SHRI BADRESH MANSUKHLAL DODHIA,MUMBAI vs. ACIT CIRCLE-1, KALYAN

अपीलाथीकीओरसे/ Appellant Ms. Ritu Kunal Kishor, AR : by प्रत्यथीकीओरसे/Respondentby : Ms. Shreekala Pardeshi, DR सुनवाईकीतारीख/ : 23.11.2020 Date of Hearing घोषणाकीतारीख / : 06.01.2021 Date of Pronouncement आदेश / O R D E R

Per S. Rifaur Rahman, Accountant Member:

4 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others 2. Since the issues raised in all the appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. First, we are taking Assessment Year 2015-16 as a lead case.

5 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others (later name changed to M/s PS IT Infra and Service Ltd). The details of the transaction are, assessee purchased 12,500 shares (face value of Rs.10/-) at cost of Rs. 500,000/- and later the face value of the shares were split into Re.1/- per share. The total number shares of the assessee were increased to 125000 shares. All the above shares were sold by the assessee during this assessment year thru the stock exchange. The sales consideration received by the assessee was many fold. The AO suspected the transaction were prearranged move to get entry of exempted Long Term Capital Gains. AO relying on the investigation made by the Investigation wing in the similar cases and gave incidences of method adopted to increase the share prices in the short period of time in his order.

5. AO recorded the facts in this case that assessee purchased the shares in advise of a person Mr. Eknath of M/s Bushit Trading Pvt Ltd, whom he has not met before. The assessee has not made any other investment in shares of unknown company while he made a windfall gains in this share which has a very dubious financials. Assessee has no knowledge of its directors, nature of business, turnover or profit as stated in his statement of oath.

6 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others Further AO analyzed the financials of the PS IT Infra in his order. He observed that the share prices of this company were jacked up without any strength in its financials and analyzed the movement in the share prices from May’12 to Jan’16 in his report. AO asked the assessee to submit the transactions in demat account and based on the details, notices u/s 133(6) were issued to the purchasers of these shares. The identity or credit worthiness of these purchasers were not submitted and the assessee took a plea that these transactions were executed through stock exchange.

6. The statement of the assessee were recorded u/s 131 of the Act by the AO in order to appreciate the facts and AO analyzed the statement and observed in his order that the notice issues to Bushit Trading Pvt Ltd returned unserved and the details of this company given by the assessee are not proper and as per the statement given by shri Jagdish Purohit under oath that Shri Eknath Mandavkar director of Bushit Trading is an entry operator. Therefore, AO came to the conclusion that assessee is having acquaintance with the entry provider. He observed tat another company involved in the transaction is Compass

7 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others Distributor and assessee purchased the shares off the market by paying to the unknown company. Not only the assessee invested in the above share, his other family members also purchased the same.

7. When the detailed show cause notice was issued to the assessee, in response, assessee submitted the below reply:

"...With reference to your show cause notice u/s 142(1) Dated 08-12-2017" proposing to make addition of Rs. 99,55,347 u/s 68 by disallowing the LTCG claimed as exempt u/s. 10(38) from sale of PS IT Infra shares for AY 2015-16, the undersigned assessee hereby submit as under: 1) For AY 2015-16, the Return of Income disclosing the total income of Rs. 20,98,850 was filed on 29.10.2015. During the year relevant to AY 2015-16, the assessee had sold shares of a listed company namely 'PS IT Infrastructure' for Rs. 1,04,55,347 which were purchased for Rs. 5,00,000/- during AY 2014-15, resulting in LTCG of Rs, 99,55,347 claimed as exempt u/s. 10(38), 2) Under Para 02 of SCN, it is mentioned that 'during the course of assessment you have furnished purchase bill of shares & DP Statements to strengthen your claim of LTCG' which is not correct. In addition to above, the assessee has submitted many other documentary evidences also as per the List enclosed to prove the claim of LTCG, which are not mentioned in SCN. The List of documents and evidences submitted during the assessment proceeding is attached for your perusal.

