SUMAN PODDAR vs. INCOME TAX OFFICER

ITA 841/2019 Page 1 of 10 $~69 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 841/2019 SUMAN PODDAR ..... Appellant Through: Mr. Arvind Kumar and Ms. Devina Sharma, Advocates. versus INCOME TAX OFFICER ..... Respondent Through: None. CORAM: HON'BLE MR. JUSTICE VIPIN SANGHI HON'BLE MR. JUSTICE SANJEEV NARULA O R D E R % 17.09.2019 C.M. No. 41505/2019 (exemption) 1. Exemption allowed, subject to all just exceptions. 2. The application stands disposed of. ITA 841/2019 3. The present appeal is directed against the order dated 25.07.2019 passed by the Income Tax Appellate Tribunal (ITAT) Delhi Bench 'G', New Delhi, in ITA No. 1006/Del/2019 for the assessment year 2014-15 whereby the tribunal had rejected the appeal preferred by the Appellant/Assessee. The Appellant had filed return of income for the assessment year 2014-15 declaring income of Rs. 4,96,650/-. The return of the Appellant was selected for scrutiny. The Appellant had booked Long Term Capital Gain (LTCG) of Rs. 73,77,806/- and sought exemption under Section 10 (38) of

ITA 841/2019 Page 2 of 10 the Income Tax Act, 1961. The Assessing Officer on consideration of the replies and responses of the assessee in pursuance of the notices issued to the assessee, computed the net taxable income at Rs. 78,74,456/-. The AO added the amount of Rs. 73,77,806/- by denying the exemption claimed under Section 10 (38) of the Act on account of LTCG. The Assessment Officer (AO) found the transaction pertaining to purchase of shares by the Appellant/Assessee of M/s Smartchamps IT and Infra Ltd., which was merged with M/s Cressanda Solutions Ltd., to be a bogus transaction by holding that M/s Cressanda Solutions Ltd. was a penny stock. The appeal preferred by the Appellant before the learned CIT (Appeals) met the same fate and the findings of fact in relation to the transaction being bogus were upheld by the CIT (Appeals). The further appeal preferred before the ITAT has been dismissed and the ITAT has once again found the said transaction to be bogus. 4. We have, therefore, at the outset put it to learned counsel for the Appellant that since there are consistent findings of fact and the entire dispute raised by the Appellant is factual, there is no reason for the Court to entertain the present appeal and no question of law arises for our determination. 5. Counsel for the Appellant has submitted that the findings returned by the Assessing Officer; the CIT (Appeals), and; the ITAT are perverse since, according to the Appellant, there was no basis for concluding that the transaction entered into by the Appellant for purchase of shares of M/s Smartchamps IT and Infra Ltd. (which was later merged with M/s Cressanda

ITA 841/2019 Page 3 of 10 Solutions Ltd.) was bogus. Counsel for the Appellant submits that the Appellant had made cheque payment for the purchase of 1500 shares of M/s Smartchamps IT and Infra Ltd. in the assessment year 2012-13, and that investment was accepted by the department. He further submits that the Appellant had produced all the relevant materials before the Assessing Officer, namely, the documentation relating to opening of the DMAT account; the purchase of shares of M/s Smartchamps IT and Infra Ltd., the contract notes, and other relevant documents. 6. Learned counsel for the Appellant has taken us through the impugned order. Having heard the learned counsel and perused the records including the impugned order, we are of the view that there is absolutely no merit in the present appeal. The ITAT has extensively discussed the evidence and materials on the basis of which the Assessing Officer recorded his findings with regard to the genuineness of the transaction in question. The findings returned by the Assessing Officer, the CIT (Appeals) and the Tribunal are based on appreciation of evidence and there is ample justification for them. Thus, it cannot be said that the findings of fact are perverse. The relevant discussion found in the impugned order reads as follows: “9. We have gone through the rationale given by both the parties pertaining to their arguments. In this case, it is an uncontroverted fact that the assessee has failed to prove the genuineness of the transaction. The AO has worked out the glaring facts, which cannot be ignored and which are clear indicative of the non-genuine nature of the transactions. The assessee could not satisfactorily explain how the investments in the absence of any evidence as to the financials, growth and operations of the company could earn profit of 4910% over a short period of 5 months from the date of allotment of shares

