SURESH ASRANI,NEW DELHI vs. ITO WARD - 35(1), NEW DELHI

Per Dr. B. R. R. Kumar, Accountant Member:

The present appeal has been filed by the assessee against the order of ld. CIT(A)-12, New Delhi dated 21.03.2019.

The assessee has raised the following grounds of appeal: 2.

“1 On the facts and circumstances of the case and in law, the learned Commissioner (Appeals) has erred in confirming the disallowance of exemption claimed u/s 10(38) at Rs. 1,68,29,438/- in respect of long-term capital gain earned on sale of listed equity shares sold through recognized stock exchange which has duly been subjected to security transaction tax (S.T.T.).

2 On the facts and circumstances of the case and in law, learned Commissioner (Appeals) has erred in confirming the addition of LTCG of shares of Rs. 1,68,29,438/- u/s 69A of Act, without properly appreciating the facts that source & identity of such receipt in bank account of assessee appellant and Suresh Asrani genuineness of the said transaction was established on assessment record with the support of related documentary evidences.

3 On the facts and circumstances of the case and in law, learned Commissioner (Appeals) has erred in confirming the addition of Rs. 1,68,29,438/- u/s 69A of Act, without properly appreciating the facts that On facts and circumstances of the case, that addition on the basis of third party statements without giving any opportunity for cross examination is in violation of principles of natural justice and thus the assessment made is void in law and needs to be quashed.

4 On the facts and circumstances of the case and in law, learned Commissioner (Appeals) has erred in confirming the addition of Rs. 5,04,883/- on account of payment to commission agent out of undisclosed income.”

Excerpts from the Assessment Order;

3. The Assessing Officer has observed as under in the Assessment Order u/s 143(3) dated 28.12.2017:

“3. During the F.Y. 2014-15, the assessee has shown income from house property, Business and income from other sources. During the course of assessment proceedings, it is seen that the assessee has shown long term capital gain of Rs 1,68,29,438/- from sale of shares and has claimed the same as, exempted u/s 10(38) of the Act.

4. Further, it was observed that assessee has earned long term capital gain of Rs. 1,68,29,438/- for sale of shares of M/s Thyrocare Lab limited earlier known as M/s Eins Edutech Limited which is a penny stock company. As per Investigation Report of Pr. DIT (Inv) Kolkatta, unit regarding list of companies engaged in providing accommodation entries in the grab of bogus Long Term Capital &am and the modus operandi involving penny stocks trading through recognized stock exchanges. The assessee was one among the beneficiaries in the list by accepting bogus Long Term Capital Gain entries through stock brokers trading in Circular and penny stocks. The details of investigation report and modus operandi adopted reveals that steps have been taken to use for generating bogus long term capital gain. The assessee has traded the script where funds were received from Kolkata based company and operated by entry operators. The company provided

Suresh Asrani the bogus LTCG through penny stocks in connivance with entry operators and promoters of script. The name of stocks which were used for the purpose of providing accommodation entry in the form of capital gain and penny stocks identified which were used for providing Long Term Capital Gain i.e. M/s Thyrocare Lab Limited earlier known as M/s Eins Edutech Limited. The Directorate of investigation Kolkata also covered share brokers and companies involved in the accommodation entry of penny stock scam U/s 131 and U/S 133-A of I.T. Act, 1961, which involves M/s Thyrocare Lab limited earlier known as M/s Eins Edutech Limited also a penny stock company.

5. In this scenario the assessee is one of the beneficiary and has adopted the patterns like a synchronized manner, and observed that trading is done in a syndicate which comprises of promoters of the company/stock, brokers and through entry operators," To verify the above transactions reported by the assessee for claiming LTCG of Rs.1,68,29,438/- claimed as exempt U/s 10(38) of the IT Act, 1961 the assessee was asked to furnish all details including bank statement, share brokers note, ledger account copies, share certificates, and all documentary evidences in support of purchase and sale of shares and mode of payment and receipts of proceeds. Further, notices U/S 133(6) of IT Act, 1961 were issued to M/s Thyrocare Lab Limited earlier known as M/s Eins Edutech Limited, Bombay Stock Exchange (BSC), National Stock Exchange(NSC) and Purchasers of shares sold by the assessee. Reply from BSC, NSC, and Purchaser has not been received till date. Letters sent to M/s Thyrocare Lab Limited earlier known as M/s Eins Edutech Limited and Purchased has returned back.

The claim of the assessee under the head "Long Term Capital Gain" of Rs.1,68,29,438/- is unverifiable and representative introduction of assessee's unaccounted money infused "m the share transaction. The assessee's alleged transactions of purchase & sale of shares were not real but a sham transaction. In real the assessee, has not made any genuine or bonafide purchases & Sales of such shares but a sham transaction where the penny stock were artificially inflated by the stock brokers so that capital gain could be introduced in the books by converting black money into white. The modus operandi generally followed in such transactions was followed by the assessee's stock broker as well enabling the assessee to introduced his unaccounted money in his books in the form of long term capital gain on Sale of shares & claim exemption U/s 10(38) of the Act.

5.1 The Investigation Report of Calcutta stock brokers recorded before the Investigation Wing, Kolkata, admitted that they have provided accommodation entries in the form of Suresh Asrani purchase & Sale of shares against payments of commission. The input of the Investigation further strengthen the theory of sham transactions in the following manner:

(1) The share broker involved admitted that they had received cash from the beneficiaries' including the assessee, and the same was returned in the form of sale proceeds of shares after paying STT. (2) The admission of the entry providers revealed that share sale transactions were nothing but accommodation entries wherein cheques were issued in lieu of cash. (3) The amalgamating companies whose shares were purchased by the assessee did not file annual return with the Registrar of companies and the amalgamated did not file returns of allotment in respect of shares allotted by them consequent to amalgamation as the same were not available. (4) The stock broker had resorted to money laundering activities by using "Penny Stock". The share prices of the penny stocks were artificially inflated by the stock brokers so that capital gain could be introduced in the books of accounts unaccounted money by converting black money into white in the books of accounts and claimed exempt u/s 10(38) of the Act.

In view of above cogent, relevant and circumstantial evidences and facts which clearly proved that in reality there was in fact no purchase A sale of shares, it is only accommodation entry to infuse unaccounted money of Rs.1,68,29,438/- into books of accounts by way of long term capital gain claimed as exempt u/s 10(38) of the Act during the year under consideration. The declaration of long term capital gain by the assessee through penny stocks which were involved in providing accommodation entries are held as share transactions as sham. Accordingly, to Section 68 of Income-tax Act, 1961 where any sum is found credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source of the same or the explanation offered by him is not satisfactory in the opinion of AO, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.

5.2 The assessee was show-caused vide letter dated 04.12.2017 and asked to explain the genuineness of its income shown on account of long term capital gain on sale of penny stock i.e. M/s Thyrocare Lab Limited earlier known as M/s Eins Edutech Limited during the Financial Year 2014-15. The relevant part of the show muse, letter is re- produced as under:

Suresh Asrani In this connection with ongoing scrutiny proceedings in your case for A.Y 2015-16, you are required to famish reply in reference to Mowing observations:-

During the course of scrutiny proceedings it has been noticed that you have shown Rs. 1,68,29,438/- as exempted long term capital gain from sale of shares of M/s Throcare Lab Limited earlier know as Eins Edutech Limited, Further, it has been noticed that you have purchased shares of M/s Thyrocare Lab Limited of Rs.30,00,000/- in April, 2013 and after holding period 12 months you have sold all shares of Rs.1,98,29,438/-.

This quantum of huge long term capital gain was found suspicious and detailed investigation of this issue was under taken. Various tools available were examined including ITD data, BSE data, Money Control Website, Taxman, Court Rulings, Internet as well as investigation reports and the findings of the SEBI. This company is out of 152 entities which have been barred by SEBI where name of this company also appears. SEBI has found a typical pattern in trading of shares of these companies. SEBI has held that first shares were allowed on preferential basis to certain connected entities, price were pushed higher without my fundamental move, Mowed by an exit being given to these investors and the shares were sold back to the company or related entities raking in huge profits. Thus, it appears that the schemes, plan device and artifice employed in this case, apart from tax evasion, is prima facie a fraud in the securities market in as much as it invokes manipulative transactions in securities and misuse of die security market During the investigation, statements of various operators, entry providers and the stock brokers were recorded and they have admitted of providing accommodation entries in the form of Long Term Capital Gain, facts revealed that such trading transactions of purchase and sale of shares are not been effected, for commercial purpose but to create artificial gains with a view to evade taxes.

Now coming to the facts of the instant case, & is seen from the Individual Transaction Statement (ITS) of the year under consideration that the assessee is one of the beneficiaries who has obtained long term capital gain by way of holding the scrips of M/s Throcare Lab Limited earlier known as Eins Edutech Limited which is one of the identified scrips by the Directorate of Investigation that were used by various entry operators to provide accommodation entries in the shape of long term capital gain. Accordingly, the assessee was asked vide notice issued u/s 142(1) of the Act to specifically furnish the details of the De-mat Account alongwith a detailed note on the capital gain on account of transaction of shares. The other informations gathered from the TTD system are carefully examined and the Mowing facts emerge therefrom:

• Assessee sold shares of M/s Throcare Lab Limited earlier known as Bins Edutech Limited with a trade value of Ps. 1,98,20,438/-. • During the investigation carried out by the Directorate of Investigation, it was unearthed that many companies were floated by entry operators only for the purpose of rigging up the value of shares by way of circular trading amongst them. These facts were admitted on oath by many such persons who were managing and controlling such bogus paper companies • Transactions of shares were not governed by market factors prevalent at relevant time in such hade, but same were product of design and mutual connivance on your part and the operators. • Your have resorted to a preconceived scheme to procure long-term capital gain by way of price difference in share transactions not supported by market factors, • Cumulative events in such transactions of shares revealed that same were devoid of any commercial nature and fell In realm of not being bona fide and, hence, impugned long term capital gain is not allowable. • After having artificially rigged up by the bogus paper companies which were exclusively floated for this purpose. • The rate of the shares of M/s Throcare Lab Limited earlier known as Eins Edutech Limited that prevailed at the time of transaction does not Justify the same considering the financial statement of this penny stock company.

