SHRI NILESH HARESH PARWANI,MUMBAI vs. THE ASSISTANT COMMISSIONER OF INCOME TAX-22(2), MUMBAI

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IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA No.2244/Mum/2023 (A.Y. 2014-15)

Shri Nilesh Haresh Vs. The Assistant Parwani, 501, Chumchum Commissioner of Income Saraswati Road, Tax-22 (2) Santacruz West, Room No. 315, Piramal Mumbai – 400 064 Chamber, Lalbaug, Mumbai – 400 012 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No:ANGPP1224L Appellant .. Respondent Appellant by : Sanjay Parikh Respondent by : Anil Sant Date of Hearing 08.03.2024 Date of Pronouncement 15.05.2024 आदेश / O R D E R Per Amarjit Singh (AM): This appeal filed by the assessee is directed against the order passed by the ld. CIT(A) NFAC for A.Y. 2014-15. The assessee has raised the following grounds before us: “A. Addition/disallowance of Short Term Capital Loss Rs.1,62,91,466/- 1. The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [CIT(A)] erred on facts and in law in confirming the addition/disallowance of short term capital loss of Rs. 1,62,91,466/- as made by the Assistant Commissioner of Income Tax, 22(2), Mumbai (AO). 2. While confirming the addition/disallowance of the said loss, the learned CIT(A) erred in holding that the appellant had not made out a case as to how such huge LTCG/STCL has accrued to the appellant from shares of the company named Global Infratech Ltd.

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Scrip Purchase Date Purchase Sale Date (by Sale price Net gain or loss (by value of Consideration value of stock stock used in used in calculation) calculation) Global Infratech 19.11.2011 to Rs.2,90,43,781 19.03.2014 to Rs.1,27,52,315 Rs.1,62,91,466 27.11.2011 26.03.2014

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On further verification the assessing officer noticed that aforesaid scrip was mentioned in the report of the DDIT, Investigation, Kolkata under the titled Project Bogus ‘LTCG/STCL through BSE listed Penny Stocks. He further stated that assessee is a salaried employee and made investment in the aforesaid stock out of his savings. He also pointed out that assessee is not a regular investor. He also pointed out that assessee had a capital gain of Rs.91,47,575/- during the year on the sale of Employee Stock Option (ESOP) from its employer i.e Vista Print. The assessing officer has mentioned about the detailed investigation carried out by the investigation wing. The AO has also elaborated about the modus operandi adopted for providing accommodation entries for bogus LTCG/STCL in the case of M/s Global Infratech & Finance Ltd. that in such type of arrangement the purchases of shares are made by the bogus entities managed and control by the promoters of the penny stock company or the operator which are referred to as that exit providers. The AO has also discussed the facts relating to the background of M/s Global Infratech & Finance Ltd. and price movement of its stock. The share price of the M/s Global Infratech & Finance Ltd was around Rs.0.69 for the share having value of Rs.1 in January 2022 and this price was jacked up to Rs.84 from Rs.0.69 in 22 months till December 2013. Thereafter the price had gone down to merely Rs.9.60. The assessing officer has also analysed the abnormal price movement of the above scrip in the assessment order and found that movement in the share price was not commensurate with financial result of the said company. The assessing officer has also mentioned about the order of the SEBI at para 4.2 of the assessment order in the case of M/s First Financial Services ltd. holding that to accommodate other entities booking of short term loss to reduce tax liabilities can be well envisaged from the trading pattern of exit providers whereby they purchased shares at high price and sold these shares at very low price using the

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stock exchange mechanism thereby the booking short term loss. The AO also stated that in this order of the SEBI it was also mentioned that M/s Global Infratech and Finance Ltd was one of the member of M/s First Financial Services Ltd. The assessing officer has also reported at para 4.3 of the assessment order the entities who have facilitated the entire scheme of purchasing the shares of M/s Global Infratech and Finance Ltd whereby the unaccounted income of the beneficiary of bogus LTCG/STCL has been routed into books of the beneficiaries in the garb of proceeds of sale of shares. The assessing officer has also discussed the statement recorded of the assessee at para 8 of the assessment order wherein he also stated that he had also purchased shares of another stock that has been notified as a penny stock by the investigation wing, ‘PINEANIM’ in assessment year 2014-15 and other than this he had not invested in any shares in the stock market since. After taking into consideration all the material and facts as discussed above and reported in the assessment order the assessing officer concluded that short term capital loss claimed by the assessee Rs.1,62,91,446/- was bogus and same was disallowed and added to the total income of the assessee. 3. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. The relevant extract of the decision of CIT(A) is reproduced as under: “3. The appellant is an individual who has filed return of income on 30.07.2014 declaring income of Rs. 16,19,53,690/-. The returned was processed u/s 143(1) of Income Tax Act and case was selected for scrutiny under CASS. During the assessment proceedings, the assessee's reply on trading of penny stocks was not found acceptable by the AO and then AO completed the assessment proceedings by making an addition of Rs. 1,62,91,466/- as short term capital loss and Rs.4,88,743/-u/s 69C of the Income Tax Act. Aggrieved by this order, the assessee has preferred this appeal. 4. In the present case, under appeal, the AO had received information regarding the assessee involvement in the scrip which was part of the report prepared by DDIT (Inv.), Unit 2(3) named "Project Bogus LTCG/STCL through BSE Listed Penny Stocks". Kolkata Investigation Directorate had undertaken

