SHRI RUPAL JAIAN,JAIPUR vs. ITO, WARD-1(2), JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”SMC” JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ds le{k BEFORE: HON’BLE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER vk;dj vihy la-@ITA No. 209/JP/2020 fu/kZkj.k o"kZ@Assessment Year : 2014-15. cuke Shri Rupal Jalan, The Income Tax Officer, Vs. A-97, Siddharth Nagar, Ward 1(2), Behind Jawahar Circle, Jaipur. Near Jain Mandir, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AGFPJ 5818 G vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Saurabh Harsh, Advocate. jktLo dh vksj ls@ Revenue by : Shri Anoop Singh, (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 12/01/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 4/04/2023 vkns'k@ ORDER PER: SANDEEP GOSAIN, J.M.

This appeal by the assessee is directed against the order of ld. CIT(A)-1, Jaipur dated 30.12.2019 for the assessment year 2014-15. The assessee has raised the following grounds of appeal :-

1. That on the facts and in the circumstance of the case the respected Commissioner of Income Tax (Appeal)-1, Jaipur is wrong, unjust and has erred while upholding the AO’s decision and confirmed addition of Rs. 24,71,348/- on account of invoking provisions under section 68 of Income Tax Act, 1961.

2. That on the facts and in the circumstance of the case the respected Commissioner of Income Tax (appeal)-1, Jaipur is wrong, unjust and has erred while upholding the AO’s decision and confirmed addition of Rs. 50,418/- on account of Brokerage as undisclosed expenses, which was purely based on surmises.

3. The assessee craves the right to add or amend the grounds of the appeal during the hearing or before the date of appeal.

As per details furnished during the assessment proceedings, it is noticed that the assessee invested in shares, namely, M/s. Sunrise Asian Limited. On the basis of information received from Investigation Wing of the Department, SEBI discovered that various syndicates have arranged accommodation entry of bogus LTCG, Bogus STCG, Bogus Long/Short Term Capital Loss through trading of shares of Penny Stocks. The modus operandi found is that the investors/beneficiaries hold these shares for one year or so and then sale it to one of the shell private limited companies of the operator. These facts were confirmed by the stake holders viz.

Operators/Syndicate members/Brokers which were providing accommodation entries in statements recorded during action u/s 133A of the IT Act. It is further detected that M/s. Sunrise Asian Limited is a penny stock listed company. It has very small capital base but its market capitalization is multifold, to its capital base. Further, information in respect of trading in penny stock i.e. M/s. Sunrise Asian Limited is also available at ITS Data/AIR. As per the details furnished by the assessee, it is noticed that the assessee claimed exemption under section 10(38) of the IT Act, 1961 as under :-

Name of company Sale price Purchase price Transfer Exempt income expenses claimed u/s 10(38)

M/s. Sunrise Asian 25,20,930/- 1,00,000/- - 24,20,930/- Limited On examination of the share sale transactions made by the assessee during the year, it was found that the entire sale proceeds, that have been claimed as exempt income, were received from sale of one scrip i.e. M/s. Sunrise Asian Limited only.

The assessee was asked to give details regarding when and how the shares were purchased and evidence in this respect. In response the assessee submitted as under :-

“ As we have mentioned in our earlier replies we once again submit that the assessee has applied for 5000 shares in Santoshima Lease Finance & Investment (India) Limited vide cheque 559388 dated 07.09.2011 of Rs. 1,00,000/- drawn on Bank of Baroda, Johari Bazar, Jaipur. The company allotted 5000 share in Conart Traders Limited on 28.11.2011. Copy of application for purchase of share and allotment advise has already been submitted before your goodself vide or reply dated 14.12.2016.

Later on a scheme of amalgamation / arrangement among M/s. Santoshima Tradelinks Ltd., M/s. Conart Trades Limited and M/s. Sunrise Asian Ltd. has been approved by Hon’ble High Court of Bombay. As per direction of Hon’ble High Court Bombay, we have received 5000 share in M/s. Sunrise Asian Limited.

