AAKRUTI KETAN MEHTA,MUMBAI vs. ITO, WARD-35(1)(1) , MUMBAI

“1] On the facts under the circumstances of the case as well as law on the Subject, the Ld. Commissioner of Income Tax (Appeals) 57, Mumbai has erred in confirming the action of the Assessing Officer in making the addition of Rs. 2,70,01,771-00 U/s.68 of the Act for alleged bogus Long Term Capital Gain on sales transactions of shares of M/s. Sun- Rise Asian Limited. 2] The Lr. C.I.T (A) 57 has also erred in confirming the addition of presumptive brokerage alleged to have been paid to the broker at Rs.8,10,053.00. 3] The appellant craves leave to add, alter, amend or delete any grounds either before or in the course of hearing of appeal.

The brief facts are that assessee is an individual deriving income from salary, house property, and also during the relevant assessment year she has also declared long term capital gains from sale of shares. The return of income for the A.Y. 2014-15 was filed on 16/07/2014 declaring total income of Rs.8,52,990/- In the return of income assessee has claimed long term capital gain of Rs.2,58,25,245/- which was claimed as exempt u/s.10(38) of the Act from sale of shares of Sunrise Asian Ltd. The assessee in the calendar year 2011 had purchased 55,000 shares of M/s Conart Traders Ltd. from Santoshima Tradelinks Ltd. on 27/11/2011 for Rs.11,00,000/-. The payment of Rs.11,00,000/- was made through account payee cheque drawn on Tamilnadu Mercantile Bank Ltd. The assessee received debit note on 28/11/2011 from M/s. Santoshima Tradelinks Ltd of Rs.11,00,000/- and the said shares were de-materialized on 22/01/2012. Under the scheme of amalgamation entered into between Santoshima Tradelinks Ltd., and Conart Traders Ltd, 3 Aakruti Ketan Mehta these two entities were merged with Sunrise Asian Ltd. and the said scheme was approved by the Hon’ble High Court of Bombay vide order dated 22/03/2013. On amalgamation, the shares of the said company were swapped with the equity shares of Sunrise Asian Ltd. at a fixed ratio of 1:1. These shares were sold through broker between the period 27/11/2013 to 21/03/2014 on Bombay Stock Exchange for sum aggregating to Rs.2,70,01,771/- @ ranging between Rs.486 to 493 per share. Accordingly, the assessee has computed long term capital gain in the following manner:-

AO further noted that the price of share of Sunrise Asian Limited sky rocketed without having any profit, EBIDTA margin, EPS, bonus, dividend etc. Despite none of the essential parameters for increase of price, the share price of Sunrise Asian Limited increased more than 100 times. Thereafter, AO has referred to certain action taken by SEBI against Sunrise Asian Limited and has given general remark and also how the Director of Income Tax Investigation, Kolkata has prepared a small cash trail and how the entry operator operates and how the mechanism works in the syndicate for providing long term gain / short term loss.

The ld. CIT (A) after recording the assessee’s submission as incorporated in his order and the observations and finding of the AO and the material on record analysed the entire issue in detail. First of all, he has referred to the balance sheet and the financials of Sunrise Asian Ltd. which was available in public domain right for the year ending 31/03/2012 to 31/03/2015 and the financial results which are incorporated from pages 12- 15 of the appellate order. From the financials of the company he 12 Aakruti Ketan Mehta observed that, it indicates that during the period from F.Y.2010- 11 to 2014-15 the turnover of Sunrise Asian Ltd. ranged from Rs.38.11 Lakhs to Rs.172.71 Crores, however, profits were almost negligible and it ranges from Rs.(-)50,45,578- to Rs.69,54,857/-. Further, market price of shares of Sunrise Asian Limited was maintained to Rs.60/- from 08/09/2011 to 08/10/2012 and suddenly on 07/02/2013, the price rose to Rs.419.75 and it further escalated to Rs.596.25/-. Such rise in share price of Sunrise Asian Ltd. was not in consonance with the financials of the company. He further noted that though in the statement u/s. 132(4) recorded by the Investigation Wing Shri Vipul Vidur Bhatt has confirmed his role in providing bogus long term capital gains as entry / exit provider by floating entry / exit provider companies. However, later on, he retracted from his statement by simple affidavit without any evidences. He has referred to certain decisions that such kind of retraction by way of an affidavit cannot be relied upon and has no sanctity. He also referred to search carried out by SEBI and inquiry wherein it was found that there was a manipulation of share price in the scrip of Sunrise Asian Ltd for the period 16/10/2012 to 30/09/2015 and with such observation, violations of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 were committed by certain entities. He also referred to certain modus operandi as an Investigation Wing and also other judgments in his order including Judgment of Hon’ble Delhi High Court in the case of Suman Poddar vs. ITO (2019) 112 taxmann.com 329 and 13 Aakruti Ketan Mehta judgment of Hon’ble Calcutta High Court in the case of PCIT vs. Swati Bajaj (2022) 139 taxmann.com 352 and confirmed the action of the ld. AO.

