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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH
Before: Shri Ramit Kochar & Shri T.R. Senthil Kumar
आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Assessee as against the Revision order u/s 263, dated 10.03.2021 passed by the Principal Commissioner of Income Tax-1, Ahmedabad, arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2015-16.
The brief facts of the case is that the assessee is an individual earning Income from Other Sources and Capital Gains. For the Asst. Year 2015-16, the assessee filed her Return of Income on 26.08.2015 declaring total income of Rs.23,81,590/-. The return of income was taken up by AO for complete scrutiny assessment under CASS and after making enquiry and discussions, the Assessing Officer accepted the returned income. This assessment was revised by the PCIT, on the ground that the case was selected for complete scrutiny under CASS with one of the reasons being ‘Suspicious sale transactions in shares and exempt long term capital gains shown in the return (Penny stock tab in ITS)”, and the investigations were conducted by Directorate of Investigation , Kolkatta which unearth an organized racket/syndicate of accommodation entry providers for generating fictitious long term capital gains and its manipulations on a very large scale with respect to many listed companies which included the name of GCM Securities Limited, and the assessee was one of the beneficiary of availing exempt long term capital gains u/s 10(38) to the tune of Rs. 49,65,431/- arising out of manipulations and rigging in the shares of GCM Securities Limited to create exempt bogus long term capital gains for beneficiaries . The statements were recorded by the Kolkatta Investigation wing of the persons involved in manipulation of shares of GCM Securities Limited , wherein its was admitted by accommodation entry operators that shares of GCM Securities Limited were manipulated and artificial bogus accommodation entries were facilitated in the shares of GCM Securities Limited to the desired beneficiaries, and the assessee being one of beneficiaries of bogus accommodation entries by way of exempt long term capital gains . The said company GCM Securities Limited is stated to be having a meager assets , and the prices have risen from Rs. 2.88 in March, 2013 to Rs. 86.90 per share(that too after stock split in the ratio of 10:1) in November, 2014, leading to a huge exempt long term capital gains of Rs. 49,65,431/- in short span of time and without any backup of the financials and fundamentals of the said company GCM Securities Limited which could support such an astronomical rise in price. The Assessing Officer without examining the facts and making any independent enquiries as were required in the facts and circumstances of the case accepted the returned income , which is erroneous and prejudicial to the interest of Revenue, as the AO only made superficial enquiries by calling paper trail with respect to sale and purchase of shares and without making proper inquiries as were called upon and warranted in such situation to unearth what is behind the smokescreen to unravel truth. Since the A.O. granted exemption u/s.10(38) of the Act amounting to Rs.49,65,431/- on account of alleged bogus long term capital gain on the sale of shares namely GCM Securities Ltd. which is identified as a penny stock by Directorate of Investigation, Kolkata. Hence a show cause notice u/s. 263 of the Act was issued to the assessee by ld. PCIT u/s 263 as to why not to modify or cancel the assessment order passed by the Assessing Officer.