As far as the brokerage of Rs. 50419/- are concerned we are to submit that the so called brokerage as calculated by your goodself are totally based on estimation or surmises. It is further submitted that the share were sold on the recognized stock exchange and the both buyer and the seller were not known to each other.”

The details of purchase and sale of this particular scrip i.e. M/s. Sunrise Asian Limited were examined. During the assessment proceedings on verification of records, the A.O. noted that the assessee appellant had claimed exempt income on Long Term Capital Gain of Rs. 24,20,930/- on sale of shares of M/s. Sunrise Asian Limited. Information in respect of trading in penny stock i.e. M/s. Sunrise Asian Ltd. is also available at ITS data during the year under consideration. It was also detected that M/s. Sunrise Asian Ltd. is a penny stock listed company with a small capital base but huge market capitalization. Information in respect of trading of penny stock i.e. M/s. Sunrise Asian Ltd. is available in ITS data/AIR. In the statement recorded by the Investigation Wing of the Department under section 133A of the IT Act, 1961 the stake holders viz. Operators/Syndicate members/Brokers have admitted about complete procedure of pre-arranged LTCG entries involved through brokerage company. Accordingly, a show cause notice was issued to the assessee vide letter dated 14.12.2016 asking the assessee to furnish explanation on or before 23.12.2016 failing which it was proposed that the whole scheme would be treated as an attempt to introduce undisclosed income and LTCG amounting to Rs. 25,20,930/- was proposed to be added on account of undisclosed income. In response, the ld. A/R emphatically denied of having any knowledge of such bogus LTCG to the assessee. The assessee has mainly contended that since purchase was made through payment by account payee cheques and shares were allotted to him by the company, it was a genuine transaction. Secondly, sale was made online after paying STT at the prevalent market rates, therefore, sale transactions were also genuine. The AO considered the above submissions of the assessee but did not accept the contentions of the assessee. The AO concluded that the alleged LTCG shown by the appellant on account of sale/purchase of shares of M/s. Sunrise Asian Ltd. is a bogus transaction and it actually represents unaccounted money routed back to appellant in the garb of LTCG. The AO also noted that it is also unearthed during the course of investigation by the Investigation Wing that the beneficiaries have paid 1% to 2% commission on acquiring accommodation entries for Bogus LTCG. Therefore, the AO added commission paid of Rs. 50,418/- @ 2% of Rs. 25,20,930/- treating the same as undisclosed expenditure for acquiring accommodation entry. Aggrieved by the order of AO, the assessee preferred appeal before the ld. CIT(A). The ld. CIT (A) after detailed discussion and considering various judicial pronouncements, sustained the additions of Rs. 24,20,930/- under section 68 on account of sale of shares claiming exempt LTCG under section 10(38) and Rs. 50,418/- on account of commission.

Ground No. 1 relates to addition made under section 68 on account of sale of shares claiming exempt LTCG under section 10(38) of the Act.