Before us, ld. Counsel for the assessee Shri Pradip Kapasi explained the entire facts and background of the case and in his written submissions he has given a rebuttal of the various observations made by the ld. AO and ld. CIT(A) which for the ready reference is reproduced hereunder:- The following are the ACTIONS OF THE AO AND BRIEF RESPONSES ON THE SAME 1. There was a gap of about 21 days between the date of purchase and date of payment (Pg. 29 &30 of PB-Para 4.4 of Order) Obviously the payment for purchase of shares would proceed the allotment of shares. No allotment would be made unless the payment was made. The AO has no basis for treating the transaction of purchase as suspicious on this ground. Important point in any case is payment was made by cheque and the genuineness was thereof not doubted at all. The ld. AO has confused himself with respect to so called gap between the date of payment of Rs. 11,00,000 and the date of actual purchase of share which is common place in share market as well as in commodity market.

The price of share of Sunrise Asian Limited sky rocketed without having any awesome profit. (Pg. 38 of PB-Para 3.10 of Order) This finding of the AO is devoid of any facts and is without any evidence or finding. The AO has not specified the period for which he alleged the jump in which the shares were held for a period of about three years 14 Aakruti Ketan Mehta and the prices have risen subsequent to the merger of the company and the listing of the shares amalgamated company ie Sunrise Asian Limited where the net worth of the company rose from about 1 crore rupees to 45 crores. So there was a forty-five fold increase in net worth and the price of the share has multiplied for about 20 times only. Prices have moved in the same range of Rs. 450 to 600 for about 2 years before sale of shares and thereafter for another 2 years after the sale of shares (Rate/Copies attached). The fact is the share prices of the scrip in question has moved the tandem with the index. Secondly, no evidence is brought on record that such prices were found to be manipulative by the appellant or the authorities regulating the stock exchange. Thirdly, genuineness of transactions on the ground of market price cannot be disregarded without establishing the direct involvement of the appellant and involvement of unaccounted income and cash of the appellant. Kindly note that no inquiry of any nature was conducted by the AO. The company had net worth of Rs. 46 crores and the total assets of about Rs. 166.38 crores and a turnover of Rs. 26 crores, a credibility that could not be ignored. There was substantial rise in the top line and also the profits of the company Sunrise Asian Limited.

A Statement was recorded of the director of Sunrise Asian Limited, Shri Kalpesh Manahar Jani (Pg. 30 of PB-Para 5 of Order) First of all, the facts of AO's reliance on the statement of Kalpesh Manahar Jani was gathered by the appellant for the first time only on receipt on assessment order. No copy of the statement has been provided to your appellant till date. Neither Kalpesh Manahar Jani was examined by AO nor was he produced for cross examination. In the circumstances, no reliance would have been placed by the AO on the statement of Kalpesh Manahar Jani to disbelieve the facts of the appellant. The copy of the statement of Kalpesh Jani has not furnished till date. Secondly, even the contents of his statement are not known nor are they captured in the body of the order. The said Mr. Jani has not been examined by the AO nor was he produced for cross- examination and importantly the Appellant was never show caused to seek his explanation.

A Statement was recorded of Shri Vipul Vidur Bhatt (Pg. 31 of PB-Para 3.1.2 of Order) The copies of statements on oath of Shri Vipul Vidur Bhatt other than the one recorded on 09.02.2016 has not been given inspite of the repeated requests to do so. The AO has denied the cross examination of Shri Vipul Vidur Bhatt inspite of request to do so. In any case he himself had retracted his statement on 02.09.2016 (Pg. 351-356 of PB). Shri Vipul Vidur Bhatt has clearly explained 16 Aakruti Ketan Mehta the reason for possessing the books of accounts of the companies by stating that he was the tax consultant for all such companies.

Sunrise Asian Limited is a bogus/paper company and Vipul Vidhur Bhatt is the operator of the company (Pg. 31 of PB-Para 5 of Order) This finding of the AO is without any basis and is made without any inquiry into the affairs of the company. The said company is a listed company and was not delisted on the dates of sales.