2.1. In response, the assessee filed a reply explaining during the assessment proceedings, the Assessing Officer called for various information including verification of exemption u/s. 10(38) of the Act. The assessee vide its replies dated 28.04.2017 and 03.10.2017 to the A.O., submitted the shares in question namely GCM Securities Ltd. were purchased by her in IPO allotment directly in her Demat account. Assessee also furnished the following details:
(a) Allotment of shares was done in IPO (b) The prospectus of IPO was approved by SEBI in conformity with its guidelines (c) Application in IPO was made by cheque (d) Share were allotted in demat form in assessee's demat account (e) Share were held for about 2 years before they were sold (f) Shares were sold on Stock Exchange Platform (g) Payment were received as per the settlement cycle of the stock exchange (h) No individual person was ever involved in the process of allotment of shares till sale of shares. All the transactions were digitally done 2.2. Thus the assessee contended during revisionary proceedings that the Assessing Officer made complete enquiry and after verification of the records and evidences submitted by the assessee accepted the transaction as genuine and accepted the returned income . Thus , the assessee contended that there is no question of the assessment order is to be treated as erroneous and prejudicial to the interest of Revenue. However, in the show cause notice for revising the assessment Ld. PCIT relies on the report of Director of Investigation, Kolkata, wherein the share of M/s. GCM Securities Ltd. is held as a penny stock and copy of the report as available with the A.O. at the time of finalization of assessment. But, the Ld. A.O. did not confronted the report to the assessee or the facts surrounding the case as the return of the assessee being put under scrutiny on account of reasons of ‘Suspicious sale transactions in shares and exempt long term capital gains shown in the return (Penny stock tab in ITS)”. The AO ought to have itself called for the report of the investigation wing, Kolkatta , if at all he was not in possession of the said report and ought to have made proper enquiries keeping in view facts and circumstances of the case as were warranted in such cases. However the assessee requested the PCIT to furnish copy of the Report of Director of Investigation, so as to make proper reply after going through the Report. However, in the Revision order, the Ld. PCIT stated that Investigation Report contains confidential and incriminating information about numerous tax-payers and their financial transactions including details of several penny scrips across the country and therefore it will not be appropriate to disclose the entire report to the assessee. As the Investigation Wing has held that the scrip M/s. GCM Securities Ltd. is a penny stock and the Assessing Officer failed to conduct relevant enquiry and passed the assessment order, which is found to be erroneous insofar as prejudicial to the interest of Revenue within the meaning of Section 263 of the Act and thereby Ld. PCIT set aside the assessment order passed by the Assessing Officer with a direction to pass fresh assessment order after allowing adequate opportunities of being heard to the assessee.
Aggrieved against the Revision order, the assessee is in appeal before of raising the following Grounds of Appeal:
1. The learned Principal Commissioner of Income Tax (PCIT) has erred in law and on facts in initiating proceeding and passing order u/s 263 of the IT Act. Thus, the order passed by the PCIT under section 263 is bad in law and contrary to the provisions of law and facts.
2. The learned Principal Commissioner of Income Tax (PCIT) has erred in law and on facts of the case in holding that the assessment order passed
u/s 143 (3) by the assessing officer was erroneous and prejudicial to the interest of revenue.
3. It is prayed that the order passed by the PCIT u/s 263 may be set aside and that the assessment order dated 01/12/2017 passed by Assessing Officer should be restored.
4. The appellant craves leave to add, alter or amend all or any grounds before or at the time of hearing of the appeal.
Ld. Counsel Mr. Mehul K. Patel appearing for the assessee submitted before us a Paper Book containing the notices issued by the A.O. and the replies filed by the assessee during the course of assessment proceedings as well as in the Revision proceedings.
4.1 Ld. Counsel drawn our attention to the reply filed by the assessee vide letter dated 24.07.2018 wherein details of shares invested by the assessee, Contract note for buying and selling of shares through stock broker, allotment of GCM Securities Ltd shares under IPO, relevant payments made to bank accounts, etc. which were filed in the Paper Book from Page Nos. 4 to 54 of the Paper Book. Ld. Counsel further drawn our attention to the reply filed by the assessee vide letter dated 03.10.2017 relating to GCM Securities Ltd. shares and Akshar Chem (India) Ltd. shares as follows: “3. GCM Security: The assessee has applied the shares in an IPO of the company and she was allotted 6000 shares @ 20/- per share. The following details are being submitted:
(i) Copy of allotment letter dated 04.04.2013 of the registrar M/s. Purva Sharegistry (India) Pvt. Ltd. showing allotment of 6000 shares in IPO.
(ii) Copy of HDFC Bank Statements for March 2013 showing payment of Rs.1,20,000/- being purchase price of 6000 share @ 20/- per share.
(iii) Copy of demat statement from HDFC Bank Ltd. showing credit of 6000 shares in her demat account.”
4.2. Thus the ld. Counsel contended that the Assessing Officer during the course of assessment proceedings made thorough enquiry of the investment of shares by the assessee including GCM Securities Ltd. Thus the Ld AO has thoroughly verified the investment of shares by the assessee and then accepted the sale of shares as genuine and allowed the deduction u/s.10(38) of the Act. Thus the assessment order passed by the Ld. AO is neither erroneous nor prejudicial to the interest of Revenue and the Revision order is liable to be quashed.
