Narendra Shrikishan Agrawal, Jalna V. Assistant Commissioner of Income-tax, Jalna Circle, Jalna

ITA 257/PUN/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5293 (ITAT-PUNE)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-08-2019
• Assessment Year: 2015-2016
• Appeal Filed On: 15-02-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JEEVAN BACHHAV
• Assessee Lawyers: ABHAY AGARWAL
• Keywords: Unexplained cash credit; Unexplained expenditure; Business income; Salary income; Opportunity of cross examination; Earning of tax free income; Question of law; Third party statement; Accommodation entries; TDS; Capital Gains
• Section: 142(1); 133A; 133(6); 143(2); 131; 68; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER . / ITA NO.257/PUN/2019 / ASSESSMENT YEAR : 2015-16 SHRI NARENDRA SHRIKISHAN AGRAWAL, SAGAR PARIDHAN, NEAR JINDAL SUPER MARKET, JALNA - 431203 PAN : AATPA5348Q ....... / APPELLANT / V/S. THE ASSISTANT COMMISSIONER OF INCOME TAX, JALNA CIRCLE, JALNA / RESPONDENT ASSESSEE BY : SHRI ABHAY AGARWAL REVENUE BY : SHRI JEEVAN BACHHAV / DATE OF HEARING : 15-10-2019 / DATE OF PRONOUNCEMENT : 05-11-2019 / ORDER PER S.S. VISWANETHRA RAVI, JM : THIS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 0 1-11-2018 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, AU RANGABAD [CIT(A)] FOR ASSESSMENT YEAR 2015-16. 2 ITA NO.257/PUN/2019, A.Y. 2015-16 2. THE ASSESSEE RAISED GROUND NOS. 1 TO 7 INVOLVING THE SAME ISSUE QUESTIONING THE ACTION OF CIT(A) IN CONFIRMING THE ADDITION MA DE BY THE ASSESSING OFFICER ON ACCOUNT OF LONG TERM CAPITAL GAIN IN TH E FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS AS EMANATING FROM THE RECORD ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND ALSO A DIRECTOR IN M/S. SAGAR PARIDHAN PVT . LTD. THE ASSESSEE FILED ITS RETURN OF INCOME ON 31-03-2017 DECLARING TOTAL INCOME OF RS.18,90,300/- AND HAS SHOWN INCOME FROM PROFESSIONAL FEE, H OUSE PROPERTY, BUSINESS INCOME, CAPITAL GAIN AND INCOME FROM OTH ER SOURCES. NOTICES U/S. 143(2) AND 142(1) WERE ISSUED. IN RESPONSE T O WHICH, AUTHORIZED REPRESENTATIVE APPEARED ON BEHALF OF THE ASSE SSEE IN THE ASSESSMENT PROCEEDINGS. 4. IN THE ASSESSMENT PROCEEDINGS, IT IS NOTED, WHILE DEALIN G WITH THE ISSUE RELATING TO CAPITAL GAIN, THE ASSESSING OFFICER FOUND THA T THE ASSESSEE PURCHASED 25,000 SHARES OF LIFELINE DRUGS AND PH ARMA LIMITED FOR SHORT HEREAFTER AS LD&PL FOR RS.15,00,000/- AND AFTER CONVERSION THE SAME WERE BECOME 2,50,000 SHARES, OUT OF WHICH 43,000 SHA RES WERE SOLD WHICH RESULTED CAPITAL GAIN OF RS.1,04,02,303/-. ACCORDING TO ASSESSING OFFICER THE LONG TERM CAPITAL GAIN AS CLAIMED BY THE ASSESS EE IS NOT NATURAL AND IT IS AN ARRANGED ONE. TO ELICIT TRUTH, THE A SSESSING OFFICER CONDUCTED VERIFICATION OF ACTIVITIES OF LD&PL BY VISITING ITS WEBSITE. 5. FURTHER, THE AO EXAMINED SUMMARY OF FINANCIALS OF LD&PL AND OBSERVED THAT THE TOTAL NUMBER OF PAID SHARES WAS INCRE ASED BY 151 TIMES 3 ITA NO.257/PUN/2019, A.Y. 2015-16 AND THERE WAS NO MATERIAL CORPORATE INVESTMENT TO SUPP ORT PRICE RISE OF ITS SCRIP. ON EXAMINATION OF TRADING FREQUENCY HE WAS OF THE OPINION THAT THE TRANSACTIONS WERE CONDUCTED IN A CIRCULAR FASHION INVOLVING THE TRADE FREQUENCY, VOLUME GENERATION, CONTRIBUTION TO PRICE RISE AND BUYING BEHAVIORS AND NO DEMAND FOR THE SHARES OF LD&PL WHICH IS A LITTLE KNOWN TRADING COMPANY DURING 2011-12 AND PRICE RISE GAINED ONL Y DURING 2013- 14 AND HELD NO JUSTIFICATION FOR SUCH PRICE RISE. 6. REGARDING THE ASSESSEE, THE AO HELD THAT THERE WAS N O SUBSTANTIAL ACTIVITY NOR ANY INVESTMENT IN SHARES DURING THE PREVIOUS YEAR RECORDS, THEREBY, THE AO DOUBTED THE INVESTMENT ACTIVITY OF ASSES SEE IN PURCHASING 25,000 SHARES OF LD&PL FOR RS.15,00,000/- , WAS OF THE OPINION THAT THE PURCHASE OF SHARES OF LD&PL IS A PREDETERMINED ACTION TO BOOK LONG TERM CAPITAL GAIN BY WAY OF DUBIOUS METHODS WITH A SPECIFIC INTENT ION, HELD THE LONG TERM CAPITAL GAIN SHOWN BY THE ASSESSEE IS NOT GENUINE. 7. REGARDING THE PATTERN OF TRANSACTIONS, HE OBSERVED TH AT THE SUSPECTED ENTITIES LINKED TO LD&PL CREATED THE DEMAND AGAINST THE SUPPLY FROM THE PREFERENTIAL ALLOTTEES AND PROVIDED HUGE PROFITABLE EXIT TO THE ALLOTTEES. THE BUYERS ARE RELATED/CONNECTED ENTITIES OF P REFERENTIAL ALLOTTEES. THE PREFERENTIAL ALLOTTEES, LD&PL AND SUSPECTED ENTITIES WERE HAND IN GLOVE TO LAUNDER BLACK MONEY AND RAKING IN TAX FRE E PROFITS. THE AO, THEREBY, TREATED THE SAID AMOUNT OF RS.1,04,03,303/- AS UNEXPLAINED CASH CREDIT AND ADDED THE SAME U/S. 68 OF THE ACT. TH E CIT(A) IN FIRST APPELLATE PROCEEDINGS HELD THE CAPITAL GAIN WAS MANIPULATE D AND THE 4 ITA NO.257/PUN/2019, A.Y. 2015-16 CLAIM OF ASSESSEE U/S. 10(38) OF THE ACT IS BOGUS AND CONFIR MED THE VIEW OF THE AO IN ADDING THE IMPUGNED AMOUNT U/S. 68 OF THE ACT. 8. BEFORE US, SHRI ABHAY AGARWAL, THE LD. AR SUBMITS THAT TH E ASSESSING OFFICER MERELY BASED ON THE PRESUMPTIONS, SUSPIC ION AND SURMISES TREATED THE CAPITAL GAINS FROM SALE OF LISTED EQUITY SHARE AS NON- GENUINE AND DENIED THE CLAIM OF EXEMPTION U/S. 10(38) OF THE ACT. HE SUBMITS THAT THE LD&PL IS A PUBLIC LIMITED COMPANY LISTED WITH BOMBAY STOCK EXCHANGE AND REGULARLY COMPLYING WITH THE EXCHAN GE PROCEDURE. HE SUBMITS THAT ALL THE DOCUMENTATION AND FORMALITIES REGARDING ALLOTMENT OF SHARES WERE DULY FURNISHED IN THE ASSESSMENT PROCEEDING S AND THE AO HAS NOT DOUBTED THE PURCHASE OF THE SHARES