ITA 841/2019 Page 4 of 10 (21.02.2013-date of allotment and 18.07.2013 to 12.09.2013 - date of sale) of Cressanda Solutions Ltd. against the purchase of 15,000 shares of Smartchamps IT and Infra Ltd. on 22.09.2011. Most importantly, in spite of earning so much of profit, the assessee has never embarked upon any transactions for investments with the broker or in any other dealing of shares. The revenue from operations of Cressanda Solutions Ltd. for the year March 2012 was Rs.00 and, for the year March 2013 is Rs. 0.99 Cr. The financials of the company proving that the entity is a penny stock company are as under: Balance Sheet of Cressanda Solution ----------in Rs. Cr.---------- Mar 16 12 mths Mar 15 12 mths Mar 14 12 mths Mar 13 12 mths Mar 12 12 mths EQUITIES AND LIABILITIES SHAREHOLDER FUNDS Equity Share Capital 30.36 30.36 30.36 30.36 9.00 Total Share Capital 30.36 30.36 30.36 30.36 9.00 Reserves and Surplus - -065 -0.82 0.63 -8.89 Total Reserves and Surplus - -0.65 -0.82 0.63 -8.89 Total Shareholders' Funds 29.29 29.71 29.54 30.99 0.11 NON CURRENT LIABILITIES Long Term Borrowings 0.00 0.00 0.00 0.00 1.48 Other Long Term Liabilities 0.00 0.00 0.00 0.00 0.15 Long Term Provisions 0.00 0.00 0.00 0.00 0.05 Total Non Current Liabilities 0.00 0.00 0.00 0.00 1.68 CURRENT LIABILITIES Trade Payables 0.00 0.00 23.82 22.35 0.00

ITA 841/2019 Page 5 of 10 Other current Liabilities 0.01 0.10 0.32 0.56 0.00 Short term Provisions 0.00 0.00 0.00 0.08 0.00 Total current Liabilities 0.01 0.10 24014 22.99 0.00 Total Capital and Liabilities 29.30 29.81 53.68 53.98 1.79 ASSETS NON CURRENT ASSETS Tangible Assets 0.03 0.04 0.05 0.06 0.00 Fixed Assets 0.03 0.04 0.05 0.06 0.00 Non-Current Investments 0.00 0.00 0.00 1.09 1.09 Long term loan and advances 18.96 18.87 24.11 25.11 0.00 Other non current assets 10.21 10.60 0.15 0.77 0.65 Total non Current assets 29.20 29.50 24.31 27.03 1.74 CURRENT ASSETS Inventories 0.00 0.00 0.00 0.70 0.00 Trade Receivables 0.00 0.00 29.13 26.01 0.00 Cash and Cash Equivalents 0.10 0.23 0.18 0.18 0.04 Short Term Loans and Advances 0.00 0.00 0.00 0.00 0.01 Other Current Assets 0.00 0.08 0.05 0.05 0.00 Total Current Assets 0.10 0.31 29.37 26.95 0.05 Total Assets 29.30 29.81 53.68 53.98 1.79 Profit & Loss account of Cressanda Solution -----------in Rs. Cr.------ Mar 16 12 mths Mar 15 12 mths Mar 14 12 mths Mar 13 12 mths Mar 12 12 mths INCOME Revenue from Operations [Gross] 0.00 0.00 6.44 0.99 0.00 Revenue from 0.00 0.00 6.44 0.99 0.00