In view of the aforementioned facts and circumstances, the transactions entered into by you for purchase and sale of shares of M/s Throcare Lab Limited earlier known as Eins Edutech Limited are found to be bogus as the scrips of this penny stock company were used by the entry operators to provide bogus accommodation entries for claiming exemption of capital gain u/s 10(38) of the IT. Act. The assessee is, therefore, required to show cause as to why the exemption claimed u/s 10(38) of tire Act should not be denied heating the total receipt amount as unexplained cash credit within the meaning of the provisions of Section 68 of the Act since the explanation offered by the assessee about the nature and source thereof is not convincing and satisfactory in the opinion of the undersigned.

The assessee is required to furnish his reply in this regard either in person or through an authorized representative, duly authorized in writing as per me provisions of Section 288 of the Act, on or before 18.12.2012. This letter may be treated as an opportunity granted to the assessee before completion of the assessment for the year under consideration. In Suresh Asrani case of failure to comply with tills letter, it shall be presumed that the assessee has nothing to say in this regard and the assessment will be completed on merits based on the material available on record. Please note that if no reply is received within stipulated period it shall be assumed that you have nothing to say in this regard and action as deemed ht under tire provisions of tire Income-tax Act, 1061 shall be taken and your case will he decided on merit as per materials available on record without allowing any further opportunity.

5.3 Assessee filed submission vide letter dated 12.12.2017. The submissions of the assessee have duly been considered and placed on record. Submission of assesses have no merits in view of the following facts:

5.4 Before discussing the facts of the present case, let us 1st understand the modus operandi of the entry providers and how they provide entry of bogus long term capital gain on which no tax is to be paid by the beneficiaries.

Suresh Asrani II. Penny stock companies: Broadly speaking there are two types of Penny stock companies: i) An old already listed company, the entire shareholding of which is bought by the syndicate to provide LTCG entries. These are generally dormant company with no business and with accumulated losses. ii) A new company which is floated just for the purpose giving LTCG entries. Such new companies are often floated after the initial booking is complete and the capital base is decided keeping in mind the entries to be provided.

III. Persons involved: There are three categories of individuals who are involved in the transactions: i) Syndicate Members: They are the promoters of the Penny Stock companies who own the initial shareholding mostly in the name of paper companies either in a fresh IPO or purchased from the shareholders of a dormant company. They are usually a group of 4-5 individuals who also referred to as Syndicate Members and are sometimes also referred to as Operators. Their nominees are directors of the Penny Stock companies which is indirectly controlled by them through such dummy directors. The whole operation is managed by them. They get the net commission income from the transactions.

The shares of the penny Stock are closely held as the general public is not interested in these stocks due to the poor financials of the listed companies. The operator chooses one of such penny stocks for the implementation of the scheme. The promoters/directors of the penny stock company are paid some cash commission and in return they allow the operator to manage the affairs of the company. The operator then issues shares of these penny stock companies to the beneficiaries through the route of preferential allotment (Private Placement).

As per the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, the shares that are allotted through private placement, have a lock-in period of 1 year. Therefore, these shares can be sold by the allottees only after a period of one year from the date of allotment. This qualifies them for the benefit of claim of exempt LTCG.

These penny stock companies have no actual business or establishment. They have no financial credentials also. Thus, the fact that beneficiaries subscribe for their shares

Suresh Asrani through private placement is in itself a suspicious thing. No genuine person in the right state of mind would invest in these penny stock companies. The shares are subscribed only for the purpose of claiming LTCG at a later stage. The promoters/directors of the companies work hand in glove with the operator to implement this scheme of availing bogus LTCG. ii) The Brokers: They are registered brokers through whom shares are traded both online and off-line. They are fully aware of the nature of transactions and get paid a commission over and above their normal brokerage. Some of the big broking houses are also indulging in such transactions mostly through sub-brokers. The brokers often compromise on KYC norms of the clients to help the Syndicate Members.

As per the guidelines of SEBI and the stock exchanges, the brokers are supposed to comply with stringent KYC norms before registering any entity as their client. They are supposed to perform detailed background checks on their clients. However, it is seen that these share brokers have done trading for various paper/bogus companies. These paper/bogus entities have no business or establishment. This clearly implies that the share brokers are hands in glove with the paper/bogus companies in the whole scheme. The share brokers receive cash commission for allowing these paper entities to trade through their terminal. In fact it has been learnt that these brokers perform the trading themselves on behalf of the paper/bogus entities. iii) The Entry Operators: They are individuals who control a large number of paper/shell companies which are used for routing cash for the transactions as well as buying and selling shares during the process of price rigging. They work for commission to be paid by the Syndicate Members. To cut cost sometimes in smaller operations, the same group performs more than one function.

IV. Methods for providing LTCG. a) Conventional Method: The transaction involves three legs. i) Purchase of share by the beneficiary: In this the beneficiary is sold a fixed number of shares at a nominal rate. The price and the number of shares to be purchased are decided on the basis of the booking taken and the value up to which price would be rigged. This leg of the transaction mostly is off-line. This is done to save on STT using the loophole in Section 10(38) of the IT Act which palaces restriction of trading by payment of STT on sale of shares and not on purchase. ii) Price rigging: After the shares have been purchased by the beneficiaries, the syndicate members starts rigging the price gradually through the brokers. In these transactions the volume is almost negligible. Two fixed brokers who are in league with the Syndicate buy shares at a fixed time and at a fixed price. These tow volume transactions are managed through paper companies of entry operators. iii) Final sale by the beneficiary: This is done after the beneficiary has already held the share for one year. The period of holding may be a little more to match the amount of booking with the final rate. The beneficiary is contacted either by the Syndicate member or the Broker (Middle man) through whom the initial booking was done. The beneficiary provides the required amount of cash which is route through some of the paper companies of the entry operator and is finally parked in one company which will buy the share from the beneficiary. The paper company issues cheque to the beneficiary. b) Merger method: In this method the operator first forms a Private Limited Company and the shares at par are allotted to beneficiary individuals. This private limited company is then amalgamated / merged with a listed penny stock company by a High court order. Depending on the capital of the amalgamating and amalgamated companies, the investors are allotted stock of the listed companies in the same proportion. The capital of the Penny stock listed company and the private limited company are so arranged that the beneficiaries post- merger, get shares of listed company in the ratio 1:1, thus the investor gets equal number stocks of the listed company.

The promoters of the listed penny stock companies run the syndicate, the brokers and the entry-operators through whose paper/shell companies cash are routed are merely commission agents. The penny stock listed company is such that though its capital base is small its market capitalization is many times its capital base. This is managed again through small volume predetermined transaction amongst members of the syndicate. The prices of shares are, thus manipulated at 20 to 25 times the face value. The investors hold these shares the penny stock listed company which it got as a result of merger for one year (Statutory lock-in period for exemption under IT Act) and then sell it to one of the shell private limited companies of the operator. The investor thus makes a LTCG of 25 times its original investment. The purchase consideration is again provided in cash by the investor which is laundered to the buyers account through a maze of shell companies as mentioned in the previous method.

Suresh Asrani c) Preferential Allotment of Equity Shares: A preferential issue is an issue of shares or of convertible securities by listed companies to a select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer company has to comply with the Companies Act and the requirements contained in Chapter pertaining to preferential allotment in SEBI guidelines which inter-alia include pricing, disclosures in notice etc. Since, it does not require any prior approval of SEBI, the operators chose to adopt this route for raising the capital as an alternate to the merger and chose to provide gain to a close group of people. The shares are bound to be in lock-in-period for tenure of one year from the date of allotment, the operators chose to allot the shares to ultimate beneficiary only, boring the tenure of this gap of one year they rig the price to promised level and reroute the transactions through shell companies. d) Splitting of the shares: It is the most effective way to camouflage the price of shares. The shareholder does not get affected by any of such proceeding adopted by the company except the effect of Corporate Action of NSDL/CDSL thereby releasing old shares and getting the spitted shares in De-mat Account. After split of shares the price of shares on the exchange goes down automatically in proportion with the ratio of split and one doesn't see anything adverse happening in the scrip.

V. FLOW CHART FOR BOGUS LONG TERM CAPITAL GAIN Before the actual transaction start taking place there are brokers in different towns who contact prospective clients and take paper booking for entries. The commission to be paid to the operators is decided at this stage, however, no money is paid. Once the booking is complete the operators have a reasonably good idea of how much LTCG is to be provided along with the break-up of individual beneficiaries. This data is essential to decide which penny stock or companies to use for the job and which beneficiary to buy how many shares.

Let us suppose that there is a person "B" (Beneficiary) who is in possession of unaccounted money and who wants to bring this unaccounted money into his books. At the same time this person also desires to avoid paying any tax whatsoever when this money is brought into the books.

Now this person "B" approaches the Entry operators "O". Operator is a person who manages the overall scheme of the scam. An operator maintains a complex nexus of various paper/bogus entities and is also in control of some companies whose shares are Suresh Asrani listed on one or the other Stack Exchanges. He maintains a close nexus with share brokers.

When approached by "B", operator asks the "B" to buy some specific number of shares of a specific listed company. These shares can be bought by the Beneficiary either on the exchange itself or the operator may arrange for the issue of these shares to the beneficiary through preferential allotment i.e. through private placement (this is an off- market transaction). These shares are allotted to the beneficiaries at very low price.

Thereafter, the Operator starts rigging the price of the shares through circular trading and increases the price of the shares, with the help of share brokers and bogus clients. The prices are rigged to an optimum amount over a period of time.

Once a period of 1 year (for claim of exemption on LTCG u/s 10 (38)) is over, the operator asks the beneficiary to deliver the unaccounted cash. Once the unaccounted cash has been delivered by the beneficiary, the same is then routed by the operator to the books of various Paper/Bogus Companies which ultimately buy the shares belonging to the beneficiary at high prices. The cash is routed to the books of bogus companies through a maze of various other paper companies so as to avoid the direct cash trail.

Once the cash has been routed to the books of paper/bogus companies, which are registered as clients to the brokers, the operator instruct the Beneficiary to place a sell option for the shares belonging to the beneficiary, in a particular lot size on a particular date and time. At the same time the operator instructs the paper/bogus companies maintained by him to buy the shares of the beneficiary on the exchange at the predetermined particular date and time. In this way the shares of the beneficiaries are bought by the paper/bogus companies and the unaccounted money of the beneficiary is routed to the books of the beneficiary as a bogus entry of LTCG.

