PRAKASHO DEVI SARIA,SILIGURI vs. D.C.I.T., CIRCLE - 3(1), SILIGURI, SILIGURI

ORDER Shri S.S. Godara, JM:

3. The CIT(A) detailed discussion adhering Assessing Officer’s action making the impugned disallowance reads as under:-

The CIT(A)’s findings: 5. Decision :-

The only ground of appeal relates to the disallowance of loss in shares transaction amounting to Rs. 93,41,510/- which was claimed as short Term Capital Loss. This STCL was set off against the compensation of Rs.1 ,22, 12,055compensation the AO rejected the Short Term Capital Loss of Rs. 93,41,510/- arising from shares transactions and thereafter added back the same to the total income.

Perusal of fact shows that in the return of income, the appellant has claimed to have received compensation of RS.1 ,22,12,0551- from the Land Acquisition Officer, Haryana Govt against acquisition of her land. She had declared the said amount as short term capital gain which had been set off with the Short Term Capital Loss of Rs.93,41 ,510/- from share dealings. As per the details filed by the assessee, she dealt with the shares of Seven (7) different companies and claimed to have incurred above said loss. The details of the shares dealings are given as under:-

Sl. Name of Nos of Purchase Sales Gain/Loss No. the Shares Rs. Company Date Amount all Date Amount values all values excluding excluding STT(Rs.) STT(Rs.) 1 Strides 1,100 17/12/13 9,95,436 24/02/2014 3,88,754 (6.06,682) Accolab Ltd 2 Oil & 9,000 2013-14 24,68,852 2013-14 26,05,541 1,36,689 Natural Gas Ltd 3 First Fin 2,75,000 17/7/13 81,61,087 14/01/14 22,86,664 (58,74,423) 4 Ashok 10,000 15/7/13 1,75,086 25/2/14 1,55,326 (19,760) Leyland 5. Rutron 1,50,000 12/7/13 40,49,207 19/3/14 10,67,296 (29,81,911) Int. 6 NHPC 5,000 11/7/13 91,484 17/9/13 95,900 4,416 Ltd Prakasho Devi Saria 7 SJVN Ltd 3000 11-7-13 60,120 25-02-14 60,281 161 TOTAL 1,60,01,272 66,59,762 (93,41,510 (Rs.)

The A/R of the assesse explained both verbally and in writing that the assessee had received enhanced compensation and the interest on the compensation on 03/07/2013 from the Govt. of Haryana and immediately after the said date she has started investing in the shares of various companies which can be observed from the table given above. Ultimately, at the close of the financial year the assessee incurred huge loss in the share dealings and therefore such loss was set off with the Short Term Capital gain i.e. Compensation amount so received. The above short term Capital loss of Rs.93,41 ,5101- includes loss from two scripts viz. First Financial Services Limited (Rs.58,74,423) and Rutron International Limited. (Rs.29,81 ,911) ..

The AO disallowed the loss are accept of various observation which are enlisted as under:

(I) The assessee is not a habitual investor in shares as there was no such record of share investments/dealings even in small amount in any earlier period. She being a senior citizen lady she had no previous knowledge of investing in shares and stocks. How could she invest such huge sum' of money in the shares of lesser known penny stock companies viz. M/s First Financial Services Ltd. and M/s Rutron International Limited. Therefore dealing in above named penny stocks was nothing but a well thought manipulation to book manufactured loss in connivance with the entry operators/ shares brokers.

(II) A Search & seizure operation u/s.132 of the LT. Act, 1961 was conducted by the Investigation Wing of the department in the office and residential premises of various Share Brokers, Entry Operators and Promoters across the country including at Mumbai and Kolkata on 12/04/2015 reveal that the above stated scripts viz. FIRST FIN and RUTRON INT. are penny stock companies which are bogus. The statement on oath given by one of the Entry Operator Shri Anil Agarwal the Promoter/Operator u/s.132(4) of the I. T: Act, 1961 on 12/04/2015 in answer to Q.7, Q.8, Q.9, Q.10 stated that trading were done on behalf of client/beneficiary to book bogus L.T.C;G or S.T.C loss as per their requirement.