“ i. That assessee appellant is an Individual and regularly filing his Income tax Return. ii. That during the year under consideration assessee had sold the shares of Rs 25,20,930/- of Sunrise Asian Limited Invested in the year 2011 and claim Long Term Capital Gain of Rs 24,20,930/- u/s 10(38) of the Income tax Act. iii. That originally assessee bought the 5000 shares @RS 20/shares of M/s Conart Traders Limited invested Rs 1,00,000/- through payment of Cheque No. 559388 dated 07.09.2011. (Copy of Bank Statement is enclosed in Paper Book Pg. No. 21) iv. That thereafter, there was an amalgamation among M/s Conart Traders Limited, M/s Santoshima Tradelink Ltd and Sunrise Asian Limited and same was approved by the Hon'ble Bombay High Court vide order dated 11.10.2012. (Copy of order passed by Hon'ble Bombay High Court is enclosed herewith at Pg. No. 54-80 of Paper Book) v. That subsequent to the amalgamation of the company under which the assessee originally invested with the Sunrise Asian Limited, assessee allotted with 5000 Shares @Rs 20/ each of Sunrise Asian Ltd. (Copy of Contract Note is enclosed herewith Pg. 37 of Paper Book) vi. That thereafter, the shares transferred to the DEMAT account on 24.06.2013 and shares were sold by the assessee and Share Transaction Tax were also duly paid at the time of sale of shares. (Copy of DEMAT account and Transaction Statement is enclosed herewith at Pg. 43-44 of Paper Book) vii. That Id. Assessing officer on the basis of search conducted by the investigation wing of the department, Kolkata and statement recorded during the search proceedings, alleged the company in which the assessee invested is penny stock listed company. viii. That during the assessment proceeding, assessee vide letter dated 23.12.2016 raised the objection regarding not providing the opportunity of cross examination of the person who made statement and on the basis of which the assessee was alleged to invested in the penny stock (Copy of letter dated 23.12.2016 is enclosed at pg. 1-4 of Paper Book) ix. Further it is also submitting that during assessment proceeding, assessee submits complete details of Bank Statement, Copy of DEMAT Account, Transaction Statement and ld. Assessing officer after considering the submission made by the assessing officer, without providing opportunity to cross examine, disallowed the exempt income u/s 10(38) of the act and treated the Income from other source u/s 68 of the act and also made addition of Rs 50,418/- ie 2% of Rs 25,20,930/-, Commission paid on acquiring the accommodation entries which completely based on assumption and presumption. x. That further Id. CIT(A), vide order dated 30.12.2019, without considering the details of Bank Statement, Copy of DEMAT Account, Transaction Statement and detail submission made by the assessee dismissed the appeal and confirm the addition of Rs 24,20,930/- u/s 68 of the act and addition of Rs 50,418/- made by the ld. Assessing officer. xi. That Id. Assessing officer has not brought any evidence to prove that the assessee transaction as non-genuine and merely on the report of the investigation wing of Kolkata it is not justify to treat the transaction as bogus and nothing on record was placed by the ld. Assessing officer which proves that there is a direct nexus of the assessee's transaction. xii. Further it is also submitting that evidence collected from the third party cannot be used against the assessee unless it is put before the assessee and given proper opportunity to controvert the opportunity. xiii. That coordinate bench of Hon'ble ITAT, Jaipur Bench in the matter of Ashok Agarwal v. ACIT. 202(11) TMI 650-ITAT, Jaipur dated 18.11.2020 while dealing the identical controversy and wherein appellant also invested in the Similar Scrip i.e SUN ASIAN (Scrip Code 506615), deleted the addition and held that:-

“ 24. We also find that while analyzing sale of shares of similar scrip of M/s Sunrise Asian Ltd and claim of exemption of long term capital gains u/s 10(38), the Mumbai Benches of the Tribunal in case of Anraj Hiralal Shah (HUF) vs ITO (supra) has upheld the claim of the assessee's claim of exemption under section 10(38) of the Act and the relevant findings of the Coordinate Bench contained at Para 8 read as under:- "8. The assessee has earned speculation profit in the immediately preceding year through M/s Eden Financial Services also and the said profit has been used to purchase the shares of M/s Sunrise Asian Ltd. The assessee has offered the speculation profit for income tax purposes in the immediately preceding year and it has been accepted. Further the assessee has shown the purchase of impugned shares as investment in the Balance Sheet. Hence the purchase of shares has been accepted. Further the shares have been received in the D-mat account of the assessee and they have been sold through the Dmat account only. Hence the delivery of shares also stand proved. The AO has not brought any material on record to show that the assessee was part of fraudulent price rigging. Accordingly, in the absence of any evidence to implicate the assessee or to prove that the transactions are bogus, I am of the view that the capital gains declared by the assessee cannot be doubted with. In that view of the matter, the addition made towards expenses is not also sustainable."

so taken by the assessee is allowed.