Summary:

To summaries, LTCG is booked while the share price is going up, the downward journey is used by the operators for booking bogus fosses. People who have huge profit take the Short Term Capital loss (STCL) to set-off their profit. The methodology used is the same. The beneficiary who wants loss buys the share at a high rate from the beneficiary who is taking LTCG. The loss taking beneficiary pays cheque to the LTCG taking beneficiary and the cash provided by the LTCG beneficiary is returned to the Loss taking beneficiary. The Suresh Asrani operator deducts his commission before payment by cash. As prices crash the loss taking beneficiary sells these shares bought at high value for small value resulting in artificial loss generated.

6. In the present case, the assessee has earned LTCG on sale of shares of M/s Thyrocare Lab limited earlier known as M/s Eins Edutech Limited Ltd during the year under consideration. The facts of these share transactions materialized are as under:

 In her reply dated 06.11.2017, the assessee has stated that he has purchased shares of M/s Thyrocare Lab Limited earlier known as M/s Eins Edutech Limited on 22.04.2013 and paid for the Same through Bank for a total consideration of Rs. 30,00,000/-.

 As the holding period of one year was elapsed, the assessee started selling of shares and sold shares of M/s Thyrocare Lab Limited earlier known as M/s Eins Edutech Limited through stock broker thereby earning of Long Term Capital Gain of Rs. 1,68,29,438/- (after deducting Purchase cost of Rs.30,00,000/- claimed as exempted u/s 10(38) of the I. Tax Act, 1961.

6.1 Hence, the pattern observed from the sale /purchase of shares by the assessee of the script of M/s Thyrocare Lab Limited earlier known as M/s Eins Edutech Limited is similar to that mentioned in Para- IV supra The allotment of shares of M/s Thyrocare Lab limited earlier known as M/s Eins Edutech Limited was not screen based, thereafter, these shares were dematerialized, and started selling the shares once lock in period of 1 year was over and prices of shares of M/s Thyrocare Lab limited earlier known as M/s Eins Edutech Limited were artificially rigged to a very high value by the promoters of the penny stock companies.

6.2 Further, the company M/s Thyrocare Lab Limited earlier known as M/s Eins Edutech Limited is a penny stock company. This is evident from the fact that:

 Market price of one shore of M/s Thyrocare Lab Limited earlier known as M/s Eins Edutech limited was very low at the time of purchase.

X X X X X

 Thereafter, by rigging the price was jacked up in FY 2014-15 for M/s Thyrocare Lab Limited earlier known as M/s Eins Edutech Limited in 12 months when the Holding period of 1 year is over.

 Thus within 12 months the price was jacked up sharply increased in share price of M/s Thyrocare Lab Limited earlier known as M/s Eins Edutech Limited.

6.3 Further, the dummy directors in their statements recorded under section 131 of the Act have admitted to the fact that that they have artificially inflated the prices of the shares their dummy companies to deliberately provide bogus accommodation entries of the Long term capital gain/Loss, Short term capital gain/loss to the beneficiaries.

6.4 During investigation proceedings of DIT (Inv.), Kolkata, Sh. Sanjay Vora Regional Director, M/s Anand Rathi Shores of Stock Brokers Limited has stated on 08.04.2015 that his company was actively engaged in bogus ITC6 syndicate. He has also confirmed the he was engaged to provide bogus long term capital gain through a lots of company including M/s Channel Nine Entertainment Ltd invested by the assessee.

7. All these facts further prove that the assessee has sold its shores of M/s Channel Nine Entertainment Ltd to dummy concerns of the entry providers to claim bonus long- term capital gain.

9. The landmark decision by Constitution Bench of Supreme Court in the case of McDowell A Co Ltd. Vs CTO 154 ITR 148 (SC) is squarely applicable in this case, The decision of Hon'ble Justice Chinnappa Reddy, in particular, against tax avoidance by adopting colourable device is opt applicable in the case of the assessee. The modus operandi adopted by the assessee by infusing undisclosed amount into coffers of the assessee without paying any taxes upon is nothing but a colourable device as cited by Suresh Asrani Hon'ble Judge in the historic McDowell A Co Ltd judgment. The relevant portion of the judgment is reproduced hereunder:-

"Tax planning may be legitimate provided! it is within the framework of law, Coburabte devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges.

Reddy, J. justified the relevance of English decisions thus-(SCC p. 241, para 14)

I have referred to the English cases at some length, only to show that in the very country of its birth, the principle of Westminster has been given a decent burial and in that very country where the phrase 'tax avoidance' originated the judicial attitude towards tax avoidance has changed.... The courts are now concerning themselves not merely with the genuineness of a transaction, but with the intended effect of it for fiscal purposes. No one can now get away with a tax avoidance project with the mere statement that there is nothing illegal about it.

Referring with disapproval to the observations of Shah, J. in the cases of CIT v. A. Raman 4 Co.3 and CIT v. B.M. Kharwart, Reddy, J. declared: (SCCpp. 242-43, para 17) We think that time has come for us to depart from the Westminster principle as emphatically as the British courts have done and to dissociate ourselves from the observations of Shah, J. and similar observations made elsewhere. ... In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it."

(1) The learned Judge then proceeded to further observe: (SCCp. 243, para. 18)

It is neither fair nor desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and to consider whether the situation created by the devices could be related to the existing legislation with the aid of 'emerging' techniques of interpretation (sic as) was done in Ramsay, Burmah Oil and Dawson, to expose the devices for what they really are and to refuse to give judicial benediction,

Suresh Asrani It was thereafter that Shah, J. held in his own words: (ITR pp. 607-08)

The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction, if the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of the relationship.

(ii) The landmark judgment of Hon'ble Supreme Court in McDowell (supra) has clearly defined the line of distinction between reduction of tax liability by an assessee through legally permissible account, honest and justified means, on one hand, and reduction due to some colourable device, design or subterfuge, on the other hand. It was held that tax planning may be legitimate provided it is Within the framework of law Colourable devices cannot be part of planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. In taxation matters the genuineness of a transaction is mattered less when compared to intended effect of it for fiscal purposes. No one can get away with an avoidance project with the mere statement that there is nothing illegal about it. The Hon'ble Courts of country in many cases have held that merely because the transaction has been undertaken through cheque would not become sacra scent and cheque transactions in some cases have proved to be illegal and tax avoidance have been unearthed. iii) The Hon'ble High Court of Delhi in the very recent decision doted 19/11/2015 reported in ITA 130/2001 Commissioner of Income Tax Vs M/s Abhinandan Investment Ltd., has categorically explained the principle laid down by the Supreme Court in the case of McDowell d Co and the same is fully applicable in the facts of the present case. The relevant portion of the judgment is reproduced hereunder:-

“It is now well established that although tax planning is permissible but a colorable device to avoid payment of tax would be impermissible. Justice Chinnappa Reddy in his concurring opinion in Mc dowell (supra) had held that in our view the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. Justice Reddy was of the opinion that it is up to the Court to take stock to determine the nature of new and sophisticated legal devices to amid tax and expose the same for Suresh Asrani what they really are and refuse to give "judicial benediction". Justice Ranganath Misra speaking for the majority held that "tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious method. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges".

In Commissioner of Income Tax v. Sakarlal Balabhai: (1968) 69 ITR 186 (Guj), the Gujarat Court explained the meaning of tax avoidance and observed that "Tax avoidance postulates that the assessee is in receipt of amount which is really and in truth his income liable to tax but on which avoids payment of tax by some Appeal No. 166/17-18 artifice or device....". The Court further explained that such artifice or device may assume diverse forms but "there must be some artifice or device enabling the Assessee to avoid payment of tax on what is really and in truth his income".

Thus, whilst it is settled that the legitimacy of real transactions cannot be questioned merely for the reason that the same result in mitigating the Assessee's tax liability, the Courts have also held that the colourable devices or subterfuges to evade tax would be impermissible.

Suresh Asrani 11. In this connection, reliance is also placed on the decision of the ITAT, Mumbai in the case of Ratnakar M. Pujari (ITA No. 995/Mumbai/2012 dated 09.05.2016. In the, cited case (supra), the Hon'ble ITAT has upheld the addition made by the AO in respect of the long term capital gain on penny stock declared by the appellant. The facts of the cited case are squarely applicable to the facts of assessee's case. Further, I would like to rely on the judgment of the Punjab A Haryana Court in the case of Somnath Maini (ITA No. 499 of 2005 dated 07.11.2006) wherein the addition on the issue of long term capital gain on penny stock u/s 68 has also been upheld by the Hon'ble Court. (306 ITR 414).

In view of the above, I am to hold that the assessee has entered into colourable Appeal No. 166/17-18 device for avoidance of tax. The detailed analysis of evidences available on record and the case laws quoted above provide enough support against the arguments of the assessee that her share transactions are genuine. Thus, in view of the elaborate discussion made above, I hereby hold the amount of Rs.1,68,29,438/- claimed as LTCG by assessee during the F.Y. 2014-15 (A.Y. 2015-16) stands disallowed and is added back to the total income. Further, it is typical that these transactions are carried out on a commission basis. From various statements it is observed that commission @ 3% has been charged for providing arranged capital gain. Since, the assessee has claimed an LTCG of Rs. 1,68,29,438/-, an amount of Rs.5,04,883/- (i.e. 3% of Rs.1,68,29,438/-) is being added u/s 69C as unexplained expenditure. Further, purchase value of Rs.30,00,000/- is added back to total income as unexplained expenditure u/s 69C.”

4. Aggrieved, the assessee filed appeal before the ld. CIT(A).

Submissions of the assessee before the ld. CIT(A)

5. The assessee has stated as under in his written submission dated 24.07.2018:

“1. The main grounds of appeal are against the addition of Rs. 1,68,29,428/- considering the receipts on account of sale of shares by disallowing LTCG claimed U/S 10(38) of the Act ignoring the material place on record.

Suresh Asrani These shares were transferred to DP account on 27/06/2013 (Copy annexed) out of these shares 78505 shares were sold through Bombay stock exchange on various dates during the A.Y. 2015-16 i.e. 39.25% of the holding.

In this connection, it is to be submitted that during the course of assessment proceedings the assessee submitted detailed explanation and the complete documents in respect of the above said transaction of purchase and sale of shares of Thyrocare Laboratories Limited. We are enclosing the below mentioned documents for your kind perusal.