This entire edifice through which the assessee claimed to have earned huge tax exempt gains within a very short period of span of time fails both genuineness and human probabilities. (Pg. 48 of PB - Para 10.4 of Order) The appellant has had the shares for almost three years which surely was not a short period. The prices have moved over a period of 2 years and the rise of the prices was commensurate with the progress of the company from net worth of 1 crore to 45 crores.

Thereafter, ld. Counsel submitted that assessee had purchased shares offline of Santoshima Trade links Ltd and same were paid through account payee cheques and duly recorded in the books of accounts. He further submitted that the said company had high net worth of Rs. 45,78,01,810 and sufficient capital of Rs. 25,57,73,700 and reserves of Rs. 20,20,28,109 of its own which was reflected in the financial statements. The total Turnover of the company for the year of issue was Rs. 25,64,71,363 and net profit was Rs. 14,57,760. The purchase value of share being Rs. 20 (Rs. 10 Face Value and Rs. 10 premium) was commensurate to the earnings and business of the company. The fact of purchase was duly declared in the balance sheet filed with return of income for earlier years. Further, when assessee was allotted shares of Sunrise Asian Ltd post amalgamation, it was a listed company of the Bombay Stock Exchange and sold all the shares through recognised stock exchange electronically on payment of STT and other charges through registered broker. Thus, the credit appeared in the books of accounts were on account of sale of shares only. He further submitted that, in the statement of Shri Vipul Vidur Bhatt, nowhere the name of the assessee is mentioned nor anywhere it has been found that share transactions were not genuine. He has nowhere alleged of any bogus transaction with the assessee. Even the SEBI has not proceeded against assessee or her broker nor have they been charged or fined by the SEBI. Further, no material belonging to assessee was found in the 21 Aakruti Ketan Mehta course of search of Shri Vipul Vidhur Bhatt. He further submitted that the assessee at any point of time before passing of ld. AO was ever informed nor was asked to show cause about the statement of Shri Vipul Vidhur Bhatt, neither assessee was given any opportunity on these information gathered by investigation wing or statements or was confronted that AO was proposing to rely on the statement of Vipul Vidhur Bhatt and Kalpesh Manahar Jani or the investigation report of the DDIT or the alleged proceedings before SEBI. It was only from the order of the AO, the assessee for the first time was shocked to learn of the sole reliance of the AO on the above mentioned documents based on which the ld. AO had held the transactions in shares to be bogus and deny the exemption u/s. 10(38) in respect of the Long term Capital Gains of Rs. 2,58,25,245.

The AO or the ld. CIT (A) have themselves not examined Vipul Vidhur Bhatt or Kalpesh Manahar Jani nor have they produced any one of them for cross- examination. Thus, in this case there was a serious violation of equity, fairness and justice by using documents behind the back of the assessee nor even the statement of Shri Vipul Vidur Bhatt was confronted at the time of assessment proceedings. The assessee had informed this aspect and brought on record before the ld. CIT (A) through various submissions. The ld. CIT(A) has even adjourned the matter for remanding the matter to the file of the ld. AO for furnishing the copies of the above documents and facilitating the cross examination of Shri Vipur Vidur Bhatt and Shri Kalpesh Manahar Jani one of his associate who was involved in such 22 Aakruti Ketan Mehta accommodation entry. However no such remand report came on record and ld. CIT(A) has simply confirmed the action of the AO. He also referred to certain judgments that order has been passed by violation of natural justice, then same deserves to be quashed. For the sake of ready reference his contention and the reliance placed on judgments are as under:- The appellant relies on the decisions in the cases of Prabhatam Investment (P) Ltd., ITA.Nos. 2523 to 2525/Del./2015; R.W. Promotions (P.) Ltd. 61 taxmann.com 54 (Bom.); Kanubhai Maganlal Patel, 79 taxmann.com 257 (Guj.), D. Kanta, 19 taxmann.com 92/205 Taxman 115 (Kar.) (Mag.); Rahul Vineet Traders, 41 taxmann.com 86/221 Taxman 46 (All) and Vijay Kumar Jain, 41 taxmann.com 433/221 Taxman 180 (All) to submit that the order passed by AO in gross violation of the provisions of natural justice that required AO/CIT(A) to issue summons, conduct inquiry, produce parties for cross examination deserves to be quashed. • Your appellant also submits that the AO had failed to examine a) Santoshima Tradelink Ltd (Santoshima), b) Registered Brokers, c) their AO, d) their bankers e) Depositories (DP) and f) Others before disbelieving the evidences furnished by them and the facts stated by the appellant. • Your honour's kind attention is drawn to the following decisions wherein it had been held that assessment made without furnishing the material used against the assessee must be quashed. It was held that the assessee must be furnished with the copies of such material and should be given an opportunity to explain his case and rebut the findings of the Income Tax Department. In P. Shreelekha Bannerjee, 49 ITR 112 (SC), the court held that the enquiry must be conducted in accordance with the rules of natural justice and all the material for and against the assessee must be shown to him and an opportunity must be given to him to rebutt the findings and to present his case. The Madras High Court in V. Datchinanurthy and another, 149 ITR 341 confirmed the above findings. Please also see the decision in the 23 Aakruti Ketan Mehta case of Dilipkumar Kalicharan, 52 ITD 310 and Colonisers, 41 ITD 57 (Hyd)(SB). Please see the decision of the Supreme Court in Kishanchand Chellaram, 125 ITR 713(SC), wherein it was held that the material collected behind the back and without the knowledge of the assessee had no evidentiary value more so when no opportunity of cross examination was provided to the person against whom such material was used. • Documents produced were not even examined and/or disapproved by AO before making additions as had been his duty. Please see- Softline Creations (P) Ltd, 387 ITR 636 (Delhi) Laxman Industrial Resources, 397 ITR 106 (Delhi) Multitex Filtrations Engineers, 13 SOP 208 (Delhi) (Trib) • The documents relied upon by AO/CIT(A) but not confronted with to the appellant are not reliable and should be ignored in adjudicating the appeal. • No defects have been found by the AO in the evidences furnished and as a consequence no addition was possible. Please see- Rahul Vineet Traders, 41 taxamnn.com 86(All) Shyam Indus Power, 52 ITR (T) 512 (Delhi) Your appellant pleads that an assessment made in violation of the provisions of natural justice be quashed.”