8 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others 3) Considering the documentary evidences, the LTCG disclosed by the assessee is genuine and not bogus or accommodation entry because of the following facts : a) I had purchased 12,500 equity shares of Rs, 10 each (FV) of 'PS IT Infrastructure' from the Share holder M/s. Compass Distributors Pvt Ltd., Kolkata, for Rs. 5,00,000 @ Rs. 40/- per share on 12-08-2013. The purchase was off-market and by physical mode. The share was quoted between Rs. 40-45 on BSE on the date of purchase. b) The payment of Rs. 5,00,000 was made by A/c Payee Cheque, which is duly debited in Saving A/c No. 27408 on 12-08-2013. The investment was made out of my own surplus funds and is disclosed in the Balance Sheet as on 31/03/2014. The shares were transferred by the company on 25/10/2013. c) On 15-01-2014, I opened Demat Account No. 1205220000007893 with the Stock broker M/s. BHH Securities Pvt. Ltd, Mumbai to dematerialize the physical shares. The shares were acquired during August-2013 and were sold during November-2014 to February-2015. d) The impugned shares were sold through SEBI registered share Broker M/s. BHH Securities Pvt Ltd., Mumbai on BSE screen based platform on various dates. Following the sale of shares, the Broker issued contract notes cum Bills for sale of shares (copy submitted). The shares were transferred from Demat Account No. 1205220000007893 to the Broker's account, who then transferred to BSE. e) After transfer of shares from my Demat A/c to Broker's A/c, M/s. BHH Securities Pvt. Ltd., who received the payment from BSE, issued the cheques in my favour which were then deposited and realized in Saving A/c 27408. Copy of Bank pass book for 2014-15 is enclosed.

9 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others f) From the series of above events, your goodself will appreciate that the transactions of purchase and sales of shares were genuine and the LTCG claimed is not bogus or accommodation entry, 4) Under Para No. 05.1 of SCN, the financial results of 'PS IT Infrastructure' for year ended 31-03-2012 & 31-03-2013 are mentioned but without comparing them with results for year end 31-03-2014 & 31-03-2015. The Annual reports of PS IT Infra far subsequents years are enclosed for your perusal 31-03-2014 31-03-2012 31-03-2013 31-03-2015 : (from Notice) (from Notice) (Annual Report (Annual Attached) Report Attached) Sales & Nil 142,98,15,283 1,036,231,309 3,98,63,17,293 Other Revenue (10,31,216) 5,49,559 10,500,386 1,72,10,515 Net Profit before tax Provision for tax Nil 1,33,000 3,244,619 55,83,952 Net Profit After (10,31,216) 4,14,559 7,255,767 1,16,26,563 Tax EPS 0.01 0.13 0.22 - 13,00,00,000 55,52,00,000 55,52,00,000 Authorised Capital 24,00,000 11,24,00,000 53,76,00,000 53,76,00,000 Paid up \ share capital 8,00,310 34,45,155 1,07,00,921 2,23,27,484 Reserve & Surplus On comparison with subsequent 02 years as above, it can been seen that: a) The Sales of PS IT Infrastructure have increased from Rs, 142.98 Crs. in FY 12-13 to Rs. 398. 63 Cr. in FY 14-15, which is almost 2. 75 times. b) Net Profit before tax has increased from Rs. 5,49,559 in FY 12-13 to Rs. 1,05,00,386 in FY 13- 14 and Rs. 1,72,10,515 in FY 14-15, 10 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others c) Net Profit after tax has increased from Rs. 4,14,559 in FY 12-13 to Rs. 72,55,767 in FY 2013-14 and to Rs. 1,16,26,563 in FY 2014-15. d) The paid up share capital of the Company was Rs. 53,76,00,000. Reserves Surplus have increased from Rs. 1,07,00,921 as on 31-03-2014 to Rs. 2,23,27,484 as on 31-03-2015. e) As per Annual Report for FY 2013-14 (Para 10), the number of equity shares held in dematerialized form were 3,60,42,175 (67.04%) and in physical form 1,77,17,825 (32. 96%) as on 31st March 2014. f) Based on the figures reported in Annual Report, it can be concluded that PS IT Infrastructure was profit making company, it was engaged in the business of dealing in Computer Hardware and software (I.T. Sector) and. had good future potential. So our decision to invest in its shares was fully justified. The movement in share price was as per market sentiments. 5) Para 5.3 of SCN : The statements of Shri Sajjan Kedia, Jagdish Purohit and Anuj Agrawal have been recorded at the back of the assessee. His name is not mentioned any where in those statements. The assessee has never met the above persons and has no knowledge of the dummy directors, exit providers or who managed the company PS IT Infra 6) Para 6.1 of SCN : It is stated that "your trade data in the scrip of PS IT Infrastructure Services Ltd. was procured from BSB u/s, 133(6) of the Act, Further, notices were issued to various parties who had purchased your shares through stock exchange. It was noticed that most of these parties were Kolkata based and traded through Kolkata Stock Exchange, Further no reply was received about their financials, nature of business to prove the genuineness and creditworthiness of these companies. So, in your case, these parties who have purchased your shares through Stock Exchange 11 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others are in the nature of exit providers only as they have failed to prove their creditworthiness," There is no privy of contract between the assessee {Seller} and the Buyers because the shares were sold on BSE screen based trading plat form, through SEBI registered stock broker M/s. BHH Securities Pvt. Ltd., who have charged STT, Service tax and Brokerage. Under the system, assessee has no knowledge about the buyers. Therefore, he is not responsible if the so called buyers or exit providers have not replied to your Notices about their financials and nature of business to prove their genuineness and credit worthiness. Just because, the parties have not replied to your Notice, the LTCC cannot be treated as bogus or accommodation entry. 7) Para 6.2 of SCN : The shares of PS IT Infra were purchased off-market from M/s. Compass Distributors Put. Ltd. relying upon the advertisement by Bhushit Trading Pvt. Ltd.in Economic Times dated 21/06/2013. Based on the future potential of PS IT Infra, as they were in Computer Hardware & Software business, we took the decision to invest in above company. Before making any investment, one goes by future potentials of the company and the business sector. During the recording of my statement, I have stated that the business of PS IT Infra was computer hardware and software. Since 04 years have lapsed since the date of purchase, I could not furnish the financials of the company which am have furnished now under para 04 above. 8) Para 6.3 of SCN; It is stated by your good self that 'family members have stated on oath that they don't know anything about these companies (Parag Shilpa, Compass Distributors, M/s. Bhushit Trading Pvt. Ltd.) which is not correct. The relationship with family members is (1) Shri Munsukhlal Dodhia (age 67 Yrs./father),(2)

