Aravind Modi, CHENNAI V. ITO Non Corporate Ward 11(1), CHENNAI

ITA 2738/CHNY/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 1348 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 25-09-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJANADDL
• Keywords: Unexplained cash credit; Unexplained expenditure; Earning of tax free income; Accommodation entries; Penny stocks; Capital Gains
• Section: 250; 13; 22; 131; 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . , ! , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER & SHRI S.JAYARAMAN, ACCOUNTANT MEMBER I.T.A NO.2738/CHNY/2018 ASSESSMENT YEAR : 2014-15 SHRI ARAVIND MODI , 147,BROADWAY,GEORGE TOWN, CHENNAI 600 001. VS. THE INCOME TAX OFFICER, NON-CORPORATE WARD 11(1), 2ND FLOOR, BSNL BUILDING, GREAMES ROAD, CHENNAI 600 006. [ PAN AFTPA 6764 K ] ( '# / APPELLANT) ( $%'# /RESPONDENT) / APPELLANT BY : NONE /RESPONDENT BY : MR.A.SUNDARARAJAN,ADDL.C.I.T D.R ! / DATE OF HEARING : 03 - 03 - 20 20 '#$% ! / DATE OF PRONOUNCEMENT : - 05 - 20 20 &' / O R D E R PER S.JAYARAMAN, ACCOUNTANT MEMBER THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-13, CHENNAI IN ITA NO.99/CIT(A)-13/2014-15, DATED 27.07.2018 FOR THE A SSESSMENT YEAR 2014-15. ITA NO.2738/CHNY/2018 :- 2 -: 2. SHRI ARAVIND MODI , THE ASSESSEE, AN INDIVIDUA L IS DOING BUSINESS IN HARDWARE & SPARES AND IN SHARE TRADING,ETC. THE ASSESSING OFFICER RECEIVED A REPORT FROM THE INVESTIGATION WING OF KO LKATA, IN WHICH, INTER ALIA, THE ASSESSEE WAS SPECIFIED AS ONE OF TH E PARTIES WHO INDULGED IN BOGUS / NON-GENUINE LONG TERM CAPITAL G AIN FROM THE TRANSACTIONS OF ALLEGED PURCHASE AND SALE OF SHARES OF KAILASH AUTO FINANCE LIMITED. FURTHER, THE SHARES OF KAILASH AU TO FINANCE LIMITED WERE FOUND BY THEM AS PENNY STOCK COMPANY WHICH HAS BEEN USED FOR GENERATING BOGUS LTCG AND THE INVESTIGATIONS REVEAL ED THAT A SCHEME WAS HATCHED BY VARIOUS PLAYERS TO OBTAIN / PROVIDE ACCOMMODATION OF ENTRY OF BOGUS LTCG THROUGH MANIPULATION OF STOCK M ARKET. THEREFORE, THE ASSESSING OFFICER RE-OPENED AND SCRU TINIZED THE ASSESSMENT AND FOUND THAT THE ASSESSEE PURCHASED 1,00,000 SHARES OF KAILASH AUTO FINANCE LIMITED @ RS.1 PER SHARE TH ROUGH PROMOTERS QUOTA, SUBSEQUENTLY SOLD PENNY STOCKS ON VARIOUS DA TES FOR SALE CONSIDERATION OF C.39,17,760/-, THROUGH A BROKER B. LODHA SECURITIES LTD., DISCLOSED LONG TERM CAPITAL GAIN IN HIS RETU RN OF INCOME AND CLAIMED IT AS AN EXEMPT INCOME U/S.10(38). THE ASSE SSING OFFICER EXAMINED THE ENTIRE SET OF TRANSACTIONS IN THE BACK GROUND OF THE INFORMATION RECEIVED FROM THE DIT(INV), KOLKATTA AND UPON SUCH EXAMINATION OF FACTS AND ON DETAIL ANALYSIS OF THE TRANSACTIONS HELD, INTER ALIA, THAT THE ASSESSEE HAS DELIBERATELY ENTE RED IN TO A SHAM ITA NO.2738/CHNY/2018 :- 3 -: TRANSACTION OF PURCHASE AND SALE OF BOGUS SHARES WI TH FULL KNOWLEDGE OF SUCH TRANSACTIONS IN VIEW OF THE SUBSTANTIAL GA INS SHOWN ON THE SALE OF