WHICH WERE SUP PORTED BY DOCUMENTARY EVIDENCES. THE SAID SHARES WERE SOLD ON ST OCK EXCHANGE THROUGH REGISTERED STOCK BROKER ADINATH STOCK BROKING PVT. LTD. AND ALL DOCUMENTS RELEVANT TO THE SAID TRANSACTIONS WERE FILED B EFORE AO AS WELL AS CIT(A) TO SUBSTANTIATE THE GENUINENESS OF PURCHASE AND S ALE OF SHARES OF LD&PL . THE LD. AR SUBMITS THAT THE SHARE TRANSACTIONS ENTERE D BY THE ASSESSEE ARE GENUINE, SUPPORTED BY DOCUMENTARY EVIDENC ES, GIVING RISE TO CAPITAL GAINS. THE THIRD PARTY STATEMENTS HAD NO RELEVAN CE AS THERE WAS NO REFERENCE TO THE ASSESSEE OR ITS TRANSACTIONS IN SAID STATEMENTS. THE AO COULD NOT DEMONSTRATE AS TO HOW THE ASSESSEE HAD ANY NEXUS WITH ANY OF THE ALLEGED SHARE BROKERS AND PURCHASERS. THE ASSESSE E DOES NOT KNOW ANY SUCH PERSONS OR ENTITIES, THE STATEMENTS AND REFERE NCES MADE BY SUCH PERSONS OR ENTITIES WERE GENERAL IN NATURE AND DID NOT H AVE ANY REFERENCE OR NEXUS TO THE ASSESSEE. HE SUBMITS THAT THERE ARE MANY FACTORS HAVING IMPACT ON THE PRICE OF SHARE LISTED IN STOCK EXCHANGE AND THE SAID LD&PL 5 ITA NO.257/PUN/2019, A.Y. 2015-16 HAD SHARE CAPITAL AND RESERVES OF RS.21.27 CROERS AS ON 31-03-2014 AND HAD SHOWN REVENUE OF RS.40.85 CRORES DURING F.Y. 2013-14. THE ASSESSEE HAD NOTHING TO DO WITH THE ALLEGED MODUS OPERANDI AS DISC USSED BY THE ASSESSING OFFICER AND IT HAD NO CONNECTION WITH THE PERSON S OR ENTITIES MENTIONED BY THE KOLKATA INVESTIGATION WING. THE ASSESSE E DID NOT KNOW AND HAD NOT DEALT WITH ANY OF THE PERSONS AND ENTITIES A LLEGED TO BE INVOLVED IN THE ABOVE SAID MODUS OPERANDI. 9. SHRI ABHAY AGARWAL, FURTHER SUBMITS THAT THE ASSESSEE DOES NOT KNOW THE BUYER OF THE SHARES SOLD BY THE ASSESSEE AND DOES NOT KNOW THE ENTITY BY NAME DIVYADRISHTRI TRADERS PVT. LTD. FOR SHORT HEREAFTER AS DTPL AND NEITHER HAVE ENTERED INTO ANY TRANSACTIONS WITH IT N OR WITH GATEWAY FINANCIAL SERVICES LTD FOR SHORT HEREAFTER AS GFSL . 10. FURTHER, SHRI ABHAY AGARWAL, THE LD. AR REFERRED TO PAP ER BOOK-II (LEGAL) HAS PLACED RELIANCE ON THE ORDERS OF ITAT, KOLKATA A ND DELHI BENCHES IN THE CASES OF SHRI NARENDRA KUMAR SAROGI AND SMT. RADHIKA GARG REPORTED IN 55 CCH 2, RESPECTIVELY. HE SUBMITS THA T BOTH THE CO- ORDINATE BENCHES DEALT WITH THE ISSUE RELATING TO LD&PL AND DELETED THE ADDITIONS MADE BY AO ON ACCOUNT OF CAPITAL GAINS AND ARGU ED THE FINDING RENDERED BY THE SAID CO-ORDINATE BENCHES IS VERY MUCH APPLICABLE TO THE FACTS AND CIRCUMSTANCES TO THE PRESENT CASE. 11. IN REPLY, SHRI JEEVAN BACHHAV, THE LD. DR SUBMITS THA T THE ASSESSEE MADE INVESTMENTS IN A PRIVATE PLACEMENT AND REFERRED TO PROFIT AND LOSS ACCOUNTS OF LD&PL AT PAGE 20 OF THE PAPER BOOK AND SUBMITS THAT THERE WAS NO REVENUE ON BUSINESS OPERATION FOR FINANCIAL YEAR EN DING ON 6 ITA NO.257/PUN/2019, A.Y. 2015-16 31-03-2012 AND 31-03-2013. FURTHER, HE REFERRED TO PA GE NO. 26 AND SUBMITS THE LD&PL HAS SHOWN REVENUE FROM BUSINESS OPERATION OF RS.40,07,78,249/- FOR THE FINANCIAL YEAR ENDING ON 31-03-201 4, BUT DID NOT SHOW ANY EXPENDITURE RELATING TO EARNING OF THE SAID REVENUE. FURTHER, REFERRED TO PAGE NO. 31 THE SAID LD&PL HAS SHOWN MAJOR EXPENSES INVOLVING LEGAL AND PROFESSIONAL FEES AND OFFICE RENT ONLY AND NO EXPENDITURE INVOLVING SALARIES, TRANSPORTATION ETC. WERE SHO WN AS IT STATED TO HAVE BEEN INVOLVED IN THE BUSINESS OF TEXTILES. 12. FURTHER, HE REFERRED TO PAGE NO. 39 OF THE PAPER BO OK AND SUBMITS THAT THE DIVIDEND AS DECLARED BY THE SAID LD&PL IS VERY NEGLIGIBLE AND THE AO AND CIT(A) RIGHTLY DOUBTED THE TRANSACTIONS BETWEEN THE ASSESSEE AND LD&PL AS INGENUINE. FURTHER REFERRED TO PAGE NO. 9 OF THE AO S ORDER AT MIDDLE TABULAR FORM AND SUBMITTED THAT THE LD&PL HAS DECLARED ONLY PROFIT AFTER TAX FOR RS.0.01 CRORE FOR F.Y. 2010-11, RS 0.03 CRORE FOR F.Y. 2011-12, RS.0.14 CRORE FOR F.Y. 2012-13 AND RS 0.65 CROR E FOR F.Y. 2013- 14 AND ARGUED THAT THERE IS NO CREDIBILITY BETWEEN THE TRANSACTIONS OF ASSESSEE PURCHASING SHARES OF LD&PL AT LOW PRICE, BOOKING CAPITAL GAIN THEREON BY SELLING THE SAME SHARES AT EXORBITANT PRICE. FOR ANALYSIS OF CASH TRAIL, HE REFERRED TO PAGES 20 AND 21 OF THE AOS ORDER AND SUBMITTED THE CASH DEPOSITS WERE CREDITED TO THE ACCOUNT OF DTPL THE BUYER OF SHARES OF ASSESSEE AND THE SAME WERE TRANSFERRED TO KORP SEC URITIES LTD FOR SHORT HEREAFTER AS KORP SL . THE SAID KORP SL HAS BEEN MANAGED BY ANUJ AGARWAL AND SUBMITTED THE SAID ANUJ AGARWAL WHILE GIVING RE PLY TO Q. NO. 14 TO THE DDIT (INV.), KOLKATA ADMITTED THAT THE DTPL IS BEING CONTROLLED AND MANAGED BY KORP SL . 7 ITA NO.257/PUN/2019, A.Y. 2015-16 13. FURTHER, SHRI JEEVAN BACHHAV, THE LD. DR REFERRED TO Q . NOS. 15 AND 17 AND SUBMITTED THAT LD&PL IS A PAPER COMPANY WHICH PROVIDES ACCOMMODATION ENTRIES, REFERRING TO ANSWER TO Q. NO. 27 AN D SUBMITTED THAT THE MR.ANUJ AGARWAL ADMITTED THAT ALL THE COMPANIES MENTIONED THEREIN WERE USING THE SAME ADDRESS AS THEIR REGISTERED OFFICE AND NO BOOKS OF ACCOUNT ARE MAINTAINED. FURTHER, HE SUBMITS THAT SHRI SOUMEN CHOUDHARY AN EMPLOYEE OF GFSL IN RESPONSE TO Q. NO. 7 REPLIED THAT GFSL PROVIDE CAPITAL GAINS/LOSS ENTRIES TO VARIOUS ENTITIES THORO UGH DIFFERENT JAMAKARCHI COMPANIES AND THE LD&PL IS ONE OF THE MAJOR SCRIP DEALT BY THE GFSL FOR BOGUS LONG TERM CAPITAL GAIN PURPOSE. THE LD. DR PLAC ED RELIANCE ON THE ORDERS OF CO-ORDINATE BENCHES OF PUNE AN D DELHI TRIBUNAL IN THE CASES OF RAJKUMAR B. AGARWAL VS. DCIT IN ITA NOS . 