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investigation into 84 penny stocks (Global Infratech being one of it) and has given detailed findings indicating bogus LTCG/STCL entries claimed by large number of beneficiaries. The assessing officer has also explained the modus operandi of the same in the assessment order. 5. It is very clear when an addition is made based on the investigation report which has ramifications of more than 1 beneficiary, then, during the relevant assessment proceedings it is the duty of such beneficiary to revert the findings of the investigation report. In this background the various submission of the appellant to revert the findings of the investigation report and the conclusions of the AO is evaluated. 6. Regarding the above mentioned, modus operandi adopted in order to provide entry of bogus Short Term Capital Loss, the AO in his assessment order vide para 2.1 has explained the findings of Kolkata Investigation Wing, and vide para 3 has given details about company's background, price movement of the stock. The relevant portion of which is reproduced as below: “....2.1.1 Kolkata Investigation Directorate had undertaken investigation into 84 penny stocks (Global Infratech being one of it) and has given detailed findings indicating bogus LTCG/STCL entries claimed by large number of beneficiaries. The modus operandi involving operators, intermediaries and the beneficiaries has been detailed in the investigation report prepared and disseminated by the Kolkata Directorate. Similar investigations were also conducted by the Directorate of Investigation at Mumbai and Ahmedabad. The basic aim of this dubious scheme was to route the unaccounted money of LTCG Beneficiaries into their account/books in the garb of Long Term Capital Gain. This entry of LTCG is taken by selling the shares on the stock exchange and registering the proceeds arising out of the sale of shares into the books as LTCG. For implementing this scheme, shares of some Penny Stock Companies were used. The same modus is adopted for providing accommodation entry of bogus loss. 2.1.3 In this scheme, the shares of the penny stock companies are acquired by the beneficiaries of LTCG at very low prices through the route of preferential allotment (private placement) and off market transaction. These shares have a lock-in period of 1 year as per Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. Another route to acquire the shares is through Amalgamation or merger. In this route, the beneficiaries of LTCG are allotted shares of a private limited company which is subsequently amalgamated with a listed penny stock and the beneficiaries receive shares of the listed penny stock in exchange of the shares of private limited company. The shares in some cases were acquired through stock exchange. These shares were then split and bonus shares were issued to increase the volume. 2.1.4 Thereafter, the prices 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

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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. 2.1.5 Once the period of 1 year has passed and the share prices have been sufficiently rigged, the beneficiaries sell their shares at the inflated prices on the Stock Exchange. A point worth noticing here is that the purchase of the shares is not made by the public but by the bogus entities managed and controlled by the promoter of the penny stock company or the operator which are referred to as "Exit Providers". The unaccounted money of the beneficiaries is routed to these bogus entities "Exit Providers and the shares held by the beneficiaries are bought by these bogus entities from the money which is the unaccounted money of the beneficiaries. Sometimes, the shares of the LTCG beneficiaries are purchased by the beneficiaries of LOSS who later sell their shares when the price falls and hence book bogus LOSS in their books. All these transactions are I done on the stock exchange and as the sale of shares are done after a holding of one year they fall into the category of Long Term Capital Gain which is an exempt income as per the IT Act, 1961. 2.1.6 During the investigation statements of various operators, entry providers and the stock brokers were recorded were they have admitted of providing the accommodation entries in the form of LTCG/STCL 3. Brief Background of the company and price movement of the stock: 3.1 Global Infratech (i) Global Infratech& Finance Ltd (formerly known as Asian Lac Capital and Finance Ltd)is a company registered with RoC Mumbai. This company was incorporated on 06.01.1995. M/s Global Infratech & Finance Ltd (formerly known as Asian Lac Capital and Finance Ltd) Corporate Identification Number is (CIN) 165921MH1995PLC248335. The company claims to be in the business of commercial services. The shares of the company are traded on Bombay Stock Exchange (BSE) under the Security ID: GBLINFRA and the Security Code is 531463 (ii) This company was having market price of share at around Rs. 0.69 for the share having face value of Re 1 in January, 2012. Thereafter, the price was jacked up to Rs.84 from Rs.0.69 in 22 months that is till December, 2013. Thus, within in 22 months the price was jacked up nearly 121 times. After that the price was maintained in the range of Rs.77 to Rs.81. So that the interested beneficiaries were able to book the long term gains. After that the price was made to fall freely so that interested beneficiaries who had booked at high market price can avail bogus short Term Capital Loss. Thereafter the prices have gone down to merely Rs.9.60…. .....

