicion and guess work without any basis or evidence on record. The attention was also drawn to the subsequent retraction statement made by Shri Vipul Vidur Bhatt. Rather, the assessee prima-facie discharged the onus to prove the genuineness of acquisition and sale of shares and the transactions were genuine transactions. To disregard the same, there must be something more than mere suspicion to support the assessment as per the decision of Hon’ble Apex Court in Dhakeshwari Cotton Mills Ltd. V/s CIT (26 ITR 775). The assessment should not be based merely on suspicion or guess work but on legitimate material from which reasonable inference of income could have been drawn. In the said background, the additions so made by Ld. AO were vehemently contested. 5.2 However, the said arguments could not convince Ld. CIT(A) who chose to confirm the action of Ld. AO by observing that the assessee has mis-utilized the provisions of Sec.10(38). None of the parameters which were essential for increase in price of shares was present. The Ld. AO established the manipulation in trading of shares as it was categorically admitted by the key persons that M/s SAL was a penny stock and its prices were rigged to provide bogus LTCG to various beneficiaries. Finally relying upon the findings of Ld.AO, the impugned additions u/s 68 as well as u/s 69C was confirmed. Aggrieved as aforesaid, the assessee is in further appeal before us. Our findings and Adjudication 6. We have carefully considered the factual matrix as enumerated in the preceding paragraphs. The material on record would reveal that the assessee acquired certain shares of an entity namely M/s Santoshima Lease Finance & Investment (India) Ltd. during September, 2011 at aggregate consideration of Rs.9 Lacs. The name of this entity was subsequently changed to M/s Santoshima Tradelinks Limited vide fresh certificate of incorporation dated 16/09/2011 issued by The