12 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others Harakchand Dodhia (age 65 yrs / Uncle) (3) Shri Pradeep Dodhia (age 55/uncle), (4) Shri Ritesh Dodhia (brother and (5) Shri Jinesh Dodhia (brother). We are joint family and together m the business. During the recording of statement, we have furnished all the preliminary informations about the shares i.e. Names of Parag Shilpa, Compass Distributors, Date of purchase, Amount invested in shares, Bank A/c No., Demat A/c No,, Share certificates, Name of the stock broker BHH Securities Put. Ltd., Amount of sale proceeds, LTCG Amount. Since they were not knowing the financials and other details of the investment, they have referrd to my statement for those details. 9) For claiming the exemption u/s. 10(38) of Act, three requirement needs to be fulfilled, (1) the shares should be held for more than 1 year, (2) it should be listed and. sold on recognized stock exchange and (3) on the said sale, necessary security transaction tax (STT) should be paid. Since all the conditions are fulfilled by us, LTCG should be allowed as genuine.. 10) In view of above facts and the documentary evidences placed on record as per the List enclosed, the LTCG of Rs. 99,55,347 is genuine which is exempt u/s. 10(38) and not bogus or accommodation entry. The proposed addition is entirely based on circumstantial evidences without taking the cognizance of documentary evidences placed on record. We therefore request good self kindly to cancel the proposed addition of Rs. 99,55,347 as unexplained cash credit u/s. 68 of the Act & oblige.