1648 & 1649/PUN/2015 FOR A.YS. 2005-06 AND 2006-07 AND SHRI DA NDEEP BHARGAVA VS. ACIT IN ITA NO. 420/DEL/2019 FOR A.Y. 2015-16 RESPECTIVE LY. 14. HEARD BOTH PARTIES AND PERUSED THE MATERIALS AVAILAB LE ON RECORD. WE NOTE THAT THE ASSESSING OFFICER DOUBTED THE CREDIBILITY OF LD&PL AND ITS OPERATIONS AND HOW THE ASSESSEE WOULD MAKE SUCH A HUGE INVESTMENT IN LD&PL WHICH IS NOT A LARGE CAP OR MID CAP SCRIP IN CONVENTIONA L MARKET SENSE, WAS OF THE OPINION THAT THE PURCHASE OF SHARES OF LD&PL BY THE ASSESSEE IS A PREDETERMINED ACTION WITH SPECIFIC INTENTION T O BOOK CAPITAL GAIN BY DUBIOUS METHOD. HE CONDUCTED DETAILED ENQUIRY BY VISITING WEBSITE OF LD&PL, PATTERN FOLLOWED BY THE ASSESSEE IN PURCHASING AND SALE OF SHARES, FINANCIAL OF LD&PL, INVESTIGATION REPORT OF DDIT, KOLKATA CONTAINING STATEMENTS OF CONCERNED PERSONS WHO CONTROLLE D AND MANAGED 8 ITA NO.257/PUN/2019, A.Y. 2015-16 JAMAKARCHI COMPANIES AND THEIR MODES OPERANDI, HELD SUC H CAPITAL GAIN SHOWN BY THE ASSESSEE IS NOT GENUINE. 15. LET US EXAMINE THE SEQUENCE OF EVENTS WHICH LED TO THE DENIAL EXEMPTION U/SEC 10(38) OF THE ACT. WE FIND FROM THE SUBMIS SIONS OF SHRI ABHAY AGARWAL, LD. AR, THE TRANSACTIONS ARE AS UNDER : DATE PARTICULARS 29 - 11 - 2012 ASSESSEE PURCHASED 25,000 SHARES FOR A CONSIDERATION OF RS.15,00,000/- 29 - 12 - 2012 THE SAME HAS BEEN CREDITED IN TO DEMAT ACCOUNT OF ASSESSEE. 19 - 11 - 2013 CONVERSIONS TOOK PLACE AS EACH SHARE OF RS.10/ - SPLIT IN TO SHARE OF RE.1/- EACH AND ACCORDINGLY 25,000 SHARES WERE BECOME RS.2,50,000/-. 10 - 06 - 2014 ASSESSEE SOLD 21,000 SHARES. 11 - 06 - 2014 2,000 SHARES SOLD AT RS . 248/ - EACH 23 - 06 - 2014 10,000 SHARES SOLD AT RS . 250/ - EACH 19 - 01 - 2015 10,000 SHARES SOLD AT RS . 248.8/ - EACH 16. WE NOTE THAT THE ASSESSEE PURCHASED THE ABOVE SA ID SCRIP OF LD&PL THROUGH PREFERENTIAL ALLOTMENT FOR RS.60/- PER SHARE. THE FAC E VALUE OF EACH SHARE AT THE TIME OF PURCHASE WAS RS.10/- AND THE ASS ESSEE PAID PREMIUM @ RS.50/- FOR EACH SHARE TO COSTING RS.60/- PER SHARE A ND ADMITTEDLY THE VALUE OF EACH SHARE IN BOMBAY STOCK EXCHANGE WAS AROUN D RS.2.13/- AND SOLD ON AN AVERAGE OF RS.248/- PER SHARE AND BOOKED PR OFIT OF RS.1,04,03,303/- UNDER CAPITAL GAIN. 9 ITA NO.257/PUN/2019, A.Y. 2015-16 17. IT IS SEEN THAT THE SCHEME ADOPTED BY THE RELATED PARTIES I.E ASSESSEE THE BENEFICIARY, LD&PL A PAPER COMPNAY , DTPL IS EXIT PROVIDER , KORP SL AND GFSL THE BROKERS, THE SHARES WERE ALLOTTED ON PREFERENTIAL TE RMS TO THE ENTITIES CONNECTED AND RELATED DIRECTLY TO LD&PL . THERE IS NO DISPUTE PERIOD IN WHICH THE PRICES OF LD&PL DURING THE PERIOD JANUARY, 2011 TO 2013 TRADING BETWEEN RS.0.80 PER SHARE TO RS.0.85/- PER SHARE AND IN OCTOBER, 2014 THE PRICES WENT UP TO BETWEEN RS.280/- T O RS.290/-. IT IS NEEDLESS TO SAY THE APPRECIATION IS ABOUT 350 TIMES. WE NOTE THAT THE ASSESSING OFFICER EXAMINED THE FINANCIALS OF LD&PL AND AS RIGHTLY POINTED OUT BY THE LD. DR, THE PROFIT OF LOSS ACCOUNT AS ON 31-03 -2013 WHICH IS AT PAGE 20 CLEARLY SHOWS THAT LD&PL NO REVENUE WAS SHOWN FROM BUSINESS OPERATION. THEREFORE, IT IS CLEAR WHEN THE ASSESSEE GOT S HARES OF LD&PL ON PREFERENTIAL BASIS, THERE WAS NO BUSINESS ACTIVITY OF LD&PL AS CLEARLY EVIDENT FROM THE PROFIT AND LOSS ACCOUNT AS DISCUSSED ABO VE, IN SPITE OF WHICH PURCHASE OF SHARES OF SAID ENTITY SUPPORTS THE VIEW OF AO AND CIT-A THAT IT IS A PREDETERMINED ACTION WITH A SPECIFIC INTENTION T O DERIVE LONG TERM CAPITAL GAIN BY DUBIOUS METHOD. ACCORDINGLY, WE HOLD THE SAME. 18. FURTHER, TO SUPPORT THE ABOVE VIEW, WE NOTE THAT IN TABULAR FORM IN PAGE 9 OF THE AOS ORDER WHEREIN THE SHARE VALUE FOR F.Y S. 2010-11, 2011- 12 AND 2012-13 IS ONLY RS.2.40 LAKHS, RS.2.40 LAKHS AND RS.3 0.70 LAKHS, RESPECTIVELY. THE SHARES OF LD&PL WERE NOT IN DEMAND DURING F.YS. 2010- 11, 2011-12 AND 2012-13, BUT HOWEVER THE TRADING SUDDE NLY WENT UP BETWEEN 2013-14, THE PAID UP SHARES INCREASED BY MANY TIMES TO RS.362.40 LAKHS. IT MEANS TO SAY THAT IN SPITE OF HAVING NO REVENUE FROM BUSINESS OPERATIONS THE ASSESSEE PREFERRED TO MAKE HUG E INVESTMENT IN 10 ITA NO.257/PUN/2019, A.Y. 2015-16 LD&PL WHICH HAS A POOR FINANCIALS, HAVING NO MAJOR CORPORATE ANNOUNCEMENT, THIS COULD ONLY BE POSSIBLE THAT THE SUSPE CTED ENTITIES AND ITS PROMOTERS SUCH AS ASSESSEE THE BENEFICIARY, PAPER CO MPANY LIKE LD&PL, EXIT PROVIDER DTPL, THE BROKERS KORP SL AND GFSL WERE HAND IN GLOVE WITH EACH OTHER, IN OUR OPINION, IS A PREDETERMIN ED INTENTION DESIGNED AND DEVISED TO DECEIVE THE AUTHORITIES BY LAUNDE RING BLACK MONEY AND RAKING IN TAX FREE PROFITS. 19. IN THIS REGARD THE AO BROUGHT NOT ON RECORD THE IN VESTIGATION CONDUCTED COUNTY WIDE BY THE DDIT, (INV) KOLKATA TO UNE ARTH THE ORGANIZED RACKET OF GENERATION OF BOGUS ENTRIES OF LONG TERM CAPITAL GAIN. IT IS NOTED THAT THE OPERATORS IS TO MAKE THE BENEFICIARY BUY SHARE S OF A PREDETERMINED PENNY SOCK COMPANY CONTROLLED BY THEM. T HE INITIAL TRANSFER OF SHARES IN THE NAME OF BENEFICIARY CAN BE AN OFF MARKET TRANSACTION OR ONLINE TRANSACTION. THEREAFTER, THE ISSUE O F PREFERENTIAL SHARES AT NOMINAL RATES OR ISSUE OF BONUS SHARES EVEN T HOUGH THERE IS HARDLY ANY PROFIT OR BUSINESS ACTIVITY IN THE SAID COMPANIE S. THE BENEFICIARY HOLDS THE SHARES FOR ONE YEAR AND THEREAFTER THE OPERATORS RIG THE PRICE OF THE STOCK UP TO 500 TO 1000 TIMES. THIS PR ACTICE IS EFFECTED THROUGH LOW VOLUME TRANSACTION INDULGED IN BY THE DUMMIES OF THE OPERATOR AT A PREDETERMINED PRICE AND WHEN IT REACHES THE DESIRED LEVEL THE BENEFICIARY WHO BOUGHT THE SHARES AT A NOMINAL PRICE IS MA DE TO SELL IT TO A DUMMY PAPER COMPANY OF THE OPERATOR. FOR THIS UNACCOU NTED CASH THROUGH A FEW LAYERS OF PAPER COMPANIES BY THE OPERATO R AND FINALLY IS PARKED WITH THE DUMMY PAPER COMPANY THAT WILL BUY THE S HARES. IT MEANS TO SAY THAT BY APPLYING THE ABOVE SAID SCHEME OF METHO D TO THE PRESENT 11 ITA NO.257/PUN/2019, A.Y. 2015-16 CASE THAT THE ASSESSEE IS A BENEFICIARY WHO HAS BEEN ISS UED PREFERENTIAL SHARES OF LD&PL THOUGH THERE IS NO PROFIT BUSINESS ACTIVITY OF THE SAID COMPANY. 