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.....3.2 One can easily gauge the astronomical price rise from around August 2012 to steep decline the end of January 2014. Any person having common knowledge of stock market and exemption under 10(38) can raise a serious doubt on the above price movements. This is a typical movement to provide large long term capital gains (Aug 2012 to Jan 2014) (which are eventually exempted) and then a steep decline phase (Jan 14- Sept 14) to book short term capital loss. The assessee in this case look short term capital loss and positions were taken between 19th November 2014 to 26th March, 2014. 3.3 It can also be seen from the above graph that while the Sensex has shown an increase of 76.4%, this scrip has shown an increase of 1915%." 6.1 In this context, attention is drawn to recent decision of Hon'ble Calcutta High Court which was rendered in the context of assessments made based on investigation report related to penny stocks. In this case the Hon'ble High Court has dealt with the various issues that have been raised by the appellant and after vide detailed order has held that on a similar set of facts that, exponential profits on sale of penny stocks cannot be accepted without any supporting evidences The relevant decision and findings of the Hon'ble Calcutta High Court in the case of PCIT vs. Swati Bajaj reported in [2022] 139 taxmann.com 352 (Calcutta)/ [2022] 446 ITR 56, (Calcutta) [14-06-2022] is reproduced as below: 51. The above decision would render support to cause an investigation by the Income-tax department when matters come to their notice showing abnormally high and inflated claims of LTCG especially when the share market in the country during the relevant time was not progressive. Therefore, no fault can be attributed to the Income-tax department for causing an investigation and any finding rendered pursuant to such investigation could very well be a material to commence further proceedings under the Act against the assessees who fall within the ring of suspicion..... we are not persuaded to hold that the report has to be discarded in its entirety and accordingly this objection raised on behalf of the assessee is decided against them. 52. Having steered clear of the objection raised regarding the report, we shall briefly deal with the contents of the report which states that the DIT, Kolkata had under taken the accommodation entries LTCG investigation on a much larger scale than earlier as a result they were able to identify a very large number of beneficiaries who have together taken a huge amount of bogus entries of LTCG and 64,811 beneficiaries were identified to be involved in the bogus claims of LTCG which was estimated above Rs. 38,000 crores. It is stated that in order to cast the net wide the department adopted a different approach of investigation which acquired a character of a project. The report states that illegal business of bogus LTCG involves three different individuals, the promoter of "penny stocks" companies also known as syndicate member, the share brokers and the entries operators who purchases the shares through paper companies by taking cash and many at times the three categories of individuals perform overlapping roles and at times, a single individual may perform all the three functions. The report further states in the investigations done earlier with regard to the bogus LTCG, the approach was to target the individuals and through him identify the penny stock

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and beneficiary and this method had yielded results on a limited scale emanating only from individual/individuals targeted. Therefore, keeping in mind, the rampant nature and exponential growth of the illegal business in the recent times and to cast the net wide the department reversed the methodology of investigation. In that process, it is stated, that they first identified the "penny stocks" and then started targeting the individuals who dealt in them. The report states that by adopting such method they were able to virtually cover almost all Kolkata based operators in one investigation. Further the report states that it is an on- going process which acquires the character of a project that will continue for quite some time unlike usual investigation which aims at the individual involved. The report has identified 84 penny stocks listed with the BSE which have been used for generating bogus LTCG which includes 18 scripts on which the DIT (Investigation-I) Delhi had conducted investigation and the results were circulated. The report mentions 22 entities who are brokers who were covered in the investigation involved in the purchase/sale and price rigging of the penny stocks of the 84 companies. The report states that it is pertinent to note that the list includes some of the big names like Anand Ratithi, Religare and SMC. The report further states that the figure of the total transaction of the brokers is only above Rs. 15,970 crores as against the total trade in the script which is more than Rs. 38,000 crores. The reason being that there are other brokers from other cities including some leading names who have traded in these scripts but they could not be covered in the investigation. Further the report states that the department was able to establish full cash trail starting from cash deposit account to the accounts of the beneficiary for nearly a sum of more than Rs. 1575 crores and the broker wise split up was provided in a tabular form. The report explains the modus operandi in the following terms: Modus Operandi: The whole business of providing entries of bogus LTCG over the years have become much more organised and with economy of scale in full operation the stake involved have become huge. Before the actual transaction start taking place there are brokers in different towns who contact prospective clients and take paper booking for entries. The Commission to be paid to the operators is decided at this stage however, no money is paid. Once the booking is complete the operators have a reasonably good idea of how much LTCG is to be provided along with the break-up of individual beneficiaries. This data is essential to decide which penny stock or companies to use for the job and which beneficiary to buy how many shares. 55. The first argument on behalf of the assessee is that the copy of the investigation report was not furnished to them despite specific written request made on behalf of the assessees to furnish the copy of the report, the statements recorded and provide those persons from whom statements were recorded to be cross examined on behalf of the assessee...., the investigation report is general in nature not assessee specific. Therefore, we are required to see as to whether non-furnishing of the report which according to the revenue is available in the public domain would vitiate the proceedings on the ground that the assessee was put to prejudice