8. After considering the submissions of the assessee, AO gave his findings in his order as below: a. Mode of acquisition of the shares: The assessee has mainly traded in single scrip. Assessee had purchased 12,500 shares of M/s Parag Shilpa 13 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others Investment Ltd. This purchase was an Off-market purchase. Assessee paid cheque of Rs,5,00,000/- to an entity which he was not aware off. Assessee has not purchased shares of this company through any known persons. He contacted Shri Eknath of an unknown company (Bhushit Trading Pvt Ltd) and purchased shares through Kolkata Based shareholder (Compass Distributors Pvt Ltd) without verifying its genuineness. b. Sale of shares and unusual rise in the price: Further the assessee has sold all the shares for sale consideration of Rs. 1,04,55,347/- which is 21 times the increase of the cost price, and as discussed the rise in share prices is not holding to any commercial principles and market factors. c. Investment Profile of the assessee; Assessee has mainly invested in shares of his own companies or companies of his relatives. Assessee has traded in other shares only for Short Term and that too, of reputed and known companies. Investment in M/s Parag Shilpa Investment Ltd is not justified based on his investment profile. d. Findings of Investigation wing: The findings of the Directorate of Investigation of Mumbai and Kolkata as discussed above have proved that Shri Sajjan Kedia, Shri Anuj Agrawal, Jagdish Prasad Purohit, and associated brokers, entry operators and the assessee had worked out an arrangement in which the shares were acquired by the assessee, the share prices were rigged and then with the help of entry operators by routing the cash, shares were sold at high price to arrive at tax free capital gains, e. Analysis of transactions: Facts revealed that such trading transactions of purchase and sale of shares are not been effected, for commercial purpose but to create artificial gains, with a view to evade taxes – 14 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others i. Transactions of shares were not governed by market factors prevalent at relevant time in such trade, but same were product of design and mutual connivance on part of assessee and the operators. ii. The assessee resorted to a preconceived scheme to procure long-term capital gains by way of price difference in share transactions not supported by market factors. iii. Cumulative events in such transactions of shares revealed that same were devoid of any commercial nature and fell in realm of not being bona fide and, hence, impugned long term capital gain is not allowable. f. Failure of Assessee to discharge his onus: The assessee has not been able to justify the circumstances of purchase of shares. He failed to justify the unusual rise and fall of share prices to be natural and based on the market forces. It is evident that such share transactions were closed circuit transactions and clearly structured one. Assessee has failed to give any reason why shares of a company (Parag Shilpa Investment Ltd) which is being used for providing accommodation entry would be sold to the assessee for genuine investment purpose. g. Ignorance of the assessee about shares and penny stock companies; Assessee has failed to show of having any knowledge about the shares traded and having any knowledge about the fundamentals of the penny stock companies. M/s Parag Shilpa Investment Ltd was not having any profits to justify the investment in these shares. h. Financial analysis of the penny stock companies: The net worth of the penny stock company is negligible. Even though the net worth of the company and the business activity of the company is 15 I.T.A. No 5539 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others negligible the share prices have been artificially rigged to unusual high. i. Arranged transactions; The transactions entered by the assessee involve the series of preconceived steps, the performance of each of which is depending on the others being carried out. The true nature of such share transactions lacked commercial contents, being artificially structured transactions, entered into with the sole intent, to evade taxes.

9. AO by relying on various case law, disallowed the LTCG claimed by the assessee and made the addition u/s 68 of the Act.

10. Aggrieved with the above order, assessee preferred the appeal before Ld. CIT(A) and Ld. CIT(A) after considering the submission of the assessee dismissed the appeal of the assessee with the following observations:-

6.10. The contention of the Ld. AR has been considered and noticed that the same is very routine, without any merits and credible documents, hence not tenable. The above AOs have given detailed findings, done due analysis of shares purchased and sales, financial analysis of the scrip and discussed in detail the jacking/rigging up of share prices of PS IT Infrastructure Ltd, daily trading details in shares of the company in graphical form for the period from 21.5.2012 to 4.11.2016, etc., in their assessment orders, while making the above additions, by placing their reliance upon the report of the investigation wing, Kolkata. They have conclusively held the fact that these appellants have indulged in obtaining the bogus 7 unexplained 7 fictitious entries of LTCG of Rs 99,78,894/-, Rs 1,04,66,763/-, Rs 99,33,382/-, Rs 16 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others 99,55,347/-, Rs 1,00,06,175/- and Rs 99,47,372/-, respectively. The AO, therefore, was quite justified in taxing the entire LTCG of Rs 99,78,894/-, Rs 1,04,66,763/-, Rs 99,33,382/-, Rs 99,55,347/-, Rs 1,00,06,175/- and Rs 99,47,372/-, in the hands of Shri Harakchand Dodhia, Shri Mansukhlal Dodhia, Shri Pradeep Dodhia, Shri Bhadresh Dodhia Shri Jinesh Dodhia and Shri Ritesh Dodhia, respectively, hence, does not require any interference, accordingly sustained and the above grounds of appeal are DISMISSED.