SUCH PENNY STOCKS, WITHIN REASONABLY A SHORT PER IOD SO AS TO CONVERT THE UNACCOUNTED MONEY INTO ACCOUNTED MONEY IN THE G UISE OF EXEMPT CAPITAL GAINS. THEREFORE, THE ASSESSING OFFICER TR EATED THE ENTIRE SALE AT C.39,04,542/-, IN THE ASSESSEES HAND AS AN UNEX PLAINED CREDIT U/S.68 AND COMPLETED THE ASSESSMENT. AGGRIEVED, TH E ASSESSEE FILED APPEALS BEFORE THE CIT(A). THE LD CIT(A) DISMISSED THE APPEAL. AGAINST THE ORDER OF LEARNED CIT(A) , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE TRIBUNAL. 3. AT THE TIME OF HEARING, NONE WAS PRESENT ON BEH ALF OF THE ASSESSEE, ALTHOUGH ON 02.12.2019 THE CASE WAS ADJOU RNED TO 03.03.2020 IN THE OPEN COURT IN THE PRESENCE OF BOT H THE PARTIES. 4. THE LD. DR SUBMITTED THAT THE ISSUE UNDER CONS IDERATION IN THIS APPEAL PERTAINS TO THE DETERMINATION AS TO WHETHER THE LTCG EARNED ON THE PURCHASE AND SALE OF SHARES OF KAILASH AUTO FINANCE LTD., AND CLAIMING IT AS AN EXEMPT INCOME UNDER SECTION.10(3 8) ARE GENUINE OR NOT. IN THIS REGARD, THE LD. DR TOOK US THROUGH THE ORDER OF THE LEARNED CIT(A) AND HENCE THE FOLLOWING PORTION OF THE ORDER OF THE LD.CIT(A) IS EXTRACTED AS UNDER:- ITA NO.2738/CHNY/2018 :- 4 -: THE AO HAD INFORMATION FROM THE INVESTIGATION WING OF KOLKATTA THAT THERE ARE PENNY STOCK COMPANIES ALL OVER INDIA WISE AND W HOSE SHARES PRICE ARE ALLOWED TO RIG UPON SUCH A WAY THAT AFTER A PERIOD OF ONE YEAR IF SUCH SHARES ARE SOLD THEN THE EXEMPTION AVAILABLE UNDER SECTION 10(38) OF THE CLAIM FOR SUCH LTCG ARISING ON SALE OF SUCH SHARES. THE AO HA S CALLED FOR DETAILED INFORMATION FROM THE ASSESSEE REGARDING SUCH SHARE TRANSACTIONS. THE ASSESSEE HAS PRODUCED BEFORE THE AO THE CONTRACT NO TES, DEMAT ACCOUNTS AND ALSO THE DETAILS OR BANK TRANSACTIONS WHERE SAL E CONSIDERATION RECEIVED FROM SALE OF SUCH SHARES WERE DEPOSITED. THE ASSESS EE HAD ADMITTED BEFORE THE AO THAT 1,00,000 SHARES OF KAILASH AUTO FINANCE LIMITED AT A PRICE OF RE.1/- PER SHARE WERE PURCHASED BY THE ASSESSEE THR OUGH PROMOTERS QUOTA IN FY 2011-12. ON THE DATE OF PURCHASE OF THESE SHA RES THE SAME WERE FOUND LISTED AS M/S.PANCHSHEEL MARKETING LIMITED AN D IT GOT AMALGAMATED AND CALLED AS KAILASH AUTO FINANCE AS IT GOT MERGED . THE ASSESSEE HAS THEN SOLD SHARES ON VARIOUS DATES FOR SALE CONSIDERATION OF RS.39,17,760/- THROUGH A BROKER B. LODHA SECURITIES LIMITED. THE AO HAS GO T IT CONFIRMED FROM THE GLOBE CAPITAL MARKET LIMITED. IN RESPONSE TO LETTER ISSUED U/S.133(6) OF THE ACT. THE AO HAS NARRATED DETAILED MODUS OPERANDI AD OPTED IN THE ASSESSMENT ORDER FOR ACCOMMODATION OF ENTRY OF LONG TERM CAPITAL GAIN. IN EXPLAINING THE MODUS OPERANDI THE AO HAS EXPLAINED THE IMPORTANCE OF ACCOMMODATION ENTRIES , PENNY STOCK COMPANIES, THE PRESENCE OF ENTRY OPERATORS, THE IMPORTANCE OF JAMAKHARCHI COMPANIES, THE ROLE OF BENEFICIARY WHO WILL BE PROVIDED ACCOMMODATION ENTRIES TO BRING IN HIS UNACCOUNTED MONEY IN TO THE BOOKS OF ACCOUNTS BY WAY OF