M/s Precious Securities Private Limited , Bangalore V. Income Tax Officer Ward-5(1)(3), Bangalore

ITA 1778/BANG/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8753 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 24-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL D SURANA
• Keywords: Principle of natural justice; Accommodation entries; Onus to prove; Penny stocks; Capital Gains
• Section: 131; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N V VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER IT A NO. 1778/BANG/2018 ASSESSMENT YEAR : 2014 - 15 PRECIOUS SECURITIES PVT. LTD., NO.338, 1 ST FLOOR, PRABHAT COMPLEX, K G ROAD, BANGALORE 560 009. PAN: A ABCP 3382L VS. THE INCOME TAX OFFICER, WARD 5(1)(3), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SH RI SUNIL D. SURANA, CA RESPONDENT BY : SHRI PRIYADARSHI MISHRA, ADDL. C IT(DR)(I TAT ), BENGALURU. DATE OF HEARING : 28 .0 7 .202 1 DATE OF PRONOUNCEMENT : 29 .0 7 .202 1 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(APPEALS)-5, BENGALURU FOR THE ASSESSMENT YEAR 2 014-15. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THE LEARNED CIT (APPEALS), BENGALURU - 5 HAS E RRED IN PASSING THE ORDER IN THE MANNER PASSED BY HIM. THE IMPUGNED ORDER BEING BAD IN LAW IS REQUIRED TO BE QUASHED. 2. IN ANY CASE AND WITHOUT PREJUDICE THE ORDER HA VING BEEN PASSED IN TOTAL DISREGARD OF AND IN VIOLATION OF TH E PRINCIPLES OR NATURAL JUSTICE, MAKES THE ORDER BAD IN LAW AND LIA BLE TO BE QUASHED. ITA NO.1778/BANG/2018 PAGE 2 OF 7 3. IN ANY CASE AND WITHOUT FURTHER PREJUDICE, THE LEARNED CIT (APPEALS), BENGALURU - 5 HAS ERRED IN; A) CONFIRMING ADDITION OF RS.60,96,500/- BEING LOSS ON SALE OF SHARES OF M/S SHREENATH COMMERCIALS & FINANCIALS LT D. B) HOLDING WITHOUT BASIS THAT THE TRANSACTIONS IN S HARES ARE FICTITIOUS. ON PROPER APPRECIATION OF FACTS AND CIRCUMSTANCES O F THE CASE AND THE LAW APPLICABLE, THE TRANSACTIONS ARE DULY RECOR DED IN THE BOOKS OF ACCOUNTS AND THE ADDITIONS AS DONE BEING TOTALLY ON ERRONEOUS PREMISE IS TO BE DELETED. 4. THE LEARNED CIT (APPEALS), BENGALURU - 5 HAS ERR ED IN DECIDING THE NECESSITY OF BUSINESS TRANSACTION AND COME TO A CONCLUSION THAT THE APPELLANT SHOULD HAVE HELD ON T O THE SHARES. 5. THE LEARNED CIT (APPEALS), BENGALURU - 5 HAS ER RED IN MAKING VARIOUS OBSERVATIONS AND COMING TO VARIOUS C ONCLUSIONS WITHOUT PROOF AND EVIDENCE AND SUCH OBSERVATION AND CONCLUSION NEED TO BE TOTALLY IGNORED. 6. THE APPELLANT DENIES THE LIABILITY TO PAY INTER EST. THE INTEREST HAVING BEEN LEVIED ERRONEOUSLY IS TO BE DE LETED. 7. IN VIEW OF THE ABOVE AND OTHER GROUNDS TO BE AD DUCED AT THE TIME OF HEARING IT IS REQUESTED THAT THE IMPUGN ED ORDER BE QUASHED OR ATLEAST THE ADDITION MADE TO THE INCOME BE DELETED AND THE INTEREST LEVIED BE DELETED. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADI NG IN SHARES AND SECURITIES AND FILED RETURN OF INCOME DECLARING LOS S OF RS.1,07,413. THE INCOME CONSISTED OF INCOME FROM BUSINESS AND THE LO SS ON SALE OF SHARES SOLD THROUGH A BROKER. DURING THE YEAR, THE ASSES SEE PURCHASED ALONG WITH OTHER SHARES THE SHARES OF SHREENATH COMMERCIA LS & FINANCIALS LTD. AND INCURRED A LOSS OF RS.60,96,500 IN THE SAID SCR IP. THIS AMOUNT WAS ADDED BACK TO THE INCOME BY THE AO ON THE REASONS T HAT THE SHARES SOLD BY ASSESSEE WERE ACCOMMODATIVE ENTRIES, THERE WAS NO N ECESSITY FOR SALE OF ITA NO.1778/BANG/2018 PAGE 3 OF 7 THESE SHARES AND THE ASSESSEE HAD PURCHASED THE LOS S. THE CIT(APPEALS) CONFIRMED THE ORDER OF AO. AGAINST THIS, THE ASSES SEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE PURCHASED SHARES OF SHRE ENATH COMMERCIALS & FINANCIALS LTD. ALONG WITH OTHER SHARES AND THE LOS S WAS OF RS.60,96,500 ON THIS COUNT. ACCORDING TO THE AR, THE TRANSACTIO N WAS THROUGH NORMAL BANKING CHANNEL AND DEMAT ACCOUNT. IT WAS SUBMITT ED THAT SINCE THE AO HAD NOT DOUBTED THE GENUINENESS OF TRANSACTION AND HAS QUESTIONED THE TIMING OF THE TRANSACTION AND THE VALUE AT WHICH T HE TRANSACTION WAS UNDERTAKEN AND THE SAME CANNOT LEAD TO THE CONCLUSI ON THAT THE LOSS CLAIMED BY THE ASSESSEE IS FICTITIOUS. THE ASSESSE E HAS TAKEN A BUSINESS DECISION IN BUYING THE SHARES AND SELLING THE SHARE S DUE TO FALL IN PRICE OF THE SHARES. ACCORDING TO THE LD. AR, THE AO CANNOT SIT IN THE CHAIR OF BUSINESSMAN SO AS TO MAXIMIZE ITS PROFITS. THE EV IDENCE BROUGHT ON RECORD BY THE AO IS NOT ENOUGH TO HOLD THAT THE TRA NSACTION UNDERTAKEN BY THE ASSESSEE IS BOGUS OR FICTITIOUS SO AS TO CLAIM THE BUSINESS LOSS. 5. THE LD. AR SUBMITTED THAT IT WAS NOT ONE YEARS LOSS, FROM AY 2010- 11 TO 2013-14, THE ASSESSEE HAS BEEN INCURRING LOSS IN THE PURCHASE AND SALE OF SHARES AND THIS WAS NOT AN ISOLATED TRANSAC TION WHEREIN THE ASSESSEE CLAIMED THE LOSS IN DEALING IN SHARES. 6. THE CONTENTION OF THE LD. DR IS THAT THE EVIDENC E BROUGHT ON RECORD BY THE AO SHOWS THAT THE TRANSACTIONS BY THE ASSESS EE ARE AGAINST THE HUMAN PROBABILITY AND ARE NOT GENUINE PURCHASE AND SALE AND THOSE ARE ONLY ACCOMMODATION ENTRIES. HENCE THE LOSS CANNOT BE ALLOWED. 