26. In the result, the appeal of the assessee is allowed.(Copy of order is enclosed at Compilation-I Pg. 35-67) iv. That Similarly different Benches of Hon'ble ITAT, also takes the consistent view in favour of the assessee who invested in the Similar Scrip i.e SUN ASIAN (Scrip Code-506615) and deleted the addition in the following matters: HON'BLE ITAT MUMBAI BENCH > Narayan Ramchandra Rathi v. ITO (2019(8) TMI 1520) (Pg. 68-73- COMPILATION-1) Anjana Sandeep Rathi v. ACIT (2020 (8) TMI 168) (Pg. 74-76 - COMPILATION-1) Dipesh Ramesh Vardhan v. DCIT (2020 (8) TMI 405) (Pg. 77-85- COMPILATION-1) > Chhaya Hasmukhlal Ranawat v. ITO (2021 (2) TMI 1284) (Pg. 86-94- COMPILATION-1) Ganpat Pukhraj Jain v. ITO (2021 (11) TMI 320) (Pg. 95-101-COMPILATION- 1) Shripal Raj Lodha v. DCIT (2022 (2) TMI 691) (Pg. 102-114-COMPILATION-I) HON'BLE ITAT INDORE BENCH Ayushi Nyati v. ITO (2021 (6) TMI 925) (Pg. 115-138 COMPILATION-1) ➤ Shewta Agrawal v. ACIT (2021 (6) TMI 967) (Pg. 152-162 COMPILATION-I) Manorama Devi Sharma v. ITO (2021 (7) TMI 943) (Pg.198-208 COMPILATION-I) HON'BLE ITAT AHMEDABAD ITO v. Devyani Dharmendra Shah (2022(6) TMI 744) (Pg. 68-73 198-208 COMPILATION-1) xv. That further we also wish to relied upon the recent order passed by the coordinate Bench of the Hon'ble ITAT, Jaipur in the appeal filed by the Revenue in the matter of in ACIT v. Maverick Commodity wherein it was held that:- 14. We have considered the rival contentions, perused the material available on record and also gone through the findings of the lower authorities recorded in their respective orders. We have also gone through the various judicial ruling placed before us by both the parties to drive home to their contentions. For the year under consideration the assessee has offered short term capital gain of Rs. 3,05,14,396/- on sale of share of M/s. Midland Poly and Rs. 3,20,61,825/- on sale of shares of M/s. Sulabh Engineering. Both these scrips were purchased on line and sold online through registered share broker by various contract notes. Due security transaction tax(STT) was also paid by the assessee at the time of purchase and sale transactions. The consideration routed through normal banking account through RTGS. The assessee has furnished copy of bank statement showing payment so received, assessee's ledger account in the books of account placed on record, related contract notes through which the purchase and sales were made showing unique settlement code and transaction executed along with date of transactions. All these transactions were very well placed on record before the assessing officer. He remains silent on the evidence filed and not uttered a single statement as to why the same are not correct or reliable. All these transactions were real time transaction entered into the portal and there are no efforts to see the correctness of these documents by any of the authority i.e. BSE/NSE. The Id. AO merely reiterated the inquiry conducted by the investigation wing of Kolkatta unit. The department did not controvert the repeated argument of the ld. AR that no incriminating documents found related to these transactions. These facts are even confirmed by the AO in his remand report, so the revenue did not take a plea that the AO was not given a fair chance by ld. CIT(A). The ld. AO make the addition u/s. 68 & 69C only based on the statement recorded u/s. 132(4) which was duly retracted and the investigation information received by the AO in the form of statement recorded of the person. The Id. AR also placed on record the retraction affidavit of a person whose statement is relied upon while making the addition.

14.1 The ld. AR of the assessee by filling various records as listed here in below in his paper book explained the circumstance under which the disclosure was obtained by the department. Sl. Particulars Page Nos.