BRINGIN G INTO THE CONCEPT OF EXEMPTED LTCG UNDER SECTION 10(38) OF THE ACT. SO I NITIALLY THERE WILL BE PURCHASE OF SHARES BY BENEFICIARY, SUCH SHARE PRICE S WILL BE RIGGED UP BY A MODUS OPERANDI AND ONCE THE ELIGIBLE PERIOD OF ONE YEAR HAD ELAPSED SHARES WILL BE SOLD IN THE MARKET. THE PAPER COMPANIES ARE UTILIZED FOR HANDLING SUCH LOW VOLUME TRANSACTIONS. NORMALLY THE SYNDICAT E MEMBER OF THE BROKERS (MIDDLEMEN) CONTACT THE BENEFICIARY FOR INITIAL BOO KING. THE BENEFICIARY WILL PROVIDE THE REQUIRED AMOUNT OF CASH WHICH IS ROUTED THROUGH VARIOUS PAPER COMPANIES OF THE ENTRY OPERATORS AND FINALLY PARKED IN A PAPER COMPANY ITA NO.2738/CHNY/2018 :- 5 -: WHICH WILL THEN BY SHARES FROM BENEFICIARIES AND P ROVIDE SALE CONSIDERATION IN CHEQUES. PARA 4.6 OF THE ASSESSMENT ORDER AND 4. 7 GIVES THE FLOW CHART OF THE PROCESS INVOLVED. PARA 4.8 SPEAKS ON ONE MOVEME NT AND CASH TRIALS. THUS FROM THE REPORT OF THE INVESTIGATION WING IT W AS FOUND OUT THAT A SCHEME WAS HATCHED BY VARIOUS PLAYERS OF THE PENNY STOCK COMPANIES TO CLAIM LONG TERM CAPITAL GAIN AS EXEMPT UNDER SECTIO N 10(38) OF THE ACT FROM SALES OF SHARES OF SUCH PENNY STOCK COMPANIES. AT P ARA 7.3.13 OF THE ASSESSMENT ORDER THE AO HAS ESTABLISHED THAT PURCHA SE AND SALES OF SHARES OF KAILASH AUTO FINANCE IS ACTUALLY TO CREATE BOGUS LTCG FOR THE BENEFICIARY. IN ESTABLISHING THE AO HAD ALSO RELIED ON THE STATE MENT ON SUNIL DOKANIA PROMOTER OF KAILSH AUTO FINANCE LIMITED WHICH WAS M ADE BEFORE THE DDIT(LNV), KOLKATTA. THE RELEVANCE IS AT PARA 4.8 O F THE ASSESSMENT ORDER. THE AO HAS ALSO RELIED ON THE SUPREME COURT DECISIO N IN THE CASE OF SUMATI DAYAL VS CIT, IT IS NO DOUBT TRUE THAT IN ALL CASES IN WHICH A R ECEIPT IS SOUGHT TO BE TAXED AS INCOME, THE BURDEN LIES ON THE DEPARTME NT TO PROVE THAT IT IS WITHIN THE TAXING PROVISION AND IF A REC EIPT IS IN THE NATURE OF INCOME, THE BURDEN OF PROVING THAT IT IS NOT TAX ABLE BECAUSE IT FALLS WITHIN EXEMPTION PROVIDED BY THE ACT LIES UPO N THE ASSESSEE. (SEE PARIMISETTI SEETHARAMAMMA (SUPRA) AT P. 5361. BUT, IN VIEW OF SECTION 68 OF THE ACT, WHERE ANY SUM IS FOUND CREDI TED IN THE BOOKS OF THE ASSESSEE FOR ANY PREVIOUS YEAR, THE SAME MAY BE CHARGED TO INCOME TAX AS THE INCOME OF THE ASSESSEE OF THAT PR EVIOUS YEAR IF THE EXPLANATION OFFERED BY THE ASSESSEE ABOUT THE N ATURE AND SOURCE THEREOF IS, IN THE OPINION OF THE ASSESSING OFFICER, NOT SATISFACTORY. IN SUCH CASE THERE IS PRIMA FACIE, EV IDENCE AGAINST THE ASSESSEE, VIZ., THE RECEIPT OF MONEY, AND IF HE FAI LS TO REBUT, THE SAID EVIDENCE BEING UN-REBUTTED, CAN BE USED AGAINS T HIM BY HOLDING THAT IT WAS A RECEIPT OF AN INCOME NATURE. ITA NO.2738/CHNY/2018 :- 6 -: MOREOVER SIT ON BLACK MONEY HAS ALSO GIVEN HIS OBSE RVATIONS AND RECOMMENDATIONS ON BLACK MONEY BY OBSERVING MISUSE OF CLAIM OF EXEMPTION OF LTCG FOR MONEY LAUNDERING. IN A REPORT SUBMITTED IT IS OBSERVED AS UNDER: INVESTMENTS ARE MADE IN THE