(In the course of a Search operation u/s 132 of I TAct 1961 on 12/04/2015 in the office and residence of one the Entry Operator Shri Anil Agarwal, who was the promoter. of companies viz. M/s First Financial Services Ltd. and Rutron International, in his statement recorded u/s 132(4), has! accepted such dubious and unscrupulous entries were done through the accounts of the companies managed or promoted by him. The modus operandi of how the Capital Gains or Losses are created as per the requirement of the beneficiaries through entry operations by layering of funds under the various penny stock companies ~are well described by him in his statement made on oath before the investigating officer, the DCIT (Inv),Unit- 8(1), Mumbai. The extract of answers to questions Nos 8 and 9 of the statements given by Shri Anil Agarwal, on oath recorded us 132(4) are reproduced below:-

"Q8. Please explain the modus operandi of the bogus L TCG/STCL entry obtained by the beneficiaries.

Ans: Sir, the bogus L TC,C? entry beneficiary approaches an entry operator who is having a listed company through some agent/mediator or directly. These listed companies are penny stock companies, having no actual business and having a closed share holding pattern. Thereafter, the beneficiary on instruction of the operator, purchases the shares of these penny stock companies at a very low price. The purchase is usually through the route of private' placement i e. preferential allotment. Once the preferential share allotment is complete, the operator (iggs the price of the penny stock through circular transactions and thus the price of thy penny stock is increased. Once a period of one year is over from the purchase of the shares (pre-requisite for claiming exempt L TCG) and the price of the stock reaches the desired level, the beneficiary is intimated by the operator/agent of the operator to provide cash, which can be routed to some other paper/bogus entities to by these shares from the beneficiary. The entry operator then routes and layers back this cash so received into various paper entities which are controlled and managed by him. These paper entities which have received layered money are then used as a dummy buyer for buying the rigged/ artificially jagged up shares from the beneficiaries. When the buyers are ready, then the entry operator intimates the beneficiaries to sell specific number of shares at specific price at a specific time. This ensures that the shares of only the beneficiaries are purchased by the dummy buyers. The transactions take place though the stock exchange and brokers and some nominal commission is charged in cash on the net pre-arranged bogus L TCG accruing to the beneficiary. This pre-arranged bogus Capital gain income so earned through rigging of shares is claimed as exempt in the books of the beneficiary. In the same process, the entities which purchase the shares of the beneficiaries at high price book bogus short term capital loss by selling the shares when the prices fall.

9. Please explain in detail about yow role in providing bogus LTCG to the beneficiaries of the scripts Redford Global Limited, Fist Financial Services Limited and Rutron International Limited.

Ans:- Sir, I knew three persons, namely, Shri Paras Chaplot, Shri Pankaj Shah and Shri Vijay Join, of Mumbai, who are primarily involved in the business of providing entry of LTCG. I knew the directors of Mls Rutron International Limited and M/s First Financial Services limited and introduced them to Shri Paras Chaplot, Shri Pankaj Shah and Shri Vijay Jain. I also came to know that Mls Redford Global Limited is also one such penny stock company which was operated by Shri Paras Chaplot, Shri Pankaj Shah and Shri Vijay Jain. Some clients contacted me tot availing the entry of L TCG and I introduced them to Shri Paras Chaplot, Shri Pankaj Shah and Shri Vijay Jain. Thereafter. as per the modus operandi the beneficiaries inverted in the penny stock of Mls Redford Global Limited, M/s Rutron International Limited and M/s First Financial Services Limited. The shares of these companies were rigged and the price was increased to desired level over a desired period. Once the prices of the shares reached their peak price, the sale of he above mentioned scripts was errer.qed by Shri Paras Ctieplot. Shri Pankaj Shah and Shri Vijay Jain so as to provide entry of L TCG to the beneficiaries. In this process some of the entities were given entry of Short Term Capital Loss also. ") (III) That the extract statements of Shri Ani! Agarwal it transpires that his companies including M/s First Financial Services Ltd and M/s Rutron International Ltd. were involved to give the accommodation entry unscrupulously in the form of capital gains and losses (IV) It was also noted that both the companies i.e. Ms First Financial Services Limited and M/s Rutron International Limited are suspended by the Security Exchange Board of India (SEBI), due to fact that order W3S passed by SEBI against M/s. financial services Ltd dated 14.06.2016 M/s. Rutron International Ltd where in its is held that M/s. first financial group misused Prakasho Devi Saria stock exchange mechanism to exit at a higher price in order to tenure fictitious L TCG and sale these shares at free loan price within a period of one year using the stock exchange mechanism. therefore, by booking losses.