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notices under sections 143(2) and 142(1) of the Act they have been directed to furnish the documents, the assessee have complied with the directions, appeared before the assessing officer and in many cases represented by Advocates/Chartered Accountants, elaborate legal submissions have been made both oral and in writing and thereafter the assessments have been completed. Nothing prevented the assessee from mentioning that unless and until the report is furnished and the statements are provided, they would not in a position to take part in the inquiry which is being conducted by the assessing officer in scrutiny assessment under section 143(3) of the Act. The assessee were conscious of the fact that they have not been named in the report, therefore made a vague and bold statement that the non-furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee. If the report was available in the public domain as has been downloaded and produced before us by the learned standing counsel for the revenue, nothing prevented the assesses who are ably defended by Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defence. Therefore, the based on such general statements of violation of principles of natural justice the assessees have not made out any case. 67. In the cases on hand, undoubtedly the report contains information about various penny stocks companies about the directors of the companies and also the stock brokers, entry operators and others who have been named in the report. It is an admitted case that the names of the assessees do not figure in the report. Therefore, non-furnishing of the report has in no manner prejudiced the rights of the assessees to discharge the onus cast upon them in terms of section 68 of the Act. 68. It is equally not in dispute that whatever information which was required to be made known to the assessee has been informed to the assessee by the assessing officer by issuance of a notice to each of the assesses to which they have responded by submitting their replies. Therefore, in the absence of any prejudice caused to the assessee on account of non- furnishing of the entire report, the assessees cannot be a heard to say that there has been violation of principles of natural justice and their right to defend themselves was in any manner affected. 69. Thus, the legal principle which can be culled out from the above decision is that to prove the allegations, against the assessee, can be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled and when direct evidence is not available, it is the duty of the Court to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded so as to reach a reasonable conclusion and the test would be what inferential process that a reasonable/prudent man would apply to arrive at a conclusion. Further proximity and time and prior meeting of minds is also a very important factor especially when the income tax department has been able to point out that there has been a unnatural rise in the price of the scrips of very little known companies. Furthermore, in all the cases, there were minimum of two brokers who have been involved in the transaction. It would be very difficult to gather direct proof

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of the meeting of minds of those brokers or subbrokers or middlemen or entry operators and therefore, the test to be applied is the test of preponderance of probabilities to ascertain as to whether there has been violation of the provisions of the Income-tax Act. In such a circumstance, the conclusion has to be gathered from various circumstances like the volume from trade, period of persistence in trading in the particular scrips, particulars of buy and sell orders and the volume thereof and proximity of time between the two which are relevant factors. Therefore, in our considered view the methodology adopted by the department cannot be faulted. 73. It is very rare and difficult to get direct information or evidence with regard to the prior meeting of minds of the persons involved in the manipulative activities of price rigging and insider trading...... a holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, we cannot loose sight of the fact that the shares of very little known companies with in- significant business had a steep rise in the share prices within the period of little over a year. The Income tax department was not privy to such peculiar trading activities as they appear to have been done through the various stock exchanges and it is only when the assessees made claim for a LTCG/STCL, the investigation commenced. As pointed out the investigation did not commence from the assessee but had commenced from the companies and the persons who were involved in the trading of the shares of these companies which are all classified as penny stocks companies. Therefore, the argument of the assessee that the copy of the investigation report has not been furnished, the persons from whom statements have been recorded have not been produced for cross examination are all contention which has to necessarily fail for several reasons which we have set out in the proceedings paragraphs. To reiterate, the assessee we not named in the report and when the assessee makes the claim for exemption the onus of proof is on the assessee to prove the genuinity. Unfortunately, the assessees have been harping upon the transactions done by them and by relying upon the documents in their hands to contend that the transactions done were genuine. Unfortunately, the test of genuinity needs to be established otherwise, the assessees are lawfully bound to prove the huge LTCG claims to be genuine. In other words if there is information and data available of unreasonable rise in the price of the shares of these penny stock companies over a short period of time of little more than one year, the genuinity of such steep rise in the prices of shares needs to be established and the onus is on the assessee to do so as mandated in Section 68 of the Act. Thus, the assessees cannot be permitted to contend that the assessments were based on surmises and conjectures or presumptions or assumptions. The assessee does not and cannot dispute the fact that the shares of the companies which they have dealt with were insignificant in value prior to their trading. If such is the situation, it is the assessee who has to establish that the price rise was genuine and consequently they are entitled to claim LTCG on their transaction. Until and unless the initial burden cast upon the assessee is discharged, the onus does not shift to the revenue to prove otherwise. It is incorrect to argue that the assessees have been called upon to prove the negative in fact, it is the assessees duty to establish that the rise of the price of shares within a short period of time was a genuine move that those