SECONDARY SHARE MARKET S WITH A VIEW TO CAPTURING GAINS. IN THIS MARKET, OUT OF NEARLY 8 ,000 LISTED COMPANIES, SEVERAL SCRIPS ARE NOT TRADED REGULARLY. WITH THE COLLUSION OF PROMOTERS, SOME BROKERS ARRANGE FOR PRICE(S) WIT H PURCHASE OF SUCH SCRIPS AT NOMINAL COSTS, AND SALES AT EXORBITA NT PRICES, WITH A VIEW TO RECEIVING MONEY ON SALE AS CAPITAL GAIN W HEN THE LONG TERM GAIN IS SUBJECTED TO A NIL OR NOMINAL RATE OF TAX . THE ADVANTAGE FOR MANIPULATIVE TAXPAYER IS THAT HE CAN LAUNDER SUCH S ALE RECEIPTS THROUGH PAYMENT OF NO TAX. SEBI HAS BARRED ABOUT 250 SUCH ENTITIES . SEBI HAS FOUND THAT PRICE OF KAFL WAS RIGGED BY WAY OF MANIPULATION MADE BY THE PROMOTERS/BROKERS/OPERATORS. SEBI HAS A NALYZED TRADING FREQUENCY, TRADING VOLUME GENERATED AND CONTRIBUTIO N TO PRICE RISE. FOLLOWING IS THE ANALYSIS WHICH SEBI HAS NOTICED IN ITS ORDER: 7. DURING THE ANALYSIS IT WAS NOTICED THAT CERTAIN ENTITIES RELATED/CONNECTED TO KAILASH AUTO WERE FOUND TO BE THE NET BUYERS TO THE BENEFICIARIES AND THEREBY CREATED ARTIFICIAL DEMAND FOR THE SUPPLY OF SHARES FROM BENEFICIARIES. FROM THE KNOW YOUR CLIENT (KYC) DETAILS, THEIR BANK STATEMENTS, OFF-MARKET TRANSACTIONS AMONGST THEM AND THE INFORMATION AVAIL ABLE ON THE WEBSITE OF THE MCA IT WAS OBSERVED THAT THOSE ENTITIES WERE CO NNECTED TO EACH OTHER. TWO SUCH INTERCONNECTED GROUPS WERE IDENTIFIED (HER EINAFTER REFERRED TO AS KAILASH AUTO GROUP I AND KAILASH AUTO GROUP II) . THE PARTICULARS OF THE ENTITIES CONSISTING KAILASH AUTO GROUP I AND KAILAS H AUTO GROUP II AND THE BASIS OF RELATIONSHIP/CONNECTION AMONGST THEM ARE P ROVIDED IN THE ANNEXURE A AND ANNEXURE B, RESPECTIVELY. FOR THE PURPOSE OF THIS ORDER THESE ENTITIES WERE SHORTLISTED ON THE BASIS OF FOLLOWING PARAMETE RS: (A). TOP 300 ENTITIES BASED ON GROSS BUY/TRADE QUAN TITY; ITA NO.2738/CHNY/2018 :- 7 -: (B). ANY ENTITY WHO HAS TRADED IN THE SCRIP OF KAIL ASH AUTO AND IS DIRECTLY OR INDIRECTLY CONNECTED TO THE COMPANY/ITS DIRECTORS/O R TO ENTITIES MENTIONED IN POINT ABOVE. VJDE THE AD ITERIM EX-PARTE ORDER DATED 29.3.2016 S UBSEQUENTLY CONFIRMED, IN EXERCISE OF THE POWERS CONFERRED UPON UNDER SECT ION 19 OF THE SEBI ACT, READ WITH SECTIONS 11(1), 11(4) AND 1 1B, RECIPIENT S OF CPAL/PML SHARES AND KAILASH AUTO GROUP I, OF WHICH M/S SANSKRITI VINCOM (P) LTD IS LISTED AS SL.NO. 111, TO QUOTE THE ORDER, HAVE ACTED IN CONNIVANCE FOR IMPLEMENTATION OF DUB IOUS PLAN, DEVICE AND ARTIFICE THAT HAS LED TO THE MISUSE OF S TOCK EXCHANGE MECHANISM TO ARTIFICIALLY INCREASE PRICE AND VOLUME OF THE SCRIPS TO PROVIDE ILLEGITIMATE GAINS TO THE BENEFICIARIES IN ORDER TO CLAIM LTCG BENEFITS THAT HAS NOT ONLY ERODED THE MARKET INTEGR ITY IN ITS ORDER DATED 26/10/2016 SEBI HAS OBSERVED IN PARA 35 AS FOLLOWS: 35. IT IS INTRIGUING TO NOTE THAT, IN SPITE OF THE TARNISHED TRACK RECORD, PRIOR TO AMALGAMATION, PRICE OF THE SCRIP OF KAILASH AUTO HA D INCREASED FROM RS. 11/- TO RS.36.25/ IN 36 TRADING DAYS WITH AVERAGE TRADIN G VOLUME OF 280 SHARES PER DAY. THEREAFTER, BENEFICIARIES INCLUDING THE NO TICES WERE ABLE TO OFFLOAD THEIR SHARES AT HIGH PRICE, CONTINUOUSLY FOR A PERI OD OF AROUND 15-16 MONTHS. IN ANY NORMAL MARKET, A SUDDEN SUPPLY IF NOT MATCHE D BY SIMILAR DEMAND LEADS TO PRICE FALL. HOWEVER, IN THIS CASE, THE BEN EFICIARIES WERE ABLE TO OFFLOAD SHARES AT HIGHER PRICE BECAUSE OF THE PRESE NCE OF KAILASH AUTO GROUP I AND KAILASH AUTO GROUP II WHO HAD ACTED AS BUYERS WHEN THE BENEFICIARIES WERE SELLING THEIR SHARES. THE CIRCUMSTANCES PRIMA FACIE SHOWS THAT IN THE WHOLE PROCESS, ARTIFICIAL DEMAND WAS CREATED BY THE ENTITIES OF THE KAILASH AUTO GROUP I AND KAILSH AUTO GROUP II SO AS TO ABSO RB THE SUPPLY FROM THE BENEFICIARIES. THUS AS A RESULT OF THE TRADING BETW EEN BENEFICIARIES AND ENTITIES OF KAILASH AUTO GROUP I AND KAILASH AUTO G ROUP II IN PATCH - 2, THE AVERAGE TRADING VOLUME IN THE SCRIP HAD INCREASED B Y 5,57,752. 10%, I.E., (5577 TIMES) AS COMPARED TO PATCH-I. SUCH INCREASE IN VOLUME WAS MAINLY ON ACCOUNT OF MATCHED TRADING AMONGST KAILASH AUTO GROUP I AND KAILASH AUTO GROUP II ENTITIES AND BENEFICIARIES. THIS ARTI FICIAL VOLUME IN THE SCRIP ITA NO.2738/CHNY/2018 :- 8 -: CREATED BY THE BENEFICIARIES INCLUDING THE NOTICES AND THE ENTITIES OF KAILASH AUTO GROUP I AND KAILASH AUTO GROUP II HAD THE POTE NTIAL TO INDUCE ANY GENUINE INVESTOR TO INVEST IN THE SCRIP WITHOUT KNO WING THE SCHEME OF OPERATIONS DEPLOYED, AS IN THE INSTANT CASE. SUCH F ACTS AND CIRCUMSTANCES REINFORCES THE FINDING IN THE INTERIM ORDER THAT TH AT BENEFICIARIES AND ENTITIES OF THE KAILASH AUTO GROUP I AND KAILASH AUTO GROUP II HAD USED THE SECURITIES MARKET SYSTEM TO ARTIFICIALLY INCREASE VOLUME FOR MAKING ILLEGAL GAI NS ARID TO CONVERT ILL-GOTTEN GAINS INTO GENUINE ONE. THIS IS A DIRECT EVIDENCE THAT SHARE OF M/S KAILAS H AUTO FINANCE LTD. WAS ARTIFICIALLY HIKED TO CREATE NON-GENUINE LTCG T O YOU ALONG WITH OTHER BENEFICIARIES. THIS IS THE REASON WHY SEBI HAS PASS ED ORDER UNDER SECTION. 11(1), 11(4) & 11(E) OF SEBI ACT, 1992. A STATEMENT OF SRI HARSHVARDHAN KAYAN WAS RECORDED ON 27.01.20 15 BY DDIT (INV), KOLKATA. IN HIS STATEMENT, HE HAS NARRA TED ENTIRE MODUS OPERANDI AND CONFIRMED ROLE OF SRI SUNIL DOKANIA AS AN OPERATOR FOR SCRIP KAILASH 511357 PERTAINING TO M/S KAILASH AUTO FIN ANCE LTD. IN REPLY TO Q.NO.8, HE HAS CONFIRMED THAT M/S DARUKA TRADING PV T. LTD. IS A JAMAKHARCHI COMPANY WHO IS ENGAGED IN BOGUS ACCOM MODATION ENTRY THROUGH HIS BROKING HOUSE M/S ASHOK KUMAR KAYAN & M /S KAYAN SECURITIES PVT. LTD. IN RESPONSE TO Q.NO. 11 HE HAS NARRATED T HE DETAILS OF MANAGER / CONTROLLER OF DIFFERENT CLIENTS UTILIZED FOR PROVID ING LTCG TO BENEFICIARIES. IN RESPONSE TO Q.NO.14 HE HAS EXPLAINED HOW BOGUS LTCG IS ARRANGED BY SRI SACHIN BADANI, SRI SUNIL DOKANIA ETC. SRI SUNIL DOK ANIA IS ONE OF THE MAJOR KEY PERSONNEL TO CONTROL THE SHARE MOVEMENT