(a) Rs. 30,00,000 was invested in the shares through bank account maintained with Bank Of Maharashtra on 22/04/2013, the amount was Invested out of the refund of the Loan account. Application along with allotment letter for the same is enclosed. (Page No-01)

(b) Contract note No BSE/1720 dated 14/10/2014, BSE/1824 dt. 30/10/2014, BSE/1882 dt. 07/11/2014, BSE/1898 dt. 10/11/2014, BSE/2347 dt. 29/12/2014, BSE/2358 dt. 30/12/2014, BSE/2377 dt. 01/01/2013 for sale of shares through PEE AAR SECURITIES LTD (Page No-02-22)

(c) Copy of Demate account no 10059500 maintained with NSDL DP: PEE AAR SECURITIES LTD for the year ending 31/03/2014 & 31/03/2015 where the said shares i.e. EINS Edutech Limited are reflected. (Page No-23-32)

(d) Copy of Leger Account of Broker (Page No-33-37)

All these documents were submitted before the assessing officer vide letter dated 12/12/2017 (copy of letter enclosed)

Suresh Asrani 4. It is further submitted that the assessee had purchased of 2,00,000/- shares of Thyrocare Laboratories Ltd amounting Rs. 30,00,000/- at a premium of Rs. 15 per share in electronic form. Out of the aforesaid 2,00,000/- Shares assessee sold of 78505 Shares only i.e. 39.25%. Thus, the major part of the Shares i.e. 60.75% are still in the hand of the assessee. The assessee just wanted to enter into the transaction to earn exempted capital gain, but the assessee did not sell all the 2,00,000 shares instead sold part i.e. 78505 shares only when that time was the best price ever. All the transaction were made through account payee cheque/ banking channel and assessee had purchased share in financial year 2013-14 and sold the same in the financial year 2014-15 resulting in Long Term Capital Gain.

The assessee has submitted various documentary evidences to prove the genuineness of the transaction of sale and purchase of shares which includes a copy of purchase bill; a copy of share allotment letter in the favour of the assessee; Copy of bank statement highlighting the payment made against the share purchased: Transaction statement of the stock broker i.e. PEE AAR Securities Ltd a registered share broker with SEBI and BSE, copy of bank statement in which sale proceed from the sale of shares received, copy of calculation of long term capital gain, which was not faulted by the AO. However, the Ld. AO have not considered the aforesaid documents and rejected all the claims made by the assessee by relying on the report of the investigation Wing and thereby made the addition.

8. It shall be pertinent to note that during the course of assessment proceedings, the ld. AO has made no enquiry regarding the transaction from various parties involved in this transaction. Nothing adverse is available on record.

(a) The assessing officer appears to have preconceived notions and has twisted and distorted all the facts according to his convenience and in order to prove the same. (b) The assessing officer has failed to appreciate the fact that the shares were directly purchased by the assessee from the company. (c) The assessing officer has failed to prove as to how this particular transaction is not in conformity with the SEBI guidelines. (d) The assessing officer has erred in concluding that since assessee is not regular investor in shares, he should not be able to earn huge return within a short span of period. Whereas DP statements shows other way. (e) The assessing officer has erred in concluding that the nature of transaction looks suspicious. This statement proves the fact that the report of the Investigation department has distorted his view and all genuine, simple and practical matters look manipulated. (f) The assessing officer has failed to appreciate the fact that the shares have been sold through a recognized stock exchange and the transaction has been charged to security transaction tax and is thus eligible for exemption under section 10(38) of the Act.

10. Further there are various infirmities in the order of the assessing officer which leads to drawing of wrong conclusion that the transaction of LTCG is a sham and bogus

Suresh Asrani transaction. The ld. assessing officer has not brought on record any concrete evidence for disallowing the long term capital gain of the assessee.

12. In the order, the ld. AO also relied upon information shared by Investigation wing Kolkata. He further observed that Thyrocare Laboratories Limited is a penny stock company, without having any material on record. It is also observed by him that the SEBI has taken some action against M/s Thyrocare Laboratories Limited for violating the SEBI guidelines.

It is to be submitted that action initiated/taken by any authority administering a statute cannot be used against the assessee to which he was not party. The so called order of SEBI, which was not made available to the assessee, may have impact on the persons who are parties to the proceedings but certainly not on the assessee. It is an established position of law, as stated by the Hon'ble Supreme Court in Chhatrasinhji Kesarisinhji Thakore Vs. Commissioner of Income-tax (1966) 59 ITR 562, 567-68 (SC), that the income-tax officer is, within the limits assigned to him under the Act, a Tribunal of exclusive jurisdiction for purposes of assessment and he has, under the Act, to decide whether a particular receipt is income and it is not, necessary that he must make some person or body other than the assessee, a party to the proceedings before he decides the question; and as between the State and the assessee, it is his function alone to determine whether the receipt is income and is taxable. It is equally beyond doubt that a statutory authority is bound to hold statutory inquiry and perform statutory duties to determine liability under the statute they act and the same cannot be abdicated in any manner basing on the decision of another authority. The assessee, therefore prayed before the Commissioner (Appeals) that they should not be penalized for the acts of omissions and commissions of the brokers in a proceeding before another authority to which assessee were not a party and in the absence of any enquiry by the assessing officer.

It to be further submitted that the role of SEBI is different and the order passed by them have different objectives such as orderly conduct of share market and investor's protection. Therefore, such orders cannot be conclusive as regards genuineness of the Suresh Asrani transaction done by the assessee. Moreover, in the case of the assessee SEBI has not started any enquiry against the assessee. Evidence showing payment and receipt of consideration for purchase and sale of shares. All the above evidences are in the realm of documentary evidences. Thus primary onus was discharged and this completely absolved the assessee from adducing any further proof does not arise as the assessee had discharged the primary onus. On the other hand there is nothing in the assessment order except suspicion to show that the department has found anything further.

13. It is settled law that in the matter of an assessment, presumption however strong cannot take the place of proof. In the case of the assessee, the assessing officer has not brought out any cogent and concrete evidence against the assessee to come to a conclusion that the transactions in shares are bogus. His entire evidence is based on surmises and suspicion. Such an assessment cannot be sustained in the eye of law. In this regard the assessee placed reliance on the following judgments of the Apex Court. It is a settled principle that mere conjecture, surmise or assumption of facts as distinct from inference from proved circumstances do not amount to evidence within the meaning of section 143(3) for the purposes of being utilized in the assessment. This is a case in which there is no evidence against the assessee except some vague, confusing enquiries the Assessing officer has sought to draw conclusion against the assessee. It was held by Apex Court that, "the Income tax officer is not entitled to make a pure guess and make an assessment without reference to any evidence and material at all. There must be something more than suspicion to support the assessment. Dhakeswari Cotton Mills Ltd. Vs. CIT 1954, 26 ITR 775 SC. The same principle is also reiterated in the case of Umacharan Shaw & Bros. Vs. CIT West Bengal 37 ITR 271 SC. It was held that a suspicion however, strong may not take the place of proof. The conclusions which are based on surmises and conjectures, cannot take the place of proof. Therefore the assessment made by the assessing officer which is predominantly influenced by suspicion is liable to set aside."

Similarly, the ratio of the decision of Apex Court in the case of Mc Dowell & co. Lid. V. CTO 154 ITR 148 (SC) and Delhi High Court decision in the case of M/s Abhinandan Investment Ltd. are also not applicable to the case of the assessee. The Id. AO's allegation that the transaction of sale of shares of Tyrocare Laboratories Ltd., a listed company is a colourable device and has been done to evade tax is contrary to the direct documentary evidence produced by the assessee and without having any material on record to support this allegation and without making any enquiry and without finding any fault with the evidence as produced.

Further the decision of the P & H high Court, in the case of Somnath Mani (306 ITR 0414) relied on by the assessing officer is factually different and not applicable to the facts of the assessee's case. In that case, the facts were that the sale proceeds of the shares sold were not reported on the transaction date at the concerned Stock Exchange. Further, the said shares continued to appear in the name of that assessee for quite a long period after the sale and also the sale proceeds were received by that assessee only in installments over a period of six to seven months after the date of sale of shares. In the case on hand, however, the factual matrix is quite different. In the case on hand the assessee received the full sale proceeds of the sales of the 'said shares' from the stock broker as and when they were sold; BSE has confirmed her sale transaction on the date shown and also the fact that the said shares on sale have been transferred to the buyer immediately is evident from her D-MAT account. In this factual matrix, we submit that the decision in the case of Somnath Mani (supra) is factually different and distinguishable from the case on hand; is not applicable to reach an adverse finding in the case on hand and has been erroneously applied and relied on by the assessing officer. Similarly, the case of Ratnakar M. Pujari (ITA No. 995/Mumbai/2012) also does not hold as the facts are distinguishable from the facts of the case on hand. And lots of cases have been held in favour of the appellant having similar facts by Bombay High Court and ITAT Mumbai after this decision.

Suresh Asrani drawn by the A.O on the said footing in the hands of the assessee thus could not be sustained. It was submitted by the ld. A.R that the aforesaid order of the Tribunal in the case of Mukesh R. Marolia (supra) had thereafter been tested by the Hon'ble High Court of Bombay in CIT Vs. Shri Mukesh Ratilal Marolia (ITA 456 of 2007), dated 07.09.2011), wherein the Hon'ble High Court had affirmed the order of the Tribunal and dismissed the appeal filed by the revenue. The Ld. A.R further submitted that the 'SLP' filed by the revenue against the judgment of the Hon'ble High Court in the case of Mukesh Ratilal Marolia (supra), had thereafter been dismissed by the Hon'ble Supreme Court in CIT VS. Mukesh R. Marolia (SLP No. 20146/2012 dt. 27.01.2014).

It is the intention of the assessee which is to be seen to determine the nature of transaction conducted by the assessee. Though the investment in shares is on a large magnitude but the same shall not decide the nature of transaction. Similar transactions of sale and purchase of shares in the preceding years have been held to be income from capital gains both on long term and short term basis. The transaction in the year under consideration on account of sale and purchase of shares is same as in the preceding years and the same merits to be accepted as short term capital gains. There is no basis for treating the assessee as a trader in shares, when his intention to hold the shares in Indian companies as an investment and not as stock in trade. The mere magnitude of the transaction does not change the nature of transaction, which are being assessed as income from capital gains in the past several years. The Assessing officer is directed to set off the Long Term Capital Loss against the Short Term Capital Gain of the year under consideration. The grounds of appeal raised by the assessee are allowed.