Thereafter, he has referred to various documents submitted before the ld. AO and ld. CIT(A) to prove the genuineness of the transaction in his written submissions which for the sake of ready reference are hereunder:- Your appellant now seeks to explain each of the propositions in detail together with evidences. (A) (1) Details of Santoshima Tradelink Ltd, and of Sunrise Asian Ltd, and of the Registered Brokers and proofs and evidences of 24 Aakruti Ketan Mehta the transactions of purchase and sale were provided to the Ld. A.O.  Various details such as address and PAN of the Santoshima and also the Broker through whom shares were sold and also bank statements of the appellant showing payment for purchase and receipt of sale of shares was submitted to Id. A.O. The appellant once again re-iterates that the following details were furnished before the AO as well as CIT(A); (Please refer to page 276, 277 of the written submissions dt. 03.01.2022 and 288 and 289 of the written submissions dt. 10.11.2022 and also confirmed by CIT(A) in its Order at para 4.3.3 page 10 and 11 and page 307 and 308 of PB)  The debit-note dated 28-11-2021 of M/s. Santoshima Trade Link Ltd of Is. 11,00,000.00 issued to the assessee towards the sale of 55000 shares of M/S. CONART TRADERS LID & Rs. 20- per share (Pg. 339 of PB) • The copy of the statement of A/c of Tamilnad Mercantile Bank Ltd. recording the payment of Rs. 11,00,000.00 to M/s. Santoshima Trade Link Ltd by payee's A/c cheque on 07.09.2011. (Pg. 330 to 334 of PB) • An application dated 27.11.2011 for Share Transfer in the name of the assessee. (Pg. 420 to 423 of PB) • Copy of the Share Certificate No. 426 recording the transfer of shares in the name of the assessee on the back side. (Pg. 337 to 338 of PB) • The copy of Acknowledgment issued by TMB Demat services of receipt of 55000 shares to be dematerialized in the name of the assessee. (Pg. 340 of PB) • Copy of the Statement of Account of the assessee under DP ID 303069 showing the demat of 55000 shares of Conart Traders Ltd on 23.02.2013 which were transferred on 28.06.2013 under Sunrise Asian Ltd in pursuance of scheme Amalgamation. (Pg. 388 to 389 of FB)

Ld. Counsel further referred to certain decisions of the Tribunal wherein similar transaction of shares of Sunrise Asian Limited and additions were made on the basis of statement of Shri Vipul Vidur Bhatt has to be deleted by the Tribunal. Thereafter, he has reiterated his submissions in various forms regarding prices of the shares, dematerialization, transaction done through recognised stock exchange and addition has been made by the ld. AO merely on presumptions and certain findings of the ld. AO are misleading. His main contention was that no opportunity was afforded to the assessee to produce the material and to cross examine.