6. Copy of Details of Login into the NSE Derivative 51 Market Segment dated 23.07.2015.

7. Copy of Details of Login into the NSE Derivative 52 Market Segment dated 21.07.2015.

8. Copy of Details of Login into the NSE Capital 53-54 Market Segment dated 21.07.2015.

9. Copy of Details of Login into the NSE Capital 55 Market Segment dated 23.07.2015.

14.2 The Id. AR of the assessee submitted that even though all the transactions are correctly recorded and no cash trail or any other documents to prove that the transactions entered by the assessee are not genuine transactions or are in the nature of accommodative entries. We found from the evidence placed by the assessee that the department has taken the benefit of the pressure under which the assessee was passing, as department did not allow to do stock exchange operations and banking transaction too. This circumstance forced the assessee to sign the statement as per will and wishes of the department and ultimately the statements made were retracted by filling a detailed affidavit. 14.3 The ld. AO has not applied his mind independently to check the veracity of these documents and has, merely on the third-party statement made the addition. The statement of the person relied upon has also retracted their statement, so the reliability of these evidence without allowing the cross examination cannot be used against the assessee. Even the assessee has submitted the copy of the affidavit of the person whose statement relied upon has retracted from his statement. The ld. AO has not raised single questions on the evidences and its correctness. Even the assessee has submitted that Shri Anil Agarwal whose statement is heavily relied upon has retracted his statement. Further, the purchase transaction has been done with the recognised stock broker and consideration has also been paid through cheque, their broker's name is not spelled out in the investigation done by the Kolkatta investigation wing. Therefore, even if the purchase consideration is found to be very less in comparison to the sale consideration at the time of sale of shares, in the absence of any material or other facts detected or brought on record by the AO that the assessee has brought back his own unaccounted money in the shape of short/long term capital gain and has used the same as a device to avoid tax and route their unaccounted income. The purchase and sales consideration paid and received by the assessee using independent banking channel and broker's online platform cannot be doubted in absence of any corroborating evidence found in the course of search. No cash trail or any incriminating material suggesting such transaction as accommodation entry is found by the search team. 14.4 During the assessment proceeding the cross examination of the witness were requested by the assessee because the same were relied upon against the assessee. The assessee has submitted that in the statement relied upon there is no such reference of the broker of the assessee and any cash trail established by the person whose statement is relied upon. Therefore, assessee requested the ld. AO for cross examination in the assessment proceedings. However, the ld. AO did not offer the opportunity of cross examination even though the assessee has sought specifically. Thus, as observed in various judgment specifically the famous decision of apex court in the case of CCE vs. Andaman Timber Industries 127 DTR 241 the assessment based on statement without giving an opportunity is not sustainable in law. We further note that the assessee produced copy of affidavit of Shri Anil Agarwal who has retracted his statement, however without going into controversy of the retraction of the statement, the fact remains that the statement of a third party cannot be used by the AO without giving an opportunity of cross examination to the assessee. A similar issue has come up before this Bench in case of Shri Pramod Jain and others us. DCIT (ITA No. 368/JP/2017 dated 31.01.2018) where in the coordinate bench held that the statement of witness cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. Being consistent we also feel that when the additions were purely based on the statement of a person and said person has filed a retraction affidavit and before using the said statement against the assessee the AO cannot put a side such request of the assessee for cross examination and the addition made purely on the statement is not valid and is against the principles of nature justice. 14.5 We have seen from the records that the Assessing Officer has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long/short term capital gain. Not only that he has not verified the records related the transaction on hand with that of the agencies under the power vested upon him to cross verify the evidence filed by the assesse. Thus, now on both the side ld, AO cannot act against the assessee the he did not verify the documents and did not allow cross examination and even though he make the addition. There is not single evidence found in the search operation that the transaction recorded in the books of the assessee are not genuine. Thus, even on facts placed on record by the assessee the transaction cannot be considered as bogus and no addition can be called for under section 68 of the Act. 14.6 The bench has also analysed the decision findings of the