11. Aggrieved with the above order, assessee is in appeal before us raising the following grounds of appeal:-

1) On the facts and the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeal), Mumbai erred in upholding the Addition of Rs.99,55,347/- treating the sale of Shares made through a Recognized Stock Exchange as Accommodation Entries. 2) On the facts and the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeal), Mumbai erred in placing reliance on irrelevant considerations which have no bearing on the sale of Shares made by the Appellant on the Recognized Stock Exchange and therefore the addition sustained is bad in law. 3) On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeal), Mumbai erred in confirming the Additions made based on certain Reports from DDIT(lnvestigation) Wing, Kolkata without appreciating that the copies of said Report, Statements if any recorded and opportunity to cross-examine the persons was not provided to the Appellant which is 17 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others against the principle of natural justice and therefore the same is bad in law. The Appellant craves the leave to add, amend, alter and/or delete any of the above mentioned grounds at/or before the time of hearing of appeal.

3. Before us, ld. AR of the assessee has submitted that the Assessing Officer has made this addition solely on the basis of the statement of Shri Anil Agarwal recorded statement u/s 132(4) by the Investigation Wing, Kolkata without any corroborative evidence to show that the assessee has converted its unaccounted income in the long term capital gain. He has further contended that even in the said statement recorded u/s 132(4) Shri Anil Agarwal 21 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others has not mentioned any fact about providing bogus long term capital gain entry to the assessee or even he was a promoter of M.s Rutron International Ltd. The ld. AR has further submitted that the assessee specifically demanded the cross examine of Shri Anil Agarwal on whose statement the AO has based his assessment order and made addition on account of bogus long term capital gain. Thus, in view of the decision of Hon'ble Supreme Court in case of CCE vs. Andaman timber Industries 127 DTR 241. The addition made by the AO is not sustainable. The ld. AR has submitted that the assessee was allotted 3,50,000/- equity shares by M/s Rutron International Ltd. on 01.03.2012 vide allotment letter dated 08.03.2012. The shares were allotted by the company at face value of Rs. 10/- each without charging any premium under preferential issue. He has referred to the bank statement of the assessee and submitted that the assessee paid the purchase consideration/ share application money vide cheque on 29.02.2012 the payment made by the assessee is duly reflected in the back statement of the assessee. Therefore, the assessee purchased shares in preferential allotment of the company and against the purchase consideration paid by the assessee through cheque. He has also referred to the D-mat account of the assessee and submitted that the shares were dematerialized on 18.06.2012 and thereafter the shares were sold from 13.03.2013 onwards on various dates through M/s Anand Rathi Shares & Stock Brokers Ltd. The shares were sold by the assessee are reflected in the D-mat account of the assessee and the sale consideration was directly credited to the bank account of the assessee. Therefore, the assessee has produced all the relevant evidence to show the allotment of shares, payment of consideration through cheque at the time of allotment of shares dematerialization of the shares and thereafter, sale of shares from the D-mat account. Hence, the transaction of purchase and sale of shares is genuine one as the assessee has proved the genuineness by producing the relevant record whereas the Assessing Officer has not produced any material or record to controvert the evidence produce by the assessee. Thus, ld. AR has submitted that the transaction of purchase and sale of shares is genuine and the long term capital gain arising from purchase and sale of shares cannot be treated as bogus transaction. Hence, ld. AR has pleaded that the addition made by the AO be deleted and the claim of the assessee accepted. In support of his contention he has relied upon the Hon’ble jurisdiction High Court dated 11-09-2017 in case of CIT vs. Smt. Pooja Agrawal 385/2011 wherein the Hon'ble High Court has held that when the assessee furnished all supporting documents including the cheque, copy of contract note and D-mat account etc. then, the transaction entered into cannot be denied simply on the ground that in his statement the assessee denied made any transaction. Whereas in this case, the assessee never denied having these transactions but the AO has solely relied upon the statement of Shri Anil Agrawal which was recorded by the Investigation Wing, Kolkata without giving an opportunity of cross examine to the assessee. The ld. AR has relied upon the decision of 22 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others Hon'ble Pubjab and Haryana High Court dated 18.01.2018 in case of CIT vs. Prem Pal Gandhi in ITA No. 95/2017. He has also relied upon the decision of the Coordinate Bench of this Tribunal dated 31.01.2018 in case of Pramod Jain & others vs. DCIT in ITA No. 368/JP/2017 and submitted that in all these decisions when the assessee produced the supporting evidence to prove the genuineness of the transactions and the AO has failed to produce any counter evidence to disprove the evidence produce by the assessee it was held that the transactions cannot be treated as bogus merely on the basis of statement without any corroborating evidence brought by the Assessing Officer.

