LAXMIPAT DUDHERIA ,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-7(1)(2), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE

BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA Nos. 2373 to 2376/Bang/2018 Assessment Years : 2012-13 to 2015-16 Shri Laxmipat Dudheria, The Assistant No. 66, Navniketan, K R Commissioner of Road, vs. Income Tax, Basavanagudi, Circle – 7 (1)(2), Bangalore – 560 004. Bangalore. PAN: AIHPD6948F APPELLANT RESPONDENT

: Shri K.R. Pradeep, Advocate & Appellant by Ms. Girija G.P., Advocate Respondent by : Shri Arun Kumar, DIT (DR)

Date of hearing : 24.01.2019 Date of Pronouncement : 09.04.2019

O R D E R Per Bench: All these four appeals are filed by the assessee which are directed against four separate orders of ld. CIT (A)-7, Bangalore all dated 24.07.2018 for Assessment Years 2012-13 to 2015-16.

ITA Nos. 2373 to 2376/Bang/2018 Page 2 of 50 order requires to be cancelled. 4. That the notice, initiation and all subsequent proceedings u/s 148 is bad in law, is without jurisdiction, barred by law and requires to be cancelled. 5. The notice u/s 148 and service thereof is bad in law and the reassessment requires to be cancelled. 6. The conditions precedent to justify the reopening of the assessment u/s 147 of the Act being absent, the reopening of the assessment is bad in law and the reassessment requires to be cancelled. 7. That the authorities below erred in framing order under section 144 of the Act without following the prescribed procedure under law. 8. That the order u/s 144 r.w.s.147 of the Act is bad in law, as the appellant had disclosed the material facts fully and truly necessary for assessment and there is no new or fresh information or evidence warranting reopening of the assessment. 9. That the entire reassessment proceedings violates the procedure prescribed by the Supreme Court in 259 ITR 19 for 148 proceedings. 10.The reassessment proceedings is on a change of opinion on the same set of facts without there being any new evidence or information which is not permitted under law. 11.The reasons / findings of the authorities below are unsustainable and untenable in law as the same is contrary to the facts emerging from the record. 12. That the authorities below erred in relying on sworn statements provided along with show cause notice dt.13.01.2017 of persons namely Shri Amit Saraogi, Shri AmarchandRatanlalRander, Shri Sajjan Kedia, Shri Soumen Sen, Shri Jagdish Prasad Purojit and Shri Dhruv Narayan Jha without providing opportunity of cross examination in spite of request by the assessee. 13. That the authorities below erred in not providing complete details before calling for objections from the assessee. 14. That the authorities below erred in relying on irrelevant material while ignoring the relevant material and further erred

ITA Nos. 2373 to 2376/Bang/2018 Page 3 of 50 in making addition solely on third party statement without any corroboration. 15. That the authorities below erred in making addition of Rs.16,22,07,420/-u/s 68 of the Act. 16. That the authorities below erred in treating the capital gains declared by the assessee from transfer of shares of M/s.Blue Circle Services Ltd of Rs.16,22,06,666/-u/s 68 of the IT Act. 17. That the authorities below erred in treating the capital gains declared by the assessee from transfer of shares of M/s.Fact Enterprises Ltd of Rs.5,109/-u/s 68 of the IT Act. 18. That the authorities below erred in resorting to section 68 of the Act. 19. That the authorities below erred in refusing to grant the beneficial treatment provided under the Act of the Capital gains earned by the assessee from the transfer of shares in M/s. Blue Circle Services Ltd of Rs. 16,22,06,666/-. 20. That the authorities below erred in refusing to grant the beneficial treatment provided under the Act of the Capital gains earned by the assessee from the transfer of shares in M/s. Fact Enterprises Ltd of Rs.5,l09/-. 21. That the authorities below erred in making addition of Rs.48,66,222/- u/s 69C of the Act. 22. That the authorities below erred in charging 3% of capital gains as the commission paid u/s 69C of the Act. 23. The appellant denies the liabilities for interest u/s 234B of the Act. Further prays that the interest if any should be levied only on returned income. 24. The appellant denies the liability for interest u/s 234D of the Act. The levy of interest u/s 234D is against the express provisions of law. 25. No opportunity has been given before levy of interest u/s 234B and 234D of the Act. 26. Without prejudice to the appellant's right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234Band 234D of the Act.

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ITA Nos. 2373 to 2376/Bang/2018 Page 5 of 50 the same set of facts without there being any new evidence or information which is not permitted under law. 11. The reasons / findings of the authorities below are unsustainable and untenable in law as the same is contrary to the facts emerging from the record. 12. That the authorities below erred in relying on sworn statements provided along with show cause notice dt.13.01.2017 of persons namely Shri Amit Saraogi, Shri AmarchandRatanlalRander, Shri Sajjan Kedia, Shri Soumen Sen, Shri Jagdish Prasad Purojit and Shri Dhruv Narayan Jha without providing opportunity of cross examination in spite of request by the assessee. 13. That the authorities below erred in not providing complete details before calling for objections from the assessee. 14. That the authorities below erred in relying on irrelevant material while ignoring the relevant material and further erred in making addition solely on third party statement without any corroboration. 15. That the authorities below erred in making addition of Rs.7,86,38,101/-u/s 68 of the Act. 16. That the authorities below erred in treating the capital gains declared by the assessee from transfer of shares of M/s. Blue Circle Services Ltd of Rs.7,86,38,101/-u/s 68 of the IT Act. 17. That the authorities below erred in resorting to section 68 of the Act. 18. That the authorities below erred in refusing to grant the beneficial treatment provided under the Act of the Capital gains earned by the assessee from the transfer of shares in M/s. Blue Circle Services Ltd of Rs. 7,86,38,101/-. 19. That the authorities below erred in making addition of Rs.23,59,143/- u/s 69C of the Act. 20. That the authorities below erred in charging 3% of capital gains as the commission paid u/s 69C of the Act. 21. The appellant denies the liabilities for interest u/s 234B of the Act. Further prays that the interest if any should be levied only on returned income.

ITA Nos. 2373 to 2376/Bang/2018 Page 6 of 50 22. The appellant denies the liability for interest u/s 234D of the Act. The levy of interest u/s 234D is against the express provisions of law. 23. No opportunity has been given before levy of interest u/s 234B and 234D of the Act. 24. Without prejudice to the appellant's right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234Band 234D of the Act. 25. For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered.”

ITA Nos. 2373 to 2376/Bang/2018 Page 7 of 50 8. That the order u/s 144 r.w.s.147 of the Act is bad in law, as the appellant had disclosed the material facts fully and truly necessary for assessment and there is no new or fresh information or evidence warranting reopening of the assessment. 9. That the entire reassessment proceedings violates the procedure prescribed by the Supreme Court in 259 ITR 19 for 148 proceedings. 10.The reassessment proceedings is bad in law as the regular assessment proceedings was open. 11.The parallel reassessment proceeding is clearly barred. Any proceeding which is in conflict with regular proceeding is against law. 12.The reassessment proceedings is on a change of opinion on the same set of facts without there being any new evidence or information which is not permitted under law. 13.The reasons / findings of the authorities below are unsustainable and untenable in law as the same is contrary to the facts emerging from the record. 14.That the authorities below erred in relying on sworn statements provided along with show cause notice dt.13.01.2017 of persons namely Shri Amit Saraogi, Shri AmarchandRatanlalRander, Shri Sajjan Kedia, Shri Soumen Sen, Shri Jagdish Prasad Purohit and Shri Dhruv Narayan Jha without providing opportunity of cross examination in spite of request by the assessee. 15. That the authorities below erred in not providing complete details before calling for objections from the assessee. 16. That the authorities below erred in relying on irrelevant material while ignoring the relevant material and further erred in making addition solely on third party statement without any corroboration. 17.That the authorities below erred in making addition of Rs.2,85,58,035/-u/s 68 of the Act. 18.That the authorities below erred in treating the capital gains declared by the assessee from transfer of shares of M/s. Blue Circle Services Ltd of Rs. 47,82,937/- u/s 68 of the IT Act. 19.That the authorities below erred in treating the capital

ITA Nos. 2373 to 2376/Bang/2018 Page 8 of 50 gains declared by the assessee from transfer of shares of M/s.Parag Shilpa Investment Ltd (PS IT Infrastructure & Services Ltd) of Rs. 2,37,75,098/- u/s 68 of the IT Act. 20. That the authorities below erred in resorting to section 68 of the Act. 21. That the authorities below erred in refusing to grant the beneficial treatment provided under the Act of the Capital gains earned by the assessee from the transfer of shares in M/s. Blue Circle Services Ltd of Rs. 47,82,937/-. 22. That the authorities below erred in refusing to grant the beneficial treatment provided under the Act of the Capital gains earned by the assessee from the transfer of shares in M/s. Parag Shilpa Investment Ltd (PS IT Infrastructure & Services Ltd) of Rs. 2,37,75,098/-. 23. That the authorities below erred in making addition of Rs.8,56,741/-u/s 69C of the Act. 24. That the authorities below erred in charging 3% of capital gains as the commission paid u/s 69C of the Act. 25. The appellant denies the liabilities for interest u/s 234A, 234B & 234C of the Act. Further prays that the interest if any should be levied only on returned income. 26. The appellant denies the liability for interest u/s 234D of the Act. The levy of interest u/s 234D is against the express provisions of law. 27. No opportunity has been given before levy of interest u/s 234A, 234B, 234C and 234D of the Act. 28. Without prejudice to the appellant's right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234A, 234B,234C and 234D of the Act. 29. For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered.”