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penny stocks companies had credit worthiness and coupled with genuinity and identity. The assesses cannot be heard to say that their claim has to be examined only based upon the documents produced by them namely bank details, the purchase/sell documents, the details of the D-Mat Account etc. The assesses have lost sight of an important fact that when a claim is made for LTCG or STCL, the onus is on the assessee to prove that credit worthiness of the companies whose shares the assessee has dealt with, the genuineness of the price rise which is undoubtedly alarming that to within a short span of time..... 75. While it may be true that M/s. Swati Bajaj, Mr. Girish Tigwani or other assessees who are before us could have been regular investors, investors could or could not have been privy to the information or modus adopted. In our considered view, what is important is that it is the assessee who has to prove the claim to be genuine in terms of section 68 of the Act. Therefore, the assessee cannot escape from the burden cast upon him and unfortunately in these cases the burden is heavy as the facts establish that the shares which were traded by the assessees had phenomenal and fanciful rise in price in a short span of time and more importantly after a period of 17 to 22 months, thereafter has been a steep fall which has led to huge claims of STCL Therefore, unless and until the assessee discharges such burden of proof, the addition made by the assessing officer cannot be faulted. 99…..the assessing officer lost sight of the fact that the enquiry did not commence from that of the assessee and more particularly the name of the assessee did not feature in the investigation report. Therefore the assessing officer was bound to cause an enquiry by calling upon the assessee to explain and justify the genuineness of the claim for exemption made by them. If the assesses has not established the genuinity at the "other end" the assessing officer would have no other operation except making the addition under section 68 of the Act.... The entire case before the department was the genuinity of the claim for LTCG/STCL and the basis was unhealthy and steep rise of the price of the shares of mostly the paper companies though listed before the stock exchanges their shares were very rarely traded. ... The manipulative practice adopted by the stock brokers and entry operators was not even adverted to by the tribunal and the entire matter was dealt with In a very superficial manner without dwelling deep into the core of the issue... The exercise that was required to be done by the tribunal is to consider the totality of the circumstances because the transactions are shown to be very complex, the meeting of minds of the "players" can never be established by direct evidence and therefore the surrounding circumstances was required to be taken note of by the tribunal which exercise has not been done. The assessees have been harping upon the opinion rendered by the financial experts, professionals in the said field the information which were available in the media etc. All these opinions are at best suggestions to an investor. The assessees cannot state that merely because an expert had issued a buy call or there was news in the media that a particular shares shows an upwards trend and it is good time for buying those shares. They jumped into the fray the assessees are to be reminded of the doctrine of "caveat emptor". The assessees cannot take shelter under the opinion given by the experts as it is not the expert who has indulged in the transaction but it is the

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assessee. Therefore, by following such expert's advice if the assessee gets into an "web" it is for him to extricate himself from the tangle and he cannot reach out to the expert to bail him out. The assessees cannot be heard to say that they had blindly followed advice of a third party and made the investment. Selection of shares to be purchased is a very complex issue, it requires personal knowledge and expertise as the investment is not in a mutual fund. None of the assessees before us have shown to have to made any risk analysis before making their investment in a "penny stock". If according to them they have blindly taken a decision to invest in insignificant companies they having done so at their own peril have to face the consequences. Thus, the conduct of the assessees before us probabilities the stand taken by the revenue, rightly the mind of the assessee as an investor was taken note to deny the claim for exemption. It is in this background that the human probabilities would assume significance. As observed earlier the doctrine of preponderance of probabilities could very well be applied in cases like the present one...... Therefore, merely because the assessee had invested in other blue chip companies had earned profit or incurred loss cannot validate the tainted transactions. It has been established by the department that the rise of the prices of the shares was artificially done by the adopting manipulative practices. Consequently, whatever resultant benefits which accrue from out of such manipulative practices are also to be treated as tainted. However, the assessee had opportunity to prove that there was no manipulation at the other end and whatever gains the assessee has reaped was not tainted. This has not been proved or established by any of the assessee before us. Therefore, the assessing officers were well justified in coming to a conclusion that the so called explanation offered by the assessee was not to their satisfaction. Thus, the assessee having not proved the genuineness of the claim, the creditworthiness of the companies in which they had invested and the identity of the persons to whom the transactions were done, have to necessarily fail. In such factual scenario, the Assessing Officers as well as the CIT(A) have adopted an inferential process which we find to be a process which would be followed by a reasonable and prudent person. The Assessing Officers and the CIT(A) have culled out proximate facts in each of the cases, took into consideration the surrounding circumstances which came to light after the investigation, assessed the conduct of the assessee, took note of the proximity of the time between the buy and sale operations and also the sudden and steep rise of the price of the shares of the companies when the general market trend was admittedly recessive and thereafter arrived at a conclusion which in our opinion is a proper conclusion and in the absence of any satisfactory explanation by the assessee, the Assessing Officers were bound to make addition under section 68 of the Act. 102. In the result, these appeals are allowed and the substantial questions of law framed/suggested are answered in favour of the revenue and against the assessee restoring the orders passed by the respective Assessing Orders as affirmed by the CIT(A) as well as the orders passed by the CIT under section 263 of the Act. No costs." 6.2 The above detailed decision of the Hon'ble High Court of the Calcutta on the issue at hand has been carefully considered, and it is found that his case laws