ld. CIT(A). He has analysed that merely based on the statement u/s. 132(4) without any corroborative evidence no addition can be made. A statement made must be relatable to incriminating material found during the course of search or the statement must be made relatable to material by subsequent inquiry/ investigation. To drive home to this contention he relied upon the decision the finding of Rajasthan High Court in the case of Mantri Share Brokers Private Limited / 96 taxmann.com 279 J. Based on the decision of Harjeev Agarwal and Best Infrastructure the ld. CIT(A) further noted that statement recorded u/s. 132(4) of the Act do not themselves constitute incriminating material on this aspect he has also relied upon various judgement. The Id. CIT(A) also quoted the judgment of Gujarat High Court in the case of CHETNABEN J SHAH LEGAL HEIR OF JAGDISHCHANDRA K SHAH where in the Hon'ble High Court hold a view that no addition can be made in the hands of the assessee merely on the basis of statements recorded during the course of search. He also discussed other case laws in his order and hold a view that without corroborative evidence no addition can be made in the hands of the assessee. He also recorded a finding that it is settled position of law that if an assessee, under a mistake, misconception or on not being properly instructed is over assessed, the authorities are required to assist him and ensure that only legitimate taxes are collected. The ld CIT(A) further noted that on close perusal of the assessment order shows that there is no incriminating seized material found during the course of search u/s. 132(1) which shows that STCG/LTCG claimed is bogus or non-genuine. For this he relied upon the remand report which is extracted in his order at page 24 where in that remand proceeding AO confirmed this fact. The Id. CIT(A) discussed the statement of entry operators, he also called for copies of the statement from the ld. AO and have gone through the entire statement then he recorded his findings that yet nowhere in the statement the entry operators given specifically name of the appellant nor he deal with the fact that in the case of appellant equal and amount of cash was given which was routed through the capital gain in the form of LTCG. He further recorded his finding that after the oral statements were available by the AO the appellant proved the oral statement to be incorrect by filling documentary evidence. The ld CIT(A) further observed that after the filling of this information the ll. AO did not prove the documentary evidence to be untrue / bogus / non genuine. Therefore, the oral statement losses their evidentiary value in the light of the documentary evidence placed by the appellant. Even the oral statement is general and does not pin point or mention appellant name anywhere. Neither does it mention anywhere that cash from assessee was received & it was same cash which was routed back to the assessee. Based on these finding he vacated the reliance of AO on these statements. The Id. AO relied on the findings of the SIT report and SEBI report for that the ld. CIT(A) observed that these reports are pieces of information and the AO was expected to convert it into evidence by further inquiry which would comprehensively prove that it is assessee cash which was routed and came back to the assessee in the form of capital gain. The report of the SEBI Related to the stock market regulation and its order is not in assistance to the revenue based on these findings the CIT hold view that mere statement of third-party is not enough to make addition in the hands of the assessee and also vacated the findings of the lid. AO. The Id. CIT(A) reviewed the copies of the documents filed by the assessee wherein he is reviewed the contract notes, ledger account, bank statement, demat account, affidavit of Anil Agarwal etc. after going through this records he observed that no questions raised before the Anil Agarwal about the transaction entered by the assessee is under his knowledge not only that the Anil Agarwal retracted his statement so even on that count no addition can be made in the hands of the assessee. Then Id. CIT(A) extracted various decision that has been considered by him while considering the appeal of the assessee and the same were not reiterated here to avoid the duplication but he has mainly considered the various jurisdictional binding decision and based on those findings he allowed the appeal of the assessee. The Id. DR reiterated the findings recorded by the AO and submitted that the Id.CIT(A) has deleted the addition merely on technical ground and no merits of the case is discussed. We find that Id. CIT(A) has dealt all the aspects that the ld. AO has raised and given his finding on each one every issue in detailed and has also called for the remand report, now the revenue cannot take a plea on the issue again. Thus, we do not find any reason to deviate from the findings recorded by the ld. CIT(A) in his order and we do not find any mistake of facts as well as in law in the detailed and reasoned findings of the ld. CIT(A). In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long/short term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Accordingly, we do not find any reasons to deviate from the detailed and reasoned finding of the Id. CIMA) and thus we dismiss the ground no 1 of the revenue.