OF M/S KAILASH AUTO FINANCE LTD. A STATEMENT OF SRI NARENDRA BALASJA HAS BEEN RECOR DED ON 08.04.2015 IN THE CASE OF M/S SMC GLOBAL SECURITIES LTD. SIMIL AR STATEMENTS WERE ALSO RECORDED BY THE INVESTIGATION WING IN OTHER CASES ( EX: STATEMENT OF SRI ALOK HARLALKA RECORDED ON 24.04.2015 WHO IS SUB BROKER O F M/S SMC GLOBAL SECURITIES LTD.). MOST OF THE PERSONS HAVE ADMITTED THAT THE SCRIP KAILASH 511357 PERTAINING TO M/S KAILASH AUTO FINANCE LTD . (ALSO OTHER SCRIPS LIKE ITA NO.2738/CHNY/2018 :- 9 -: CCL-53 1900, TUNI TEXTILE-53141 1, NCL RESEARCH-530 557, SURABHI-5 12311, UNNO-5 19273, KAPPAC-506938) WAS USED FOR AR RANGED LTCG & THEY HAVE RELAXED THE KYC NORMS REQUIRED FOR OPENIN G OF ACCOUNT & THEY HAVE ALSO ADMITTED THAT THEIR CLIENTS ARE PAPER COM PANIES WHICH IN SOME CASES NOT FOUND AS EXISTENT GIVEN ON THEIR ADDRESS. THUS IT IS FOUND THAT THERE IS A GROUP OF PERSONS WORKING IN TANDEM TO PR OVIDE ARRANGED CAPITAL GAIN BY RECEIVING CASH IN LIEU OF IT. IT IS SEEN TH AT SOME EXIT PROVIDERS / CROSS PURCHASERS HAVE HELPED FOR SALE OF SHARES OF THE BE NEFICIARIES. M/S CAMELLIA VINIMAY PVT. LTD. IS ONE OF SUCH PARTY. A SAMPLE CA SH TRIAL OF THIS CONCERN WITH OTHER PARTY IS ALSO MENTIONED ABOVE. SEVERAL BROKERS/OPERATORS/PROMOTERS WHO WERE INDULGED IN TH IS MALPRACTICE WERE SEARCHED/SURVEYED AND THEIR STATEMENT WAS RECORDED. PERSONS INTERROGATED WERE ALSO FOUND MENTIONED IN THE ASSESSMENT ORDER W HO HAVE ADMITTED ON OATH U/S. 131 OF THE IT ACT THAT BOGUS ENTRY FOR LT CG WAS GIVEN FOR VARIOUS PENNY STOCKS BY WAY OF ARRANGED PURCHASES AND SALES THROUGH THE ENTITIES/PERSONS UNDER THEIR CONTROL. THE MODUS OPE RANDI OF THE TIANSACTION WAS TO ACCEPT CASH AND ARRANGE FOR ISSUING CHEQUES AFTER CHARGING CERTAIN COMMISSION. THE CONFESSION GIVEN ON OATH U/S 131 BY THE BROKERS/PROMOTERS/ OPERATORS IS ALSO A CIRCUMSTANTI AL EVIDENCE AGAINST THE ASSESSEE THAT THE SO CALLED LTCG IS ARRANGED ONE. TOGETHER SUCH EVIDENCES FORM A CHAIN OF CIRCUMSTANC ES LEADING TO AN INFERENCE OR PRESUMPTION OF THE PRINCIPAL FACT F OR WHICH THE AO HAS RELIED ON THE DECISION OF ITAT NEW DELHI IN THE CASE OF HARSH WIN CHADHA VS DCIT (I.T.A.NOS.3088 TO 3098 & 3107/D EL/2005), HELD THAT THE TAX LIABILITY IN THE CASES OF SUSPIC IOUS TRANSACTIONS, IS TO BE ASSESSED ON THE BASIS OF THE MATERIAL AVAILAB LE ON RECORD, SURROUNDING CIRCUMSTANCES, HUMAN CONDUCT, PREPONDER ANCE OF PROBABILITIES AND NATURE OF INCRIMINATING INFORMATI ON/EVIDENCE AVAILABLE WITH AO. IT EXPLAINED THE CIRCUMSTANTIAL EVIDENCES AS CIRCUMSTANTIAL EVIDENCE IS EVIDENCE OF THE CIRCUMS TANCES, AS OPPOSED TO DIRECT EVIDENCE. CONSIDERING ALL THIS IT IS FOUND THAT: ITA NO.2738/CHNY/2018 :- 10 -: THE SHARES OF THIS PENNY STOCK COMPANY, MIS. KAI LASH AUTO FINANCE LIMITED IS CONTROLLED BY A GROUP OF PEOPLE VIZ, PROMOTER / OPERATOR! BROKERS. ALL PURCHASES OF SHARES WERE A RRANGED BY THEM ON ASSURANCE OF BOOKING BOGUS LTCG IN FAVOUR