4. On the other hand, ld. DR has submitted that the assessee has shown a huge long term capital gain within a short period of one year from the sale of shares and therefore, as per the rule of preponderance of human probability the transaction of the assessee cannot be accepted as genuine and the onus is on the assessee to prove the same as how there is a spike in the price of the shares within such short duration. The surrounding circumstances clearly lead to only one possible conclusion that the assessee has manipulated the entire record and availed the bogus transaction of long term capital gain to convert his unaccounted income to avoid tax through long term capital gain. He has relied upon the decision of Hon'ble Bombay High Court in case of Sanjay Bimalchand Jain vs. Pr. CIT 89 taxaman.com 196. The ld. DR has then referred to the finding of the AO as well as ld. CIT(A) and submitted that when Sh. Anil Agarwal has clearly admitted in the statement that through his company he is engaged in providing bogus long term capital gain to the clients and M/s Rutron International Ltd. is one of the company is whose share transferred by Shri Anil Agrawal. He has relied upon the orders of the authorities below.

1. 1. First Financial Services Ltd. (FFSL) 2. Splash Media and Infra Ltd. ( SPMIL) 3. D B (International) stock Brokers Ltd. ( DBSBL) 4. Unisys Softwares & Holdings Industries Ltd. (USHL) 5. Fact Enterprises Ltd. ( FEL) 6. Parikh Herbal Ltd. ( now Safal Herbs Ltd) 7. Premier Capital Service 8. Rutron Internationa Ltd.

9. Radford Global Ltd 10. JMD Telefilms Industries Ltd 11. Dhanleela Investments & Trading Co. Ltd.

12. SRK Industries Ltd.

13. Dhenu Buildcon Infra ltd. Ans. M/s Comfort Securities Ltd. has business nexus with the following companies Name of the Company Nature of Business Transaction 1. First Financial Services Ltd. Brokerage and Consultancy Services 2. Splash Media and Infra Ltd. Brokerage, Share Holding and Consultancy Services 3. Fact Enterprises Ltd Broking as well as share holding 4. Rutron International Ltd. Consultancy Services 5. D.B. (International) Stock Consultancy Services Brokers Ltd.

6. Unisys Software & Holding Broking Services Industries Ltd. Apart from the above mentioned companies neither I nor M/s Comfort Securities Ltd. has any business nexus with the companies mentioned supra. Q5. Do you know the promoters and directors of the above said companies? Whether M/s Comfort Securities Pvt. Ltd. or you have any association with the promoters and directors of the 24 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others above said companies or have ever had any business transactions with the promoters and directors of the above said companies. Ans. Sir, I know some of the directors of the First Financial Services Limited, Splash Media & Infra Services Ltd, Rutron International Limited and FACT enterprise Ltd. Regarding other companies I am not aware who are the directors of these companies." Thus, it is clear from the relevant part of statement of Shri Anil Agrawal as reproduced by the AO that he has stated having business nexus with these companies and nature of business being consultancy services. Hence, he has not stated anything about providing bogus long term capital gain in respect of the equity shares of M/s Rutron International Ltd. A business nexus with any company will not automatically lead to the conclusion that the shares allotted by the other company is bogus transaction. As per question no. 5 and answer thereto it is clear that Shri Anil Agrawal was not the Director of M/s Rutron International Ltd. but he has stated to know some of the directors of these companies including M/s Rutron International Ltd. Hence, from this relevant part of the statement of Shri Anil Agrawal it cannot be inferred that he has provided the bogus long term capital gain from purchase and shares of equity shares of M/s Rutron International Ltd. much less the specific transaction of preferential issue allotment of shares by the company itself to the assessee. Further, though he has explained the modus oprendi of providing bogus long term capital gain entries in the equity shares however, when the transaction was not routed through Shri Anil Agrawal and the shares were allotted directly by the company to the assessee at par on face value then the same cannot be considered as a penny stock transactions. The assessee has produced the D-mat account and therefore, as on 18.06.2012 the assessee was holding 3,50,000 equity shares of M/s Rutron International Ltd. in D-mat account. This fact of holding the shares in the D-mat account as on 18.06.2012 cannot be disputed. Further, the Assessing Officer has not even disputed the existence of the D-mat account and shares credited in the D-mat account of the assessee. Therefore, once, the holding of shares is D-mat account cannot be disputed then the transaction cannot be held as bogus. The AO has not disputed the sale of shares from the D-mat account of the assessee and the sale consideration was directly credited to the bank account of the assessee, therefore, once the assessee produced all relevant evidence to substantiate the transaction of purchase, dematerialization and sale of shares then, in the absence of any contrary material brought on record the same cannot be held as bogus transaction merely on the basis of statement of one Shri Anil Agrawal recorded by the Investigation Wing, Kolkata wherein there is a general statement of providing bogus long term capital gain transaction to the clients without stating anything about the 25 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others transaction of allotment of shares by the company to the assessee. Further, Shir Anil Agrawal was not a director of M/s Rutron International Ltd. as perceived by the AO and therefore, the entire finding of the AO is without any corroborative evidence or tangible material.