(V) that the assessee had resorted to adopt above method to avoid paying tax on the income received from capital gain and interest from compulsory acquisition of land by the Haryana Govt.

(VI) The Hon'ble Supreme Court in the case of MCDOWELL & co. LTD. Vs CTO 154 ITR has held that "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 honorableto avoid the payment of tax by resorting to dubious method. It is the obligation of every citizen to pay tax honestly without resorting to subterfuges. The taxing authority is entitled and indeed bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open-to the taxing authorities to unravel the device and to determine the true character of the relationship". During the course of hearing, the AJR of the assessee in his submission has accepted this fact that above said two companies are lesser known companies. Further, it is far from the truth that how a simple elderly lady spends such a huge compensation money in the unknown shares of the unknown companies to incur huge losses. This was nothing but a willful intention to evade the tax by setting off such bogus loss with the capital gain made from Compensation amount received from Haryana Govt.

Perusal of aforesaid observations of the AO and finding of investigation wing shows that the Entry Operator Shri Anil Agarwal, who was the promoter of companies viz. M/s First Financial Services Ltd. and Rutron International, in his statement recorded u/s 132(4), has accepted such dubious and unscrupulous entries were done through the accounts of the companies managed or promoted by him. In his 'statement Sh. Anil Agarwal stated that Shri Paras Chaplot, Shri Pankaj Shah and Shri Vijay Jain, of Mumbai, who are primarily involved .in the business of providing entry of L TCG were known to him. He also knew the directors of M/s Rutron International limited and Mls First Financial Services limited and introduced them to Shri Paras Chaplot, Shri Pankaj Shah and Shri Vijay Jain. He also came to know that M/s Redford Global limited is also one such penny stock company which was operated by Shri Paras Chaplot, Shri Pankaj Shah and Shri Vijay Jain. Some clients contacted me for availing the entry of L TCG and I introduced them to Shri Paras Chaplot, Shri Pankaj Shah and Shri Vijay Jain. Thereafter, as per the modus operandi the beneficiaries invested in the penny stock of M/s Redford Global limited, Mls Rutron international limited and M/s First Financial Services limited. The shares of these companies were rigged and the price was increased to desired level over a desired period. Once the prices of the shares reached their peak price, the sale of the above mentioned scripts was arranged by Shri Paras Chaplot, Shri Pankaj Shah and Shri Vijay Jain so as to provide entry of LTCG to the beneficiaries. In this process some of the entities were given entry of Short Term Capital Loss also.

The appellant is not a habitual investor in shares as there was no such record of share Investments/dealings even in small amount in any earlier period. She being a senior citizen lady she had no previous knowledge of investing ill shares and stocks. How could she invest such huge sum of money in the shares of lesser known penny stock companies viz. M/s First Financial Services Ltd. and Mls Rutron International limited. Therefore dealing in above named penny stocks was nothing but a well thought manipulation to book manufactured loss in connivance with the entry operators/ shares brokers.