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is totally applicable to this case at hand. The relevant ratios laid down by this order are reproduced below: 1. The assessments are commenced by the assessing officers calling upon the assessee to explain the genuineness of the claim of LTCG/STCG made by them. 2. Exponential profits on sale of penny stocks cannot be accepted without any supporting evidences. 3. The investigation report is general in nature, not assessee specific. It cannot be discarded. It states that the investigation has not commenced from the individuals but it has commenced who had dealt with the penny stocks, concept of working backwards. The investigation report proceeds on a different perspective commencing from a different point and this has led to the enquiry being conducted by the assessing officer calling upon the assessee to prove the genuineness of the claim of LTCG/STCG. 4. In this transaction, there were minimum of two brokers who have been involved in the transaction. It would be very difficult to gather direct proof of the meeting of minds of those brokers or sub-brokers or middlemen or entry operators and therefore, the test to be applied is the test of preponderance of probabilities to ascertain as to whether there has been violation of the provisions of the Income- tax Act. There is no vested right for the assessee to cross examine the persons who have not deposed anything against the assessee. Therefore, the methodology adopted by the department cannot be faulted. 5. It is very rare and difficult to get direct information or evidence with regard to the prior meeting of minds of the persons involved in the manipulative activities of price rigging and insider trading. 6. We cannot loose sight of the fact that the shares of very little known companies with in-significant business had a steep rise in the share prices within the period of little over a year. 7. The assessees have been harping upon the transactions done by them and by relying upon the documents in their hands to contend that the transactions done were genuine. Unfortunately, the test of genuinity needs to be established otherwise, the assessees are lawfully bound to prove the huge LTCG/STCG claims to be genuine 8. Until and unless the initial burden cast upon the assessee is discharged, the onus does not shift to the revenue to prove. It is the assessees duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. 9. When a claim is made for LTCG or STCG, the onus is on the assessee to prove that credit worthiness of the companies whose shares the assessee has dealt with, the genuineness of the price rise which is undoubtedly alarming that to within a short span of time.

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6.6. The next ground of the appellant assessee is related to the addition made u/s 69C of the IT Act of Rs. 4,88,743/- under the head income from other sources. The appellant assessee in its ground has stated that the AO, had made the addition without assigning any reasons. In this regard, the appellant assessee's attention is drawn to the computation sheet point III, it is being assessed as the commission paid in cash for the accommodation entry as at Rs.4,88,743/- being 3% of Rs.1,62,91,466/- and assesseed by the AO as unexplained expenditure u/s 69C is also upheld. Accordingly, grounds of appeal in this regard, are hereby dismissed.” 4. During the course of appellate proceedings before us the ld. Counsel submitted that assessee has purchased shares of M/s Global Infratech & Finance Ltd through HDFC Securities on online portal and sold the same through Kotak securities on online portal. The ld. Counsel has also filed paper book comprising copies of document and detail filed before the lower authorities. He referred page no. 32 of the paper book comprising copy of contract notes of HDFC securities limited showing that shares of M/s Global Infratech and Finance Ltd. were purchased on online portal. He also referred page no. 80 of the paper book showing that shares of the aforesaid scrip were sold on online portal through Kotak Securities Ltd. He also referred copy of bank statement of HDFC Bank showing the sale purchase transaction of the said shares through banking channel. The ld. Counsel also contended that AO has issued notices u/s 133(6) to the parties. The ld. Counsel also mentioned about notice u/s 133(6) issued by the assessing officer to the buyers of the shares and pointed out that seven notices were returned back and there was no response from two parties and submitted that none of the party has given an adverse report against the assessee. He also submitted that assessee has bought and sold the shares through reputed stock brokers online and assessee has also filed proof of purchase and sale of shares both before the AO and CIT(A). He also pointed out that purchase transaction cannot be doubted as none of the parties have stated that the transaction was not carried out at the rates specified in the contract notes and similarly the sale transaction also cannot be doubted. He also