Suresh Asrani against assessee without providing the same to the assessee. This is in gross violation of the principle of natural justice.

In Andaman Timber Industries Vs. Commissioner of Central Excise, Kolkata in Civil Appeal No.4228 of 2006 dated 2-9-2015 the Supreme Court found that the Adjudicating Authority had not granted an opportunity to the assessee to cross examine the witnesses and the tribunal merely observed that the cross examination of the dealers in that case, could not have brought out any material which would not otherwise be in possession of the appellant-assessee. The Supreme Court set aside the impugned order and observed that it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross examination and make the remarks such as was done in that case.

"6. I have heard both the parties and perused the relevant records available with me, especially the orders of the revenue authorities and the case law cited by both the parties. I note that assessee has earned Long Term Capital Gain amounting to Rs.

Suresh Asrani 18,46,600/- during the financial year 2013-14 and the same has been claimed exempt under Section 10(38) of Income Tax Act, 1961. The assessee had purchased of 45,000/- shares of Unisys Software Holding Industries Ltd amounting Rs. 9,38,600/- at a premium of Rs. 20.85 per share in physical form. Out of the aforesaid 45000/- Shares assessee sold of 8000 Shares only i.e. 17.77%. Thus, the major part of the Shares i.e. 82.33% are still in the hand of the assessee. In my view the assessee just wanted to enter into the transaction to earn exempted capital gain, but the assessee did not sell all the share 45000 shares instead of sale of a part i.e. 8000 shares only when that time was the best price ever. All the transaction were made through account payee cheque / banking channel and assessee had purchased share in financial year 2009-10 and sold the same in the financial year 2013-14 resulting in Long Term Capital Gain. The assessee has submitted various documentary evidences to prove the genuineness of the transaction of sale and purchase of shares which includes a copy of purchase bill dated 22.02.2010, a copy of share transfer form in the favour of the assessee, Copy of bank statement highlighting the payment made against the share purchased, Transaction statement of the stock broker i.e. Pace Stock Broking Services (P) Ltd., account; copy of bank statement in which sale proceed from the sale of shares received, copy of calculation of long term capital gain, which was not faulted by the AO. However, the lower authorities have not considered the aforesaid documents and rejected all the claims made by the assessee by relying on the report of the Investigation Wing and thereby made the addition, which is not sustainable in the eyes of law. I further find that the AO has given detailed explanation in the order regarding the modus operandi of bogus LTCG scheme but failed to substantiate how the assessee fell in the purview of the same without bringing any material on record and proving that the assessee was directly involved in the so called bogus transaction. I further note that the addition in dispute made by the AO and upheld by the Ld. CIT(A) u/s 68 as unexplained credit instead of long term capital gain as claimed by the assessee, however, the source identity and genuineness of the transaction having been established by documentary evidences and there is no case for making addition w/s 68 of the Act, hence, the same deserve to be deleted. I note that in most of the case laws of the Hon'ble High Courts referred by the Ld. DR the reason on the basis of addition was confirmed was that the assessee had not tendered cogent evidence with regard to share transaction, however, in the present the case assessee has submitted all the documents/ evidences, therefore, the case laws relied by the Ld. DR are based on distinguished facts and circumstances, hence, the said case laws are not applicable in the present case. However, in my considered opinion, the issue in dispute is squarely covered by the various decisions of the ITAT and the Hon'ble High Courts

Suresh Asrani including the recent decision dated 18.1.2018 of the Hon'ble High Court i.e. Hon'ble High Court of Punjab & Haryana in the case of PCIT (Central), Ludhiana vs. Prem Pal Gandhi passed in of 2017."

i. Smt. Memo Devi 7 DTR 158 Income Tax Appellant Tribunal Agra Bench ii. Smt. Neelam Chawla 6 DTR 141 Income Tax Appellant Tribunal Delhi F Bench iii. Shripal Singh Gulati 9 DTR 564 Income Tax Appellant Tribunal Agra SMC Bench iv. Kamal Kumar S. Agrawal (Indl.) & Ors. 41 DTR 105 Income Tax Appellant Tribunal Nagpur v. Meena Devi N. Gupta V/s. ACIT, Surat (Income Tax Appellant Tribunal D Bench, Ahmedabad order dt. 10-5-2013 in & 13/Ahd/2007) vi. Manojkumar Sarawagi (HUF) (Income Tax Appellant Tribunal A Bench, Ahmedabad Order dt. 16-3-2012 in ITA No.3233 & 3156/Ahd/2010) vii Jagdish Prasad Goel (Income Tax Appellant Tribunal C Bench, Kolkata, order dt. 13-4-2011 in ITA No.541/Kol/2010) viii. ITO v. Naveen Gupta 005 SOT 0094 (ITA No. 696 of 2002 ITAT Delhi) ix. Rajesh Gupta, Lh of Late Shri Mohan V/s. Dept. of Income Tax (Income Tax Appellant Tribunal Agra Bench order dt. 24-5-2013 in ITA No. 10/Agra/2011) X Jatin Chhadwa VIS. ACIT (Income Tax Appellant Tribunal, I Bench Mumbai order dt. 24-8- 2012 in ITA No.8573/Mum/2010) xi. Harkhchand K. Gada HUF ITA Nos. 1772, 1773, 1775, 1778 & 1779/Mum/2010 and others dated 8-8-2012. xii. Korlay Trading Co. Ltd. (232 ITR 820) Cal. HC xiii. Smt. Jamna Devi Agarwal & Ors. (328ITR 656) Bom. HC xiv. Arun Kumar Agarwal (HUF) & Others (order4 dt. 13-7-2012 in Tax Appeal No.4 of 2011 of High Court of Jharkhand) XV. Pr. CIT (Central) V. Prem Pal Gandhi (Order dated 18/01/2018 in ITA No. 95-2017 of P & H High Court xvi Farr ah Marker v. ITO (ITA No. 3801/Mum/2011) xvii Pratik Suryakant Shah v. ITO (ITA No. 810 to 815 & 922 to 926 (Ahd.) of2015 In view of the above, it is to be humbly submitted that the disallowance of Long term Capital Gain u/s 10(38) of the Act and addition made u/s 69C is bad in law and deserves to be deleted.”

6. The ld. CIT(A) considered the entire submissions of the assessee and then upheld the action of the Assessing Officer. For the sake of ready reference, the relevant part of the order of the ld. CIT(A) is as under:

“7.1 Briefly, the facts of the case are that in the Income Tax Return for the year under consideration, the Assessee claimed exemption amounting to Rs.1,68,29,438/- u/s 10(38) of the IT Act, 1961 on the sale of the shares of M/s Thyrocare Lab Limited [earlier

Suresh Asrani known as M/s Eins Edutech Limited] (hereinafter called as Thyrocare for the sake of convenience). The details of transactions are as under:

Scrip Name : Thyrocare Lab Ltd. formerly Eins Edutech Limited Remarks Date of Purchase Quantity Rate Amount / Sale of Shares Purchase 22.04.2013 2,00,000 Rs.15/- Rs.30,00,000/- The shares were purchased at a premium ofRs.15/- per share in electronic form 14.10.2014 Sale To 78,505 Rs.252.59 Rs.1,98,29,438/- 01.01.2015 7.2 As per the report received from Pr. DIT (Investigation), Kolkata, it came to the light that various entry operators and stock brokers were involved in providing entries for claiming exemption u/s 10(38) of the I.T. Act on the long term capital gains. The Assessee was found one of the beneficiaries by investing in a penny stock company namely Thyrocare. The Investigation Wing, Kolkata investigated share brokers and companies involved in the business of accommodation entry and covered them u/s 133A of the I.T. Act. The persons were investigated u/s 131 of the 1.T. Act as well.

7.3 The Assessing Officer issued notices u/s 133(6) to M/s Thyrocare, Bombay Stock Exchange, National Stock Exchange and the buyers to verify the transactions. The Assessee was also asked to furnish all details of purchase and sale of the shares. No reply was received from BSE, NSE and the buyers of the shares. The letter sent to Thyrocare was returned unserved. After the study of the documents submitted by the Assessee and all other details, the Assessing Officer issued show cause notice to the Assessee to explain the genuineness of transactions. The Assessing Officer noted that Thyrocare was one of 152 companies which were barred by SEBI. The prices of the shares of Thyrocare were not governed by market factors prevalent at the relevant time of purchase and sale of stocks. After the analysis of reply received from the Assessee, the Assessing Officer observed that the pattern followed for the purchase and sale of the shares by the Assessee was on the lines mentioned in the report received from the Directorate of Investigation, Kolkata. The Assessing Officer has given graphic picture of the movement of the price of the shares of Thyrocare recorded for the relevant period. Being not satisfied with the explanation offered by the Assessee with regard to the transactions, the Assessing Officer has made the following additions: a. Rs.1,68,29,438/- claim of long term capital gain b. Rs.5,04,883/- alleged payment of commission u/s 69C c. Rs.30,00,000/- amount invested in the purchase of shares u/s 69C

Suresh Asrani 7.4 The Appellant has, inter alia, submitted that details explanation and documents were submitted during the assessment proceedings. The amount for the purchase of the shares was paid through the bank maintained with Bank of Maharashtra. Copy of the contract notes for the sale of the shares through Pee Aar Securities Ltd. and also the copy of Demat account maintained with the NSDL for the period ending on 31.03.2014 and 31.03.2015 alongwith the copy of ledger account of the broker was submitted. The sale invoice as well as contract notes include the details of quantity, rate, order no., trade no., trade time, sale rate, brokerage, net rate and the amount of sale of shares. It is alleged that the Assessing Officer appears to have had preconceived notions. The shares were directly purchased from the company. In nutshell, it has been argued that the transactions were supported by necessary documents and the observations made by the Assessing Officer are not based on correct facts.

7.5 I have carefully considered the facts of the case, submission of the Appellant and decisions of the Courts. The Assessing Officer has shown the involvement of all the persons in the rigging of the price of the shares of Thyrocare. The relevant question is not on the legal formalities related to purchase and sale of the shares but its motive and design. The Assessing Officer has clearly given the modus operandi of money laundering by the stock brokers and agents. The beneficiaries are interested in getting their money laundered.