20. THE ASSESSEE BENEFICIARY HELD THE PREFERENTIAL SHARES FROM 29-11-2012 TO 19-11-2013 IN WHICH YEAR THE 25,000 SHAR ES HAVE BECOME RS.2,50,000/- SHARES BY CONVERSION AND STARTED SELLING THE SAID SHARES FROM 10-06-2014 TO A DUMMY PAPER COMPANY OF THE OPERA TOR AND ASSESSEE THE BENEFICIARY PROVIDED UNACCOUNTED CASH BY MANY LAYERS TO THE OPERATORS. TO PROVE ABOVE SCHEME OF METHOD, SHRI JEEV AN BACHHAV, THE LD. DR BROUGHT OUR ATTENTION TO PAGE NO. 19 OF THE ASSESSIN G OFFICERS ORDER AND SUBMITTED THAT THE PAPER COMPANY THE DTPL IS THE BUYER OF SHARES OF ASSESSEE WHICH WERE TRANSFERRED TO KORP SL WHICH IS MANAGED BY ANUJ AGARWAL. 21. IN THIS REGARD WE NOTE THAT THE DDIT, KOLKATA INVE STIGATION WING RECORDED STATEMENT OF MR. SOUMEN CHOUDHARY REPRESENTIN G THE GFSL IN REPLY TO Q. NO. 7 AT PAGE 32 OF AOS ORDER HE CLEARLY E XPLAINED THE MODE OF METHOD SHARE BROKING ACTIVITY. HE STATED THAT HE IS AN EMPLOYEE OF M/S. GATEWAY FINANCIAL SERVICES, THE GFSL WHICH IS ENGAGED IN THE BUSINESS OF SHARE BROKING THROUGH THE BOMBAY STOCK EXCHANGE PLATFO RM. IT IS ACTIVE IN THE EQUITY SEGMENT. THE FIRM BUYS AND SELL SHARES FOR CLIE NT UPON REQUEST WITH FULL ADHERENCE TO PAY IN AND PAY OUT OF SHARES AND FU NDS AND MAINTAINING SEBI NORMS. THE FIRM IS ALSO ENGAGED IN PROVIDIN G LONG TERM CAPITAL GAINS/LOSS ENTRY THROUGH TRADING OF DIFFERENT SCRIPS BY DIFFERENT 12 ITA NO.257/PUN/2019, A.Y. 2015-16 JAMAKHARCHI COMPANIES AND EARN BROKERAGE/COMMISSION PAR TLY IN CASH AND PARTLY IN CHEQUE AND IT IS REGISTERED OFFICE IS AT KOLKATA. 22. IN REPLY TO Q. NO. 8 AT PAGE 32 OF AOS ORDER HE ANSWERED THAT HE DEALT MAJOR SCRIPS OF 40 JAMAKARCHI COMPANIES. THE RATES OF ALL THE SCRIPS WERE EITHER ARTIFICIALLY RAISED OR LOWERED THROUGH MANIPULATIVE TRANSA CTIONS, WHEREIN WE FIND THE NAME OF LD&PL AT SERIAL NO: 25 HAVING CLIENT CODE OF 506113. FURTHER, IN REPLY TO QUESTION NO.9 THAT SOUMEN CHOUDH URY STATED THAT ALL THE CLIENTS LISTED THEREIN IN PAGE 33 OF THE A.O. AR E JAMAKHARCHI COMPANIES AND ENGAGED IN TRADING IN SCRIPS FOR CLIENTS AS P ER THEIR INSTRUCTION AND ALL THE SAID TRANSACTIONS ARE BOGUS INVOLVIN G MANIPULATION OF SCRIPS. FURTHER, TO THE REPLY IN QUESTION NO.12, HE S TATED THAT SHRI PRAVEEN KUMAR AGRAWAL IS THE DIRECTOR OF GFSL . FURTHER, IN ANSWERING THE QUESTION NO.18, AT PAGE NO.36 OF A.O. WHEREIN HE NARRATED T HE SEQUENCE OF MODUS OPERANDI INVOLVED IN THIS BOGUS TRANSACTIONS. FOR BETTER UNDERSTANDING THE SAME IS REPRODUCED HEREIN BELOW :- Q.18 IT IS EXPLAINED THE MODUS OPERAND OF LONG TERM C APITAL GAIN/LOSS ENTRY PROVIDED TO THE BENEFICIARIES. A. THE LONG TERM (LT) ENTRY BENEFICIARY APPROACHES AN E NTRY OPERATORWHO IS HAVING A LISTED COPANY THROUGH SOME AGENT/MEDIATOR ARE DIRECTLY. BENEFICIARY THEN ON THE INSTRUCTION OF ENTRY OPERATOR BUYES THE SHARES OF A LISTED PAPER COMPANY (GENERALLY NOT DOING ANY BUSINESS OR WITH A MINISCULE BUSINESS ACTIVI TY) AT A VERY LOW PRICE. THE SHARE PRICE OF THE LISTED COMPANY ARE THEN JACKED UP T O A DESIRED LEVEL WITH THE CONCERTED AND REGULAR BUYING AND SELLING OF THE SHARES B Y THE OTHER DUMMY PERSONS OR OTHER PAPER COMPANIES/HUF (GENRALLY CONTROLLED AND MANAG ED BY SAME ENTRY OPERATOR). SOMETIMES A CARTAL IS FORMED BY VARIOUS EN TRY OPERATORS FOR JACKING UP THE PRICE OF THE SHARES AND THUS PAPER COMPANIES OF VARIOU S ENTRY OPERATORS ARE USED FOR BUYING AND SELLING OF SHARES AND RAISING THE PRICE OF SHAR ES TO A DESIRE LEVEL. WHEN FINALLY THE SHARES HELD BY THE BENEFICIARY OF THE LISTED C OMPANY REACHED THE DESIRED LEVEL/PRICE THEN THE BENEFICIARY IS INTIMATED BY THE OPER ATOR OR AN AGENT OF THE OPERATOR TO PROVIDE CASH WHICH CAN BE ROUTED TO SOME OTHER JAM AKHARCHI COMPANY/ENTITY TO BUY THESE SHARES FROM THE BENEFICIARY. THE CASH RECEIVED FROM THE BENEFICIARY IS THEN HAND OVER TO THE OPERATOR THROUGH AGENTS ARE DIRECTLY. T HE ENTRY OPERATOR THEN ROUTS AND LAYERS BACK THIS CASH SO RECEIVED INTO VARIOUS PAPER EN TITIES THAT ARE CONTROLLED AND MANAGED BY HIM. THIS PAPER ENTITIES THAT HAVE RECEIVED LAYERED MONEY ARE THEN USED AS DUMMY BUYERS (COUNTER PARTIES) FOR BUYING THE RIGGED /ARTIFICIALLY JACKED UP SHARES FROM THE BENEFICIARY. WHEN THE BUYERS (COUNTER PARTIE S) ARE READY, THEN THE ENTRY OPERATOR INTIMATES THE BENEFICIARY TO SELL SPECIFIC NUMB ER OF SHARES AT A SPECIFIC PRICE AND A SPECIFIC TIME. THIS ENSURES THAT THE SHARES OF ONLY THE BENEFICIARY AS DIRECTED BY 13 ITA NO.257/PUN/2019, A.Y. 2015-16 THE OPERATOR ARE BOUGHT THROUGH THE DUMMY BUYER. T HE TRANSACTIONS TAKES PLACE THROUGH STOCK EXCHANGE AND BROKERS AND SOME NOMINAL C OMMISSION IS CHARGED IN CASH ON THE NET PRE-ARRAGNEGED BOGUS CAPITAL GAIN ACCRUING TO THE BENEFICIARY. THIS PRE- ARRANGED BOGUS CAPITAL GAIN INCOME SO EARNED THROUGH RIGGING OF SHARES IS CLAIMED AS EXEMPT IN THE BOOKS OF THE BENEFICIARY. 