Ld. Counsel further brought to our notice that Co-ordinate Bench of the Kolkata Tribunal in the case of Smt. Rachna Agarwal Vs ITO in dated 08.04.2023 on the very same scrip of GCM Securities Ltd., deleted the addition made by the Assessing Officer by observing as follows: “21. We further note that the Ld. D.R. except relying heavily on the orders of the lower authorities could not bring to our attention any material to show that the documents placed before us were sham, bogus or there was any factual infirmity therein. The Ld. D.R. also could not controvert the Ld. A.R’s submissions that the disallowance was made solely on the basis of the report of the Investigation Wing in the shares of M/s GCM. The ld. D.R. could not bring to our attention any material or evidence from which one could infer that the transactions in shares of M/s GCM Securities Limited were either manipulated or sham or that any enquiry was conducted either by the Investigation Wing or by the AO in respect of assessee’s transactions in shares of M/s GCM Securities Limited.
We may gainfully refer to the decision of the Hon’ble Supreme Court in the case of CIT Vs Odeon Builders Pvt Ltd 418 ITR 315 wherein the Hon’ble Court
upheld the deletion of the disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO. In this case it was held:
"We have perused the review petition and find that the tax effect in this case is above � 1 crore, that is, � 6,59,27,298/-. Ordinarily, therefore, we would have recalled our order dated 17th September, 2018, since the order was passed only on the basis that the tax effect in this case is less than � 1 crore.
However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of � 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating:
"Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s. Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs. 19,39,60,866/-, is directed to be deleted."
The ITAT by its judgment dated 16th May, 2014 relied on the self same reasoning and dismissed the appeal of the revenue. Likewise, the High court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT."
Similarly in the Hon’ble Supreme Court in the case of PCIT vs. Teju Rohit Kumar Kapadia (2018 (7) TMI 590 – SC) order dated 04.05.2018 upheld the following proposition of law laid down by the Hon’ble Gujrat High Court as under:
“ It can thus be seen that the appellate authority as well as the Tribunal came to concurrent conclusion that the purchases already made by the assessee from Raj Impex were duly supported by bills and payments were made by Account Payee cheque. Raj Impacts also confirmed the transactions. There was no evidence to show that the amount was recycled back to the assessee. Particularly, when it was found that the assessee the trader had also shown sales out of purchases made from Raj Impex which were also accepted by the Revenue, no question of law arises.”
In the present case we find that the entire addition is on the basis of some investigation report, the relevant portions of which is also not cited in the show cause or the assessment order, there is nothing against the assessee and no inquiry whatsoever has been done by the AO or the Ld CIT (A). In such circumstances the assessee having discharged her onus and nothing adverse being found against her, the addition cannot be sustained.
For the reasons set out in the foregoing therefore we hold that both the lower authorities were not justified in not allowing the appellant’s claim for exemption u/s 10(38) amounting to �77,78,476in respect of the profit derived by the appellant on sale of 120,000 shares of M/s GCM Securities Limited. We accordingly set aside the order of Ld. CIT(A) and direct the AO not to treat the long term capital gain as bogus and delete the consequential addition and the AO is directed to allow the exemption u/s 10(38) of the Act as claimed by the assessee.
In the result, appeal of the assessee is allowed.”
5.1. Thus Ld. Counsel Mr. Mehul K. Patel pleaded that the Ld. A.O. after verification of records and various details has taken a decision which is one of the plausible view taken by him. Therefore without affording the Investigation Report to the assessee, there cannot be any disallowance on this count. Further Ld. PCIT has also relied upon the Investigation Report for making a disallowance u/s. 10(38) of the Act, without furnishing copy to the assessee. Thus the Revisions proceedings initiated is liable to be quashed.
Per contra, Ld. CIT-DR Shri H. Phani Raju appearing for the Revenue supported the order passed by the PCIT and requested to uphold the same. Further the Ld. Assessing Officer has not made proper enquiry of the submissions filed by the assessee and simply accepted the claim of exemption u/s.10(38) of the Act especially in the context of judgment of the Calcutta High Court in the case of Swati Bajaj. Thus the assessment order passed by the Assessing Officer is an erroneous order and prejudicial to the interest of Revenue having not made necessary enquiry about the investment by the assessee in penny stock.