On the other hand, ld. DR on behalf of the Revenue after referring to various observations of the ld. AO and ld. CIT (A), submitted that here in this case SEBI has passed an order wherein it has found that the share price of Sunrise Asian Limited was manipulated and the trading of said scrip was banned by the SEBI. The copy of adjudication order and the final 27 ITA No. 53/Mum/2023 Aakruti Ketan Mehta order passed by SEBI dated 06/09/2021 and 17/06/2022 has been filed before us. Thus, he submitted that now in view of the order of the SEBI wherein all the allegations which have been made by the ld. AO has been found to be correct, then there cannot be any different view to hold that share transaction of sale of shares of Sunrise Asian Ltd is not bogus or it was not part of any rocket of accommodation entry. Thus, the order of the ld. AO and ld. CIT(A) should be confirmed.

In rejoinder, ld. Counsel submitted that here the entire order of the authorities below has been passed on the basis of of the statement of Shri Vipul Vidur Bhatt, appraisal report of the Investigation wing and the order of SEBI. However, the statement of third party and the reports of the parties relied upon by the ld. AO has been used behind back of the assessee without confronting with the same for providing opportunity to assessee. Neither the copy of third party statement or alleged investigation wing was furnished to the assessee nor was its content made known to the assessee for completion of assessment. Shri Vipul Vidur Bhatt was never produced for cross examination despite assessee made a request to the ld. CIT(A) and the ld. CIT(A) has merely said that it was not practical to get cross examination of Shri Vipul Vidur Bhatt and it is not necessary. He has also referred to various judgments that any material used against the assessee when confronting or without cross examination, additions cannot be sustained. He has also referred to the decision of the Hon’ble Supreme Court in the case of Andaman 28 Aakruti Ketan Mehta Timber Industries reported in 62 taxmann.com 3 and also invited our attention to the judgment of the Tribunal in the case of Deepak Valji Karia in ITA No.259/Mum/2021 wherein on identical facts involved of Sunrise Asian Ltd in the statement of Shri Vipul Vidur Bhatt, the Tribunal held that a suspect made on the basis of statement recorded from third parties and thus, statements were not provided in cross examination to the assessee, assessment order as such is bad in law.

He further submitted that SEBI has passed an order only on 06/09/2021 and no finding of SEBI was available to the ld. AO in the date of passing of assessment order dated 23/12/2016 and there was no evident of price manipulation or rigging as third party on the date of assessment order. The order of SEBI which has been passed subsequently much later to the orders of the CIT (A) and therefore, subsequent finding has no evidential value. Finally he submitted that, neither in the statement of Shri Vipul Vidur Bhatt nor in the appraisal report of the Investigation Wing, nor in the SEBI order, assessee has been implicated for rigging of the price or any relationship has been established with the assessee with these entities nor was assessee found recorded as beneficiary. Thus, such order passed by the ld. AO and confirmed by the ld. CIT (A) cannot be sustained. Decision 18. We have heard rival submissions and also perused the relevant finding given in the impugned orders as well as materials referred to before us. Here in this case, the addition 29 Aakruti Ketan Mehta has been made on sale of shares of Sunrise Asian Limited which has been claimed as exempt long term capital gain u/s.10(38).

The background of the case has already discussed in the foregoing paragraphs. To adjudicate such cases, what is required to be seen is totality of attending facts, circumstances surrounding the transaction undertaken by the assessee right from the stage of purchase to the sale of the shares and persons and entities involved in whole of the transaction and what are the material and information against such persons. It is not necessary that there would be any direct evidence or information against the assessee. A holistic approach has to be examined based on a test of ‘preponderance of probabilities’ wherein various factors are to be analysed. The factors which are explained and contended by the assessee and the factors and circumstances brought on record by the departmental authorities as well as material facts coming on record before us.