In case of Sh. Avtar Singh, Sirsa vs Department Of Income Tax on 8 November, 2012 IN THE INCOME TAX APPELLATE TRIBUNALCHANDIGARH BENCH 'A' CHANDIGARH Assessment Year: 2008-09 the honorable ITAT has held the share loss as structured and colorable transaction in order to reduce loss. The gist of the decision is reproduce as under:

"It is the duty of the Court in every case, where ingenuinity is expended, to avoid taxing and welfare legislation, to get behind the smoke screen and discover the true state of affairs. The Court is not to be satisfied with form and leave alone the substance of the transaction This view has been upheld by the Hon'ble Supreme Court, in Workman of Associated Rubber Industries Ltd. (1986) 157 ITR 77 (S.C) and in Ess Ess Kay Engg. Co.(P) Ltd. V CIT (1985) 15 ITR 636 (P&H). The Hon'ble Kerala High Court in Onam Agarbati Co. V Dy.CIT (2009) 310 ITR 56 (Ker) has held that though a tax payer may resort to a device to divert the income before it accrues to him, the effectiveness of advice depends upon its genuineness. The substance of the transaction has to be assessed by applying the taxing Statute so as to ascertain whether it is a sham or make-believe transaction or one which is genuine.

Ld. 'DR' placed reliance on the decision of the jurisdictional High Court in the case of Somnath Maini V CIT (2008) 3061TR 414 (P&H) and Balbir Chand Maini V CIT & another (2012) 340 ITR 161 (P&H) and contended that the issue in question is covered by these decisions. We have carefully perused and considered the facts and the ratio of the decisions of the jurisdictional High Court, in the case of Balbir Chand Maini (supra) and Somnath Maini V CIT (supra) and found that the facts of the present case are squarely covered by this decision. The relevant and operative part of the decision in the case of Balbir Chand Maini (supra) is reproduced hereunder "The return for the assessment year 1998-99, filed by the assessee at an income of Rs 7,93,140 was processed under section 143(1) of the Income-tax Act, 1961. Subsequently, in response to a notice under section 148, the esses- see again filed a return declaring the same income as shown in the return filed earlier. I During the reassessment proceedings. The Assessing Officer found that the assessee had purchased 30000 shares of A at the rate between Rs. 2.50 and Rs 3.40 per share, in the month of April, 1997, and out of those shares, he sold 24000 shares through a broker. The Assessing Officer came to the opinion that the value of the shares could not be as high as Rs. 55 per share and accordingly made an addition of RS.12,47,500 to the income of the assessee as income from undisclosed sources. However, he determined a sum of Rs. 2,85,620 as long-term capital loss, while computing the income. The Commissioner (Appeals) deleted the additions whereas the Tribunal reversed the order of the Commissioner (Appeals) and upheld the additions made by the Assessing Officer. On appeal :Held, dismissing the appeal, (i) that the Tribunal recorded a finding of fact that the transaction of sale and purchase of shares of A was not a genuine transaction. The Assessing Officer had found that the sale of shares had not taken place through any- stock exchange. On scrutiny of the books of account if the broker the Assessing Officer found that there were cash deposits in its bank account preceding the issue of cheques in the name of the assessee for purchase of shares claimed to be-tbe sale proceeds of the same shares received in advance. The broker could not give the details of the purchaser of the shares. The AO found that it was a close circuit transaction and clearly a structured one. The AO had also determined the value of shares of A on the basis of the financial data collected by him and worked out the value of shares to be not more than Rs. 9. 37 per share by adopting two methods for calculation of net asset value. There was no perversity or error of law in the order of the Tribunal. "