7. WE HAVE CAREFULLY GONE THROUGH THE CASE RECORDS. IN THIS CASE, THE SHARES OF SHREENATH COMMERCIALS & FINANCIALS LTD. W AS QUOTED AT RS.280 / ITA NO.1778/BANG/2018 PAGE 4 OF 7 SHARE IN JULY, 2012 WHICH QUICKLY ROSE TO AROUND RS .850 / SHARE DURING NOV. 2012 TO FEB. 2013 AND THE ASSESSEE HAS INVESTE D 69 LAKH SHARES IN THIS PARTICULAR COMPANY. SUCH SUDDEN RISE IN THE RATE IS NOT NORMAL. THE FINANCIAL RESULTS OF THE COMPANY SHOWS INCURRING OF LOSS CONTINUOUSLY AND IT WAS NOT ENCOURAGING TO INVEST SUCH A HUGE AMOUNT ON A SINGLE SCRIP. THUS, IT SHOWS THAT THE PRICE QUOTED FOR THE SHARES WAS N OT COMMENSURATE WITH THE FINANCIAL RESULTS OF THIS COMPANY. THE ASSESSE E PLACED ONLY ORAL ARGUMENTS THAT THE LOSS IS GENUINE WHICH IS NOT SUF FICIENT TO DISCHARGE THE BURDEN TO PROVE THAT THE PURCHASE AND SALE TRANSACT ION OF ASSESSEE WAS GENUINE. THE ONUS WAS ON THE ASSESSEE TO EXPLAIN T HE ASTRONOMICAL FALL IN THE PRICE OF THIS SCRIP PURCHASED BY THE ASSESSEE A ND THAT TOO WITHOUT ANY FINANCIAL RATIONALE. THE ASSESSEE FAILED TO DISCHA RGE THE ONUS IN THIS REGARD. EVEN IF WE TAKE INTO ACCOUNT THE ARGUMENT OF THE LD. AR THAT IN THE CAPITAL MARKET THE MOVEMENT IN THE PRICE OF SHARES IS NOT ALWAYS CONNECTED WITH THE FINANCIALS, IT WAS NOT POSSIBLE THAT PRIC E OF THESE SHARES PURCHASED BY THE ASSESSEE COULD GO TO FALL EVERY TIME. IT MA Y BE POSSIBLE THAT THE SCRIP PRICE MAY GO DOWN, BUT IT IS NOT POSSIBLE THA T THE PRICE OF THESE SHARES ALWAYS GO DOWN CONTINUOUSLY. THIS FEATURE OF THE T RANSACTION OF THE ASSESSEE ITSELF IS AGAINST THE HUMAN PROBABILITY. THE ASSESSEE HAS NOT DEMONSTRATED THE EARNING OF ANY PROFIT BY BUYING AN D SELLING OF THESE SHARES ON ANY OCCASION. NORMALLY IT WAS NOT POSSIB LE TO INCUR SUCH A HUGE LOSS FROM INVESTMENT IN SCRIPS PURCHASED BY THE ASS ESSEE UNLESS IT IS A MAKE BELIEVE STORY. THE CONTENTION OF THE LD. AR I S THAT IT IS A GENUINE TRANSACTION AND NO MOTIVES COULD BE ATTRIBUTED FOR INCURRING OF SUCH HUGE LOSS. ON THIS POINT, IT IS APPROPRIATE TO MENTION THE INVESTIGATION CONDUCTED BY THE INVESTIGATION WING OF THE DEPARTMENT. 8. AS PER THE INFORMATION MADE AVAILABLE ON ITS BY THE INVESTIGATION WING OF THE DEPARTMENT, VARIOUS SYNDICATES HAVE ARR ANGED ACCOMMODATION ENTRY OF BOGUS LONG TERM CAPITAL GAINS/ BOGUS SHORT TERM CAPITAL GAIN/ ITA NO.1778/BANG/2018 PAGE 5 OF 7 BOGUS SHORT TERM CAPITAL LOSS/BOGUS BUSINESS LOSS T HROUGH TRADING OF SHARES OF PENNY STOCKS. THE BASIC AIM OF THE SCHEME IS TO ROUTE THE UNACCOUNTED MONEY OF BENEFICIARIES INTO THEIR ACCOU NTS/BOOKS IN THE GUISE OF GAINS/LOSS. THE MODUS OPERANDI OF THE SCHEME IS THAT THE SHARES OF THE PENNY STOCK ARE ACQUIRED BY THE BENEFICIARY AT VERY LOW PRICES EITHER BY PREFERENTIAL ALLOTMENT, OFF MARKET TRANSACTION OR T HROUGH AMALGAMATION OR MERGER. IN CASE OF AMALGAMATION AND MERGER, THE BEN EFICIARIES ARE ALLOTTED THE SHARES OF A PRIVATE LIMITED COMPANY WHICH IS SU BSEQUENTLY AMALGAMATED WITH A PENNY STOCK COMPANY AND THE BENE FICIARIES RECEIVE SHARES OF THE LISTED PENNY STOCK IN EXCHANGE OF THE SHARES OF THE PVT. LTD COMPANY. M/S SHREENATH