OF THE ASSESSEE. PURCHASE OF SHARES OF M/S.KAILASH AUTO FINANCE LIMI TED WAS THROUGH OFF- LINE. IT IS A FACT AND EVIDENCE FROM THE STATEMENT OF SEV ERAL PERSONS RECORDED U/S 131 OF THE INCOME TAX ACT, 1961 THAT T HEY HAVE NOT ONLY SALE OF SHARES TO THE ASSESSEE BUT ALSO ARRANG ED FOR SALES OF SHARES THROUGH THEIR ENTITIES AND BY PAYING CERTAIN AMOUNT OF COMMISSION TO THEM. THE ENTITY FROM WHOM SHARES WERE PURCHASED IS A ENT RY OPERATOR AND CONTROLLED BY A GROUP OF ENTRY OPERATOR. THEREF ORE, GENERATION OF LTCG THROUGH THE PROCESS FROM PURCHASE TO RECEIP T OF CHEQUE IS TOTALLY ARRANGED AND ACTUALLY NO CAPITAL GAIN AROSE , BUT ASSESSEES OWN CASH HAS BEEN ROUTED THROUGH DIFFERENT ENTITIES AND ULTIMATELY REACHED TO ITS HAND BY CHEQUE IN THE DISGUISE OF SA LE PROCEEDS OF LISTED SECURITY. THE SHARE PRICE INCREASED MULTI FO LD EVEN WITHOUT ANY SEMBLANCE OF ANY POSITIVE FACTOR, WHICH CLEARLY SHOWS THAT THERE WAS ARTIFICIAL RIGGING BY CIRCULAR TRADING OF SHARES FORMING CARTEL. THERE IS NO SUCH INCREASE IN SHARE PRICE OF THE OTHER COMPANIES IN WHICH THE ASSESSEE HAS TRADED IN COMPA RED TO M/S.KAILASH AUTO FINANCE LIMITED. LETTERS WERE ADDRESSED TO THE PURCHASERS OF THESE 4 5,000 SHARES VIZ. M/S.KESHAVAH MERCANTILE PRIVATE LIMITED, M/S.K ESHAVAH DEALTRADE PRIVATE LIMITED, M/S.OVERGROW PROMOTERS P RIVATE LIMITED. ALL THESE COMPANIES ARE BASED AT KOLKATA AND THE LE TTERS SENT TO THESE COMPANIES WERE RETURNED UNSERVED. IN VIEW OF THE ABOVE DISCUSSION, I UPHELD THE ACTIO N OF THE AO THAT RELYING ON THE CIRCUMSTANTIAL EVIDENCES IT IS PROVE D BEYOND DOUBT THAT THE APPELLANT HAS ENTERED INTO AN ENGINEERED T RANSACTION TO GENERATE NON-GENUINE LONG TERM CAPITAL GAIN THEREBY RIGHTLY HELD ITA NO.2738/CHNY/2018 :- 11 -: SALE CONSIDERATION RECEIVED ON ACCOUNT OF SALE OF P ENNY STOCKS FOR RS,39,04,542/- AS UNEXPLAINED CASH CREDIT UNDER SEC TION 68 OF THE ACT AND RIGHTLY REJECTED THE CLAIM OF EXEMPTION UND ER SECTION 10(38) OF THE ACT FOR RS.37,84,924/-. IN LIGHT OF T HIS DISCUSSION, COMMISSION OF RS.1,17,136/- BEING CHARGED @ 3% OF RS.37,84,924/-. FOR PROVIDING ARRANGED LTCG IS ALSO HELD AS UNEXPLAINED EXPENDITURE U/S.69C OF THE ACT. ACCORDI NGLY, THE ADDITI9N MADE BY THE AO FOR SUM OF RS.39,04,542/- U /S.68 OF THE ACT AND FOR SUM OF RS.1,17,136/- U/S.69C OF THE ACT IS CONFIRMED AND THE APPELLANT GROUND OF APPEAL ON THE ISSUE IS THEREFORE DISMISSED. IN RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. THEREAFTER, THE LD. DR SUBMITTED THAT THE ASSESSEE FILED THE IMPUGNED APPEAL BEFORE THIS TRIBUNAL. SINCE THE FINDINGS RE CORDED BY THE LOWER AUTHORITIES ARE NOT CHALLENGED WITH RELEVANT MATERI AL BY THE ASSESSEE, THE LD. DR PLEADED TO DISMISS THE APPEAL. 