Before us, ld. Counsel for the assessee has relied upon the following factors in favour of the assessee.  Firstly, assessee had purchased 55,000 equity shares of Conart Traders Ltd being held by Santoshima Tradelinks Ltd. on 27/11/2011 for Rs.11,00,000/- to market from one closely held company at Rs.20/- per share. Shares were purchased through account payee cheques paid on 07/09/2011. Share certificates regarding transfer of shares in the name of the assessee was issued by the said company which was later on de-materialized in the name of the 30 Aakruti Ketan Mehta assessee after couple of months. Thus, it was a genuine purchase transaction.  Secondly, M/s. Conart Traders Ltd. was amalgamated with M/s. Sunrise Asian Ltd., in pursuance to the scheme of amalgamation and were duly approved by the Hon’ble High Court and as per the scheme of amalgamation, share swapping ratio was fixed as 1:1 and accordingly, the shares of M/s. Conart Traders Ltd. was swapped with shares of M/s. Sunrise Asia Ltd. which was also credited in the D-Mat account in the month of June 2013. Shares were sold from 27/11/2013 to 21/03/2014 for a total consideration of Rs. 2,70,01,771/- through broker at an average selling price of Rs.490.94 per share. In support of which assessee through its contract notes had shown the order time, Trade number and Trade time of the shares sold and also assessee paid STT of the sale proceeds have been credited in the bank account of the assessee and different dates received from Karvy Stock Broking Ltd., in the account of the assessee.  Thirdly, The reliance placed by the ld. AO and ld. CIT (A) on the statement of Shri Vipul Vidur Bhatt who was allegedly entry operator managing, controlling of M/s. Sunrise Asian Ltd. was not confronted to the assessee by the ld. AO and before the ld. CIT(A) also despite request assessee was not given opportunity to cross examine to the said person.  Lastly, AO has not made available any Investigation report or any material against the assessee specially when there is 31 ITA No. 53/Mum/2023 Aakruti Ketan Mehta no reference of the assessee in the statement of Shri Vipul Vidur Bhatt or assessee as instructed by the SEBI.

On the other hand, the case of the department before us, as put forth by the ld. DR relying upon the order of the ld. AO and ld. CIT(A) are that:  firstly, assessee had purchased shares of unlisted company which did not have any substantial business or any prospect or credentials so as to attract any prudent person to invest or buy the shares; Assessee had purchased the sahres offline and later on when the said company was amalgamated with M/s. Sunrise Asian Ltd., it was merely scheme adopted for giving accommodation entry because M/s. Sunrise Asian Ltd was found to be bogus / paper entry and Shri Vipul Vidur Bhatt was found to operator of the company in the search conducted by the investigation.  Secondly, in the statement recorded of the Director of the company Shri Kalpesh Manahar Jani categorically admitted that he is neither aware of anything nor or affairs of M/s. Sunrise Asian Ltd nor does he have any link with this company. He also admitted that his cousin brother Shri Vipul Vidur Bhatt has used his name and has appointed him as a dummy director.  Thirdly, during the survey action at the registered office of M/s. Sunrise Asian Ltd. at Mumbai it was found that no work was carried out from office and there were only two employees including one peon and there was no 32 Aakruti Ketan Mehta infrastructure except one old computer kept and no books of accounts or documents are found regarding the affairs of the company.  Fourthly, statement of Shri Vidur Vipul Bhatt has been incorporated in the assessment order wherein he has categorically admitted that M/s. Sunrise Asian Ltd. was not only paper / bogus company and he was an entry operator from this company he was providing accommodation entry for bogus long term capital gain and short term capital loss to various beneficiaries who had approached him for a commission of 4-5%. He has also explained the entire modus operandi and how alongwith Shri Hiren Shah and Shi Jitendra Joshi were in connivance with him for arranging transaction with M/s. Sunrise Asian Ltd and they were involved with him for providing accommodation entry. He has also explained the modus operandi in his statement which has been incorporated by us in the foregoing paragraphs.  Lastly, M/s. Sunrise Asian Ltd. did not have financial strength or profit to justify such a high escalation of prices which reached up to more than Rs. 500 per share in a short span. Ld. CIT (A) has also analysed the financials of the said company in impugned order as discussed above.

Based on these factors, the Revenue has taken the entire transaction of sale of shares of M/s. Sunrise Asian Ltd. as bogus transaction in the form of accommodation entry taken by the 33 ITA No. 53/Mum/2023 Aakruti Ketan Mehta assessee and accordingly, the entire sale proceeds have been added u/s.68 on the ground that it is not a genuine transaction and all the documents submitted by the assessee are mere paper formalities.

During the course of hearing we had enquired about the trading pattern of M/s. Sunrise Asian Ltd. in Bombay Stock Exchange; and also there was a reference of enquiry / investigation by the SEBI in the case of M/s. Sunrise Asian Ltd. alongwith other entities who were involved in rigging of the prices and manipulation of the scrips and also against Shri Vipul Vidur Bhatt, so we asked to produce the orders of SEBI. Both the parties have shared the information before us at the time of hearing.