ITA Nos. 2373 to 2376/Bang/2018 Page 9 of 50 “1. That the order of the authorities below in so far as it is against the assessee is against the law, facts, circumstances, natural justice, equity all other known principles of law. 2. That the total income and total tax computed is hereby disputed. 3. The authorities below erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled. 4. That the notice, initiation and all subsequent proceedings u/s 148 is bad in law, is without jurisdiction, barred by law and requires to be cancelled. 5. The notice u/s 148 and service thereof is bad in law and the reassessment requires to be cancelled. 6. The conditions precedent to justify the reopening of the assessment u/s 147 of the Act being absent, the reopening of the assessment is bad in law and the reassessment requires to be cancelled. 7. That the authorities below erred in framing order under section 144 of the Act without following the prescribed procedure under law. 8. That the order u/s 144 r.w.s.147 of the Act is bad in law, as the appellant had disclosed the material facts fully and truly necessary for assessment and there is no new or fresh information or evidence warranting reopening of the assessment. 9. That the entire reassessment proceedings violates the procedure prescribed by the Supreme Court in 259 ITR 19 for 148 proceedings. 10.The reassessment proceedings is bad in law as the regular assessment proceedings was open. 11.The parallel reassessment proceeding is clearly barred. Any proceeding which is in conflict with regular proceeding is against law. 12.The reassessment proceedings is on a change of opinion on the same set of facts without there being any new evidence or information which is not permitted under law.

ITA Nos. 2373 to 2376/Bang/2018 Page 10 of 50 13.The reasons I findings of the authorities below are unsustainable and untenable in law as the same is contrary to the facts emerging from the record. 14. That the authorities below erred in relying on sworn statements provided along with show cause notice dt.13.01.2017 of persons namely Shri Amit Saraogi, Shri AmarchandRatanlalRander, Shri Sajjan Kedia, Shri Soumen Sen, Shri Jagdish Prasad Purohit and Shri Dhruv Narayan Jha without providing opportunity of cross examination in spite of request by the assessee. 15. That the authorities below erred in not providing complete details before calling for objections from the assessee. 16. That the authorities below erred in relying on irrelevant material while ignoring the relevant material and further erred in making addition solely on third party statement without any corroboration. 17. That the authorities below erred in making addition of Rs.20,25,08,7351- u/s 68 of the Act. 18. That the authorities below erred in treating the capital gains declared by the assessee from transfer of shares of M/s. Parag Shilpa Investment Ltd (PS IT Infrastructure & Services Ltd) of Rs. 20,25,08,735 u/s 68 of the IT Act. 19. That the authorities below erred in resorting to section 68 of the Act. 20. That the authorities below erred in refusing to grant the beneficial treatment provided under the Act of the Capital gains earned by the assessee from the transfer of shares in M/s. Parag Shilpa Investment Ltd (PS IT Infrastructure & Services Ltd) of Rs. 20,25,08,735/-. 21. That the authorities below erred in making addition of Rs.60,75,262/- u/s 69C of the Act. 22. That the authorities below erred in charging 3% of capital gains as the commission paid u/s 69C of the Act. 23. The appellant denies the liabilities for interest u/s 234B & 234C of the Act. Further prays that the interest if any should be levied only on returned income. 24. The appellant denies the liability for interest u/s 234D of the Act. The levy of interest u/s 234D is against the express

ITA Nos. 2373 to 2376/Bang/2018 Page 11 of 50 provisions of law. 25. No opportunity has been given before levy of interest u/s 234B, 234C and 234D of the Act. 26. Without prejudice to the appellant's right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234B,234C and 234D of the Act. 27. For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered.”

i) If the assessee fails to make the return required under sub-section (1) of section 139 and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or ii) The assessee fails to comply with all the terms of a notice issued under sub- section (1) of section 142 or fails to comply with a direction issued under sub- section (2A) of that section, or iii) having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143,

ITA Nos. 2373 to 2376/Bang/2018 Page 12 of 50 8. He submitted that paras 9 and 10 of the assessment order on pages 22 and 23 of the assessment order contains the observations of the AO in respect of AO’s decision to complete the assessment u/s. 144 of IT Act. He submitted that there is no such observation of the AO that anyone of the three essential preconditions are complied with in the present cases and hence, the assessment order passed by the AO u/s. 144 of IT Act is bad in law. He placed reliance on the judgment of Hon’ble Calcutta High Court rendered in the case of Mohini Debi Malpani vs. ITO & Anr. as reported in (1970) 77 ITR 0674, copy available on pages 355 to 361 of paper book. He pointed out that as per this judgment, it was held in this case that since the conditions precedent for the assumption of jurisdiction under Section 144 of the Act were not present in that case, the assessment order passed under Section 144 of IT Act must be therefore struck down as being without jurisdiction. He submitted that therefore, in the present appeals also, this assessment order should be struck down because in the present case also, the conditions precedent for assumption of jurisdiction u/s. 144 of IT Act are not present.

a) Relevant Portion of the written Submissions of Learned DR:- “1. Credentials of Penny Stock Companies: Statements of Operators

ITA Nos. 2373 to 2376/Bang/2018 Page 13 of 50 During the course of argument, the AR of the appellant had argued that in the statement of Shri Jagadish Prasad Purohit , the name of the Penny Stock Companies i.e., Blue Circle Services Ltd (BCSL) and PS IT Infrastructure & Services Ltd (formerly known as Parag Shilpa Investments Ltd) (PSIL) do not appear. On this, it is submitted that, the Learned AR has tactfully omitted to refer the complete modus operandi of Shri Jagadish Prasad Purohit, one of the operators of operating stock companies. It is pointed out that it not only operate in its own capacity or through the company in which he is a Director, but also through its cronies and trusted persons. One of its trusted person is Shri Dhruva Narayan Jha. In the statement recorded by DDIT(Inv) Unit-3(3), Kolkata on 21-01-2015, Shri Jha while answering to question no.7, has admitted that he is a salaried employee of the group companies maintained and managed by Shri Jagdish Prasad Purohit. As per his direction and instruction, he became Director in many companies. He has enumerated the name of the company where he is made Director. In reply to question no.8 wherein the very first company name is Blue Circle Services Ltd. In reply to question no.9, he has mentioned that in another 259 companies his name is being used. At S.No.149, name of the another penny stock company PS IT Infrastructure & Services Ltd is appearing. The statement of Sri Dhruva Narayan Jha. forms part of the assessment order has been made as Annexure 1 of the assessment order passed by the Assessing Officer. 2. Re-opening of Assessment: The other issue regarding re-opening of assessment u/s 147 and passing of assessment order u/s 144 has been elaborately dealt by the Assessing Officer in the body of the assessment order and elaborated in the order of the CIT(A). On similar set of facts in the case of Ritu Sanjay Mantry VS. ITO-24(3)(4), Mumbai in ITA No.2003/Mum/2017 dated 09-02-2018 (Page 14-27 of enclosed Annexure) for the assessment year 2008-09, the Hon'ble ITAT "'SMC" Bench, Mumbai has upheld the re-opening of assessment subsequent to information received from Investigation Wing or DGIT(C&IB), New Delhi. 3. Credentials of Penny Stock Companies: Action by SEBI/BSE and Ministry of Corporate Affairs The Learned AR was boasting that SEBI has not taken any action against the penny stock companies in which shares has been dealt by the appellant. It is pointed out here that SEBI has directed exchanges to suspend trading in certain listed companies suspicious of being shell entities and directed the stock exchanges to place these companies under a Graded Surveillance Mechanism (GSM) which is a system designed by SEBI to keep a check on shares which see an abnormal price rise not commensurate with the financial health or

ITA Nos. 2373 to 2376/Bang/2018 Page 14 of 50 fundamentals. These companies are often illiquid, have low market capitalisations and poor fundamentals. The regulator may suspect that shares of these companies are being bid up and used for money laundering. M/s. Blue Circle Services Ltd., is one of the Shell companies identified by SEBI. It is appearing at S.No..28 of the list put up by BSE on its website. Copy of the BSE notice and relevant copy of the list is enclosed herewith. (Page XI & XII) Name of PS IT Infrastructure & Services Ltd., also appears in the broader list of shell companies identified by Ministry of Corporate Affairs. As on date, trading has been restricted in the script of Blue Circle Services Ltd (INE 526K01031) on BSE and it is not freely tradeable of any stock exchange. Screen shot of the status available on BSE is enclosed herewith at Page XIII. 4. Cross Examination: On the issue of cross examination, the learned AR was pointing out that the opportunity for cross examination was not granted by the Assessing Officer. The statements recorded of the penny stock operators and their cronies in providing accommodation entries for commission are more in the nature of explaining the modus operandi and how the course of events are predetermined and so arranged as to translate into profits for all the parties involved. The statements are not specifically and solely against the appellant, who incidentally a beneficiary of the entire scheme. Therefore, there is no injustice imparted to the appellant on not being provided with an opportunity of cross examination. On the contrary, it appears that the entire scheme was so designed and executed that the mischievous elements were operating from behind the screen. The systematic execution of the predetermined acts did not require any personal, one to one interaction between the beneficiaries and the brokers. In any case, the appellant had already expressed his ignorance about the developments / activities that tool place behind the screen and he could also not furnish a proper reason as to why the investments were made by him in a non-descript company with hardly any financial tract record. The stock market data, the trade pattern, the involvement of brokers, the balance sheet, the profitability itself is a case which will give a conclusion of the operation being carried out with the most dubious intention and just to be naïve in ignoring the same and looking for evidence which was physically impossible to get in every case is only the last resort of a criminal to escape the punishment and needless to state that the Income Tax Law does not mandate he rigors of the Indian Penal Code to attract the evidence in that manner. With respect to the circumstantial evidence and in the matter related to the discharge of "onus of proof" and the relevance of surrounding circumstances of the case, the relevant observations and findings of Hon'ble Supreme Court in the case of CIT Vs. Durga Prasad More, are:

ITA Nos. 2373 to 2376/Bang/2018 Page 15 of 50 " that though an appellant's statement must be considered real until it was shown that there were reason to believe that the appellant was not the real, in a case where the party relied on self-serving recitals in the documents, it was for the party to establish the transfer of those recitals, the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals. Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal, Therefore the Courts and Tribunals have to judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decision of the final fact finding authority is made conclusive by law". The above ratio laid down by the Hon'ble Supreme Court has been reiterated and applied by the Hon'ble Apex Court in the case of Sumati Dayal V CIT 214 ITR 801 (SC). It is essential on the part of the AO to look into the real nature of transaction and what happens in the real word and contextualize the same to such transactions in the real market situation. It is pertinent to state here, the wisdom of Hon'ble Supreme Court in CIT v Arvinda Raju (TN)(1979) 120 ITR 46 (SC) wherein it was held that - " One day, in our welfare state geared to social justice, this clever concept of 'avoidance' as against 'evasion' may have to be exposed." Hon'ble Supreme Court in the case of Mcdowell& Co. Ltd (1985) 154 ITR 148(SC), wherein the Hon'ble Supreme Court has denounced tax avoidance, if not Bonafide. The relevant part of the observation of the Hon'ble Supreme Court is reproduced hereunder: "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges." Every person is entitled to so arrange his affairs as to avoid taxation but the arrangement must be real and genuine and not a sham or make believe. 5. We Will also like to bring to the notice of the Hon'ble ITAT on the judgements of the Hon'ble High Courts and Hon'ble ITATs which department would like to rely upon. These are listed out in the enclosed Annexure.” b) Relevant Portion of the assessment order i.e. Para 9 &10:- “9. In the case of ITO vs. Luxmi Prasad Goenka [19771{110 ITR 674 (Calcutta High Court), it is observed that, in order to

ITA Nos. 2373 to 2376/Bang/2018 Page 16 of 50 commit the default u/ s 143(2) of the Income-tax Act, 1961,it is necessary that there must be a failure to produce books of accounts or documents or evidence on which the assessee relied in support of his return. In this case, assessee's produced books of accounts and other documents like DEMAT account statement, Broker's Notes etc to substantiate his claim of exempt income in the form of LTCG. However, as discussed above, assessee has not shown true and correct nature of its income in its books of accounts. Further, vide the show cause notice dated 13/01/2017 and during the recording of statement, assessee was asked to produce any evidence/ documents which can nullify the facts mentioned in show cause notice. However, assessee failed to produce any evidence/ documents which will contradict the findings emerged out of survey actions and from statements recorded of various penny stock operators by various income tax authorities. He only reiterated and relied upon his books of accounts and broker's notes & DEMAT account statements. Under, such circumstances, I am compelled to hold an opinion that, except the books of accounts, DEMAT statements & Broker's Notes, assessee is not having any other evidence/ document in his possessions, to disprove circumstantial evidences and findings emerged out of investigations by various Income Tax authorities. 10. Therefore, I am satisfied that, books of accounts maintained by the assessee are not reliable and true and it should be rejected and assessment should be completed u/s 144 of the IT Act on the basis of information available with the undersigned received from various sources.” 10. We find that in Para 5 of the order of CIT(A), ld. CIT(A) has reproduced the submissions filed by the assessee before him on 23.07.2018 and this Para is reproduced herein below for ready reference. “5. In support of the statements of facts and grounds of appeals, the appellant has filed written submission in this office on 23-07-2018. It has been submitted as under: “With reference to the above appeal, in addition to statement of facts and ground of appealalready filed, the assessee is furnishing the submissions as below: The assessee for the above assessment year filed its return of income on 18.09.2012 declaring total income of Rs. 66,95,890/- consisting of Income from House property of Rs.l,48,246/-, Income from Profession of Rs.12,88,972/-, Income from Capital gains of Rs.3,14,480/- and Income from

ITA Nos. 2373 to 2376/Bang/2018 Page 17 of 50 Other sources of Rs.50,27,201/-. The assessee also earned exempt Long term capital gains of Rs.16,27,57,903/-. During the regular assessment proceedings the bank statements, property wise rental details, details of income from other sources, confirmation of accounts from parties relating to unsecured loans, statement of computation of capital gains along with contract notes, details of income from profession and bank account details were obtained and verified. After thorough verification of the same, the assessment was completed u/s 143(3) of the Act on 24.03.2015 by accepting the return of income filed by the assessee (copy of assessment order passed u/s 143(3) is enclosed as Annexure 1). Subsequently, a notice u/s 148 of the Act dated 03.11.2016 was issued to the assessee on 11.11.2016. The assessee complied with the said notice on 09.12.2016 and also sought copy of the reasons recorded for reopening of the concluded assessment by issue of notice u/s 148 of the Act. Though no copy of the reasons recorded were furnished however a consolidated notice u/s 142(1) of the Act dt.13.01.2017 for the AY's 2012-13, 2013-14, 2014-15 & 2015-16 was issued to the assessee on 24.01.2017 proposing to treat the long term capital gains arising out of investment in M/s. Blue Circle Services Ltd of Rs.16,22,06,666/- and Short term Capital gains arising out of investment in M/s. Fact Enterprises Ltd of Rs.5,109/- as Cash credit u/s 68 of the Act and also to add 3% of the total LTCG claim u/s 69C of the Act (copy of the notice is reproduced in Para 6 of the assessment order). The AO in support of the allegations made in the notice provided sworn statements of certain persons. In response to the said notice, the assessee vide letter dt. 28.02.2017 again sought the AO to provide copy of reasons (Copy of the letter is enclosed as Annexure 2). The AO vide notice dt.28.02.2017 furnished the reasons recorded (consolidated reasons recorded for AY 2012-13 to 2015-16 is reproduced in Para 2 of the assessment order) for which the assessee objected vide reply letter dt. 06.03.2017 (copy of the reply is reproduced in Para 3 of the assessment order). The assessee also replied to the show cause notice dt. 13.01.2017 vide reply dt. 06.03.2017 offering objections to the proposal in the show cause notice and requested the AO to provide complete details and thereafter provide opportunity for cross examination, in the event the objections of the assessee are not considered favorably (copy of the reply is reproduced in Para 7 of the assessment order). Subsequently, the AO disposed of the objections vide letter dt.10.03.2017 (copy of the objections is reproduced in Para 4 of the assessment order). Without appropriately considering the objections and the clarifications the AO completed the assessment u/s 144 rws 147 of the Act making additions as proposed in the show cause notice.

ITA Nos. 2373 to 2376/Bang/2018 Page 18 of 50

Firstly, the AO erred in completing the assessment u/s 144 of the Act without following the prescribed procedure under law. The assessee has participated in the proceedings by way of appearances and filing details and replies. As mentioned by the AO in Para 5 of the order, the assessee appeared from time to lime and filed details. The AO also at various places has made reference to the replies filed by the assessee and reproduced them. Hence it is erroneous on the part of the AO to frame the assessment u/s 144 of the Act when there is compliance by the assessee in the proceedings. The AO has also not adduced proper reasons in the order for having completed the assessment u/s 144 Act. The strange reason adduced by the AO that the books of accounts are not reliable and true cannot be the basis for completing assessment u/s 144 of the Act. The provisions of the section does not approve the action of the AO. Thus the assessment u/s 144 is based on wrong facts and particulars. The AO has also not issued any show cause notice to the assessee seeking to complete the assessment u/s 144 of the Act thereby not following the due procedure prescribed under law. The AO is in error for invoking section 144 of the Act in as much the ingredients for invoking section 144 is clearly absent in this case. The best judgment assessment so made is clearly against law, bad in law and requires to be vacated. In this regard the assessee relies on the decision in the case of Mohini Debi Malpani vs ITO &Anr - Calcutta HC - 77 ITR 674 (Annexure 3) wherein the Court has held as under: "Assessment-Best judgment assessment under certain particular circumstances-Noncomplianceof notices as mentioned in s. 144 is necessary to make best judgment assessment-Prior to assumption as regards the jurisdiction under s. 144 the AO must record a finding that there has been non-compliance with any of various notices mentioned in s. 144" Secondly, the Assessing Officer erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled. It is the contention of the AO that sufficient time was given to the assessee to reply to show cause notice dt.13.01.2017. As mentioned supra, the show cause notice dt.13.01.2017 seeking response on 24.01.2017 was given to the assessee only on 24.01.2017. Hence the assessee sought time to respond to the notice. Moreover, the AO issued notice u/s 142(1) of the Act instead of issuing copy of reasons recorded which was sought by the assessee vide letters dt 09.12.2016 & 28.02.2017. Once the reasons recorded were furnished by the AO on 28.02.2017,

ITA Nos. 2373 to 2376/Bang/2018 Page 19 of 50 the assessee complied with the objections and the reply to notice on 06.03.2017. Thirdly, the assessment u/s 143(3) of the Act was completed on 24.03.2015 after verification of the details of capital gains. Thus the present proceeding is a change of opinion and is not based on any new facts or material and is an invalid proceeding. Further in the reasons recorded there is no allegation of failure to disclose material and relevant facts necessary for assessment. The impugned order u/s 144 rws 147 is bad in law as the appellant had disclosed the material facts fully and truly necessary for assessment during regular assessment proceedings regarding capital gains and there is no tangible information or evidence warranting reopening of the assessment. The reassessment proceedings is on a change of opinion on the same facts without there being any new tangible evidence or information which is not permitted under law. Thus the notice issued u/s 148 are bad in law, without jurisdiction, barred by law and requires to be cancelled. In this regard the assessee relies on the decision of Delhi High Court in the case of Oracle System Corporation vs DCIT- 94 CCH 45 (Annexure 4) wherein the court has held as under: "Reassessment-Issue of notice of reassessment-Reasons for reopening-AO had held one 'O' has as the PE of the assessee in India-Assessee had paid royalty at 15percent- AO had held that since assessee company was earning royalties in India linked to the PE, the royalty income must be taxed at 20 percent gross instead of 15percent- Notice u/s 148 was issued and proceedings were initiated pursuant thereto-Assesses objection was also rejected-Assessee had claimed that reopening of assessment was done beyond 4 years from the end of the assessment year and therefore the first proviso of section 147 would come into play according to which there must be failure on the part of the assessee to fully and truly disclose all the material facts necessary for the assessment-Assessee claimed that the reasons recorded for reopening the assessment do not even allege that there has been any failure on the part of the assessee to fully and truly disclose all the material facts necessary for the assessment-Held, It was held by various High courts that in the absence of an allegation in the reasons recorded that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, any action taken by the AO u/s 147 beyond the four year period would be wholly without jurisdiction-In the present case it was evident from the recorded reasons, that there was no whisper of the petitioner having failed to disclose fully and truly all material facts necessary for his assessment- Therefore,