23. ON PERUSAL OF THE ABOVE, WE NOTE THAT THE MODUS OP ERANDI BETWEEN THE BENEFICIARY, EXIST PROVIDER AND STOCK BROKERS CLEARLY VISIBLE TO BOOK LONG TERM CAPITAL GAIN/LOSS WITH SPECIFIC INTENTION TO LAUNDER THE BLACK MON EY IN ORDER TO EVADE TAX THROUGH THIS JAMAKHARCHI COMPANIES WHICH CREATED FOR THE PURPOSE OF ABOVE SAID SPECIFIC INTENTION, MANAGED AND C ONTROLLED BY SAME PERSONS, HAVING OFFICES AT THE SAME PREMISES IS CLEAR LY PROVED TO SUPPORT THE FINDING OF BOTH AUTHORITIES BELOW. 24. COMING TO THE STATEMENT OF PAWAN KUMAR KAYAN AT P AGE NO.39 OF A.O., WHO IS MANAGING DIRECTOR OF M/S PKC COMMODITIES LTD. A ND M/S. SHUB STOCK BROKING PVT. LTD. WHEREIN HE CATEGORICALLY ADM ITTED THAT HE IS INVOLVED IN PROVIDING BOGUS LONG TERM CAPITAL GAIN/SHORT TER M CAPITAL LOSS TO HIS CLIENTS FOR WHICH HE GET COMMISSION IN CASH AT THE RATE OF 0.25%. IN REPLY TO THE QUESTION NO.5, HE CLEARLY SAID THAT HE ALONG WITH HIS WIFE HAVE BOOKED BOGUS LTCG IN THE PENNY STOCK OF LD&PL WHICH IS MANAGED AND CONTROLLED BY SHRI MANISH BAID. WE FIND THAT THE STATEMENT OF PAWAN KUMAR KAYAN ESTABLISHES THE PRICE HIKE OF SHARES OF LD&PL CREATED FOR THE PURPOSE OF GIVING BOGUS LTCG FOR INTERESTED BENEFICIARIES. 25. REGARDING THE STATEMENT OF SHRI ANUJ AGRAWAL WHO IS A STOCK BROKER AND IS A DIRECTOR/PARTNER/PROPRIETOR/SUBSTANTIAL SHAREHO LDER IN KORP SL , ASTERIODS INFRA LLP AND SILKY MOON INFRA LLP. IN REPLY T O THE QUESTION NO.14, WHICH IS AT PAGE NO.45 OF A.O.S ORDER THAT HE CLEARL Y STATED NAMES 14 ITA NO.257/PUN/2019, A.Y. 2015-16 OF SEVEN (7) COMPANIES WHICH ARE PAPER COMPANIES CONTRO LLED AND MANAGED BY HIM AND WE FIND DTPL IS A ONE SUCH COMPANY AMONGST THE SEVEN (7) COMPANIES STATED BY HIM WHICH CLEARLY PROVES THAT THE DTPL IS A PAPER COMPANY WHEREIN WE ALREADY DISCUSSED THE ROLE OF THE SAID COMPANY IN THE AFOREMENTIONED PARAGRAPHS WHEREIN THE SAID COMPANY PURC HASED SHARES FROM ASSESSEE THE BENEFICIARY AND TRANSFERRED TO KORP SL A STOCK BROKER MANAGED BY SHRI ANUJ AGRAWAL. WE FIND THAT THE STATEM ENT OF SHRI ANUJ AGRAWAL AND THE VIEW OF BOTH THE AUTHORITIES BELOW THAT THE ASSESSEE BENEFICIARY, THE DTPL THE EXIST PROVIDER AND KORP SL ARE CONNIVED TO BOOK BOGUS LONG TERM CAPITAL GAIN/LOSS BY DUBIOUS METHOD. FURTHER, IN REPLY TO QUESTION NO.13, HE STATED AS UNDER :- Q.13 PLEASE STATE THE NATURE OF BUSINESS ACTIVITY BEIN G CARRIED OUT THE COMPANIES MENTIONED ABOVE. ANS. SIR KORP SECURITY LIMITED IS A SHARE TRADING COMPAN Y. APART FROM THIS NO ACTUAL BUSINESS ACTIVITIES BEING CARRIED OUT BY THE ABOV EMENTIONED COMPANIES. THESE COMPANIES WERE CREATED FOR SOLE PURPOSE OF PROVIDING A CCOMMODATION ENTRIES IN FORM OF LONG TERM CAPITAL GAIN TO VARIOUS BENEFICIARIES. Q. 15 PLEASE STATE WHO ARE THE DIRECTORS IN DIVYADRISHTI TRADERS PVT. LTD. AND DIVYADRISHTI MERCHANT PVT. LTD. ANS. SIR, WE HAVE CREATED THESE COMPANIES TO PROVIDE A CCOMMODATION ENTRIES IN THE FORM OF LTCG. SIR, KINKAR BHATCHARYA AND SUKHANTA CH ATERGY ARE DUMMY DIRECTORS IN THESE COMPANIES. THESE ARE PAPERS COMPANIES AND HAVIN G ITS OFFICE ADDRESS AT 163B, M.G. ROAD, THIRD FLOOR, KOLKATA-700007. Q. 16 PLEASE PROVIDE MODUS OPERANDI OF PROVIDING ACCOMMO DATION OF LONG TERM CAPITAL GAIN. ANS. VARIOUS CLIENTS USED TO APPROACH ASK TO GET LONG T ERM CAPITAL GAIN FOR THE SECURITIES HOLDED BY THEM FOR YEARS. HE USED TO CHARG E BROKERAGE FOR ARRANGING ABOVE TRANSACTION. AFTER HOLDING THE EQUITY SHARE FOR MORE TH AN ONE YEAR CLIENTS USED TO SELL SUCH SHARES ON VERY HIGHER RATES. SUCH SHARES ARE B OUGHT FROM BENEFICIARY CLIENTS BY OUR CLIENT AND ALSO SOME COMPANY CONTROLLED AND MANAGED BY ME LIKE M. DISTRIBUTOR PVT. LTD, SPARK COMMONDEAL PVT. LTD., FARE LINK HOUS ING PVT. LTD., ESQUIRE PVT. LTD., DIVYDRISHTI TRADERS PVT. LTD., DIVYDRISHTI MERCHANT PVT . LTD., D. VINCOM PVT. LTD., TRITON OVERSEAS PVT. LTD., WHEELERS DEVELOPERS PVT. LTD. AN D RIDHI VINCOM PVT. LTD.. WHEN PARTY/BENEFICIARY APPROACHES TO GET ACCOMMODATION ENTR Y, WE USED TO GET CASH FROM THEM GOT A DEPOSITED FROM VARIOUS BANK ACCOUNTS AND T HEN FINALLY WE USED TO TRANSFER IT TO PARTY BENEFICIARIES BANK ACCOUNT. FOR ARRANGING T HE ACCOMMODATION ENTRIES IN FORM OF LONG TERM CAPITAL GAIN WE USED TO GET COMMISSIO N IN CASH FROM PARTY AT 50 PAISE PER 100 RUPEES OF CHEQUE AMOUNT. 15 ITA NO.257/PUN/2019, A.Y. 2015-16 26. IN FURTHERANCE TO THE ABOVE STATEMENT, WE FIND HIS A NSWER TO QUESTION NO.17 WHEREIN HE FURNISHED THE LIST OF SCRIPS PROV IDED ACCOMMODATION ENTRY OF LTCG WHEREIN AT SL.NO.9 WE FIND THE LD&PL AND DTPL SUGGESTING THAT THE ASSESSEE BOOKED LONG TERM CAPITAL G AIN BY DUBIOUS METHOD THROUGH THESE PAPER COMPANIES WHICH IN T URN PROVIDED BOGUS LTCG TO ASSESSEE. IN ANSWERING QUESTION NO.20, HE STATED THE LIST OF BENEFICIARIES IS HUGE AND CAN BE OBTAINED FROM THE TRADE D ATA AS AVAILABLE WITH STOCK EXCHANGE. WE NOTE THAT THE BSE PROVIDED INFORMATION TO THE A.O. STATING THAT THE TRADING IN THE SECURITIES OF 20 COMPA NIES ARE SUSPENDED WITH EFFECT FROM 20.08.2015 BASED ON THE PARAME TERS PROVIDED BY SEBI AND UNDER PROVISIONS OF RULES, BY LAWS AND REGULAT ION OF EXCHANGE AS AN INTERIM PREVENTIVE AND REMEDIAL MEASURE TO MAINTAIN ORDERLY DEVELOPMENT IN THE STOCK MARKET. THE LD. AR SUBMITTED TH AT THE INTERIM SUSPENSION IS IN STILL FORCE IN RESPECT OF LD&PL. 27. FURTHER, IN SUPPORT TO THE ABOVE VIEW TO PROVE THAT LD&PL AND DTPL ARE JAMAKHARCHI COMPANIES, WE FIND THE ANSWER TO QUESTIO N NO.27 BY THE ANUJ AGARWAL