5. WE HEARD THE LD.DR AND GONE THROUGH THE RELE VANT MATERIAL. THE ASSESSING OFFICER RECEIVED A REPORT FROM THE INVESTIGATION WING OF KOLKATA, IN WHICH, INTER ALIA, THE ASSESSEE WAS SPECIFIED AS ONE OF THE PARTIES WHO INDULGED IN BOGUS / NON-GENUINE LO NG TERM CAPITAL GAIN FROM THE TRANSACTIONS OF ALLEGED PURCHASE AND SALE OF SHARES OF M/S. KAILASH AUTO FINANCE LTD., WHICH WAS FOUND BY THEM AS PENNY STOCK COMPANY AND A SCHEME WAS HATCHED BY VARIOUS PLAYERS TO OBTAIN / PROVIDE ACCOMMODATION OF ENTRY OF BOGUS LT CG THROUGH ITA NO.2738/CHNY/2018 :- 12 -: MANIPULATION OF STOCK MARKET FOR GENERATING BOGUS LTCG . THEREFORE, THE ASSESSING OFFICER RE-OPENED AND SCRUTINIZED TH E ASSESSMENT AND FOUND THAT THE ASSESSEE PURCHASED OFF MARKET 1,00,000/- SHARES OF A UNLISTED COMPANY LIKE M/S.CAREFUL PROJECTS ADVOSO RY LTD.(MERGED WITH M/S. KAILASH AUTO FINANCE LTD., AFTERWARDS) @ RS.1 PER SHARE, AS PER PURCHASE BILL DATED 10/02/2012 FROM ONE CLOSELY HELD COMPANY NAMED, M/S.SANSKRITI VINCOM PVT. LTYD., OF KOLKATA 700 005, SUBSEQUENTLY SOLD SHARES ON VARIOUS DATES FOR SALE CONSIDERATION OF .39,17,760/- THROUGH A SINGLE BROKER NAMED M/S.GLOB E CAPITAL MARKET LTD.,(MEMBER:BOMBAY STOCK EXCHANGE), THE RATE OF S ALE STATED TO BE .38.10 TO .41.90 PER SHARE APPROX., DISCLOSED LONG TERM CAPI TAL GAIN IN HIS RETURN AND CLAIMED IT AS AN EXEMPT INC OME U/S.10(38). THE ASSESSING OFFICER EXAMINED THE ENTIRE SET OF TRAN SACTIONS AND HELD, INTER ALIA, THAT THE ASSESSEE HAS DELIBERATELY EN TERED INTO A SHAM TRANSACTION OF PURCHASE AND SALE OF BOGUS SHARES WITH FULL KNOWLEDGE OF SUCH TRANSACTIONS IN VIEW OF THE SUBSTANTIAL GA INS SHOWN ON THE SALE OF SUCH PENNY STOCKS, WITHIN REASONABLY A SHORT PER IOD SO AS TO CONVERT THE UNACCOUNTED MONEY INTO ACCOUNTED MONEY IN THE GUISE OF EXEMPT CAPITAL GAINS. THEREFORE, THE ASSESSING OFFICER TR EATED THE ENTIRE SALE AT .39,04,542/- AS AN UNEXPLAINED CREDIT U/S.68 AND C OMPLETED THE ASSESSMENT. AGGRIEVED, THE ASSESSEE FILED THE APPE AL BEFORE THE CIT(A). SINCE, THE RIGHT TO EXEMPTION MUST BE ESTAB LISHED ITA NO.2738/CHNY/2018 :- 13 -: BY THOSE WHO SEEK IT, THE ONUS THEREFORE LIES ON THE ASSESSEE. IN ORDER TO CLAIM THE EXEMPTION FROM PAYMENT OF INCOME TAX, THE ASSESSEE HAD TO PUT BEFORE THE INCOME TAX AUTHORI TIES PROPER MATERIALS WHICH WOULD ENABLE THEM TO ARRIVE AT A CO NCLUSION (35 ITR 312 (SC)). HOWEVER, IN THIS CASE, IT IS SEEN FROM T HE ORDER OF THE LD.CIT(A), SUPRA, THAT THE ASSESSEE HAS NOT PLAC ED RELEVANT MATERIAL AND PROVED THE GENUINENESS OF THE IMPUGNED TRANSACT IONS. ALTHOUGH, AN APPEAL AGAINST THE ABOVE ORDER HAS BEEN FILED BE FORE THIS TRIBUNAL, EVEN BEFORE US ALSO, THE ASSESSEE HAS NOT CHALLENGE D THE FINDINGS RECORDED BY THE LOWER AUTHORITIES WITH RELEVANT MAT ERIAL AND HENCE WE DISMISS THE APPEAL. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 22 ND MAY, 2020 AT CHENNAI. SD/- SD/- ( . ) (DUVVURU RL REDDY) ( &) /JUDICIAL MEMBER ( ! ) (S. JAYARAMAN) /ACCOUNTANT MEMBER & / CHENNAI ' / DATED: 22 ND MAY,2020. K S SUNDARAM ( ) *+ , +$ / COPY TO: 1 . / APPELLANT 4. ( ( - / CIT 2. / RESPONDENT 5. +./ 01 / DR 3. ( ( - () / CIT(A) 6. /45 6 / GF