7.6 The Assessing Officer has brought out the surrounding facts of the case and has given detailed account of investigation carried out by the department. The Appellant has failed to rebut the findings of the revenue by showing any falsehood or contradiction therein. The Appellant strictly relies on the formalities adopted by it in respect of the investment in the shares and sales thereof. The Assessing Officer has bared the whole design of the market operators from the point of selling of the shares of a paper company to the beneficiaries, rigging of the prices of the shares on the stock exchange, dematerialization of the shares and sales of the shares etc. In this case, the facts suggest non-genuineness of the transactions. None of the decisions by the Indian Courts support the tax evasion clothed with the smoke-screen of subterfuges. The Assessing Officer has clearly brought out the facts revealing trivial substance of the company in which the Appellant has made the investment and the operations in the market by the interested parties to create the bubble in the form of astronomical growth in the prices of the shares, reaping the benefit at suitable time and make exit by selling the shares. It is often seen that colourable devices come with more systematic forms giving impression of genuineness. The Appellant resorted to a well planned scheme for purchase and sale of shares in Suresh Asrani connivance with entry operators. Such transaction never happen in the natural course of market activities; they are rather driven by predetermined motives.

7.7 With regard to the observations of the Assessing Officer to the effect that Assessee has made a huge capital gain with meager investment, the answer of the Assessee is extremely general in nature, under mining peculiar facts in his case. The explanation of the Assessee could be true in ordinary course of business but where some startling facts have surfaced after the investigation, the arguments of the Appellant deserve to be knocked off. The Assessee has reiterated the arguments indicating systematic structure of the investment and follow of the procedures. The Assessing Officer has already dealt with the issue at length and has demonstrated that the truth behind the apparent has to be revealed. The payment through cheque and the receipt of the sale proceeds through bank cannot prove the genuineness of the transaction. Even the transaction through Stock Exchange cannot give strength to the fabricated devices. The Appellant cannot wash his hands from the gamut of the plans giving colour of genuine transactions. The manipulation was possible only by the beneficiary and its aides. It was highly improbable to get that much of capital gain by investing in a company which neither had substantive past nor a promising future. The argument of the Assessee that the prices of the shares of Thyrocare were decided by the market forces is absolutely baseless because the facts reveal that the only market force involved in the matter was beneficiary himself in collusion with the entry operators. The whole of the case against the Assessee is that there was a well planned maneuvering to make the transactions look like genuine. Question arises how can a person judge the growth of the company which has negligible presence in the market in terms of revenue or in terms of capital. It certainly hints at certain illegitimate planning having the garb of legal forms. No investigation is required to prove such a conspicuous fraudulent activity. The case was so glaring that even a lay man could easily judge real facts of the case.

7.8 After going through the submission of the Ld. AR it may be seen that he is emphasizing his arguments more on the form than the content. There may be slight differences in the facts of the cases but what is to be seen in the jurisprudence is the sum and substance. In nutshell, the Ld. AR supports his plea by stating that the transactions are supported by documents. Even the Assessing Officer has not denied the existence of documents. What has been questioned by the Assessing Officer was the intent and real planning behind a clever design.

Suresh Asrani 7.9 The Assessing Officer has recorded the facts of the instant case and even the Assessee has made them more clear in his submission. Just with the investment of Rs.30,00,000/- the Assessee gains Rs.1,98,29,438/- in the span of 18-20 months approx. The Assessee purchased shares of Thyrocare @ Rs.15/- per share and sold them at average rate of Rs. 252.59 per share. The Appellant has failed to substantiate any of the arguments to support the price hike of the shares of Thyrocare by 16 times approx. There are no comprehensible market forces or international trends responsible for such fluctuation in the price of the shares of this company. Even the sensex was not so volatile during this period. The Appellant has argued that there are no direct or indirect evidences against him. To these arguments, it is observed that the purchase of the shares of Thyrocare by the Appellant and its phenomenal price hike without any fundamental support speak a lot about the pattern of the investment and its so called yield. There are no sentimental, national or international factors responsible for the so called growth. Arguments of the Appellant do not help his case because there are no apparent reasons of any form which can give iota of phenomenal rise.

7.10 There may be absence of direct evidence that cash was introduced for obtaining the accommodation entry but circumstantial evidence is the evidence of various facts and if taken together, they may form a chain of circumstances leading to an inference or presumption of the existence of the principal fact. In the clandestine operations and transactions it is impossible to have direct evidence or demonstrative proof of every move. So the Assessing Officer cannot be expected of producing such evidences.

7.11 In the instant case, the Appellant has submitted that she was not allowed the cross examination of individuals whose statements have been made basis for treating the transactions ingenuine. The Hon'ble Delhi High Court in the case of Udit Kalra vs. ITO Ward-50(1), ITA 220/2019 & CM No. 10774/2019 dated 08.03.2019 held as under:

"The assessee is aggrieved by the concurrent findings of the tax authorities - including the lower appellate authorities rejecting its claim for a long term capital gain reported by it, to the tune of Rs.13,33,956/- and Rs.14,34,501/- in respect of 4,000 shares of M/s Kappac Pharma Ltd. The assessee held those shares for approximately 19 months; the acquisition price was Rs.12/- per share whereas the market price of the shares at the time of their sale, was Rs.720/-. It is contended that the assessee was not granted fair opportunity.

Suresh Asrani Mr. Rajesh Mahna, learned counsel appearing for the assessee relied upon the orders of the co-ordinate Bench of the tribunal, in respect of the same company i.e. M/s Kappac Pharma Ltd., and pointed out that the tax authority's approach in this case was entirely erroneous and inconsistent.

The main thrust of the assessee's argument is that he was denied the right to cross- examination of the two individuals whose statements led to the inquiry and ultimate disallowance of the long term capital gain claim in the returns which are the subject matter of the present appeal.

This court has considered the submissions of the parties. Aside from the fact that the findings in this case are entirely concurrent -A.O., CIT(A) and the ITAT have all I consistently rendered adverse findings - what is intriguing is that the company (M/s Kappac Pharma Ltd.) had meager resources and in fact reported consistent losses. In these circumstances, the astronomical growth of the value of company's shares naturally excited the suspicions of the Revenue. The company was even directed to be delisted from the stock exchange. Having regard to these circumstances and principally on the ground that the findings are entirely of fact, this court is of the opinion that no substantial question of law arises in the present appeal.

This appeal is accordingly dismissed."

7.12 The jurisdictional High Court has held that the company whose shares were used for long term capital gain had meager resources and in fact reported consistence losses. In these circumstances, the astronomical growth of the value of companies shares naturally excited the suspicions of the revenue.

7.13 The Hon'ble Delhi High Court in their judgment dated 17th January, 2019 in the case of Pr. CIT-6, New Delhi vs. NDR Promoters Pvt. Ltd. in while deciding the issue of cash credits in the form of share application money made certain observations on the make-believe transactions which are also applicable to the present facts of the case. The relevant part is extracted below:

"12. The present case would clearly fall in the category where the Assessing Officer had not kept quiet and had made inquiries and queried the respondent-assessee to examine the issue of genuineness of the transactions. The Tribunal unfortunately did not examine the said aspect and has ignored the following factual position:-

Suresh Asrani (a) The shareholder companies, 5 in number, were all located at a common address i.e. 13/34, WEA, Fourth Floor, Main Arya Samaj Road, Karol Bagh, New Delhi (b) The total investment made by these companies was Rs.1,51,00,000/-, which was a substantial amount.

(c) Evidence and material on bogus transactions found during the course of search of Tarun Goyal. Evidence and material that the companies were providing accommodation entries to beneficiaries was not considered.

(d) The findings recorded as mentioned in the assessment order, which read as under:-

"1. From the finding of search, it is evident and undeniable that all the companies including the alleged shareholders companies belong to Sh. Tarun Goyal. This is enforced even more from the following:- ii. All the companies are operated from the-office premises of Sh. Tarun Goyal. ii. All the directors are either his employees or close relatives. Sh. Tarun Goyal could never produce the directors nor furnish their residential address. iii. The statement of employees of Sh. Tarun Goyal is on record, whereby they have clearly stated that they signed on the papers produced before them by Sh. Tarun Goyal They do not know about the basic details of the companies like shareholding patterns, nature of business of these companies etc. iv. The statement of auditors of Sh. Tarun Goyal is on record. They have stated to have never meet (sic) the directors of the companies and audited the accounts only on the directions of Sh. Tarun Goyal. As per the statement of auditors, the employees of Sh. Tarun Goyal were directors of the companies run by them, also they could not ascertain the so called share capital subscribed by Sh. Tarun Goyal as documentary proof of the same was lacking. v. During the course of search, all the passbooks, cheque books, PAN Cards etc. were always in possession of Sh. Tarun Goyal. On his directions all the employees signed all the documents. vi. All the bank account opening forms appear to be in the handwriting of Sh. Tarun Goyal.

Suresh Asrani vii. All the books of accounts of all the companies have been retrieved from the computers/laptop of Sh. Tarun Goyal. viii. Sh. Tarun Goyal has given letters for the release of bank accounts of companies put under restraints after search. No such application was received from so called directors of the companies. ix. Sh. Tarun Goyal appears in all the scrutiny assessments as well as appeals of his companies himself before various income tax authorities. From verification carried out in respective wards/ circles where the above mentioned companies are assessed, it is' evident that Sh. Tarun Goyal is appearing in all the income tax proceedings on behalf of all the companies. He is not charging any fees for appearing in these cases. x. During the post search investigation it was revealed that besides, aiding and abetting the evasion of taxes, Sh. Tarun Goyal has been indulging in violation other provisions of the law of the land. This matter has also been taken up by REIC for multi-agency probe."

(e) The respondent-assessee did not have any business income in the year ending 31st March, 2007 and had income from other sources of Rs.16.38 lakhs in the year ending 31st March, 2008. The respondent-assessee had not incurred any expenditure in the year ending 31st March, 2007 and had incurred expenditure of Rs.12.17 lakhs in the year ending 31st March, 2008.

(f) Shares of face value of Rs. 10/- each were issued at a premium of Rs.40/- (total Rs.50/-).

(g) The respondent-assessee had failed to produce Directors of the companies, though they had filed confirmations, and therefore, were in touch with the respondent-assessee. The respondent-assessee had also failed to produce the details and particulars with regard to issue of shares, notices etc. to the shareholders of AGM/EGM etc.