We have given our thoughtful consideration and perused the materials available on record. We have observed from the SCN issued by ld. PCIT u/s 263 and the revisionary order passed by the ld. PCIT had a genesis with that the case was selected for complete scrutiny under CASS with one of the reasons being ‘Suspicious sale transactions in shares and exempt long term capital gains shown in the return (Penny stock tab in ITS)”, and the investigations were conducted by Directorate of Investigation , Kolkatta which unearth an organized racket/syndicate of accommodation entry providers for generating fictitious long term capital gains and its manipulations on a very large scale with respect to many listed companies which included the name of GCM Securities Limited, and the assessee was one of beneficiary of availing exempt long term capital gains u/s 10(38) with respect to manipulations and organized rigging in the shares of GCM Securities Limited. The statements were recorded by the Kolkatta Investigation wing of the persons involved in manipulation of shares of GCM Securities Limited wherein they admitted that shares of GCM Securities Limited were manipulated and artificial bogus accommodation entries were facilitated in the shares of GCM Securities Limited to the desired beneficiaries. The said company is stated to be having a meager assets , and the prices have reasons astronomically from Rs. 2.88 in March, 2013 to Rs. 86.90 per share(that too after stock split in the ratio of 10:1) in November, 2014, leading to a huge exempt alleged bogus long term capital gains of Rs. 49,65,431/- in short span of time and without any backup of the financials and fundamentals of the said company GCM Securities Limited which could support such an astronomical rise in price. The Assessing Officer without examining these alleged facts and without making any independent enquiries which were warranted in the instant facts and circumstances of the case, accepted the returned income which is erroneous and prejudicial to the interest of Revenue, as the AO only made superficial enquiries by calling paper trail with respect to sale and purchase of shares and without making proper inquiries as were called upon and warranted in such situation to unearth what is behind the smokescreen to unravel truth. Since the A.O. granted exemption u/s.10(38) of the Act amounting to Rs.49,65,431/- on account of long term capital gain on the sale of shares namely GCM Securities Ltd. which is identified as a penny stock by Directorate of Investigation, Kolkata, without considering the report of the investigation wing, Kolkatta, statement of accommodation entry providers accepting that the prices of GCM Securities were manipulated to generate bogus long term capital gains exempt u/s 10(38) , not considering the fact that the said company GCM Securities Limited does not have or have meager assets and such an astronomical price rise in its shares is not supported by financials and fundamental of the company , and rather AO just made superficial enquiry by calling the paper trail such as bank statement, contracts notes etc. which is not sufficient in such cases as the Revenue has brought on record incriminating material and onus has once again shifted to the assessee to substantiate its claim that the long term capital gains claimed as exempt are genuine. We have observed from the perusal of the assessment order as well the enquiries conducted by the AO, that the AO never confronted the assessee about the investigations conducted by the Directorate of Investigation , Kolkatta. The AO even did not refer to the assessee about the unearthing of a racket/syndicate by accommodation entry providers in manipulating/rigging the share price of GCM Securities Limited to generate exempt long term capital gains to the beneficiaries. Thus, the AO did not made the enquiries as were warranted under the fact situation and Explanation 2 to Section 263 is clearly applicable.We find that the assessee has purchased the shares of M/s. GCM Securities Ltd. in IPO and the Letter of Allotment is produced before us at Page No. 52 of the Paper Book wherein 6000 shares at a price of Rs. 20/- was allotted vide application form No. 11999163 vide Demat account and the payments are duly made to assessee’s HDFC account vide transaction dated 19.03.2013 which is available at Page No. 53 of the Paper Book. It is seen from the HDFC Bank Account a sum of Rs.1,20,000/- deposited by the assessee on 01-03-2013 and then purchased GCM Securities Shares for Rs.1,20,000/- on 19-03-2013. Thus the Assessing Officer even failed to verify the source for investment of this shares by the assessee.