ITA 841/2019 Page 6 of 10 Operations [Net] Total operating Revenues 0.00 0.00 6.44 0.99 0.00 Other Income 0.03 0.17 0.14 0.07 0.02 Total Revenue 0.03 0.17 6.58 1.06 0.02 EXPENSES Operating and Direct expenses 0.00 0.00 5.14 0.08 0.00 Changes in inventories of FG, WIP and stock in trade 0.00 0.00 0.70 0.00 0.00 Employee Benefit Expenses 0.05 0.04 0.03 0.06 0.00 Depreciation and amortization expenses Other Expenses 0.14 0.28 2.14 0.41 0.04 Total Expenses 0.20 0.32 8.02 0.57 0.04 Mar 16 12 mths Mar 15 12 mths Mar 14 12 mths Mar 13 12 mths Mar 12 12 mths Profit and loss before exceptional, extra ordinary items and tax 0.17 -0.15 -1.44 0.49 -0.02 Profit and loss before tax 0.17 -0.15 -1.44 2.49 -0.02 Tax expenses- continued operations current tax 0.00 0.00 0.00 0.09 0.00 Tax for earlier years 0.25 0.00 0.00 0.00 0.00 Total tax expenses 0.25 0.00 0.00 0.09 0.00 Profit/loss after tax and before extra ordinary items 0.42 -0.15 -1.44 0.40 -0.02 Profit/loss from continuing operations 0.42 -0.15 -1.44 0.40 -0.02 Mar 16 12 mths Mar 15 12 mths Mar 14 12 mths Mar 13 12 mths Mar 12 12 mths

ITA 841/2019 Page 7 of 10 OTHER ADDITIONAL INFORMATION EARNINGS PER SHARE Basic EPS (Rs.) 0.01 -0.01 -0.48 0.13 -0.02 Diluted EPS (Rs.) 0.01 -0.01 -0.48 0.13 -0.02 (emphasis supplied) 7. Thus, the Tribunal has in depth analyzed the balance sheets and the profit and loss accounts of Cressanda Solutions Ltd. which shows that the astronomical increase in the share price of the said company which led to returns of 491% for the Appellant, was completely unjustified. Pertinently, the EPS of the said company was Rs. 0.01/- as in March 2016, it was Rs. - 0.01/- as in March 2015 and -0.48/- as in March 2014. Similarly, the other financials parameters of the said company cannot justify the price in excess of Rs. 500/- at which the Appellant claims to have sold the said shares to obtain the Long Terms Capital Gains. It is not explained as to why anyone would purchase the said shares at such high price. The Tribunal goes on to observe in the impugned order as follows: “10. With such financials and affairs of business, the purchase of share of face value Rs. 10/- at the rate of Rs.491/- by any person and the assessee's contention that such transaction is genuine and credible and arguing to accept such contention would only make the decision of the judicial authorities a fallacy. 11. The evidences put forth by the Revenue regarding the entry operation fairly leads to a conclusion that the assessee is one of the beneficiaries of the accommodation entry receipts in the form of long-term capital gains. The assessee has failed to prove that the share transactions are genuine and could not furnish evidences regarding the sale of shares except the copies of the

ITA 841/2019 Page 8 of 10 contract notes, cheques received against the overwhelming evidences collected by the Revenue regarding the operation of the entire affairs of the assessee. This cannot be a case of intelligent investment or a simple and straight case of tax planning to gain benefit of long-term capital gains. The earnings @ 491% over a period of 5 months is beyond human probability and defies business logic of any business enterprise dealing with share transactions. The net worth of the company is not known to the assessee. Even the brokers who coordinated the transactions were also unknown to the assessee. All these facts give credence to the unreliability of the entire transaction of shares giving rise to such capital gains. The ratio laid down by the Hon'ble Supreme Court in the case of Sumati Dayal vs. CIT, 214 ITR 801 is squarely applicable to the case. Though the assessee has received the amounts by way of account payee cheques, the transactions cannot be treated as genume in the presence of the overwhelming evidences put forward by the Revenue. The fact that in spite of earning such steep profits, the assessee never ventured to involve himself in any other transaction with the broker cannot be a mere coincidence of lack of interest. Reliance is placed on the judgment in the case of Nipun Builders and Developers Pvt. Ltd. (supra), where it was held that it is the duty of the Tribunal to scratch the surface and probe the documentary evidence in depth, in the light of the conduct of assessee and other surrounding circumstances in order to see whether the assessee is liable to the provisions of section 68 or not. In the case of NR Portfolio, it was held that the genuineness and credibility are deeper and obtrusive. Similarly, the bank statements provided by the assessee to prove the genuineness of the transactions cannot be considered in view of the judgment of Hon'ble court in the case of Pratham Telecom India Pvt. Ltd., wherein, it was stated that bank statement is not sufficient enough to discharge the burden. Regarding the failure to accord the opportunity of cross examination, we rely on the judgment of Prem Castings Pvt. Ltd. Similarly, the Tribunal in the case of Udit Kalra, ITA No. 6717/Del/2017 for the assessment year 2014-15 has categorically held that when there was specific confirmation with the Revenue that the assessee has indulged in