Considering the aforesaid acts and order passed by SEBI against M/s. financial services Ltd and dated 14.06.201f M/s. Rutron International Ltd where in its is held that M/s. first financial group misused stock exchange mechanism to exit at a higher price in order to tenure fictitious LTCG and sale thr se shares at free loan price within a period of one year using the stock exchange mechanism, therefore, by booking losses. (The order of SEBI is made as annexure-A.). The Hon'ble Suprr .ne Court, in the case of CIT V Durga Prasad More (1971) 82 ITR 540 (S.C) has categorically held that the revenue is entitled to look into the surrounding circumstances, to find out the reality of the recitals made in the documents. The relevant observations and findings of Hon'ble Supreme Court, in the matter of discharge of 'onus of proof' and the relevance of surrounding circumstances of the case are; "that though an appellant's statement must be considered real until it was shown that there were reasons 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 the Tribunals have to judge the evidence before them by applying the test of human probability. Human minds may differ as to the reliability of piece of evidence, but, in the 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 CI T 214 I TR 801 (S.C).Keeping in view of the aforesaid facts it is held that the transaction made by the appellant was bogus and same in order to reduce its taxable liability under the guise of bogus capital loss, Therefore, the action taken by the AO hereby upheld and ground of appeal appellant is hereby dismissed.” Prakasho Devi Saria

8. We have given our thoughtful consideration to rival contentions. The question that arises for our consideration/adjudication is about the genuineness of assessee’s impugned short term capital gain treated as bogus by both the lower authorities. She has filed all the requisite details on record in support of her share transactions. The Revenue’s case questions the genuineness of assessee’s details particularly in the light of search statement by Shri Anil Agarwal in the light of SEBI’s proceedings finalized on 2-4-2018 regarding M/s. First Financial Services Ltd. Rutron International Ltd (supra). Learned departmental representative fails to dispute that there is no direct evidence against the assessee to have indulged in artificial rigging of any of the 7 scrips’ shares. Or that said statement of Shri Anil Agarwal has nowhere quoted the assessee’s name adopting any of the alleged dubious means for artificial rigging of scrips prices. This tribunal’s recent decision in Mahavir Jhanwar V/s. ITO, Kolkata, decided on 01-02-2019 has taken into consideration hon’ble jurisdictional high court’s decision as well as this co-ordinate bench’s order deciding the similar issue of genuineness of long term capital gain treated as bogus by observing as under:-

“5. After hearing both sides, I find that in a number of cases this bench of the Tribunal and Jurisdictional Calcutta High Court has consistently held that, decision in all such cases should be based on evidence and not on generalization, human probabilities, Prakasho Devi Saria suspicion, conjectures and surmises. In all cases additions were deleted. Some of the cases were, detailed finding have been given on this issue, are listed below.- Sl.No. of the Assessee Date of order/judgment 1. ITA No. 714 to DCIT vs. Sunita Khemka 28.10.2015 718/Kol/2011 ITAT, Kolkata 2. 214 ITR 244 CIT vs. Carbo Industrial Holdings - Calcutta High Court Ltd 3. 250 ITR 539 CIT vs. Emerald Commercial ltd 23.03.2001 4. ITA No. 1236- Manish Kumar Baid vs. ACIT 18.08.2017 1237/Kol/2017 5. ITA No. 569/Kol/2017 Gautam Pincha 15.11.2017 6. ITA No. 443/Kol/2017 Kiran Kothari HUF 15.11.2017 7. ITA No. 2281/Kol/2017 Navneet Agarwal vs. ITO 20.07.2008 8. ITA No. 456 of 2007 CIT vs.Shri Mukesh Ratilal Marolia 07.09.2011 Bombay High Court.

We adopt the above detailed discussion/reasoning mutatis mutandis taking into consideration the hon’ble high court’s decision (supra) to conclude that such a disallowance has to be based on evidence rather as alleged suspicion circumstances. We accordingly direct the Assessing Officer to delete the impugned addition.

1. 1. Appellant/Assessee: Smt. Prakasho Devi Saria C/o Pradip Lakhotia, 2nd Floor, Metro Plaza, SF Road, Siliguri-734005.

2. Respondent/Department; The CIT(A), Siliguri, Aaykar Bhawan, Matigara, Siliguri- 734005. 3..C.I.T(A).- 4. C.I.T.- Kolkata.

5. CIT(DR), Kolkata Benches, Kolkata.