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pointed that AO has merely made disallowance on the basis of report of investigation wing without disproving the supporting evidences of transaction made by the assessee. The ld. Counsel also submitted that name of the assessee not appeared in the final parties who were held to have violated SEBI Laws. The ld. Counsel has also placed reliance on the various judicial pronouncements: “14. Copy of hon'ble Delhi High Court decision in the case of Pr. CIT v. Karuna Garg. 15. Copy of hon'ble Delhi Tribunal decision in the case of Swati Luthra and Others v. ITO (2019) 76 ITR (Trib) 432 (Delhi) 16. Copy of hon'ble Chennal Tribunal decision in the case of Mrs. Neeta Bothra v. ΙΤΟ (2021) 92 ITR (Trib) 450 (Chennai) 17. Copy of hon'ble Chandigarh Tribunal decision in the case of Jatinder Kumar Jain v. ITO (2022) 97 ITR (Trib) 403 (Chandirgarh) 18. Copy of the hon'ble Gujarat High Court decision in the case of Pr. CIT v. Champalal Gopiram Agarwal (2023) 155 taxmann.com 66 (Gujarat) 19. Copy of hon'ble Ahmedabad Tribunal decision in the case of ITO v. Govt. Shri Champalal Gopiram Agarwal 20. Copy of hon'ble Bombay High Court decision in the case of CIT v. Shyam R. Pawar (2015) 54 taxmann.com 108 (Bombay) 21. Copy of the hon'ble Gujarat High Court decision in the case of Pr. CIT v. Champalal Gopiram Agarwal (2023) 155 taxmann.com 66 (Gujarat) 22. Copy of hon'ble Supreme Court decision in the case of Pr. CIT v. Renu Aggarwal (2023) 153 taxmann.com 579 (SC) 23. Copy of hon'ble Allahabad High Court decision in the case of Pr. CIT v. Smt. Renu Agarwal (2023) 153 taxmann.com 578 (Allahabad) 24. Copy of hon'ble Lucknow Tribunal decision in the case of ITO v. Smt. Renu Agarwal 25. Copy of hon'ble Mumbai Tribunal decision in the case of Rehana Anwar Shaikh v. AO” 5. On the other hand, the ld. D.R vehemently contended that assessee was not regular investor in the shares and only made investment in the penny stock. He also pointed out that during the year under consideration the assessee has gained from the ESOP of Rs.91,47,575/- from his employer vista print and same has been adjusted against the bogus short term capital loss shown from the penny stock scrip M/s Global Infratech and Finance Ltd. He further stated that linking of the transaction with the employees stock option

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clearly prove that assessee has non genuinely obtained the loss to set off the capital gain occurred from sale of ESOP (Employees Stock Option). The ld. D.R has also relied on the para 4.4 and 4.5 of the assessment order of the assessing officer wherein after detailed analysis the assessing officer come to the conclusion that the entities who have facilitated the entire scheme whereby the unaccounted income of the beneficiaries of bogus LTCG/STCG has been routed into the books of the beneficiaries in the garb of proceeds of sale of shares. The ld. D.R has also relied on the decision of ITAT, Mumbai in the case of Shri Hitendra C. Ghadia Vs. DCIT, CC-1(1) vide ITA No. 621/Mum/2021 and Hon’ble High Court of Delhi in the case of Sanjay Kaul Vs. Pr.CIT, Delhi- 8, New Delhi (2020) 119 taxmann.com 470 (Delhi) and Hon’ble Supreme Court in the case of Suman Poddar Vs. ITO (2019) 112 taxmann.com 330 (SC). 6. Heard both the sides and perused the material on record. The assessee is an individual and declared income of Rs.16,19,53,690/-. During the course of assessment proceedings the assessing officer has made addition of Rs.1,62,91,466/- by treating the short term capital loss, claimed by the assessee as bogus and Rs.4,88,743/- u/s 69C of the Act being amount of commission paid for the accommodation entry. The assessing officer had received information regarding the assessee’s involvement in the scrip which was part of the report prepared by the investigation wing Kolkata as discussed above in this order in respect of bogus LTCG/STCL provided the scrip M/s Global Infratech & Finance Ltd. The share price of M/s Global Infratech & Finance Ltd. which was at around Rs.0.69 for the share having face value of Rs. 1 in January 2012 thereafter the price was jacked up to Rs.84 from Rs.0.69 in 22 months till December, 2013. Thereafter the price have gone down to merely Rs.9.60. Without reiterating the fact as already discussed in the finding of the assessing officer and CIT(A) we have gone through the

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copy of Income Tax return and computation of income filed by the assessee. It is noticed that assessee has earned income mainly from the salary to the amount of Rs.16,95,65,900/- during the year under consideration. Further we have noticed that assessee is not a regular investor. As per the detail of purchase and shares and securities submitted by the assessee before us it is noticed that assessee has only made investment in the two penny stock scrip i.e M/s Global Infratech & Finance Ltd. and Pineanim limited.