ITA Nos. 2373 to 2376/Bang/2018 Page 20 of 50 the necessary ingredient for inviting the provisions of Section 147 was missing- impugned notice u/s 148 and all proceedings pursuant thereto including the order disposing of the objections was set aside-Writ petition was allowed.” Further the AO has issued consolidated reasons for A Y's 2012-13, 2013-14,2014-15 & 2015-16 which is bad in law. The perusal of the reasons recorded indicates that the AO acted mechanically on the basis of the information received purportedly from different sources of the Income Tax Department. Thus implying that there is no independent application of mind by the AO. There being no tangible material / evidence against the assessee, the reasons recorded are vague and unsubstantiated. Thus the reassessment based on such reasons is bad in law and requires to be cancelled. In this regard, the assessee relies on the decision of the Hon’ble Delhi High Court in the case of Sarthak Securities Co. P Ltd. vs. ITO-329 ITR 110 (Annexure-5) wherein the Court has held as under: "Reassessment-Reason to believe-Absence of material or rational belief-AO was made aware of the situation by the Investigation Wing and there is no mention that the companies who had invested shares in petitioner company were fictitious- What is mentioned is that these companies were used as conduits-Assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel-Identity of companies was not disputed-It would not be appropriate to require the assessee to go through the entire gamut of reassessment proceedings-Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind by AO-Notice under s. 148 quashed" On merits, the assessee submits that the AO in support of the allegations made in the notice dt.13.01.2017 relied on statements purportedly recorded on oath of certain persons namely Shri Amit Saraogi - 5 pages - 30.12.2014, Shri Amarcharid Ratanlal Rander - 5 pages -13.06.2014, Shri Sajjan Kedia - 8 pages – 13.06.2014, Shri Soumen Sen - 11 pages - 10.02.2015, Shri Dhruv Narayan Jha-14 pages - 21.01.2015, Shri Dhruv Narayan Jha - 13 pages -21.01.2015, Shri. Jagdish Prasad Purohit - 19 pages - 21.01.2015, Shri. Jagdish Prasad Purohit - 9 pages - 19.10.2011, Shri. Jagdish Prasad Purohit - 11 pages - 12.02.2013, Shri. Jagdish Prasad Purohit - 9 pages - 17.12.2013 and the financial statements of three companies. The said material is not authenticated as required in law and consequently the veracity of the material is

ITA Nos. 2373 to 2376/Bang/2018 Page 21 of 50 an open ended question. The assessee replied to the notice vide reply dt.06.03.2017 offering objections to the proposal in the notice and requested the AO to provide complete details and thereafter provide opportunity for cross examination, in the event the objections of the assessee are not considered favorably. Without appropriately considering the objections and the clarifications the AO completed the assessment u/s 144 rws 147 of the Act making additions as proposed in the show cause notice by referring to the purported oath statements stated to be recorded from Shri Amit Saraogi, Shri Soumen Sen, Shri Dhruv Narayan Jha, Shri. Jagdish Prasad Purohit consisting of 1 to 91 pages and financial statements of two companies 1 to 6 pages. Thus the assessment suffers from non compliance of natural justice as the AO erred in not providing complete details before calling for objections from the assessee. The assessee is also aggrieved as the AO has made the additions based on certain material without provid.ing an opportunity for cross examination even though the same was sought vide letter dt. 06.03.2017. It is the contention of the assessee that no material can be used against the assessee unless the same is put forth to the assessee for rebuttal and an opportunity of cross examination is provided. Needless to say that these statements are baseless and cannot be relied upon as they have no legal sanctity/evidentiary value in the absence of opportunity of cross examination being provided to the assessee in spite of request. In this regard, the assessee relies on the following decisions: 1) Dhakeswari Cotton Mills Ltd vs CIT -SC - 26 ITR 775 (Annexure 6) 'Though ITO is not restrained under s. 23(3) by technical rules of evidence and pleading but he cannot make an assessment on pure guess-work without reference to any material or evidence and assessee must be given an opportunity to rebut any material considered by the IT authorities. 2) CIT vs SMC Share Brokers Ltd – Del HC-288 ITR 345 (Annexure 7) " Search and seizure-Block assessment-Computation of undisclosed income-Block assessment completed under s. 158BD against the assessee on the basis of documents discovered in the premises of one M and the statements made by him-Despite several requests by the assessee, M was not made available for cross-examination- Though statement of M had evidentiary value, weight could not be given to it in proceedings against the assessee without testing it under cross-

ITA Nos. 2373 to 2376/Bang/2018 Page 22 of 50 examination- Therefore, in the absence of M being made available for cross-examination, his statement could not be relied upon to the detriment of the assessee- Tribunal was justified in setting aside block assessment-No substantial question of law arises" The AO is in error in not objectively considering the objections filed by the assessee dt.06.03.2017. The entire order is based on surmise and suspicion without any evidence against the assessee which is even admitted by the AO as evident from the assessment order. The assessee submits that it is a regular investor in the equity market and the resultant losses/profits from the transactions are declared in the return of income filed. All the share transactions including the impugned transactions by the assessee are through recognized stock exchanges and banking channels and both receipts and payments are done through account payee cheques/RTGS. The underlying shares of the company are registered with the stock exchanges and also under the Companies Act. The Bank accounts are in reputed Banks, all indicating the genuinity and verifiability of the transactions. In support of the transactions made, the AO is in full possession of the details and was also perused during the survey. In view of absence of any irregularity, the transactions must be reckoned as genuine and resultant treatment in law also as genuine. The production of documents in the form of contract notes, demat statement, bank statements etc establishes the source, identity, creditworthiness and genuineness of the transactions. The AO has relied on the truncated oath statement of the assessee extracted in the assessment order which does not bring out anything incriminating or adverse inference against the assessee. Thus the AO erred in relying on irrelevant material while ignoring the relevant material. The reasons / findings of the AO are unsustainable and untenable in law as the same are contrary to the facts emerging from the record. The sale proceeds of the shares deposited into the Bank account cannot be treated as cash credit coming under the rigors of section 68. The assessee has already given the details of the sale proceeds which establishes its source, identity, creditworthiness and genuineness. Thus the AO is in error in resorting to section 68 of the Act. The entire assessment order and the addition made is on mere surmise, suspicion and pure guess work ignoring the direct evidences submitted by the assessee. In the given circumstances, the AO erred in resorting to section 68 of the IT Act and the same being unsustainable in law, the addition made of Rs.16,22,07,420/- requires to be deleted and the resultant beneficial treatment provided under the Act of the Capital gains earned by the assessee from the

ITA Nos. 2373 to 2376/Bang/2018 Page 23 of 50 transfer of shares be granted in the interest of justice. The AO has also erred in invoking the provisions of section 69C of the Act to make adhoc addition of 3% of capital gain. The AO erred in making an addition of Rs.48,66,222/- whereas no such expenditure was incurred by the assessee. The addition is made on mere surmise and suspicion and lacks substance and evidence. The assessee relies on the following decisions wherein similar issues the additions made have been deleted. 1) Farrah Marker vs ITO - ITA 3801/Mum/2011 - ITAT Mumbai (Annexure 8) 2) Sunil Prakash vs ACIT - ITA 6494/Mum/2014 - ITAT Mumbai (Annexure 9) In view of the above, it is requested that the additions made by the AO be deleted. The assessee is also aggrieved by the levy of interest u/s 234B & 234D and it is prayed that consequential relief may be granted in the interest of justice and oblige.” 11. From this Para 5 reproduced from the order of CIT(A), it is seen that this was the contention raised by assessee before CIT(A) that the AO has erred in completing the assessment u/s. 144 without following the prescribed procedure under law. It is also stated by assessee before CIT(A) that the assessee has participated in the proceedings by way of appearances and by filing details and replies. He also submitted before CIT(A) that AO has also stated in Para 5 of the assessment order that the assessee appeared from time to time and filed details. It was also submitted that the AO has also at various places has made reference to the replies filed by the assessee and reproduced them and therefore, it was the claim of the assessee that it is erroneous on the part of the AO to frame the assessment u/s. 144 of the Act when there is compliance by the assessee in the proceedings. We find thatld. CIT(A) has noted and reproduced the submissions before him and as per ground no. 7 of appeal raised before CIT(A), this was the contention of the assessee that the AO erred in framing order u/s. 144 without following the prescribed procedure under law. Ground nos. 1 to 6 and 8 to 14 raised before CIT (A) were in respect of validity of reopening of the assessment and all these grounds were disposed of together by the ld. CIT(A) as per Para 5.4 of his order without

ITA Nos. 2373 to 2376/Bang/2018 Page 24 of 50 giving any specific finding in respect of these objections of the assessee regarding absence of preconditions prescribed under section 144 of IT Act.

