VICKEY VENILAL SHAH,MUMBAI vs. INCOME TAX OFFICER 13(3)(1), MUMBAI

This appeal by the assessee is directed against order of learned CIT-A dated 15.3.2018 and pertains to assessment year 2014-15.

read as under a) On the facts and in the circumstances of the case and in law, the Commissioner of Income Tax-21, Mumbai, hereinafter referred to as the Id. CIT(A) has erred in assessing Total Income of the Appellant at Rs. 40,77,360/- instead of Rs. 11,38,832/- as returned by the Appellant The returned Income of the Appellant may please be accepted. b) On the facts and in the circumstances of the case, the Id. CIT(A) has erred in law in confirming the addition of Rs. 29,37,5287- made by the Id. AO on the account of Long Term Capital Gain & Not Allowed to claimed exemption U/s 10(38). The said addition may please be deleted. The appellant may please be allowed to claim exemption u/s 10(38).

3. In the assessment order following facts were observed :- a. Mode of acquisition of the shares: The assesses has purchased 5000 shares of Trinity Tradelink Ltd, for Rs. 10/- per share amounting of Rs.50,000/- as preferential shares from private placement. b. Sale of shares and unusual rise in the price: Further the assessee has sold the 2950 shares at the price of Rs. 29,67,028/-, thus resulting the 2 Shri Vicky Venilal Shah long term capital gain of Rs.29,37,528/-, which is 1006 times the increase of the cost price. c. Findings of Investigation wing: The findings of the Directorate of Investigation of Mumbai and Kolkata, entry operators and the assessee had worked out an arrangement in which the shares were acquired by the assesses, the share prices were rigged and then with the help of entry operators by routing the cash, shares were sold of high price to arrive at tax free capital gains.

14.4 Thus considering the findings of the search/survey, inquiries conducted in the case of assessee, brokers, operators and the entry providers and the nature of transaction entered into by the assessee the LTCG of Rs.29,37,528/- claimed exempt u/s.10{38) of the act by the assessee can not be allowed and the amount of Rs.29,37.528/- received back as sales proceeds on sate of shares is required to added back towards her taxable income under section 68 of the act...

As all the three grounds raised by the appellant are against the treatment of LTGG as bogus by the A.O., the grounds are decided together. Various case laws have been cited and relied on by the AO to prove that what is apparent is not real in this case, that the financial transactions were sham ones and this edifice was only a colourable device used to evade tax on the basis of above analysis, documentary evidences, circumstantial evidences, human conduct and preponderance of probabilities.

I am concerned that the assessee sold all the shares when the price trend was increasing and not a single share was sold during downward trend. By no stretch of imagination, a prudent person can accept the growth of a share by 662% within a period of 13 months and that too when financial fundamentals are not strong. The A.O. has recorded a clear finding of fact that the assessee had indulged in a sham share transaction for converting unaccounted cash to tax exempt income. The assessment order- has lucidly brought out that the assessee has failed to produce cogent evidence to explain as to how the share of a little known company having no strong fundamentals jumped from Rs 16/- to Rs 107/- within a period of thirteen months. The findings recorded by the A.O. are based on a proper verification of facts and circumstances available and various judicial pronouncements on the subject.

The appellant has submitted copies of 10 case laws wherein transactions of penny stocks have been concluded as genuine by various judicial courts.

3 Shri Vicky Venilal Shah However, the judgements referred by the Ld A.R. of the appellant are distinguishable on facts and cannot be applied to the present case. Few referred cases are explained as under:

ITO Vs Arvind Kumar Jain (HUF): The scrutiny assessment was completed on the basis on initiation of SEBl investigation on the penny stock company and the violation of SEBl regulations by the broker. However, in the instant case, the main basis of scrutiny assessment was report obtained from Kolkata Investigation Wing, which carried out a Search operation and seized many incriminating documents. Further, the operators and the key personnel of the paper companies admitted their involvement in the scam in their statements given under oath. Thus, circumstances and facts of the referred case are not similar to the case of the appellant.

ACIT Vs Vineet S Agarwal: The assessment was based on statements of Shri MukeshChoksi and Shri Choksi was reported as unreliable as he had rebutted his statements. In the case of the assessee, the entry operators have not rebutted their statements later on. Thus, circumstances and facts of the referred case are not similar to the case of the appellant Kamla Devi S Doshi Vs ITO: The assessment was based on statements of Shri Mukesh Choksi and Shri Choksi was reported as unreliable as he had rebutted his statements. In the case of the assesse, the entry operators have not rebutted their statements later on. Thus, circumstances and facts of the referred case are not similar to the case of the appellant ITO 24(3)(1), Mumbai Vs Shri Indravadan Jain: Hort'ble ITAT has recorded that Shri Jain did not have any concern with the broker and relied on the decision of jurisdictional High Court in the case of Shyam R Pawar. However, in the case of the appellant, a dear nexus between promoters, brokers and operators of the company existed and thus the facts and circumstances of the assessee is not similar with the referred case.

It is noteworthy to rely on the following judicial pronouncements to decide on the assessee's Involvement in the scam of bogus LTCG unearthed by the Kolkata Investigation Wing.

Ratnakar M Pujari Vs ITO [JTAT Mumbai dated 3.08.2016. The assessee has purchased 4000 shares of M/s Shiv Om Investments on 11 tit May, 2004 for a consideration of Rs. 4.080/- and out of the same, 1000 shares were sold on 16th May, 2008 and 2500 shares were sold on 27th January, 2006 for a total consideration of Rs. 6,89,7507- and claimed exemption u/s10(38). The AO denied the exemption. The ITAT upheld the decision.

Usha Chandresh Shah Vs ITO [Mumbai ITAT] dated 26.09.2014. The assessee purchased

4 Shri Vicky Venilal Shah shares for Rs.5.17 and sold for 279.5. The AO could not verify the purchase transactions as the notice issued to the person from whom the shares are purchased by the assessee returned unserved. The ITAT held that the test of human probabilities was applied to reject the claim of profit realized on sale of penny stocks.

Bombay High Court in the case of Sanjay Blmalchand Jain Vs Pr CIT PTA 18/2017 recently held:

"The assessee has not tendered cogent evidence to explain how the shares in an unknown company worth Rs 5 had jumped to Rs 485 in no time. The fantastic sate price was not at all possible as there was no economic or financial basis to justify the price rise. The assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. The gain has accordingly to be assessed as undisclosed credit u/s 68" In the light of entire facts explained in the assessment order and referred various-judicial pronouncements on the issue, it is concluded that the assessee had made purchase of the shares of an unknown company without due diligence. The assessee did not have much knowledge about the financials, fundamentals and future prospects of the company. Detailed findings of the Investigation Wing, Kolkatta and the Assessing officer have not been controverted by the appellant by bringing any positive material on record. After going through both parties and based on the above judicial pronouncements, I am of considered opinion that A.O. has passed the order in line with the settled principle of law white disallowing the exempt long term capital gain claimed by the assessee u/s 10(38) of Income-tax Act, 1961. The grounds of appeal are therefore dismissed.”

6 Shri Vicky Venilal Shah

Order has been pronounced in the Court on 27.8.2019.