Suresh Asrani 14. Accordingly, the appeal is allowed. The substantial question of law framed above is accordingly answered in favour of the appellant-revenue and against the respondent- assessee. There would be no order as to costs.

7.14 The ratio laid down in the above judgment is also applicable to the facts of instant case.

7.15 The Appellant failed to rebut the observations of the Assessing Officer stated above. The Appellant rather beats about the bush to defend his case. With respect to the circumstantial evidence and in the matter related to the discharge of onus of proof and the relevance of surrounding circumstances of the case, the relevant observations and findings of Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More, are: that though an appellant's statement must be considered real until it was shown that there were reasons to believe that the appellant was not the real, in a case where the party relied on self-serving recitals in the documents, it was for the party to establish the transfer of those recitals, the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals. Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal. Therefore, the Courts and the Tribunals have to judge the evidence before them by applying the test of human probability. Human minds, may differ as to the reliability of piece of evidence, but, in the sphere, the decision of the final fact finding authority is made conclusive by law.

7.16 The above ratio laid down by the Hon'ble Supreme Court has been reiterated and applied by the Hon'ble Apex Court in the case of Sumati Dayal vs. CIT 214 ITR 801 (S.C). It is essential on the part of the Assessing Officer to look into the real nature of transaction and what happens in the real world and contextualize the same to such transactions in the real market situation. It is pertinent to state here, the wisdom of Hon'ble Supreme Court in CIT V Arvinda Raju (TN) (1979) 120 ITR 46 (S.C) wherein it was held that- "One day, in our welfare state geared to social justice, this clever concept of 'avoidance' as against 'evasion' may have to be exposed."

7.17 Hon'ble Supreme Court in the case of McDowell & Co. Ltd. (1985) 154 ITR 148 (S.C), wherein the Hon'ble Supreme Court has denounced tax avoidance, if not bonafide.

Suresh Asrani The relevant part of the observation of the Hon'ble Supreme Court is reproduced hereunder:

Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges.

7.18 Every person is entitled to so arrange his affairs as to avoid taxation but the arrangement must be real and genuine and not a sham or make believe.

7.19 Hon'ble Mumbai ITAT in the case of Ratnakar M. Pujari vs ITO in 5/Mum/2012 where the facts of the case are identical to that in the present case, has held that- "F) PENNY SHARE:

The shares in which the assessee has claimed to have made a deal, are identified as Penny Shares by the investigation wing of the department because rates of these shares are not based on business results of the companies but same are fluctuated by insider's trading from zero value (negligible price) to very high price and vice versa without any reason or basis to accommodate or generate bogus capital gain or loss.

5.9 In the instant case, all the above features are present in the transaction of shares made by the assessee. Moreover, there is also a specific information that assessee is indulged in non-genuine & bogus capital gain obtained from the transactions of purchase and sale of shares of M/s Shiv Om Investments & Consultancy Ltd., a Kolkata based company. In this respect, it is also pertinent to mention that even assessee has failed to furnish the proof of payment for these transactions.

Subject to the above discussion, it is held that the so called purchase of shares is a fabricated transaction and hence the same are held as bogus.

The said purchases have been treated as bogus and sham transactions by the Revenue as it is alleged that certain brokers have manipulated and issued predated contract notes which even did not have details such as time of contract, trade number, transaction details etc and payments were also made in cash by the assessee against such sham and bogus purchase with the objective of introducing by manipulating tax free exempt long term capital gains u/s 10(38) of the Act leading to escapement of income from taxation,

Suresh Asrani and the said findings of the AO with respect to bogus and sham purchases have become conclusive and final as the assessee has not challenged the findings of the learned AO made in the assessment order dated 24.12.2009 passed by the AO u/s 143(3) read with Section 147 of the Act in the first appeal filed with learned CIT(A) for the assessment year 2005-06 and hence the finding of the AO has attained finality. Since the said findings of the AO with respect to purchases of 4000 shares of M/s Shiv Om Investment and Consultancy Limited in assessment year 2005-06 have become conclusive having attained finality, the sales in consequence thereof the sham and bogus purchases cannot be accepted as genuine. The assessee has explained that the purchases were backed with contract notes of the brokers and payments were made in cash will not be of any help at this stage as the said finding of the AO treating the purchase of shares as sham and bogus in the assessment year 2005-06 has attained finality. Since, purchases are held to be bogus and sham which has attained finality, the sale in consequence thereof whereby payments are received through cheque or shares being sold through stock exchange are not of any help to the assessee for claiming the exemption as long term capital gains as the allegation of the Revenue is that the assessee has in collusion with the Brokers has manipulated and camouflaged the entire transactions of sale and purchase of shares in getting issued pre- dated contract notes for purchases of shares for which payments were also made for these purchase in cash and hence these purchases never existed at that relevant time. It is the allegation of the Revenue that the entire sale and purchase of shares were manipulated by the assessee in collusion with the brokers in order to earn tax free exempt long term capital gains on sales of shares u/s 10(38) of the Act whereby un-accounted cash of the assessee has been introduced in disguise in lieu of sale proceeds of shares. Keeping in view facts and circumstances of the case and as per our discussions and reasoning as set out above, we find no infirmity in the orders of the learned CIT(A) which we uphold and sustain. The assessee relied upon the decision of the ITAT, Hyderabad in the case of ITO v. Smt Aarti Mittal (2014) 41 taxmann.com 118(Hyd.-Trib) whereby the Tribunal has arrived at the decision that sale and purchase was genuine even though purchase was off market transaction which was routed not through stock exchange but backed by physical delivery of shares which was later de- mated and under the circumstances the ITAT held the transactions as genuine in nature and the assessee claim was found to be in order, but in the instant case there is a conclusive and final finding of fact that purchases of shares were bogus and sham as was held by the Revenue in the assessment year 2005-06 which has not been dislodged so far as the assessee accepted the said findings which became conclusive, thus the facts in the instant case are distinguishable as against the relied upon case of the assessee in Smt.

Suresh Asrani Aarti Mittal (supra) on that ground itself. Similarly, contentions of the assessee that the Revenue has accepted the gains on sale of 1500 shares of M/s Shiv Om Investment and Consultancy Limited in the succeeding assessment year 2007-08 as long term capital gains while processing of return u/s 143(1) of the Act is not of help to the assessee as every assessment year is separate assessment year and merely because the Revenue has not selected the case under scrutiny by issuing notice u/s 143(2) of the Act and framing detailed scrutiny u/s 143(3) of the Act instead chose to process the return u/s 143(1) of the Act without scrutiny will not entitle the assessee to get the well reasoned assessment orders and appellate orders of the learned CIT(A) dislodged in the absence of the cogent material and evidences to demolish the findings of the authorities below. The Revenue in the case of the assessee's brother has also declared the purchase and sale of shares as bogus but brought to tax, gains arising from sale of shares as short term capital gains. This in our considered view, is also not of help as the Revenue in the instant case has come to the conclusive finding which attained finality that the transactions of purchase of shares are sham and bogus transactions camouflaged with an intention to evade taxes. We order accordingly.

7.20 Reference is also made to the decision of ITAT Chandigarh in the case of ACIT vs Som Nath Maini (2006) 100 TTJ Chd 917 where in the Hon'ble tribunal has observed as under:

"6. After hearing the rival submissions, going through the orders of authorities below and paper book, we find that M/s Ankur International Ltd., although it is a quoted company, its shares were not being transacted at Ludhiana Stock Exchange at, the relevant time. Shares have been purchased and sold through the brokers and payments have been received in cheque on different dates as per the statement of account of M/s S.K. Sharma & Co, Factual matrix of the case from start of the purchase of shares at the rate of Rs. 3 to the sale of shares at Rs. 55 in a short span of time and shares being not, quoted at Ludhiana Stock Exchange and the way in which different, instalment payments have been received from the brokers and non-availability of the records of the brokers and the shares. remaining in the name of assessee even long after the sale of the shares does not stand the test of probabilities. As rightly pointed out by the learned Departmental Representative, these types of companies function in the capital market whose sale price is manipulated to astronomical height only to create the artificial transaction in the form

Suresh Asrani of capital gain. Surrounding circumstances differ from the normal share market transactions in which they are ordinarily carried out. Taking all the steps together, final conclusion does not accord with the human probabilities. The Hon'ble Supreme Court in the case of CIT v. Durga Prasad More held as under:

"It is a story that does not accord with human probabilities. It is strange that High Court found fault with the Tribunal for not swallowing that story. If that story is found to be unbelievable as the Tribunal has found and in our opinion, rightly that the decisions remains that the consideration for the sale proceeded from the assessee and therefore, it must be assumed to be his money.

It is surprising that the High Court has found fault with the ITO for not examining the wife and the father-in-law of the assessee for proving the Department's case. All that we can say is that the High Court has ignored the facts of life. It is unfortunate that, the High Court has taken a superficial view of the onus that lay on the Department."

6. The learned CIT(A) only got swayed by the issuance of notice by the AO under Section 131 to both the brokers from whom shares were purchased and sold and came to the conclusion that share transactions were genuine overlooking the material gathered by the AO from the statements recorded of broker M/s S.K. Sharma & Co. and the other facts and circumstances that volume of transactions of Jaipur Stock Exchange is only 600 shares and 1000 shares. Payments have been received from the brokers only in installments over a period of 6-7 months. It is true that when transactions are through cheques, it looks like real transaction but authorities are permitted to look behind the transactions and find out the motive behind transactions. Generally, it is expected that apparent is real but it is not sacrosanct. If facts and circumstances so warrant that it does not accord with the test of human probabilities, transactions have been held to be non- genuine, it is highly improbable that share price of a worthless company can go from Rs. 3 to Rs. 55 in a short span of time. Mere payment by cheque and receipt by cheque does not, render a transaction genuine. Capital gain tax was created to operate in a real world and not that of make belief. Facts of the case only lead to the inference that these transactions are not genuine and make believe only to offset the loss incurred on the sale of jewellery declared under VDIS. In the totality of facts and circumstances of this case and material on record, we are of the considered view that the CIT(A) was not justified in deleting the impugned addition. We, accordingly set aside the order of the CIT(A) and restore that of the AO."