IS HERE UNDER :- Q. 27 DURING THE COURSE OF SURVEY OPERATION U/S 133A OF THE ACT, 1961 AN ENQUIRY WAS CONDUCTED AT 163B, M.G. ROAD, THIRD FLOOR, KOLKATA WHICH IS THE REGISTERED OFFICE OF THE FOLLOWING COMPANIES DIVYDRISHTI TR ADERS PVT. LTD., DIVYDRISHTI MERCHANT PVT. LTD., D. VINCOM PVT. LTD., T RITON OVERSEAS PVT. LTD., WHEELERS DEVELOPERS PVT. LTD. AND RIDHI VINCOM PVT. LTD .. HOWEVER, DURING THE COURSE OF ENQUIRY STATEMENT OF MR. ANUPAM BAJORIA, S ON OF VINOD KUMAR BAJORIA WAS RECORDED U/S 131 OF THE INCOME TAX ACT, 1961. PLEASE GO THROUGH THE STATEMENT OF MR. ANUPAM BAJORIA AND OFFER YOU COMME NTS? ANS. SIR, I HAVE GONE THROUGH THE STATEMENT AS I HAV E ALREADY STATED THAT THESE COMPANIES ARE CONTROLLED AND MANAGED BY ME IN WHICH MR. KINKAR BHATACHARYA AND SUKANTA CHATERGI ARE DIRECTORS. MR. RAJESH JAIN IS MY PART TIME ACCOUNTANT AND LOOKS AFTER THE ACCOUNTS OF AFORESAID MENTIONED CO MPANIES. IN FACT, THE COMPANIES ARE USING THE ADDRESS AS IT REGISTERED OFFIC E, HOWEVER, NO BOOKS OF ACCOUNTS ARE MAINTAINED THERE. 16 ITA NO.257/PUN/2019, A.Y. 2015-16 28. ON PERUSAL OF THE ABOVE ANSWER OF ANUJ AGARWAL, CLEAR LY DEMONSTRATES THAT THE ABOVE JAMAKHARCHI COMPANIES LIKE IN THE PRESENT CASE LD&PL, DTPL, KORP SL AND GFSL ARE CREATED FOR THE PURPOSE OF ACCOMMODATION ENTRIES IN RESPECT OF BOOKING BOGUS LONG TE RM CAPITAL GAIN/LOSS FOR A PROSPECTIVE BENEFICIARY HAVING NO CREDIBLE FIN ANCIALS AND ECONOMIC FOUNDATIONS, WHICH CLEARLY SUPPORTS THE VIEW OF BO TH THE AUTHORITIES BELOW IN DOUBTING A TRANSACTION LEAD TO CLAIM LON G TERM CAPITAL GAIN IN THE HANDS OF ASSESSEE THE BENEFICIARY, IS BOGUS. I N VIEW OF THE ABOVE, WE FIND THE REPLY PROVIDED BY THE DTPL IN RESPONSE TO THE INFORMATION CALLED FOR U/S 133(6) OF THE ACT IS CONTRARY TO T HE EVIDENCE BROUGHT ON RECORD BY THE A.O. FROM MANY AUTHORITIES LIKE B SE, SEBI AND THE INVESTIGATION CONDUCTED BY THE DDIT, KOLKATA. THERE FORE, WE GIVE NO CREDENCE TO THE INFORMATION GIVEN BY THE DTPL THROUGH E-MAIL IN RESPONSE TO SECTION 133(6) OF THE ACT. 29. WE NOTE THAT THE ASSESSEE HAS BEEN EXAMINED U/S 1 31 OF THE ACT AND THE SAID STATEMENT IS REPRODUCED BY THE A.O. IN HIS ORDER AT PAGE NO.52 TO 54 WHEREIN WE FIND THE STATEMENTS OF SOUMEN CHOUDHURY, P AWAN KUMAR KAYAN AND ANUJ KUMAR AGARWAL WERE CONFRONTED TO THE A SSESSEE, IN OUR OPINION, ARE VERY MUCH IN THE KNOWLEDGE OF ASSESSEE, BUT, HOWEVER, THE ASSESSEE FAILED TO CONTROVERT THE SAME BY BRINING COGENT EVIDENCE ON RECORD. THEREFORE, WE REJECT THE CONTENTIONS OF LD. AR TH AT THERE WAS NO OPPORTUNITY FOR THE ASSESSEE TO CROSS-EXAMINE THE AFORESAID PERS ONS ATTAINS ANY SIGNIFICANCE, ACCORDINGLY, THE ARGUMENTS IN THAT REGARD ADVANCED BY THE LD. AR ARE REJECTED. 17 ITA NO.257/PUN/2019, A.Y. 2015-16 30. COMING TO THE DECISION OF HONBLE HIGH COURT OF BOMBA Y, NAGPUR BENCH AT NAGPUR IN THE CASE OF SANJAY BIMAL CHAND JAIN , THE FACTS ARE THAT THE ASSESSEE MADE INVESTMENTS IN TWO UNKNOWN COMPANIES , ARE PENNY STOCK COMPANIES. THE ASSESSEE PURCHASED @ RS.5.50/- AN D RS.4/- AND SOLD SHARES @ RS.486.55 AND RS.485.65 THROUGH TWO BROKER S WHO ARE LOCATED IN KOLKATA. THE AUTHORITIES BELOW I.E AO AND CIT-A R ECORDED 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 AND THE ASSESSEE FAILED TO TENDER COGENT EVIDENCE TO EXPLAIN AS TO HOW THE SHARES IN AN UNKNOWN COMPANY WOR TH RS.5/- HAD JUMPED TO RS.485/-. THE ITAT, NAGPUR BENCH HELD THAT T HE FANTASTIC SALE PRICE WAS NOT AT ALL POSSIBLE AS THERE WAS NO ECONOMIC OR FINANCIAL BASIS AS TO HOW A SHARE WORTH OF RS.5/- OF A LITTLE KNOWN COMPANY WOULD JUMP FROM RS5/- TO RS.485/-. THE HONBLE HIGH COURT OF BOMBAY AT N AGPUR HELD THE FINDINGS RECORDED BY THE ALL THE AUTHORITIES BELOW ARE BASE D ON PURE FINDINGS OF FACTS BASED ON A PROPER APPRECIATION OF THE MAT ERIAL ON RECORD AND UPHELD THE ORDER OF ITAT, NAGPUR BENCH IN CONFIRMING T HE ORDERS OF CIT-A AND AO IN DENYING EXEMPTION CLAIMED U/SECTION 10(38) OF THE ACT BY THE ASSESSEE THEREIN. WE FIND THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND THE ISSUE INVOLVED BEFORE US IS IDENTICAL TO THE S UBSTANTIAL QUESTION OF LAW RAISED BEFORE THE HONBLE HIGH COURT OF BOM BAY AT NAGPUR, THE RATIO LAID DOWN THEREIN IS, IN OUR OPINION, APPLICABLE TO T HE PRESENT CASE. THUS, GROUNDS RAISED BY THE ASSESSEE ARE LIABLE TO BE DISMISSED . 31. REGARDING THE DECISION OF HONBLE HIGH COURT OF DELHI IN THE CASE OF SUMAN PODDAR , WE FIND THAT THE ASSESSEE CLAIMED LONG TERM CAPITAL GAIN A S 18 ITA NO.257/PUN/2019, A.Y. 2015-16 EXEMPT INCOME U/S.10(38) OF THE ACT. THE AO DOUBTED THE SAID TRANSACTIONS IN PURCHASING THE SHARES OF M/S. CRESENTA SOLUTIONS LTD. AND ON EXAMINATION OF DETAILS OF FINANCIALS OF SAID COMPANY THE AO TREATED THE SAID TRANSACTION AS BOGUS AND DENIED THE EXEMPTION AS C LAIMED BY THE ASSESSEE U/S.10(38) OF THE ACT. THE CIT(A) CONFIRMED THE VIE W OF THE AO. THE ITAT IN THE SECOND APPELLATE PROCEEDINGS CONFIRMED TH E ORDER OF CIT(A) IN DENYING THE EXEMPTION CLAIMED BY THE ASSESSEE U/S.10(38 ) OF THE ACT. THE HONBLE HIGH COURT OF DELHI WHILE DEALING WITH THE SUBSTA NTIAL QUESTION OF LAW WAS PLEASED TO OBSERVE, THAT TO GAIN BEN EFIT OF LONG TERM CAPITAL GAIN AT THE RATE OF 491% OVER A PERIOD OF FIVE MONT HS IS BEYOND HUMAN PROBABILITY AND DEFIES BUSINESS LOGIC OF ANY BUSINESS E NTERPRISE DEALING WITH SHARE TRANSACTIONS. FURTHER, THE HONBLE HIG H COURT OBSERVED THAT IT IS THE DUTY OF THE TRIBUNAL TO SCRATCH SURFACE AND PROBE DOCUMENTARY EVIDENCE IN DEPTH IN THE LIGHT OF CONDUCT OF ASSESSEE AND OTHER SURROUNDING CIRCUMSTANCES AND HELD THE RATIO LAID D OWN BY THE HONBLE SUPREME COURT IN THE CASE OF SUMATI DAYAL IS APPLICABLE AND UPHELD THE ORDER OF ITAT BY HOLDING THE PROFITS EARNED B Y THE ASSESSEE THEREIN ARE PART OF MAJOR SCHEME OF ACCOMMODATION ENTRIES. 