7. In case of equity shares M/s Paridhi Properties Ltd. the assessee purchase 50,000 equity share on 26.03.2011 by paying share application money of Rs. 5 lacs which is duly reflected in the bank account of the assessee as paid on 28.03.2011. Therefore, the payment of share application money has been duly established by the assessee through his bank account for allotment of shares of 50,000 equity shares of M/s Paridhi Properties Ltd. The share allotted in private placement as per of Rs. 10/- cannot be termed as penny stock. The AO doubted that the entire process of application and allotment of shares as it have been completed within a short duration of 5 days, which in the opinion of the AO is not possible in ordinary course. However, when the assessee has produced the record including the share application, payment of share application money, allotment of share then merely because of a short period of time will not be a sufficient reason to hold that the transaction is bogus. The shares allotted to the assessee vide share certificate dated 31.03.2011 were dematerialized on 21.10.2011, therefore, on the date of dematerialization of the shares the holding of the shares of the assessee cannot be doubted and hence the acquisition of the shares of the assessee cannot be treated as a bogus transaction. Nobody can have the shares in his own name in demant account without acquiring or allotment through due process hence, except the purchase consideration paid by the assessee holding of shares cannot be doubted when the assessee has produced all the relevant record of issuing of 28 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others allotment of shares, payment of share application money through bank, share certificate and demat account showing the shares credited in the demat account of the assessee on dematerialization. The said company M/s Paridhi Properties Ltd. was subsequently merged with M/s Luminaire Technologies Ltd. vide scheme approved by the Hon'ble Bombay High Court order dated 27.07.2012. Hence, the assessee got allotted the equity shares of M/s Luminaire Technologies Ltd. as per swap ratio approved in the scheme and consequently the assessee was allotted 5 lacs share of Rs. 1/- each on M/s Luminaire Technologies Ltd. The evidence produced by the assessee leave no scope of any doubt about the holding of the shares by the assessee.

4. As regard your opportunity given to us to read the recorded statement of Shri Deepak Patwari and to produce him from the cross examination before your good self, we have to submit that from the reading of the statements of Shri Deepak Patwari it is clear that he has never taken the name of the assessee, nor the assessee is aware of any Shri Deepak Patwari neither he has made any transaction with him, so in what capacity he can call him for cross examination before your good self. Since your 29 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others good self has got the authority, we humbly request youto kindly issue the notice u/s 131 of the income Tax act 1961 to him also for cross examination. We also request your good self to kingly provide us the copy of statements of Shri Deepak Patwari along with the other relevant documents. Please note that the assessee is ready to bear the cost of his travelling in this regard." It is manifest from the assessee's reply to show cause notice that the assessee had specifically demanded the cross examination of Shri Deepak Patwari however, the Assessing Officer did not offer the opportunity to the assessee to cross examine Shri Deepak Patwari. Further, the AO asked the assessee to produce the Principal Officers of the M/s Gravity Barter Ltd. and M/s Paridhi Properties Ltd. However, in our view if the Assessing Officer wanted to examine the principal Officers of those companies he was having the authority to summon them and record their statements instead of shifting burden on the assessee. It is not expected from the assessee individual to produce the principal Officers of the companies rather the AO ought to have summoned them if the examination of the officers were considered as necessary by the AO. Hence, it was improper and unjustified on the part of the AO to asked the assessee to produce the principal Officers of those companies. As regards the non grant of opportunity to cross examine, the Hon'ble Supreme Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue has held in para 5 to 8 as under: "5. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue.