ITA 841/2019 Page 9 of 10 non-genuine and bogus capital gains obtained from the transactions of purchase and sale of shares, it can be a good reason to treat the transactions as bogus. The differences of the case of Udit kalra attempted by the Ld. AR does not add any credence to justify the transactions. The Investigation Wing has also conducted enquiries which proved that the assessee is also one of the beneficiaries of the transactions entered by the Companies through multiple layering of transactions and entries provided. Even the BSE listed this company as being used for generating bogus LTCG. On the facts of the case and judicial pronouncements will give rise to only conclusion that the entire activities of the assessee is a colourable device to obtain bogus capital gains. The Hon'ble High Court of Delhi in the case of Udit Kalra, ITA No. 220/2009 held that the company had meager resources and astronomical growth of the value of the company's shares only excited the suspicion of the Revenue and hence, treated the receipts of the sale of shares to be bogus. Hon 'ble High Court has also dealt with the arguments of the assessee that he was denied the right of cross examination of the individuals whose statements led to the enquiry. The ld. AR argument that no question of law has been framed in the case of Udit Kalra also does not make any tangible difference to the decision of this case. Since the additions have been confirmed based on the enquiries by the Revenue, taking into consideration ratio laid down by the various High Courts and Hon'ble Supreme Court, our decision is equally applicable to the receipts obtained from all the three entities. Further, reliance is also placed on the orders of various Courts and Tribunals listed below. MK. Rajeshwari vs. ITO in ITA No.17231Bangl2018, order dated 12.10.2018. Abhimanyu Soin vs. ACIT in ITA No. 9511Chdl2016, order dated 18.04.2018. Sanjay Bimalchand Jain vs. ITO 89 taxmann.com 196. Dinesh Kumar Khandelwal, HUF vs. ITO in ITA No. 58 & 591Nagl2015, order dated 24.08.2016. Ratnakar M Pujari vs. ITO in IT A No. 9951Muml2012, order dated 03.08.2016.

ITA 841/2019 Page 10 of 10 Disha N. Lalwani vs. ITO in ITA No. 6398 I Mum I 2012, order dated 22.03.2017. ITO vs. Shamim. M Bharwoni [20 16] 69 taxmann.com 65. Usha Chandresh Shah Vs ITO in ITA No. 6858 I Mum I 2011, order dated 26.09.2014. CIT vs. Smt. Jasvinder Kaur 357 ITR 638. 12. The facts as well as rationale given by the Hon 'ble High Court are squarely applicable to the case before us. Hence, keeping in view the overall facts and circumstances of the case that the profits earned by the assessee are a part of major scheme of the accommodation entries and keeping in view the ratio of the judgments quoted above, we, hereby decline to interfere in the order of the Ld. CIT(A).” (emphasis supplied) 8. From the above extract, it would be seen that the Cressanda Solutions Ltd. was in fact identified by the Bombay Stock Exchange as a penny stock being used for obtaining bogus Long Term Capital Gain. NO evidence of actual sale except the contract notes issued by the share broker were produced by the assessee. No question of law, therefore arises in the present case and the consistent finding of fact returned against the Appellant are based on evidence on record. 9. In the aforesaid facts and circumstances, we do not find any merit in the present appeal and the same is dismissed. VIPIN SANGHI, J SANJEEV NARULA, J SEPTEMBER 17, 2019/nk