Suresh Asrani 7.21 While confirming the decision of ITAT Chandigarh Bench (Som Nath Maini vs. CIT, Hon'ble P &H High Court has held as under:

"The assessee incurred capital loss on account of sale of gold jewellery and also had short-term capital gain of almost equal amount. The AO observed that short-term gain was not genuine inasmuch as the assessee had purchased 45,000 shares of M/s Ankur International Ltd. at varying rates from Rs. 2.06 to Rs. 3.1 per share and sold them within a short span of six-seven months at the rate varying from Rs. 47.75 paise to Rs.

7.22 As stated by the Hon'ble P&H High Court in the above mentioned case, mere leading the evidence that the transaction was genuine, cannot be taken as conclusive. Such evidence is required to be assessed by the Assessing Officer in a reasonable way. Genuineness of the transaction can be rejected if the Assessee leads evidence which is not trustworthy, even if the Department does not lead any evidence on such an issue. In the present case, prima facie, the appellant has tried to demonstrate that he has followed all the procedures required for a genuine transaction, but he miserably fails to satisfy the Suresh Asrani test of human probabilities as discussed by the Assessing Officer in detail in the assessment order.

7.23 Reliance is also placed on the decision of the Hon'ble Supreme Court in the case of CIT vs P. Mohankala (15/05/2007) wherein the SC held that- "The question is what is the true nature and scope of Section 68 of the Act? When and in what circumstances Section 68 of the Act would come into play? That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessee offers no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression "the assessee offers no explanation" means where the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion."

7.24 In this case the Hon'ble Supreme Court has decided the case in the favour of the revenue and set aside the decision of the Hon'ble Madras High Court regarding the transactions of gift received by Assessee even though these were done through banking channels, apparently giving the form of real one.

7.25 In this connection, I would also like to refer to the decision of the Hon'ble ITAT Bombay Bench 'B' (ITA No.614/Bom/87 A.Y. 1983-84) in the case of M/s. Mont Blane Properties and Industries Pvt. Ltd., which was upheld by the Hon'ble Supreme Court. The Hon'ble Tribunal had held that the word 'evidence' as used in sec. 143(3) covered circumstantial evidence also. The word 'evidence' as used in sec. 143 (3) obviously could not be confined to direct evidence. The word 'evidence' was comprehensive enough to cover the circumstantial evidence also. Under the tax jurisprudence, the word 'evidence' had much wider connotations. While the word 'evidence' might recall the oral and documentary evidence as may be admissible under the Indian Evidence Act, the use of word 'material' in Sec. 143(3) showed that the assessing officer, not being a court could

Suresh Asrani rely upon material, which might not strictly be evidence admissible under the Indian Evidence Act for the purpose of making an order of assessment. Court often took judicial notice of certain facts which need not be proved before them. The plain reading of section 142 and 143 clearly suggests that the assessing officer may also act on the material gathered by him. The word 'material' clearly shows that the assessing officer is not fettered by the technical rules of evidence and the like, and that he may act on material which may not strictly speaking be accepted evidence in a court of law.

7.26 Further, it would be relevant to cite the decision of Hon'ble ITAT Delhi in the case of Hersh Win Chadha in I.T.A.Nos.3088 to 3098 & 3107/Del/2005 where the Hon'ble ITAT has held as under- "6.13. It would, at this stage, be relevant to consider the admissibility and use of circumstantial evidence in income tax proceedings. Circumstantial evidence is evidence of the circumstances, as opposed to direct evidence. It may consist of evidence afforded by Appeal No. 166/17-18 the bearing on the fact to be proved, of other and subsidiary facts, which are relied on as inconsistent with any result other than the truth of the principal fact. It is evidence of various facts, other than the fact in issue which are so associated with the fact in issue, that taken together, they form a chain of circumstances leading to an inference or presumption of the existence of the principal fact. In the appreciation of circumstantial evidence, the relevant aspects, as laid down from time to time are- the circumstances alleged must be established by such evidence, as in the case of other evidence; the circumstances proved must be of a conclusive nature and not totally inconsistent with the circumstances or contradictory to other evidence. although there should be no missing links in the case, yet it is not essential that every one of the links must appear on the surface of the evidence adduced; some of these links may have to be inferred from the proved facts; in drawing those inferences or presumptions, the Authorities must have regard to the common course of natural events, to human conduct and their relation to the facts of the particular case.

(5) The circumstantial evidence can, with equal facility, be resorted to in proof of a fact in issue which arises in proceedings for the assessment of taxes both direct and indirect,

Suresh Asrani circumstantial evidence can be made use of in order to prove or disprove a fact alleged or in issue. In fact, in whatever proceedings or context inferences are required to be drawn from the evidence or materials available or lacking, circumstantial evidence has its place to assist the process of arriving at the truth."

7.27 After going through the entirety of the circumstances and not getting influenced by the pen picture shown by the Appellant, it can be confidently stated that the Appellant resorted to sham devices. The Assessing Officer has s gone to the very root of the transactions after doing deep analysis of the facts and circumstances and after taking into account the various inputs available with him from different sources. The arguments forwarded by the Appellant fail to convince me to accept the genuineness of the transactions claiming the income as Long Term Capital Gain and allow the deduction u/s 10(38) of the I.T. Act.

7.28 The Hon'ble Bombay High Court in the case of Sanjay Bimalchand Jain vs. Pr CIT held as under:

"(iii) On hearing the learned counsel for the assessee and on a perusal of the orders of the income tax authorities, it appears that there is no scope for interference with the said orders in this appeal. By referring to the aforesaid facts, which are narrated in the earlier part of this order, the authorities found that the assessee had made investment in two unknown companies of which the details were not known to her. It was held that the transaction of sale and purchase of shares of two penny stock companies, the merger of the two companies with another company, viz. Khoobsurat Limited did not qualify an investment and rather it was an adventure in the nature of trade. It was held by all the authorities that the motive of the investment made by the assessee was not to derive income but to earn profit. Both the brokers, i.e. the broker through whom the assessee purchased the shares and the broker through whom the shares were sold, were located at Kolkata and the assessee did not have an inkling as to what was going on in the whole transaction except paying a sum of Rs.65,000/- in cash for the purchase of shares of the two penny stock companies. The authorities found that though the shares were purchased by the assessee at Rs.5.50 Ps. Per share and Rs.4/per share from the two companies in the year 2003, the assessee was able to sell the shares just within a years’ time at Rs.486.55 Ps and Rs.485.65 Ps per share. The broker through whom the shares were sold by the assessee did not respond to the assessing officer's letter seeking the names, addresses and the bank accounts of the persons that had purchased the shares sold by the assessee.

Suresh Asrani (iv) The authorities have recorded a clear finding of fact that the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. While so observing, the authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth Rs.5/had jumped to Rs.485/- in no time. The Income Tax Appellate Tribunal held that the fantastic sale price was not at all possible as there was no economic or financial basis as to how a share worth Rs.5/of a little known company would jump from Rs.5/to Rs.485/. The findings recorded by the authorities are pure findings of facts based on a proper appreciation of the material on record. While recording the said findings, the authorities have followed the tests laid down by the Hon'ble Supreme Court and this Court in several decisions. The findings do not give rise to any substantial question of law. The judgments reported in (2012) 20 Taxman.com 529 (Bombay) (CIT Versus Jamnadevi Agrawal), (1957) 31 ITR 294 (Bombay) (Puranmal Radhakishan Versus CIT), (1970) 77 ITR 253 (SC) (Raja Bahadur Versus CIT) and (2015) 235 Taxman 1 (Bom) (CIT Versus Smt.Datta M. Shah) and relied on by the learned counsel for the assessee are distinguishable on facts and cannot be applied to the case in hand."

7.29 The Appellant has failed to substantiate its arguments in the light of the detailed discussion in this regard in the foregoing paras wherein it has been established that the Assessee introduced his unaccounted money in the garb of Long Term Capital Gain. It is reiterated that what matters to decide a particular case is not the form but its real content. The Assessing Officer has successfully lifted the veil from the artful design of the transactions.

Accordingly, the addition made by the Assessing Officer is confirmed. The Assessee is not entitled to deduction u/s 10(38) of the I.T. Act. The addition made by the Assessing Officer is confirmed u/s 69A r.w.s. 115BBE of the IT Act, 1961.”

7. Aggrieved with the order of the ld. CIT(A), the assessee filed appeal before the Tribunal on 02.05.2019 and nobody attended for hearings till 11.04.2023. Hence, it is decided to adjudicate the matter on merits taking into consideration, the fact on record and the submission of the assessee before the revenue authorities.

Suresh Asrani 8. The following scenario emerges:

• The assessee purchased shares on 22.04.2013 for Rs.15/- • The assessee sold the same shares on 14.10.2014 for Rs.252/- • Thus, the assessee earned profit of Rs.237/- on a share of Rs.15/- in a span of 6 months. • The investigations revealed collision of share brokers and company. • The exhaustive enquiries conducted by the revenue department supported by the statement of the brokers themselves proved that the price of the shares of this company were manipulated so as to provide fictitious profits. • Such profits are claimed to be exempted u/s 10(38) of the Income Tax Act, 1961. • The revenue has clearly brought about the details of accommodation entry, entry operator, penny stock companies, persons involved, syndicate members, brokers, purchase of shares by beneficiaries, price raging, final sale by beneficiaries and also about the merger method, preferential allotment method and splitting of shares method. • The entire operation has been succinctly brought about in the Assessment Order which has been a part of this order. • The assessee could not prove the genuineness of the transaction before the authorities. • Hence, keeping in view the facts of the case, investigation of the revenue and the judgments of,

Suresh Asrani  Hon’ble Bombay High Court in the case of Sanjay Bimal Jain Vs. PCIT  Hon’ble High Court of Calcutta in the case of PCIT Vs. D.K. Bansal in ITAT-31/2020 dated 14.06.2020  Hon’ble Delhi High Court in the case of Udit Kalra Vs. ITO ITA 220/2019, CIT Vs. NDR Promoters Pvt. Ltd. in  Hon’ble Apex Court in the case of CIT Vs. P. Mohankala dated 15.05.2007  Hon’ble Apex Court in the case of Sumati Dayal Vs. CIT 214 ITR 801  Hon’ble Apex Court in the case of CIT Vs. Arvinda Raju 120 ITR 46 we hereby affirm the order of the ld. CIT(A).