32. LET US EXAMINE THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SUMATI DAYAL REPORTED IN 214 ITR 801 AS RELIED BY THE HO NBLE HIGH COURT OF DELHI IN THE CASE OF SUMAN PODDAR SUPRA, THE FACTS THEREIN ARE THAT THE ASSESSEE WAS ENGAGED AS A DEALER IN ART PIECES, ANTIQUES AND CURIOUS DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE CLAIM ED TO HAVE RECEIVED A TOTAL AMOUNT OF RS.3,11,831/- BY WAY OF RACE WIN NINGS IN JACKPOTS AND TREBLE EVENTS IN RACES AT TURF CLUBS IN BAN GALORE, MADRAS AND 19 ITA NO.257/PUN/2019, A.Y. 2015-16 HYDERABAD. THE SAID AMOUNT WAS SHOWN BY THE ASSESSEE IN THE CAPITAL ACCOUNT IN THE BOOKS. THE ITO, HELD THE SUM OF RS.3,11,831 /- IS NOT WINNINGS IN RACES AND HE TREATED THE SAID RECEIPT AS INCO ME FROM UNDISCLOSED SOURCES AND ASSESSED THE SAME AS INCOME FRO M OTHER SOURCES. THE APPELLATE ASSISTANT COMMISSIONER CONFIRMED THE VIEW OF ITO. THOUGH APPEALS WERE FILED BEFORE THE ITAT, WERE EVENTUALLY WITHDRA WN BY THE ASSESSEE, CONSEQUENTLY FILED AN APPEAL BEFORE THE SETTLEME NT COMMISSION. THE TWO MEMBERS OF THE COMMISSION UPHELD THE ORDERS OF B OTH THE AUTHORITIES BELOW BUT HOWEVER, THE CHAIRMAN, SETTLEMENT CO MMISSION DISSENTED THE MAJORITY VIEW RENDERED BY THE TWO MEMBER S OF THE COMMISSION. THE HONBLE SUPREME COURT UPHELD THE MAJORI TY VIEW TAKEN BY THE TWO MEMBERS OF THE SETTLEMENT COMMISSION 33. THE TWO MEMBERS OF THE SETTLEMENT COMMISSION, CONSTIT UTING THE MAJORITY VIEW, CAME TO THE CONCLUSION THAT THE APPARENT IS NOT THE REAL AND THE ASSESSEES CLAIM OF WINNING IN RACES IS CONTRIVED AND N OT GENUINE FOR THE REASONS I .E (I) THAT THE ASSESSEES KNOWLEDGE OF RACING IS VERY MEA GER , (II) HAVING WINNING A NUMBER OF JACKPOTS IN THREE OR FO UR SEASONS AT THREE DIFFERENT CENTERS AND IT IS WILD AND CONTRARY TO TH E STATISTICAL THEORIES AND EXPERIENCE OF THE FREQUENCIES AND PROBABILITIES. (III) THE BOOKS DID NOT SHOW ANY DRAWINGS ON RACE DAYS OR ON THE IMMEDIATELY PRECE DING DAYS FOR THE PURCHASE OF JACKPOT COMBINATION TICKETS. (IV) THE GROSS AMOUNTS WERE CREDITED WITH CAPITAL ACCOUNT WITH NO DEBITS AND (V) DID NOT SHOW INTEREST IN RACES FROM 1972 ONWARDS. THE HONBLE SUPREME COURT BY REFERRING TO A DECISION IN THE CASE OF DURGA PRASAD MORE REPORTED IN 82 ITR 540 (SC) HELD THAT THE ISSUE IS TO BE CONSIDERED BY APPLYING THE TEST OF HUMAN 20 ITA NO.257/PUN/2019, A.Y. 2015-16 PROBABILITIES TAKING INTO CONSIDERATION THE SURROUNDING CIRC UMSTANCES AND UPHELD THE MAJORITY OPINION RENDERED BY THE TWO MEMBERS OF THE SETTLEMENT COMMISSION. 34. IN THE CASE OF M/S. ROYAL RICH DEVELOPERS PVT. LTD. OF HONBLE HIGH COURT OF BOMBAY WHEREIN THE FACTS ARE THAT THE ASSESSE E HAD ISSUED 9,37,500 EQUITY SHARES AT A FACE VALUE OF RS.10/- WITH A PR EMIUM OF RS.30/- PER SHARE AND RECEIVED RS.3.75 CRORES BY WAY OF SHARE APPLICATION MONEY. THE AO EXAMINED THE SOURCE OF SAID RECEIPT AND H ELD THE SAID RECEIPT IS ASSESSEES UNEXPLAINED CASH CREDIT. THE CIT(A) CONFIRMED THE VIEW OF AO BY CONSIDERING DETAILED REMAND REPORT. THE TR IBUNAL AGREED WITH THE FINDINGS OF CIT(A). THE HONBLE HIGH COURT OF BOMB AY OBSERVED THAT THE ABOVE SAID ENTIRE ISSUE IS BASED ON APPRECIATION OF EVIDENCE AND RECORD. THE HONBLE HIGH COURT AGREED WITH THE FINDINGS OF ASSESSING OFFICER THAT THERE WAS NO REASON OR EXPLANATION WERE SHO WN BY THE ASSESSEE THEREIN SUPPORTING THE HIGH PREMIUM BEING PAID B Y THE INVESTORS IN THE ABSENCE OF ANY BUSINESS DURING THE SAID ASSESSMEN T YEAR. WE FIND THE FACTS AND CIRCUMSTANCES OF THE CASE BEFORE THE HON BLE HIGH COURT OF BOMBAY ARE SIMILAR AND IDENTICAL TO THE FACTS AND CIRCUMSTA NCES OF THE CASE, AS IN THE PRESENT CASE ARE ALREADY DISCUSSED BY U S HEREINABOVE THERE WAS NO BUSINESS ACTIVITY OF LD & PL DURING THE YEAR UNDER CONSIDERATION, NOR ANY EXPLANATION OFFERED FOR HUGE INVESTMENT IN PREFEREN TIAL ALLOTMENT OF SHARES BY PAYING PREMIUM, THE LTCG THEREON IS, IN OUR OPIN ION, IS PRE- DETERMINED ARRANGEMENT TO BOOK BENEFIT BY DUBIOUS METHO D AND AS SUCH THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT OF BOMBAY IS APPLICABLE TO THE PRESENT CASE. 21 ITA NO.257/PUN/2019, A.Y. 2015-16 35. THE ORDERS OF COORDINATE BENCHES OF ITAT, KOLKATA AN D DELHI IN THE CASES OF SRI NARENDRA KUMAR SAROGI AND SMT. RADHIKA GARG RESPECTIVELY AS RELIED ON BY THE LD. AR, WE FIND THE ORDERS OF COORDINATE B ENCHES ARE DISTINGUISHABLE ON FACTS AND CIRCUMSTANCES, THEREFORE, CANNO T BE RELIED IN THE PRESENT CASE. 36. IN THE PRESENT CASE, THE FOUNDATION OF DOUBT AS LAID B Y THE AO WHICH MADE HIM TO ENQUIRE INTO THE DETAILS OF TRANSACTIONS OF PUR CHASE AND SALE OF SHARES OF LD&PL, FINDING THE SAME AS BOGUS LED TO DENIAL OF EXEMPTION U/S.10(38) OF THE ACT. WE FIND WHEN THERE WAS NO BUSINESS OPERATION OF LD&PL DURING THE PERIOD OF PURCHASE AND SALE OF SHARES AND AS TRONOMICAL INCREASE OF SHARE PRICE OF LD&PL WHICH LED TO RETURNS AT 350%, IN OUR OPINION, IS UNJUSTIFIED. THE ASSESSEE FAILED TO CONTROVERT AND PUT FORTH ANY EVIDENCE REBUTTING THE INVESTIGATION REPORT DDIT, KOLKATA SHOWING THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES ARE GENUINE . THE SUSPENSION IMPOSED BY THE BOMBAY STOCK EXCHANGE ON TRADING OF LD&PL SHARES FROM 28-08-2015 IS STILL IN FORCE. THEREFORE, WE HOLD THAT THE ASSESSEE IS THE BENEFICIARY OF BOGUS TRANSACTIONS BY ACCOMMODATION ENTRIES PROVIDED BY THE JAMAKHARCHI COMPANIES I.E LD&PL, DTPL AND BROKERS KORP SL AND GFSL THROUGH MULTIPLE LAYERING OF TRANSACTIONS, IN VIEW OF THE DISCU SSION MADE BY US HEREINABOVE, IN THE FACTS AND CIRCUMSTANCES O F THE CASE AND THE DECISIONS RELIED UPON, THAT THE ASSESSEE IS NOT ENTIT LED TO CLAIM EXEMPTION U/S.10(38) OF THE ACT. WE FIND NO INFIRMITY IN THE OR DER OF CIT(A) AND IT IS JUSTIFIED. THUS, GROUND NOS. 1 TO 7 RAISED BY THE ASSESSEE FAIL AND ARE DISMISSED. 