Description Qty. Sale Date Net Sales Purchase Purchase Taxable Loss rstrpd. Date Amount Profit u/s 94(7) VPRT Shares on NASDAQ 3900 15/05/2013 9804906 12.09.2012 78,21687 1983219 0 VPRT Shares on NASDAQ 3800 07/06/2013 9997661 12.09.2012 7941163 2056498 0 VPRT Shares on NASDAQ 3800 13.06.2013 10255277 12.09.2012 7941163 2314114 0 VPRT Shares on NASDAQ 3994 17.06.2013 10936785 12.09.2012 8346580 2590205 0 VPRT Shares on NASDAQ 13961 12.09.2013 51825709 12.09.2013 51825709 0 0 VPRT Shares on NASDAQ 2000 14.11.2013 6782002 12.09.2013 6848443 -66441 0 VPRT Shares on NASDAQ 3500 27.11.2013 12298366 12.09.2013 11984776 313590 0 VPRT Shares on NASDAQ 3500 11.12.2013 12576673 12.09.2013 12176969 399704 0

VPRT Shares on NASDAQ 1700 19.12.2013 5894271 12.09.2013 5914528 -20257 0 VPRT Shares on NASDAQ 1700 19.12.2013 5936700 12.09.2013 5914528 22172 0 VPRT Shares on NASDAQ 1200 20.03.2014 3708133 12.09.2013 4153362 -445229 0 140016483 130868908 9147575 0

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It is further noticed that employees stock option has been acquired by the assessee between 12th September 2012 to 12th September 2013 to the amount of Rs.13,08,68,908/- and the same was sold between 15.05.2013 to 20.03.2014 to the amount of Rs.14,00,16,483/- showing taxable profit gain of Rs.91,47,575/-. Further we have noticed that almost on the similar period the assessee has made transaction in the purchase and sale of the aforesaid penny stock scrip M/s Global Infratech & Finance Ltd. from which it has shown short term capital loss to the amount of Rs.1,62,91,466/-. The relevant detail of the sale and purchase in the shares of M/s Global Infratech & Finance Ltd. share as shown in the return of income filed by the assessee is reproduced as under:

Description Qty. Sale Date Net Sales Purchase Purchase Taxable Loss rstrod. Date Amount Profit u/s 94(4) Global Infratech & Finance Limited 55000 19.03.2014 2224997 19.11.2013 5054834 -2829837 0 Global Infratech & Finance Limited 64000 19.03.2014 2589087 20.11.2013 5886546 -3297459 0 Global Infratech & Finance Limited 31000 24.03.2014 1251877 20.11.2013 2851296 -1599419 0 Global Infratech & Finance Limited 47000 24.03.2014 1898007 21.11.2013 4321522 -2423515 0 Global Infratech & Finance Limited 31000 26.03.2014 1247385 21.11.2013 2850366 -1602981 0 Global Infratech & Finance Limited 55000 26.03.2014 2213102 22.11.2013 5046414 -2833312 0 Global Infratech & Finance Limited 33000 26.03.2014 1327860 27.11.2013 3032803 -1704943 0 12752315 29043781 -16291466 0

On analysis of the aforesaid transaction in the ESOP and transaction in the penny stock of M/s Global Infratech and Finance Ltd it is noticed that purchases in the so called penny stock was undertaken almost at the time of selling of employee stock option from 19.11.2013 to 27.11.2013 and the scrip of the penny stock was sold in the end of the financial year 19.03.2014 to 16.03.2014 there is a corroborative evidences of linking of the taxable profit earned from the employee stock option which has been adjusted by the short term capital loss by making transactions in the penny stock scrip by artificially claim of short term capital loss so that the taxable capital gain earned from the sale of employee stock option could be adjusted. Considering the facts

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and findings as discussed above we don’t find any merit in this ground of appeal of the assessee, therefore, the same stand dismissed. 7. On the similar reason the addition of Rs.4,88,743/- being 3% of Rs.1,62,91,466/- being commission paid for obtaining the aforesaid accommodation entry is also sustained. Therefore, ground no. 1 to 8 of the appeal filed by the assessee are dismissed. 8. In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 15.05.2024 Sd/- Sd/- (Vikas Awasthy) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 15.05.2024 Rohit: PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.