ITA Nos. 2373 to 2376/Bang/2018 Page 25 of 50 applicability of the judgment of Hon’ble Calcutta High Court rendered in the case of ITO Vs. Luxmi Prasad Goenka (supra). This was the conclusion of Hon’ble Calcutta High Court in this case that if an assessee is not relying on any evidence or document in support of the return and as such fails to produce any such document or evidence, it cannot be said that there was a failure on the part of the assessee to produce evidence in support of the return on which he relies. It was also concluded that in such cases, section 23(4) ofIndian Income-tax Act, 1922 did not authorize for best judgment. Para 5 of this judgment is relevant and therefore, the same is reproduced herein below for ready reference:-

“5. In the aforesaid three circumstances the ITO is enjoined to make best judgment assessment. In the instant case, the question is whether any of these three different situations contemplated by sub-s. (4) of s. 23 has happened in order to justify assessment under sub-s. (4) by the ITO. Counsel for the Revenue contended that in this case there was a failure to comply with the notice under sub-s. (2) of s. 23. It was urged that notice under sub-s. (2) of s. 23 has been given. That fact is undisputed. It also is apparent that the assessee did not, it was urged, produce any document or evidence or books of account of the firm to prove the genuineness of the claim made by the assessee in its return. Therefore, it was urged that the assessee had failed to comply with the terms of the notice under sub-s. (2) of s. 23 of the Act. We have noted sub-s. (2) of s. 23. It empowers the ITO, in cases where he is not satisfied with the return without the presence of the assessee or books or evidence by the assessee in support of the return, to call upon the assessee to produce or cause to be produced any evidence on which such person might rely in support of the return. Therefore, in order to commit the default under sub-s. (2) of s. 23, it is necessary that there must be a failure to produce books or documents or evidence on which the assessee relies in support of the return. The question, therefore, in this case is, has the assessee relied on any document or evidence in support of the return in the instant case. It is true that from the order as mentioned hereinbefore it is clear that the assessee did not produce any evidence in support of the return, but the question is whether the assessee relied on any document or any evidence in support of the return. If an assessee is not relying on any evidence or document in support of the return and as such fails to produce any such document or evidence it cannot be said that there was a failure on the part of the assessee to produce evidence in support of the return on which he relies. The assessee in the instant case was not relying on any evidence, at least the ITO has not found so. If that is the position, in such a case on the failure of the assessee to produce any document or evidence, upon which he does not seek to rely, the best judgment assessment under sub-s. (4) of s. 23 cannot be made. It is true that in this case, admittedly, there was failure under s. 37 of the Act. Sec. 37 of the Act empowers an ITO to call upon the assessee to give evidence and to produce documents but failure to comply with s. 37 does not authorise, under sub-s. (4) of s. 23, the ITO to make a best judgment assessment. In the aforesaid view of the matter it must, therefore, be held that the

ITA Nos. 2373 to 2376/Bang/2018 Page 26 of 50 assessment order was wrong and in violation of the provisions of sub-s. (4) of s. 23.”

ITA Nos. 2373 to 2376/Bang/2018 Page 27 of 50 present case. Consequently, I am constrained to hold that the letter dated the 12th November, 1964, cannot be construed as a notice under Section 143(2) of the Act. 10. In the circumstances, I must hold that the conditions precedent for the assumption of jurisdiction under Section 144 of the Act were not present in the instant case and the order of assessment under Section 144 of the Act must be therefore struck down as being without jurisdiction.”

ITA Nos. 2373 to 2376/Bang/2018 Page 28 of 50

Amount of LTCG A.Y. Name of the Scrip Claimed (Rs) 2012-13 Blue Circle Services Ltd (BCSL) 16,22,06,666 Fact Enterprises Ltd (FEL) 5,109

ITA Nos. 2373 to 2376/Bang/2018 Page 29 of 50

2013-14 Blue Circle Services Ltd (BCSL) 7,86,38,101 2014-15 Blue Circle Services Ltd (BCSL) 47,82,937 PS IT Infrastructure & Services Ltd(formerly known as Parag Shilpa 2, 37,75,098 Investments Ltd). (PSIL)

PS IT Infrastructure & Services Ltd( 2015-16 formerly known as Parag Shilpa 20,25,08,735 Investments Ltd). (PSIL) This Long Term Capital Gain is shown as received in your return of income. During the course of assessment you have furnished purchase bill of shares, bank account statements, DP statements to strengthen your claim of Long Term Capital Gain. 3. I have gone through the submissions made by you. It is seen that however the events are notsimple or lucid as stated to have been happened. There are some important circumstantial as well as direct evidences to show that the Long Term Capital Gain shown by you is not natural but is arranged one. General Preface 4. Before I deal with the specific details of this particular case, to put up the facts in perspective, it is necessary to give a background of investigation carried out by the investigation wing of the department. 4.1. The Directorate of Investigation, Kolkata carried out a country wide investigation to unearth the organized racket of generating bogus entries of Long Term Capital Gains (LTCG) which is exempt from tax. The modus operandi adopted by the operators was to make the beneficiary buy some shares of a pre-determined Penny stock company controlled by them. These shares are transferred to the beneficiary at a very nominal price mostly off-line through preferential allotment or off-line sale. The beneficiary (an individual) holds the shares for one year, the statuary period after which LTCG is exempt u/s 10(38) of the Income tax Act, 1961. In the meantime the operators rig the price of the stock and gradually rise its price many times, often 500 to 1000 times. This is done through low volume transaction indulged in by the dummies of the operator at a pre- determined 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 of the operator. For this, unaccounted cash is provided by the beneficiary

ITA Nos. 2373 to 2376/Bang/2018 Page 30 of 50 which is routed through a few layers of paper companies by the operator and finally is parked with the dummy paper company that will buy the shares. 4.2. Further, it may be mentioned here that the price of the shares of the penny stock companies are rigged and are raised through circular trading. This is managed by the "Operator" of the scrip. An "Operator" is a person who is managing the overall affairs of the scheme and he is the one who contacts the entities who wish to take entry of bogus LTCG/STCL in their books and arranges the same through the scrips of penny stock companies. The Operator manages many paper/bogus companies and uses them to do circular transactions to rig the price of the shares. The shares of these penny stock companies, although listed on exchange, are always closely held and are controlled by the promoter of the Penny Stock Company and the Operator who is arranging for the bogus LTCG/Loss. This is due to the fact that the general public is not interested in these shares as these companies have no credentials and this helps the operator to keep a control on the price movement of the shares. 4.3. If the beneficiary say, 'B' bought 10,000 shares of company "P" @ Rs. of 1/- per share and sold it @ Rs. 1000/- per share, he would make on paper capital gain of Rs. 49,90,000/-. In his hank account there would be a cheque deposit of Rs 50,00,000/- paid by the paper company that buys the shares. The receipt is prima facie exempt from tax under section 10(38) of the Income Tax Act, 1961. The Directorate of Investigation, Kolkata investigated transactions in 84 such penny stock shares quoted on BSE and examined on oath a large number of brokers, directors of companies that finally purchased the shares, the promoters of Penny stock companies, the entry operators who managed the dummy companies involved in price rigging. The money trial of transactions was also examined and, in a large number of transactions trial right from cash deposit account to the beneficiaries account was unearthed. As a result of investigation individuals who have been taken such entry of bogus LTCG amounting to several crores have been identified. The result of the investigation in brief is as under: i) Individuals throughout the country identified who have taken such bogus entries of LTCG amounting to several crores from 2010 to 2014. ii) The result of the enquiry was also shared with SEBI

ITA Nos. 2373 to 2376/Bang/2018 Page 31 of 50 and the SEBI after investigating 11 cases have found the allegation to be correct. The balance cases are still being investigated by SEBI. iii) The TOP 25 groups under each investigation directorate of the country were confronted in course of further investigation. Almost all of them barring a few have accepted having taken the entries for a commission. A sum of crores has been voluntarily surrendered by such assessees. iv) In Kolkata, where this investigation was started some of the beneficiaries who had taken entries of nearly Rs. 40 crores have voluntarily surrendered it for taxation without any further enquiry. v) Several assessees have filed revised return since the enquiry and have taken back their claim of exemption. 4.4. The Securities and Exchange Board of India (SEBI) has in the recent past, passed some orders on the issue of manipulation of share market for providing accommodation entry of bogus LTCG. SEBI considering the inputs from Income Tax Department as well as from its own surveillance system and that of the stock exchanges has taken appropriate action in case of the suspect scrips. These actions include passing interim direction, suspending the trade, reducing the price band etc. 5. Under this shadowed background following are the circumstantial / direct evidences against your claim of LTCG. 5.1. Not at all acquaintance with share market or absence of any regular share activity: It is seen from your case records that your return of income does not show substantial trading activity or investment in shares of listed companies. Even if you had invested in some A or B category of listed companies the total investment is very small and even profit earned from those investment is in the range of 4.89 % to 55.82%. As such your move to acquire the shares of M/s Blue Circle Services Ltd, M/s Fact Enterprises. Ltd & M/s PS IT Infrastructure & Services Ltd (formerly known as Parag Shilpa Investments Ltd) is a predetermined move which had sole aim to bring back unaccounted money. The purchase of shares @ 1.00 or 1.50 or 10.00/- that too in such a huge quantity was made when the company had no

ITA Nos. 2373 to 2376/Bang/2018 Page 32 of 50 proven financial results is an indicator to the events to be occurring in the future. The data received from BSE/NSE website or any other third party suggests that, all these three companies are having dubious financial track record. The copies of such reports are reproduced in the showcause. You have purchased shares when companies does not having any substantial profit. In spite of novice in share market & no substantial share transactions in the earlier years & subsequent years & when financial results of these three companies are not splendid &no chance of lucrative gains at the stage of purchase of its shares is a predetermined action on your part leading to subsequent path to acquire LTCG by way of dubious methods. This predetermined action with specific intention is one of the circumstantial evidence leading to the conclusion that LTCG earned is not genuine one. 5.4. Jack up of share price of all these three companies : Next step was to jack up the price of all these three scrips. It is requested to go through the statement of Shri Asit Kumar Sen, Kolkata recorded on 10/02/2015. In his statement, Sri Soumen Sen had explained that, how Shri Jagdish Purohit & Shri Anil Purohit used to jack up prices of certain scrips including scrips mentioned above, with circuitous transaction made through operated Jama Kharchi companies. While answering Q. 19 & 20, Shri Sen had explained the mod us operandi of this jacking process. 5. Increase of share price of BCSL, PSIL non commensuration with financial results: The financial results of three companies are attached with for your information. It may be mentioned that price of share of all three scripts was sky rocketed without having any awesome profit, EBIDTA margin, EPS, bonus, dividend etc. It is seen that, all the parameters which are essential for increase of price of share not present or favorable. In spite of this, if share price is increased multi folded then it is definitely due to artificial increase by circular trading of shares forming cartel. This has been evidenced from the trading details verified by SEBI on BSE Exchange. This is a direct evidence that share price of three companies were artificially hiked to create non- genuine I.TCG to you along with other beneficiaries. 5.6. Unrealistic returns on Investments: It is seen that from your stock summary itself that, other category A & B companies listed in BSE & NSE, normal returns are in the range of 4% to 55%. The companies