COMMERCIALS AND FINANCIALS LTD. IS ONE SUCH PENNY STOCK. IN VIEW OF THE INVESTIGATIONON DONE BY THE INVESTIGATION WING REGARDING THE PENNY STOCKS SYNDICATE AND THE A SSESSEE INDULGING IN TRADING IN PENNY STOCKS, THE MODUS OPERANDI IS THAT THE SHARE OF THIS PENNY STOCK COMPANIES ALTHOUGH LISTED ON EXCHANGE WAS ALW AYS CLOSELY HELD AND CONTROLLED BY THE PROMOTERS OF PENNY STOCK COMPANIE S AND THE OPERATORS SYNDICATE ARRANGE THESE BOGUS GAIN/LOSS. THIS IS DU E TO THE FACT THAT THE GENERAL PUBLIC IS NOT INTERESTED IN THE SHARES AS T HESE COMPANIES HAVE NO CREDENTIALS AND THIS HELPS THE OPERATOR TO KEEP A C ONTROL ON THE PRICE MOVEMENTS OF THE SHARES. ONCE THE PERIOD OF 1 YEAR HAS BEEN PASSED AND THE SHARES PRICES HAVE BEEN SUFFICIENTLY RIGGED, TH E BENEFICIARY SELL THEIR SHARE AT THE INFLATED PRICES THROUGH THE STOCK EXCH ANGE. HERE THE PURCHASE IS NOT MODE BY PUBLIC BUT BY THE BOGUS ENTITIES MAN AGED AND CONTROLLED BY THE PROMOTERS OF THE PENNY STOCK COMPANY OR THE OPE RATORS WHO ARE TO BE REFERRED TO AS EXIT PROVIDERS. ALL THESE ARE SHAM T RANSACTIONS. IT IS THEREFORE, REVEALED THAT LARGE SCALE RIGGING OF PRI CES OF THE ABOVE SCRIP HAS TAKEN PLACE AND IT IS ON THE WATCH LIST OF THE SEBI TRADE DATA. IN THIS REGARD, SUMMONS WAS ALSO ISSUED TO SRI BHARATH M JAIN, DIRE CTOR OF THE ASSESSEE COMPANY ON 14.12.2016, TO APPEAR BEFORE THE UNDERSI GNED AND A SWORN ITA NO.1778/BANG/2018 PAGE 6 OF 7 STATEMENT OF SRI BHARATH M. JAIN WAS RECORDED U/S 1 31 OF THE INCOME TAX ACT,1961 ON 16/12/2016. 9. THE LD. AR ALSO ADMITTED THE ABOVE FACT THAT SUC H DUBIOUS TRADINGS WERE RAMPANT DURING THE ASSESSMENT YEAR. HOWEVER, IT CANNOT LEAD TO THE CONCLUSION THAT THAT THE TRANSACTIONS OF THE ASSESS EE ARE NOT GENUINE. IT CANNOT BE ACCEPTED IN THE CIRCUMSTANCES OF THE CASE THAT ALL SCRIPS PURCHASED BY THE ASSESSEE SOLD AT ASTRONOMICAL LOSS WERE COMMENSURATE TO THE FINANCIALS OF THE COMPANY. THUS IT SHOWS TH AT IT WAS ONLY ACCOMMODATION ENTRIES WHICH IS IN OPERATION IN THE MARKET AND THE ASSESSEE IS NOT A GENUINE BUYER AND SELLER OF THE S HARES. IN OUR OPINION, THE ASSESSEE HAS NOT JUSTIFIED THE GENUINENESS OF T HE TRANSACTION. IT IS APPROPRIATE TO COME TO THE CONCLUSION THAT THE TRAN SACTIONS UNDERTAKEN BY THE ASSE IS FICTITIOUS TRANSACTIONS SO AS TO TAKE A DVANTAGE OF THE SALE. ACCORDINGLY, THE CIT(APPEALS) RIGHTLY CONFIRMED THE ADDITION WHICH REQUIRES NO INTEREFERENCE AND THE SAME IS UPHELD. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF JULY, 2021. SD/- SD/- ( N V VASUDEVAN ) ( CHANDRA POOJARI ) VICE PRESIDENT ACCOUNTANT MEMBER BANGALORE, DATED, THE 29 TH JULY, 2021. / DESAI S MURTHY / ITA NO.1778/BANG/2018 PAGE 7 OF 7 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.