7.1. Similarly on sale of M/s. GCM Securities Shares by the assessee through approved brokers is also placed at page No. 27 of the Paper Book. The Assessing Officer while framing the assessment considered the above details and without calling any enquiry as were warranted in the instant case passed the assessment order accepting the Returned Income and allowing deduction u/s. 10(38) of the Act. Further it is seen that the assessee has discharged his initial onus by providing all relevant materials before the A.O., but once there was an Directorate of Investigation Report and statements recorded of the bogus entry operators accepting that there were manipulations in the shares of GCM Securities Limited to create artificial exempt bogus long term capital gains for intended beneficiaries of which the assessee was one of the beneficiaries , the onus once again shift back to the assessee to rebut the same , as it is the assessee who made the investment in GCM Securities Limited, and these are especial facts within the knowledge of the assessee as to how and under what circumstances the assessee invested in the company which does not have or have merely meager assets and is involved in rigging/manipulation to generate bogus exempt long term capital gains for beneficiaries as well that astronomical hike in its share price is not supported by fundamentals or financials of GCM Securities Limited.
Similarly, sale of M/s. GCM Securities Ltd. shares by the assessee through approved brokers is also placed at Page No. 27 of the Paper Book. The Ld. A.O. while framing the assessment considered the above details and thereby passed the assessment order accepting the returned income. During the Revision proceedings, Ld. PCIT also relied upon the Report of Investigation Wing, Kolkata that M/s. GCM Securities Ltd. as a penny stock scrip and the A.O. failed to verify the details. However on specific request made by the assessee, Ld. PCIT has not furnished the same on the ground that it has a confidential document having information about numerous tax-payers and their financial transaction. Without furnishing such a third party document/report to the assessee and invocation of Revision proceedings is not correct in law.
The genuineness of transactions can be tested on the principle of preponderance of human probability as settled by the Hon’ble Apex Court in the case of Smt. Sumati Dayal vs. CIT, (1995) 214 ITR 801 (SC). The documentary evidences in themselves, cannot be held as conclusive evidence of the transaction. When someone is deliberately entering into a transaction in shares of penny stock company, it is obvious that all the documentary evidences will be in order. After all, one has to establish the transactions with reference to the documentary evidences so as to claim the benefit of exemption of LTCG available under the Act. Therefore, while examining such evidences, surrounding circumstances also has to be taken into account in order to unravel the true nature of the transactions. The Hon’ble Supreme Court has observed in the case of CIT vs. Durga Prasad More, [1971] 82 ITR 540(SC) that “the taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents.” Moroever, in the instant case , there is an investigation conducted by Investigation wing , Kolkatta and incriminating statements were also recorded and the said company does not have or have meagre assets which does not justify the astronomical price rise in their shares. Now, the assessee has to rebut the said and the onus has once again shifted to the assessee. In penny stock transactions a facade of genuineness is created and in order to unravel the truth one has to go behind such façade. The Hon’ble Supreme Court had held in the case of Vodafone International Holdings B.V. v. Union of India (204 Taxman 408)(SC) that the Revenue may invoke the "substance over form" principle or "piercing the corporate veil" test after it is able to establish on the basis of the facts and circumstances surrounding the transaction that the impugned transaction is a sham or tax avoidant.
When we examine the evidences brought on record by the Assessing Officer, the first question that arises is whether these evidences satisfy the test of preponderance of human probability. The Supreme Court has held in the case of SEBI Vs. Rakhi Trading (P) Ltd. (90 taxmann.com 147(SC)) that abnormal difference between the prices at which the trades were executed without corresponding effect on the price of the underlying security, shows that the option in which the party traded was not in demand in the market and that it was unusual that the trades were transacted with such huge profits when there was no change in the underlying prices. It was held by the Apex Court that such trade transactions were obviously only aimed at carrying out manipulative objective. Following this principle laid down by the Apex Court, there was nothing wrong in the Revenue’s doubt about the genuineness of the transaction, considering the volatile fluctuation in share price of GCM Securities Ltd.
It is difficult to get direct information or evidence in respect of manipulative activities of price rigging and accommodation entry which happens with prior meeting of minds between the beneficiary and the stock broker. It was held by the Hon’ble Calcutta High Court in the case of PCIT vs. Swati Bajaj (supra) that 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 lose 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. To reproduce from the said order:
“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 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. 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.