ITA Nos. 2373 to 2376/Bang/2018 Page 33 of 50 which had given return more than 50% are really good reputed companies and there is substantial investment by reputed foreign/domestic investors, both individual as well as institutional. Normal returns on savings are 7.80% for F.Y. 2012-13 to 2015-16 and for BSE/Sensex it was 18.70% for F.Y. 2013-14. It is seen that you have earned more than 85% of returns on investments when sensex, gold returns are far behind the strong performance of three companies without having any supporting financial results itself is a circumstantial evidence to show that your LTCG is not genuine one. 5.7. Status of Directors &Chariman: In his statement dated 13/06/2014 Shri. SajanKedia has admitted that all the directors of PS IT Infrastructure & Services Ltd( formerly known as Parag Shilpa Investments Ltd)are dummy directors. It can be seen that they are not having capacity to run a company, but are dummy directors. A copy of statement is enclosed for reference. From the statement it is clear that he is only a dummy director. He has also admitted that PS IT Infrastructure & Services Ltd( formerly known as Parag Shilpa Investments Ltd). (PSIL) is penny stock company. His income is very meager in spite of being a director and Chairman in a listed public limited company. In his statement dated 21/01/2015 Shri. Dhruv Narayan Jha has admitted that all the directors of Blue Circle Services Ltd are dummy directors. It can be seen that they are not having capacity to run a company, but are dummy directors. A copy of statement is enclosed for reference. From the statement it is clear that he is only a dummy director. He has also admitted that BCSL is penny stock company. His income is very meager in spite of being a director and Chairman in a listed public limited company. All these are indications that the LTCG earned is not genuine and this is also a circumstantial evidence. 5.8. Statement of Shri. Jagdish Prasad Purohit: Statement of Shri. Jagdish Prasad Purohit was recorded by DDIT, Kolkata on 21/01/2015 & 19/10/2011 by DDIT(INV)-Mumbai. A copy of this statements is enclosed. In his statement he has elaborately explained the modus operandi & admitted that all three companies are penny stock companies & he along with other per sons has provided bogus LTCG to various beneficiaries. In answer to various questions he has clearly admitted his business of entry providing, issue of dummy directors, control over layering companies, modus operandi of getting LTCG, specific modus operandi etc. His statement

ITA Nos. 2373 to 2376/Bang/2018 Page 34 of 50 is direct evidence that your claim of LTCG is not genuine but arranged one. 5.9. Details of trade data & exit providers: These are the cross parties who have purchased shares from you and provided exit entry. In case of BCSL the change in share holding pattern every March, is provided to you. Here there are number of exit providers but only trade data above Rs. 25 lakhs is provided to you. It can be seen that all these are Kolkata based paper companies. It may be noted that one of the promoter i.e. Prime Capital Limited of BCSL is nothing but company operated by Shri Jagdish Purohit. Further investors in BCSL, like BhuvaniaVinimaya Pvt Ltd; Zensar Merchandise Pvt Ltd; Gulistan Vanijya Pvt Ltd; BrijdhamDealcom Pvt Ltd; Finetrade Mercantile Co. Pvt Ltd; Krishana Devi Purohit; Flame Dealers Pvt Ltd; Divya Drishti Traders Pvt Ltd; ATN International Ltd; Silicon Valley Infotech Ltd; IVlachindranathMultitrade Pvt Ltd are nothing but Jama Kharchi companies and controlled and perated by Shri Jagdish Purohit, Kolkata and these so called investors had provided you exit route. 5.10. Money Trial by Investigation Wing, Kolkata: Investigation Wing, Kolkata has prepared a sample cash trail for showing that how the mechanism works for the syndicate of providing long term capital gain/ short term capital loss. For preparing this cash trail Investigation Wing, Kolkata has followed the money movement from undisclosed proprietorship accounts, where cash is being deposited mostly, to the Jamakharchi companies who are registered as clients with the share brokers. Undisclosed and unaccounted cash gets deposited to proprietorship accounts and then it gets transferred to client companies, who exist in paper only. From the Jamakharchi client company account, money gets transferred to Beneficiaries of Long Term Capital Gain via Share Broker's Account. On a sample basis, just to illustrate the modus operandi Investigation Wing, Kolkata has prepared cash tail of more than 1500 Crore Rupees. To elaborate it more, when a person needs entry of LTCG, he approaches a share broker or entry operator. Entry operator gets him registered with some share broker as a client. Then shares of a listed penny stock are provided to beneficiaries. After a year, beneficiary provides cash to entry operator for having equaling amount of entry of LTCG. Then entry operator or share broker gets such cash deposited to the various accounts and routes it to bogus client. Bogus client purchases the

ITA Nos. 2373 to 2376/Bang/2018 Page 35 of 50 penny stock shares from beneficiary on abnormally higher rate. Thus a beneficiary gets back his unaccounted cash as cheques/rtgs for receipt against sale of shares. Almost all the proprietorship accounts, where cash is getting deposited never files Income Tax Returns. Moreover, they tend to close such accounts very often, so that they can evade any STR/FIU/Income Tax issues. If one goes through the KYCs of such proprietorship accounts, it can be seen that they are opened in the name of dummy persons, who are either employees or relatives of entry operators. Investigation Wing, Kolkata has gone to even the registered offices of many such cash depositing firms, but as expected there was no existence found for any such persons/firms. Almost all such accounts were opened with fake addresses. Role of banking authorities is also highly questionable here. Same is true, in the case of Paper/Jamakharchi/bogus Clients also Though they are registered as a client with share brokers, and Brokers maintains KYC for such bogus clients also, but these clients does not exists at their given registered address. In many cases it was found that such client companies are missing, or existing nowhere. Even the person of share broker could not find its clients. When share brokers were confronted with this, they either accepted that such clients are bogus or they failed to make any reasonable explanation. Master Table of the Cash Trail

NAME OF AMOUNT OF NAME OF SL JAMAKHARCHI/BOGUS CASH CONCERNED SHARE CLIENT COMPANY TRAIL (Rs.) BROKER DEBDARU RELIGARE 1 PROMOTERS PVT. LTD 28 Crores SECURITIES LTD THE CALCUTTA DUARI MARKETING 2 162 CRORES STOCK EXCHANGE PVT LTD LTD. THE CALCUTTA HEADFIRST VINIMAY 3 8 CRORES STOCK EXCHANGE PVT LTD LTD. THE CALCUTTA CAMELLIA VINIMAY 4 24 CRORES STOCK EXCHANGE PVT LTD LTD. THE CALCUTTA KapeswarVintrade Pvt 5 157 Crores STOCK EXCHANGE Ltd LTD. 6 LAVANDER EXIM PVT 17 CRORES THE CALCUTTA

ITA Nos. 2373 to 2376/Bang/2018 Page 36 of 50 LTD STOCK EXCHANGE LTD. THE CALCUTTA LADIOS TRADING PVT 7 206 CRORES STOCK EXCHANGE LTD LTD. THE CALCUTTA MAHAMANI TRADE 8 103 Crores STOCK EXCHANGE LINK PVT LTD LTD. THE CALCUTTA 9 AMIT SARAOGI 663 Crores STOCK EXCHANGE LTD. THE CALCUTTA 10 Sankalp Vincom Pvt Ltd 95 Crores STOCK EXCHANGE LTD. GALLANT THE CALCUTTA 11 COMMOSALES PVT 46 CRORES STOCK EXCHANGE LTD LTD. THE CALCUTTA Ashok Kumar Kayan 12 51 Crores STOCK EXCHANGE Kayan Securities pvt ltd LTD. EUREKA STOCK PRAN JEEVAN AND SHARE 13 DISTRIBUTORS PVT. 6.14 Crores BROKING SERVICES LTD. LTD EUREKA STOCK AND SHARE 14 Dristi Suppliers Pvt Ltd 7.40 Crores BROKING SERVICES LTD PRAN JEEVAN 15 DISTRIBUTORS PVT. 1.16 Crores Guiness Securities Ltd LTD. SMC GLOBAL Cash Seizure SECURITIES LTD, & 16 PWAN KUMAR KAYAN 90 lakhs EUREKA STOCK .(Sub Broker) KORP SECURITIES DIVYA DRISHTI LTD. &MILLENIUM 17 138 CRORES MERCHANTS PVT LTD STOCK BROKING LTD KORP SECURITIES DIVYA DRISHTI LTD. & MILLENIUM 18 60 CRORES TRADERS PVT LTD STOCK BROKING 1773.60 TOTAL Crores 5.11. Trade pattern and Order placing mechanism: From the trade pattern it is seen that the trades

ITA Nos. 2373 to 2376/Bang/2018 Page 37 of 50 have been executed with mutual understanding by placing simultaneous synchronized orders. Successful hitting of order placed for large volume of shares like 25000 shares on 03-Sep-2013, 45000 shares on 20-Aug-2013 & 50000 shares on 21-Aug-2013 itself indicates that buyers are in collusion with you. Otherwise passing of orders placed is not possible particularly when trade price is static for various trades executed. It may be noted that all the trades have been executed at a fraction of second. All these trading patterns shows that your Long Term Capital Gain is arranged one. 5.12. Role of brokers & their help to operators for providing the arranged LTCG: The Investigation Wing, Kolkata has carried out the investigation about the role of brokers in this entire process. As narrated out in the modus operandi, it was seen that it is essential to the exit providers to open an account with brokers & purchase the shares in huge quantities from beneficiaries so that safe exit can be provided. It is also seen that most of the beneficiaries are big businessmen & require tax free funds in form of LTCG in huge quantity. Due to this reason the sizeable amount required to be maintained as balance in the exit provider's account with broker. It is seen that Investigation Wing, Kolkata & others have recorded the statements of brokers/persons related with the brokers. Following is the broker wise sale in your case. A statements various brokers was recorded by DDIT (Inv), Kolkata. In those statement, brokers had narrated entire modus operandi and confirmed role of paper companies as an operator for scrips like BCSL,FTL& PTI. Thus it is found that there is a group of persons working in tandem to provide arranged capital gain by receiving cash in lieu of it. It is seen that some exit providers / cross purchasers have helped you for sale of your shares. M/s Divya Drishti Traders Pvt Ltd is one of such party. A sample cash trial of this concern with other party is also mentioned above. It is seen that other exit providers / concerns who have purchased your shares have traded through ‘The Calcutta Stock Exchange Ltd.’ (Source: Trade data). Statement of Sri Amit Saraogi, who is sub broker of ‘The Calcutta Stock Exchange Ltd.’ was recorded on 30.12.2014. He has confessed that as a broker they were actively engaged in providing entries in the form of LTCG in collusion with other operators. The confession by brokers is also a circumstantial evidence against you that our LTCG is arranged one.