5. On the other hand, the ld. D/R supported the orders of the lower authorities and also relied upon the following case laws along with Investigation Report and order of the ld. CIT (A) be affirmed :-

i) (2019) 112 taxmann.com 330 (SC) Suman Poddar vs. ITO ii) SEBI order in the matter of Sunrise Asian Ltd. WTM/GM/IVD/ID7/13328/2021-22. iii) (2022) 139 taxmann.com 352 (Calcutta) High Court of Calcutta Pr. CIT vs. Swati Bajaj. iv) (2022) 139 taxmann.com 406 (Rajasthan) High Court of Rajasthan Jawari Lal Lunia vs. Union of India. v) Investigation report in the case of Project Bogus LTCG/STCL through BSE listed Penny Stock.

Santoshimaa Tradelinks Ltd. The debit note cannot substitute a sale bill. Thus, the purchase does not appear to be genuine. These facts itself proves that the assessee is riding on on-going scam of converting unaccounted income by camouflaging it as genuine Long Term Capital Gain and claiming exemption under section 10(38) of the IT Act, 1961. The company M/s. Conart Traders Ltd. was later on amalgamated with M/s. Sunrise Asian Ltd. where the appellant got 5,000 shares of face value of Rs. 10/- of M/s. Sunrise Asian Ltd. In other words, the original holding of Rs. 1,00,000/- of M/s. Conart Traders Ltd. were reduced to total holding of Rs. 50,000/- in M/s. Sunrise Asian Ltd. This further strengthens that the transactions were not genuine. The shares of M/s. Conart Traders Ltd. were dematerialized on 13.06.2013 only. In other words, the appellant was keeping the shares in paper form despite of having demat account for the reasons best known to him. The above shares were converted into shares of M/s. Sunrise Asian Ltd. on 13.06.2013 and the sale of 5000 shares took place in October, 2013. In other words, shares were dematerialized just before sale. Thus period of holding in demat account is less than one year and does not fulfill the condition of being long term capital asset. We note that the assessee has miserably failed to show as to when the shares were received. All these facts not only go against the assessee but categorically support the investigation report of the Revenue submitted by the ld. D/R. We do not have hesitation to hold that the production of bill of purchase of these shares by payment of account payee cheque is nothing but a part of the scam. The assessee has undoubtedly purchased the penny stocks. The appellant failed to explain how he approached the company M/s.

Santoshimaa Tradelinks Ltd. for purchase of above shares. It is very unusual that a person comes in contact with such company and invest in shares and get the capital gains. There is no credential that has been proved that the assessee’s alleged claim of purchase of shares and consequent LTCG should be exempt under section 10(38) of the IT Act is supported by the documents. The production of bill of purchase of shares is merely a part of large scam of converting the unaccounted money. Further, the assessee has purchased the shares from existing shareholders of a penny stock company. It is very unusual that a person comes into contact with such non- discreet shareholders of a penny stock company and purchase shares from penny stock company and earns extraordinary capital gains. There is no credentials of seller originally from whom the assessee purchased the shares. The seller of shares was also not the regular stock broker of selling shares of the company and that seller is not authorized to deal with such type of securities. When these shares are promised to show such huge return within a short span of time of 12 months, it is unusual for the seller also to sell the shares to the assessee. Further, the assessee has failed to conclusively prove that how did he get the information that out of more than 10000 companies listed, this company will get such a exponential return and that too under the guise of LTCG. The assessee is not shown to be high networking individual who purchased this kind of shares and he is strategic investor nurtured to give multi-bigger return. Even the finance of the company whose shares are traded does not show any promise of substantial increase in the price at any point of time.

Thus, assessee though may not be part of game plan of the manipulative price of the scrip but he is conclusively the real beneficiary of the penny stock scam unearthed by the revenue.

6.1 For the purpose of section 68, genuineness of the transaction is one of the most important ingredients to avoid addition of sum found credited in the books of the assessee though in this case the identity and creditworthiness of the sum found credited even if accepted, the assessee has miserably failed on point of genuineness of the transaction recorded which is nothing but colorable device adopted to claim the bogus long term capital gain. In the light of these facts and circumstances of the case, we do not have any hesitation in holding that the LTCG earned by the assessee is not genuine.