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In the light of the above discussion, the only conclusion that can be arrived at is that the opinion can be formed and the decision can be taken by taking note of the surrounding circumstances which had been elaborated upon in Kishore R. Ajmera (supra).
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. We can draw a parallel in cases of adulteration of food stuff, more than often action is initiated under the relevant Act after the adulteration takes place, the users of adulterated products get affected etc. Therefore, 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 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. …………
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.
It was argued that unless there are foundational facts, circumstantial evidence cannot be relied on. This argument does not merit acceptance as wealth of information and facts were on record which is the outcome of the investigation on the companies, stock brokers, entry operators etc. Based on those foundational facts the department has adopted the concept of "working backward" leading to the assessees. While at that relevant stage the sounding circumstances, the normal human conduct of a prudent investor, the probabilities that may spill over, were all taken into consideration to negative the claim for exception made by the assessee. Therefore, the department was fully justified in taking note of the prevailing circumstances to decide against the assessees.”
11.1. The Hon’ble Calcutta High Court thus endorsed that surrounding circumstances has to be taken into account and the matter can’t be decided only on the basis of documentary evidences brought on record by the assessee. The Hon’ble High Court also upheld the approach of the Department by ‘working backwards’ to reach to the beneficiaries who had taken accommodation entries. Further, the Court re-iterated that the onus was squarely on the assessee to prove the genuineness of the credit entry appearing in the form of LTCG in their books of accounts.
The thrust of the assessee’s argument is that the sale consideration was received by cheque on which STT was paid and, therefore, the LTCG earned was genuine. This cannot be accepted in view of multiple adverse evidences collected by the Revenue and the assessee cannot be treated as a passive beneficiary of the transactions. The Hon’ble Supreme Court held in the case of Security And Exchange Board of India vs. Rakhi Traders Pvt. Ltd., (supra) held that in trade transactions with huge price variations of the transactions, it will be too naïve to hold that the transactions were through screen based trading and hence anonymous. According to the Apex Court, such conclusion would be overlooking the prior meeting of minds involving synchronization of buy and sale order and that such transactions were manipulative/deceptive device to create a desired loss and/or profit. Reference is also drawn to dismissal of SLP by Hon’ble Supreme Court in the case of Suman Poddar v. ITO , reported in (2020) 268 Taxman 320(SC) , arising out of judgment and order of Hon’ble Delhi High Court in the case of Suman Poddar v. ITO, reported in (2020) 423 ITR 480(Dl. HC).
12.1. On consideration of the facts and the surrounding circumstances as discussed above, we are of the considered opinion that the transactions entered into by the assessee are not properly verified by the A.O. while passing the assessment order, as no worthwhile enquiries were made rather superficial enquiries were made, as were warranted keeping in view facts and circumstances of the case. The assessee has relied upon few case laws which are found to be different on facts. The decision in the case of Swati Bajaj is a detailed one wherein various legal precedents of Hon’ble Supreme Court and other Courts have been taken into account. Further the investigation report prepared by Kolkata Directorate, the issue of cross- examination, human probability etc. were considered and discussed in detail therein. We have already extracted the relevant portion of the decision in our order earlier. Be that as it may, the legal position is well settled that each case rests on its own facts. Our decision in this case is guided solely by the facts and circumstances of the instant case, including the assessee’s explanations in respect thereof. The case laws relied upon by the assessee were delivered in peculiar facts of each case. Therefore, the assessee cannot derive assistance from those case laws as the issue is principally factual.
Since Ld. PCIT invoking explanation 2 to Section 263 of the Act, has set aside the issue back to the file of Assessing Officer to pass fresh assessment order after allowing adequate opportunities of being heard to the assessee and in accordance with law, we do not find any infirmity in the directions given by Ld. PCIT since the A.O. has not made any worthwhile enquiry about the GCM Securities Ltd. shares. Thus we direct the Assessing Officer to provide all the relevant relied upon materials to the assessee and after making proper enquiry pass assessment order in accordance with law. In the result, the appeal filed by the assessee is devoid of merit and the same is liable to be dismissed.
In the result, the appeal filed by the Assessee is hereby dismissed.