ITA Nos. 2373 to 2376/Bang/2018 Page 38 of 50

Amount of addition u/s 68 A.Y. Name of the Scrip of the IT Act 2012-13 Blue Circle Services Ltd (BCSL) 16,22,06,666 Fact Enterprises Ltd (FEL) 5,109 Total 16.22,11,775 2013-14 Blue Circle Services Ltd (BCSL) 7,86,38,101 Total 7,86,38,101 2014-15 Blue Circle Services Ltd (BCSL) 47,82,937 PS IT Infrastructure & Services V Ltd(formerly known as Parag 2, 37,75,098 Shilpa Investments Ltd). (PSIL) Total 2,85,58,035 PS IT Infrastructure & Services Ltd(formerly known as Parag 2015-16 20,25,08,735 Shilpa Investments Ltd). (PSIL) Total 20,25,08,735

ITA Nos. 2373 to 2376/Bang/2018 Page 39 of 50 A notice u/s 142(1) is enclosed.” 16. From the contents of this notice as reproduced above, it is seen that in Para no. 1 of this notice, the AO has drawn reference to return of income filed by the assessee and subsequent submissions made by the assessee and there is no requirement of the AO as per this Para of notice. In second Para, it is seen that AO has noted about the facts in respect of assessee’s claim of Long Term Capital Gain in various Assessment Years i.e. 2012-13 to 2015-16 and amounts thereof and name of the companies for which shares were sold and Long Term Capital Gain was earned by the assessee. Thereafter in Para 3 of this notice, the AO is making allegation that the Long Term Capital Gain shown by assessee is not natural but is arranged one. As per this Para also, there was no requirement of AO which was required to be complied with by the assessee. In Para 4 of this notice, the AO himself says that these are general preface and in this Para, the AO is noting about background of investigation carried out by the investigation wing of the department and hence, in this Para also, there is no requirement of AO which was required to be complied with by the assessee. In Para 5 of this notice, the AO has jotted down certain circumstantial / direct evidences which are against the assessee’s claim of LTCG. In Para 6 of this notice, the AO says that in view of the circumstantial and direct evidences noted by him in Para 5 of this notice, it is proven that the Long Term Capital Gain shown by assessee is not genuine one and it is cash credit u/s. 68 of IT Act, 1961 representing undisclosed income and hence, for these reasons, the AO proposed to make addition u/s. 68 of IT Act in respective Assessment Years. Thereafter in Para 7 of the notice, the AO has stated that from the statement of Shri Jagdish Purohit, it is observed that commission @ 3% has been charged for providing arranged capital gains to various parties and since the assessee is one of the beneficiaries as per the AO, this is the allegation of the AO that LTCG was arranged by Shri Jagdish Purohit for present assessee also, the AO has stated why an amount of @ 3% of total LTCG claim in each year should not be added to the assessee’s income u/s. 69C of IT Act. Regarding the requirements, the AO has finally stated in the notice that “Please attend along with books of accounts on 24.01.2017. A notice u/s 142(1) is enclosed.” Hence it is seen that as per this notice, various issues are raised by

ITA Nos. 2373 to 2376/Bang/2018 Page 40 of 50 the AO, but the compliance to be made by the assessee was this much only that the assessee was required to attend before the AO on 24.01.2017 along with books of accounts. But inPara 9 of the assessment order, the AO states that vide show cause notice dated 13.01.2017, the assessee was asked to produce any evidence / documents which can nullify the facts mentioned in show cause notice. The AO has noted that the assessee has reiterated and relied upon his books of accounts and brokerage notes and DEMAT account statements. This is not the case of the AO that books of accounts as required by the notice were not produced by assessee before him. In Para 11 of the assessment order, the AO has also noted that assessee has filed reply to notice on 06.03.2017 for the notice issued by the AO on 13.01.2017. Hence in the facts of present case, it cannot be said that the assessee has failed to comply with all the terms of notice issued u/s. 142(1) of IT Act.

ITA Nos. 2373 to 2376/Bang/2018 Page 41 of 50 assessment order passed by the AO u/s. 144 of IT Act deserves to be struck down and we struck down the same in all these four years.

ITA Nos. 2373 to 2376/Bang/2018 Page 42 of 50 may raise objection against the reopening. At that stage, if the reasons for several years are identical and therefore recorded together, it has no impact on the action to be taken by the assessee and hence, in our considered opinion, this judgment cannot be stretched to hold that recording of combined reasons for more than one year renders the reassessment bad in law. This objection has no merit. 22. Now we examine the applicability of the tribunal order rendered in the case of Ritu Sanjay Mantry vs. ITO (Supra) cited by the Learned DR of the revenue. We find that in Para 3 of this tribunal order it is noted in that case that information was received by the AO from o/o DGIT (C & IB), New Delhi that the assessee in that case has taken accommodation entry from M/s Mahasagar Securities Pvt. Ltd., (a company in the Mahasagar Securities Pvt. Ltd. group share scam case) of Rs. 10,32,289/- and based on this concrete information, the AO issued notice u/s 148 after recording the reason for the same. Under these facts, validity of reopening was upheld by the tribunal in that case. In the present case, as per the reasons recorded by the AO for reopening as available on pages 147 to 149 of the paper book, the AO has noted the year wise company wise LTCG as per return of income filed by the assessee for these four years and thereafter, the AO has noted fact about carrying out of a countrywide investigation by Directorate of Investigation, Kolkata to unearth the organized racket of generating bogus entries of LTCG which is exempt and then he has noted the modus operandi adopted by the operators. The AO has also noted in brief about the result of the investigation and in the same also, there is no mention of any particular beneficiary or a particular script used for that purpose by the operators. Then the AO has noted about passing of some orders by SEBI but in this Para also, no name is appearing. Then he has noted about Survey in the present case on 12.05.2015 by DDIT 9Inv.), Bangalore and on 20.09.2016 by the AO himself but there is whisper about any specific material found in these surveys. Thereafter in Para 7 of the reasons recorded by him, page 149, the AO came to the conclusion about escarpment ofincome by saying that based on the evidence gathered during the survey proceedings and statement of various persons in connection with these two companies companies i.e. M/s Blue Circle Services Ltd. and M/s PS IT Infrastructures & Services Ltd. recorded by various authorities of Income Tax

ITA Nos. 2373 to 2376/Bang/2018 Page 43 of 50 Department, he is satisfied about escarpment of income. Moreover, in the order dated 10.03.2017 passed by the AO to dispose of the objections raised by the assessee against validity of reopening available on pages 171 to 176 of the paper book, it is specifically observed by the AO in Para 2 on page 173 that there is no specific mention of name in any statement. Hence, it is apparent that in the present case, there is no such information with the AO that the present assessee is getting any accommodation entry. Further, in Para 3 of the reasons recorded by the AO for reopening as available on pages 147 to 148 of the paper book, the AO has noted the modus operandi of the racket of bogus entry operators. Hence this Para is reproduced herein below for ready reference.:- “3. The Directorate of Investigation, Kolkata carried out a country wide investigation to unearth the organized racket of generating bogus entries of Long Term Capital Gains (LTCG) which is exempt from tax. The modus operandi adopted by the operators was to make the beneficiary buy some shares of a pre-determined Penny stock company controlled by them. These shares are transferred to the beneficiary at a very nominal price mostly off-line through preferential allotment or off-line sale. The beneficiary (an individual) holds the shares for one year, the statuary period after which LTCG is exempt u/s 10(38) of the Income tax Act, 1961. In the meantime the operators rig the price of the stock and gradually rise its price many times, often 500 to 1000 times. This is done through low volume transaction indulged in by the dummies of the operator at a pre- determined 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 of the operator. For this, unaccounted cash is provided by the beneficiary which is routed through a few layers of paper companies by the operator and finally is parked with the dummy paper company that will buy the shares.”

ITA Nos. 2373 to 2376/Bang/2018 Page 44 of 50 This is basic human nature that if these transactions are bogus/accommodation entry only and not real and genuine transactions, the parties will try to close the chapter at its earliest after the expiry of one year and they will not continue it for such a long period of 2.75 years approx. When these facts are considered along with this admitted fact that there is no specific mention of name of the assessee in any statement as noted by the AO himself in the order passed by him to dispose of the objections of the assessee. In our considered opinion, the facts of the present case are different and therefore, this tribunal order is not applicable in the present case. 24. The second objection against validity of reassessment is this that there is no live link or nexus between information/material; and formation of belief. This is the argument of the learned AR of the assessee that the AO has recorded reasons based on ‘reasons to suspect’ and not on ‘reasons to believe.’ In support of this contention, reliance was placed on the following judicial pronouncements.:- a) ITO & Ors vs. LakhmaniMewalDas, 103 ITR 437 (SC). b) PCIT Vs. Meenakshi Overseas Pvt Ltd, DEL HC-395 ITR 677 c) CIT Vs. Valvoline Cummins Ltd, Del HC-90 CCH 233 d) Bakulbhai Ramanlal Patel Vs. ITO, GUJ HC-56 DTR 212 e) CIT vs. SFIL Stock Broking Ltd, Del HC-325 ITR 285 f) Devansh Exports vs. ACIT, Kolkata ITAT-54 CCH 85 25. As per Para 11 of the judgment of Hon’ble apex court rendered in the case of ITO vs. Lakhmani Mewal Das (Supra), it was held that the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of belief. For ready reference, this para of the judgment is reproduced herein below:-

“11. As stated earlier, the reasons for the formation of the belief must have rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of this belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening assessment. At