22 ITA NO.257/PUN/2019, A.Y. 2015-16 37. GROUND NO.8 IS RELATING TO CONFIRMATION OF ADDITION MADE ON ACCOUNT OF COMMISSION CHARGED IN THE FACTS AND CIRCUMSTANCES OF TH E CASE. IT IS NOTED THAT THE AO ON AN EXAMINATION FOUND A COMMISSION @ 5% HAS WAS PAID FOR ARRANGING CAPITAL GAIN AS PAYMENT OF SUCH A COMMIS SION IS A COMMON PRACTICE. HE, THEREFORE, MADE AN ADDITION OF RS.5,20,11 5/- (RS.1,04,02,303/- @ 5%) AS UNEXPLAINED EXPENDITURE U/S 69 OF THE ACT. THE CIT(A) CONFIRMED THE SAME. 38. IN VIEW OF THE FACT THAT WE HAVE COUNTENANCED T HE CONCLUSION OF THE AUTHORITIES BELOW IN TREATING THE LONG TERM CAPITAL GAIN FROM TRANSFER OF SHARES AS BOGUS, THE SEQUITUR IS THAT THE ASSESSEE DID PAY COMMISSION FOR ARRANGING THE BOGUS CAPITAL GAIN. HOWEVER, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, WE ARE OF TH E CONSIDERED VIEW THAT THE RATE OF COMMISSION BE REDUCED TO 2% INSTEAD OF 5%. THUS, GROUND NO.8 RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 39. GROUND NO.9 IS RAISED CHALLENGING THE ACTION OF CIT(A) IN CONFIRMING THE ADDITION MADE ON ACCOUNT OF SET OFF OF INTEREST AGAINST PROFESSIONAL FEE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE CLAIMED SET OFF OF INTEREST EXPENSES TO THE TUNE OF RS.5,09,800/- AGAINST A PROFESSIONAL RECEIPT STATED TO HAVE BEEN FROM M/S. SAGAR PARIDHAN PV T. LTD. ACCORDING TO THE AO, THE SAID RECEIPT IS A SALARY FROM M/S. SAGAR PA RIDHAN PVT. LTD. AS THE ASSESSEE IS A DIRECTOR IN THE SAID CONCERN, ACCOR DINGLY HELD THE SET OFF IS NOT AVAILABLE. THE CIT(A) CONFIRMED THE VIEW OF AO FOR T HE REASONS STATED AS UNDER:- 7. I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELL ANT. DURING THE YEAR UNDER REFERENCE, THE APPELLANT HAS CLAIMED INTEREST EX PENSES OF RS.5,09,800/- AGAINST THE SALARY INCOME RECEIVED FROM M/S. SAGAR PAR IDHAN PVT. LTD. A COMPANY IN 23 ITA NO.257/PUN/2019, A.Y. 2015-16 WHICH HE IS A DIRECTOR. THE APPELLANT HAD PAID INTEREST OF RS.44,62,400/- TO AXIS BANK. OUT OF ABOVE, INTEREST OF RS.35,70,000/- WAS C APITALIZED AND THE APPELLANT HAD ALSO RECEIVED INTEREST OF RS.3,58,410/- FROM VARIOUS PARTIES AND INTEREST OF RS.24,190/- WAS RECEIVED FROM BANK. ACCORDINGLY THE IN TEREST EXPENSES OF RS.5,09,800/- WERE CLAIMED AGAINST THE SALARY INCOME R ECEIVED FROM M/S. SAGAR PARIDHAN PVT. LTD. IT WAS INITIALLY ALLEGED THAT THE AP PELLANT HAD RECEIVED PROFESSIONAL FEES FROM M/S. SAGAR PARIDHAN PVT. LTD. AND ACCORDINGLY, TDS U/S 194J WAS DEDUCTED ON THE SAME. HOWEVER, DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE AR OF THE APPELLANT I.E. SHRI RAJESH AGRAWAL APPEA RED ON 06-12-2017 BEFORE THE AO AND ADMITTED THAT BY MISTAKE, SALARY OF RS.24,00, 000/- FROM M/S. SAGAR PARIDHAN PVT. LTD. HAD BEEN SHOWN AS PROFESSIONAL FEES . IN VIEW OF THIS CATEGORICAL ADMISSION BY THE AR OF THE APPELLANT BEFORE THE AO, TH ERE IS NO NEW MATERIAL PLACED ON RECORD BY THE APPELLANT TO ENABLE THE UNDERSIGNED T O DISTURB THE FINDING MADE BY THE AO IN THIS REGARD. IN FACT, THE APPELLANT VIDE LETT ER DATED 08-12-2017 HAD ADMITTED BEFORE THE AO THAT HE HAD RECEIVED SALARY O F RS.24,00,000/- FROM M/S. SAGAR PARIDHAN PVT. LTD. AND IT WAS NOT A PROFESSION AL RECEIPT. FURTHER, THERE IS NO CORROBORATIVE EVIDENCE TO SHOW THAT SUCH ADMISSION WAS MADE BY THE APPELLANT OR HIS AR UNDER MISTAKEN BELIEF OF FACTS OR LAW. IN THESE FACTS AND CIRCUMSTANCES, THE ADDITION OF RS.5,09,800/- MADE BY THE AO IS SUSTAINED A ND THIS GROUND OF APPEAL IS ACCORDINGLY, DISMISSED. 40. ON PERUSAL OF ABOVE REASONING, WE FIND NO EVIDENCE WHAT SOEVER PUT FORTH BY THE LD. AR SHOWING THE SAID RS.24,00,000/- IS A PR OFESSIONAL RECEIPT FROM M/S. SAGAR PARIDHAN PVT. LTD. ADMITTEDLY, THE ASSESSEE IS A DIRECTOR OF SAID M/S. SAGAR PARIDHAN PVT. LTD. IN THE IMME DIATELY PRECEDING YEAR ALSO, SIMILAR AMOUNT WAS TREATED BY THE A SSESSEE AS SALARY AND OFFERED AS SUCH. IN VIEW OF THE SAME, WE HOLD THAT THE AUTHORITIES BELOW WERE RIGHT IN TREATING THE AMOUNT OF RECEIPT AS CHA RGEABLE TO TAX UNDER THE HEAD `SALARIES AND CONSEQUENTLY, NOT ALLOWING THE SET OFF OF INTEREST OF RS.5,09,800/-. THUS, THE GROUND NO.9 RAISED BY THE ASSESSEE FAILS AND IT IS DISMISSED. 41. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH NOVEMBER, 2019. SD/- SD/- (R.S. SYAL) (S.S. VISWANETHRA RAVI) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 5 TH NOVEMBER, 2019 RK 24 ITA NO.257/PUN/2019, A.Y. 2015-16 $%&'()( & / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. !() / THE CIT(A)-1, AURANGABAD 4. THE PR. COMMISSIONER OF INCOME TAX-1, AURANGABAD 5. $%& ''() , () , +,- , / DR, ITAT, A BENCH, PUNE. 6. &./01 / GUARD FILE. // $' // TRUE COPY// / BY ORDER, // TRUE COPY // '3 (-/ PRIVATE SECRETARY, () , / ITAT, PUNE