First of all, from the perusal of the movement of prices between 2014-2017, it is seen that it has reached to its peak on 31/03/2015 at Rs.596.25; and later as on 16/01/2017, the price went steep down to Rs.2.63 per share and there was hardly any trade volume. Post 2017 there is no such trading and there is no information about this company in the stock exchange. Thus, this company boomed in stock exchange only for a short period of 2011-12 to 2016-17. The prices got escalated from 07/02/2013 when it closed at Rs.419.75 from Rs.60/-, which kept on increasing for a period of two years till it reaches 596.25 and then suddenly it started decreasing and reached to its vanishing point. This bell shaped graph itself shows that there is no substance in the company to justify such a huge rise and fall 34 Aakruti Ketan Mehta of the shares especially when there are no factors as brought on record as to why the business of the said company were down or share prices felt too meager sum of Rs.2/- in the year 2017 and later on wiped out from the stock exchange, in the sense there is no trading at all. This factor itself cast a doubt on the credentials of the scrip of M/s. Sunrise Asian Ltd. This further gets corroborated by the inquiry and investigation by SEBI and the order passed, which is discussed herein below.

The most important piece of material which has been brought on record before us is that, SEBI has conducted detailed enquiry and investigation in the scrip of M/s. Sunrise Asian Ltd. alongwith the persons and entities associated with it. The SEBI has noted that 80 connected entities had manipulated the price of the scrip of M/s. Sunrise Asian Ltd in four patches in trading during the investigation period. 77 out of 83 entities were counter parties to the sale of shares by 1059 entities at artificially inflated / manipulated prices. The list of such entities who manipulated the prices during the period 16/10/2012 to 29/02/2015 have been discussed in detail. After considering the replies filed by all the noticees and giving sufficient time, some of the findings in the order dated 06/09/2021 are reproduced herein below:- “From the above Table VII, it is observed that by trading amongst themselves, the group of connected entities contributed 920, which is 31.47% of the market positive LTP, Kiss, the connected entities listed at Br. No 34-46 had aided other connected entities (Sr. No. 1-33) selling shares to increase the price of the scrip. Regulations (a)-(d) of the PRUTP Regulations, 2003 inter alia prohibit 35 Aakruti Ketan Mehta employment of any manipulative/deceptive device, scheme or artifice to defraud in connection with dealing in securities; engaging in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with dealing in securities. Regulation 4(1) of the PFUTP Regulations, 2003, provides for prohibition on Indulging in fraudulent or unfair trade practices in securities. Regulations 4(2)(a) and (s) of the PRUTP Regulations, 2003, provides that dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves Indulging in an act which creates false or misleading appearance of trading in the securities market or any act or omission amounting to manipulation of the price of a security. The role played by the Noticees at Sr. no. 1 to 46 of the above Table to artificially increase the price during Patch 1 needs to be seen holistically, more particularly, when all of them have followed a common, uniform but unique trading strategy to buy and sell their shares only to manipulate the market price of the scrip which they did accomplish by cumulatively contributing to the LTP of the scrip during the aforesaid period of Patch 1. The said trading behaviour of the Noticees gravely affected the normal price discovery mechanism in the securities market and resulted in the disruption of market equilibrium and integrity.

Thereafter considering the submissions of all the parties and while discussing the manipulation of the prices for each period, 37 Aakruti Ketan Mehta similar finding has been given and elaborated in the impugned order. In this context, para 7.30 & 7.31 are also reproduced hereunder:- 7.30 From the above Table X, it is observed that by trading amongst themselves, the group of connected entities contributed 855.85, which is 16.87% of the market positive LTP. Also, the connected entities listed at Sr. No 34-42 had aided other connected entities (Sr. No. 1-33) by selling shares to increase the price of the scrip. In view of the significant positive LTP contribution by the group of connected entities by trading amongst themselves and also the reasoning brought out at paragraphs 7.10-7.13, it is concluded that connected entities listed in the above Table manipulated the price of the scrip by contributing to the price rise and have violated Regulations 3(a)-(d) and Regulations 4(1), 4(2)(a), (e) of PFUTP Regulations, 2003.

Thus, SEBI having powers u/s.11(1), 11(4) and Section 11B of the SEBI Act have directed that noticees / entities shall not access the securities market or buy, sell or deal in the securities market, either directly or indirectly and trading of such scrip was banned. Further, vide order dated 17/06/2022, the SEBI u/s. 15(i) of the SEBI Act had imposed penalties and fines. In the entire 139 pages order, they have highlighted the various malpractices conducted by the Directors and entities and persons involved in the manipulation and rigging of the prices and how these entities inconsonance have adopted malpractices for rigging of the prices. After considering the entire material on records, investigation conducted and also the replies of all these entities / persons, finally SEBI found that there was employment or manipulative deceptive device, scheme or artifice to defraud in 39 Aakruti Ketan Mehta connection with dealing in securities of scrip of M/s. Sunrise Asian Ltd., and accordingly, has levied penalty of Rs.1 Crore jointly and separately under the provision of Section 15(h) of SEBI Act on all noticees.