6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that crossexamination of the said dealers could not have brought out 30 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to crossexamine those dealers and what extraction the appellant wanted from them.

8. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause Notice." Therefore, the statement of witness cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. The Mumbai Special of the Tribunal in case of GTC Industries vs. ACIT (supra) had the occasion to consider the addition made by the AO on the basis of suspicion and surmises and observed in par 46 as under:- “46. 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. Here in this case the material facts strongly indicate a probability that the wholesale buyers had collected the premium money for spending it on advertisement and other expenses and it was their liability as per their mutual understanding with the aseessee. Another very strong probable factor is that the entire scheme of 'twin branding' and collection of premium was so designed that assesseecompany need not incur advertisement expenses and the responsibility for sales promotion and advertisement lies 31 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI or by the department that Assessee-Company was beneficiary of any such accounts. At least something would have been unearthed from such global level investigation by two Central Government authorities. In case of certain donations given to a Church, originating through these benami bank accounts on the behest of one of the employees of the assessee company, does not implicate that GTC as a corporate entity was having the control of these bank accounts completely. Without going into the authenticity and veracity of the statements of the witnesses Smt. Nirmala Sundaram, we are of the opinion that this one incident of donation through bank accounts at the direction of one of the employee of the Company does not implicate that the entire premium collected all throughout the country and deposited in Benami bank accounts actually belongs to the assessee-company or the assessee- company had direct control on these bank accounts. Ultimately, the entire case of the revenue hinges upon the presumption that assessee is bound to have some large share in so-called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of 'preponderance of probability' is applied to weigh the evidences of either side and draw a conclusion in favour of a 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. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee." Therefore, when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. The Hon'ble Jurisdiction High Court in case of CIT vs. Smt. Pooja Agrawal (supra) has upheld the finding of the Tribunal on this issue in para 12 as under:- "12. However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and 32 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:- "Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants's account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The AO has discussed modus operandi in some sham transactions which were detected in the search case of B.C. Purohit Group. The AO has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the appellant's case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle-3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purihit and Co. group. The AR made submission before the AO that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P. K. Agarwal. It was also submitted that there was no mention of Sh. P. K. Agarwal in the order of Settlement Commission in the case of Sh. Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The AO has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after 33 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others considering all thematerial facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non- genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohi. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain (6 of 6) [ ITA-385/2011] made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant." In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account." Thus, it is clear that the Tribunal in the said case has analyzed an identical issue wherein the shares allotted in the private placement @ Rs. 10 at par of face value which were dematerialized and thereafter sold by the assessee and accordingly the Tribunal after placing reliance on the decision of Hon'ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra) as well as the decision of Hon'ble jurisdiction High court in case of CIT vs. Smt. Pooja Agarwal (supra) as held that when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. Similar in the case in hand the assessee has produced the relevant record to show the allotment of shares by the company on payment of consideration by cheque and therefore, it is not a case of payment of consideration by in cash. But the transaction is established from the evidence and record which cannot be manipulated as all the entries are part of the bank account of the assessee and the assessee dematerialized the shares in the D-mat account which is also an independent material and evidence 34 to 5544/Mum/2018 Shri Bhadresh Mansukhlal Dodhia & 5 others cannot be manipulated. Therefore, the holding of the shares by the assessee cannot be doubted and the finding of the AO is based merely on the suspicion and surmises without any cogent material to show that the assessee has introduction his unaccounted income in the shape of long term capital gain. We find that the ld. CIT(A) has also referred to SEBI enquiry against the M/s Anand Rathi Share and Stock Brokers Ltd. However, we note that the said enquiry was regarding financial irregularities and use of fund belonging to the clients for the purpose other than, the purchase of shares on behalf of the clients. Therefore, the subject matter of the enquiry has no connection with the transaction of bogus long term capital gain. The decisions replied upon the ld. DR in case of Sanjay Bimalchand Jain vs. Pr. CIT (supra) is not applicable in the facts of the present case as the said decision is in respect penny stock purchase by the assessee from a persons who was found to be indulged in providing bogus capital gain entries whereas in the case of the assessee the shares were allotted to the assessee by the company at par of face value. Hence, in view of the facts and circumstances when we hold that the order of the Assessing Officer treating the long term capital gain as bogus and consequential addition made to the total income of the assessee is not sustainable. Hence, we delete the addition made by the AO on this account.”