ITA Nos. 2373 to 2376/Bang/2018 Page 45 of 50 the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words "definite information" which were there in s. 34 of the Act of 1922, at one time before its amendment in 1948, are not there in s. 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, farfetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence.” 26. In the light of this judgment, we now examine the facts of the present case to find out as to whether, in the present case, it can be accepted that reasons for the formation of the belief of the AO had rational connection with or relevant bearing on the formation of belief of the AO. Hence, we reproduce the reasons recorded by the AO from pages 147 to 149 of the paper book. The same are asunder:- “It is seen that assessee has filed return of income on for A.Yrs. 2012- 13 to 2015-16 claiming Long Term Capital Gain on sale of shares of M/s Blue Circle Services Ltd, M/s Fact Enterprises Ltd & M/s PS IT infrastructure & Services Ltd (formerly known as Parag Shilpa Investments Ltd). Amount of LTCG A.Y. Name of the Scrip Claimed (Rs) 2012-13 Blue Circle Services Ltd (BCSL) 16,22,06,666 Fact Enterprises Ltd (FEL) 5,109 2013-14 Blue Circle Services Ltd (BCSL) 7,86,38,101 2014-15 Blue Circle Services Ltd (BCSL) 47,82,937 PS IT Infrastructure & Services Ltd(formerly known as Parag 2, 37,75,098 Shilpa Investments Ltd). (PSIL) PS IT Infrastructure & Services Ltd( 2015-16 20,25,08,735 formerly known as Parag Shilpa Investments Ltd). (PSIL) This Long Term Capital Gain is shown as received in his return of income. 3. The Directorate of Investigation, Kolkata carried out a country wide investigation to unearth the organized racket of generating

ITA Nos. 2373 to 2376/Bang/2018 Page 46 of 50 bogus entries of Long Term Capital Gains (LTCG) which is exempt from tax. The modus operandi adopted by the operators was to make the beneficiary buy some shares of a pre-determined Penny stock company controlled by them. These shares are transferred to the beneficiary at a very nominal price mostly off-line through preferential allotment or off-line sale. The beneficiary (an individual) holds the shares for one year, the statuary period after which LTCG is exempt u/s 10(38) of the Income tax Act, 1961. In the meantime the operators rig the price of the stock and gradually rise its price many times, often 500 to 1000 times. This is done through low volume transaction indulged in by the dummies of the operator at a pre- determined 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 of the operator. For this, unaccounted cash is provided by the beneficiary which is routed through a few layers of paper companies by the operator and finally is parked with the dummy paper company that will buy the shares.

ITA Nos. 2373 to 2376/Bang/2018 Page 47 of 50 crores have been identified. The result of the investigation in brief is as under: i) Individuals throughout the country identified who have taken such bogus entries of LTCG amounting to several crores from 2010 to 2014. ii) The result of the enquiry was also shared with SEBI and the SEBI after investigating 11 cases have found the allegation to be correct. The balance cases are still being investigated by SEBI. iii) The TOP 25 groups under each investigation directorate of the country were confronted in course of further investigation. Almost all of them barring a few have accepted having taken the entries for a commission. A sum of crores has been voluntarily surrendered by such assessees. iv) In Kolkata, where this investigation was started some of the beneficiaries who had taken entries of nearly Rs. 40 crores have voluntarily surrendered it for taxation without any further enquiry. v) Several assessees have filed revised return since the enquiry and have taken back their claim of exemption. 5. The Securities and Exchange Board of India (SEBI) has in the recent past, passed some orders on the issue of manipulation of share market for providing accommodation entry of bogus LTCG. SEBI considering the inputs from Income Tax Department as well as from its own surveillance system and that of the stock exchanges has taken appropriate action in case of the suspect scrips. These actions include passing interim direction, suspending the trade, reducing the price band etc. 6. Based on the above information received from different sources, a survey action u/s 133A of the IT Act was carried out in his case on 12/05/2015 by the DDIT(Inv.), Bangalore and on 20/09/2016 by the undersigned. 7. Based on the evidences gathered during the survey proceedings and statements of various persons in connection with M/s Blue Circle Services Ltd & M/s PS IT Infrastructure & Services Ltd (formerly known as Parag Shilpa Investments Ltd) recorded by various authorities of Income Tax Department, I am satisfied that, assessee has claimed LTCG from M/s Blue Circle Services Ltd & M/s PS IT Infrastructure & Services Ltd (formerly known as Parag Shilpa Investments Ltd) & Fact Enterprises Ltd as exempt income which is prima-facie bogus claim and it requires to be taxed. Issue notice u/s 148 of the IT Act,1961.” 27. From the reasons reproduced above, it comes out that the AO has noted year wise company wise details of LTCG shown by the assessee and thereafter, the AO has noted about the investigation carried out by Directorate of

ITA Nos. 2373 to 2376/Bang/2018 Page 48 of 50 Investigation, Kolkata along with Modusoperandi of Penny Stock Operators along with manipulation of share market, accommodation entry for bogus LTCG. Finally, the AO says that a survey u/s 133A was carried out by the DDIT (Inv.) Bangalore in the case of the present assessee on 12.05.2015 and on 20.09.2016 by the AO of the assessee. But there is no whisper about the material found in these two surveys. Thereafter, the AO comes to the conclusion that based on evidences gathered during the survey proceedings and statements of various persons in connection with two companies i.e. M/s Blue Circle Services Ltd. and M/s PS IT Infrastructures & Services Ltd. recorded by various authorities of Income Tax Department, he is satisfied that the assessee has claimed LTCG from these two companies as exempt income, which is prima facie bogus claim and it is required to be taxed. 28. It is seen that on pages 150 to 157 of the paper book is the objections dated 06.03.2017 raised by the assessee against the validity of reopening in these four years. These objections are disposed of by the AO on 10.03.2017 by way of a consolidated order for these four years, copy available on pages 171 to 176 of the paper book. On page 173 of the paper book being part of the order of the AO to dispose of the objections of the assesseeagainst the validity of reopening in these four years, it is stated by the AO that there is no specific mention of the name of the assessee in any statement but after that the AO observed that these penny stock operators had not excluded the name of the assessee and hence, as per the AO, it has to be accepted that the present assessee is also one of the beneficiaries. In our considered opinion, his generalized inference cannot be drawn in the facts of the present case. In the present case, as per the details of LTCG for A. Y. 2012 – 13 as available on page 241 of the paper book, the shares of M/s Blue Circle Services Ltd. were purchased on 14.09.2010 and sold during 15.11.2011 to 27.03.2012. Similarly as per the details of LTCG for A. Y. 2013 – 14 as available on page 273 of the paper book, the shares of M/s Blue Circle Services Ltd. were purchased on same date i.e. 14.09.2010 and sold during 15.06.2012 to 02.01.2013.Similarly as per the details of LTCG for A. Y. 2014 – 15 as available on page 310 of the paper book, the shares of M/s Blue Circle Services Ltd. were purchased on same date i.e. 14.09.2010 and sold during 16.05.2013 to 21.06.2013. In A. Y. 2015 – 16 as

ITA Nos. 2373 to 2376/Bang/2018 Page 49 of 50 details of LTCG available on page 349 of the paper book, there is no LTCG on account of sale of shares of this company i.e. M/s Blue Circle Services Ltd. In fact, as per the reasons recorded by the AO also, sale of shares of this company has taken place in three years i.e. A. Y. 2012 – 13 & 2014 – 15. 29. In A. Y. A. Y. 2012 – 13 details of LTCG available is available on page 241 of the paper book and as per the same, there is LTCG on sale of 4 companies in addition to sale of shares of M/s Blue Circle Services Ltd. but these four companies do not include the name of the second company in dispute i.e. M/s PS IT Infrastructure & Services Ltd. (Formerly known as Parag Shilpa Investment Ltd. PSIL). In fact, as per the reasons recorded by the AO also, sale of shares of this second company has taken place in two years i.e. A. Y. 2014 – 15 & 2015 – 16. Hence, we examine the details of LTCG for A. Y. 2014 – 15 as available on page 310 of the paper book and we find that the shares of this company were acquired on 20.07.2012 and sold during 04.03.2014 to 28.03.2014. As per the details of LTCG for A. Y. 2015 – 16 available on page 349 to 350 of the paper book, we find that the shares of this company were acquired on the same date i.e. 20.07.2012 and sold during 01.04.2014 to 27.03.2015. From these details, it comes out that the shares of both these companies were held for a very long period as against the compulsion of holding for one year to make the gain LTCG. The shares of the first company were acquired on 14.09.2010 and were sold during 15.11.2011 to21.06.2013. Similarly the shares of the second company were acquired on 20.07.2012 and were sold during 04.03.2014 to27.03.2015. We have already noted in Para 23 above that this is basic human nature that if these transactions are bogus/accommodation entry only and not real and genuine transactions, the parties will try to close the chapter at its earliest after the expiry of one year and they will not continue it for such a long period of 2.75 years approx. When these facts are considered along with this admitted fact that there is no specific mention of name of the assessee in any statement as noted by the AO himself in the order passed by him to dispose of the objections of the assessee, in our considered opinion, the facts noted by the AO in the reasons recorded by him can be reasons to have suspicion about the genuineness of these transactions but on the basis of these facts, a man of ordinary prudence will not have reasons to believe that income has escaped assessment because

ITA Nos. 2373 to 2376/Bang/2018 Page 50 of 50 the live link between the material available with the AO and formation of belief is missing particularly when there is no mention of the material found in course of survey, if any and considering this admitted fact that it is observed by the AO himself in Para 2 on page 173 of the order passed by him to dispose of the objections of the assessee that there is no specific mention of name of the assessee in any statement. In the light of above discussion, in our considered opinion, this judgment of Hon’ble apex court rendered in the case of ITO vs. Lakhmani Mewal Das (Supra) is applicable in the present case and respectfully following the same, we hold the reopening is not valid in the facts of the present case. 30. In view of our decision in favour of the assessee on both these technical aspects i.e. validity of the assessment order u/s 144 and validity of reopening of the assessment, we feel that decision on merit is not called for because it is of academic interest only. Hence, we do not decide the issue on merit.

Sd/- Sd/- (PAVAN KUMAR GADALE) (ARUN KUMAR GARODIA) Judicial Member Accountant Member Bangalore, Dated, the 09th April, 2019. /MS/ Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order

Assistant Registrar, Income Tax Appellate Tribunal, Bangalore.