Now, in light of the fact that an independent agency like SEBI has found that the transaction of M/s. Sunrise Asian Ltd., was manipulative and rigging of the prices by certain entities which included Shri Vipul Vidur Bhatt also and his entities which was controlled by him through which he has provided accommodation entry. This factor alone substantiates and corroborates the initial investigation in the case of Shri Vipul Vidur Bhatt wherein he has admitted that he was providing accommodation entry and has explained the entire modus operandi. Though later on he has refracted his statement by way of an affidavit and assessee’s objection was that since he was not allowed to be cross examined, therefore, his statement cannot be relied upon. In such cases, the statement alone is not edifice for making the addition but catena of various factors and circumstances surrounding the transaction as such needs to be taken into account. If the SEBI itself after considering the entire facts and materials on record and investigation and even the submissions of the various persons and entities have found that these persons / entities have manipulated the prices and after providing accommodation entry including the exit providers who were involved assisting in purchasing of the shares from various persons. If this finding is corroborated by the other factors which has been referred and relied upon by the department as noted 40 Aakruti Ketan Mehta above, we cannot put blinkers in our eyes on these factors and material coming on record and simply because assessee adduced certain documents for purchase and sale of shares does not make the transaction genuine.

Here one important factor is that assessee is not a regular trader of the shares and dealt with one of such purchases of shares of a company which was not having substantial business or credibility, or any future prospects, assessee has brought the shares and later on had sold at a huge price then also without any financial credentials to justify the rise of shares. The financials and its credibility have been discussed in detail by the SEBI in its order. This factor definitely creates suspicion about the entire transaction. In such cases, it is not necessary that there should be direct evidence available against the assessee or assessee has been specifically found to be beneficiary in any statement or any document. What needs to be seen that immediate and proximate facts and circumstances surrounding the whole event which has been found during the course of investigation by the agencies and specially here in this case SEBI. Here, it is not the case that simply based on some investigation and some statement of a broker that he has dealt in particular scrip for providing accommodation entry is the basis for making the addition. Albeit, the main concerned person who was hand in gloves for manipulating the price of the shares has also stated that he was an entry provider for bogus long term capital gain in M/s. Sunrise Asian Ltd. Even though he has reiterated or he has not been subjected to cross examine but 41 Aakruti Ketan Mehta later on when SEBI gave opportunity of these entities including Shri Vipul Vidur Bhatt and they were unable to substantiate or explain the case that they had not done any fraud or manipulation for manipulating the price in the stock market. The SEBI has categorically noted that how in various patches prices were rigged and who were entities involved during those periods and all these persons / noticees were directly or indirectly involved in purchase and sale of shares acting as exit providers were also rigging all the prices. Thus, without there any cross examination also it cannot be held that Shri Vipul Vidur Bhatt was not involved or his conduct later on found by agencies should be ignored simply because assessee was not allowed cross examination. As stated above, his statement alone is not the entire basis for the addition but there are other catena of factors and circumstances as discussed above including abnormal rise of the price and later on subject to ban by SEBI on this scrip and also later no trading of the shares took place as the price failed to such a low, that post 2017 there has been no trading at all.

Even though SEBI has adjudicated this issue post passing of the ld. CIT (A) order, however, now it has been brought on record that the entire trading of the shares in the stock market was only a fraud to provide accommodation entries by these persons to the parties who had approach them to provide accommodation entry. This factor is crucial to induct the assessee also that it is not a simple purchase and sale of shares in a bonafide manner in the open market. Even though, there cannot be any direct 42 ITA No. 53/Mum/2023 Aakruti Ketan Mehta evidence against the assessee, but all these factors do cast a shadow on test of genuineness of the transaction which requires juridical frown and condemnation. The assessee cannot act bonafide merely relying upon the documents in their hands to contend that transactions were genuine. The test of genuinety has to be seen on principles of ‘preponderance of probabilities’ and here all the factors show that there is nothing genuine about this transaction. The company which does not have any significant value before such high rise in stock exchange and later on it vanishes from trading, ostensibly goes to show that it was nothing but a paper/sham company as trading was among selected few with predetermined exit providers to provide accommodation entry to few beneficiaries, which was revealed from the inquiry and adjudication order of SEBI and this fact was also found by the income tax department in the course of the search conducted on the key entry operator of these shares. At this point it would be relevant to refer and rely upon the ratio and the Hon’ble Calcutta high Court in the case of PCIT vs. Swati Bajaj, for the sake of ready reference are reproduced hereunder:-

In the result, appeal of the assessee is partly allowed.