Appeal Details
Counselvise Citation
[2024] 101 COUNSELVISE.COM (IT) 8904 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 21 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-01-2024
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
A
Next Hearing Date
27-12-2023
Assessment Year
2014-2015
Appeal Filed On
08-01-2023
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, ‘A‘ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & MS. PADMAVATHY S, ACCOUNTANT MEMBER ITA No.53/Mum/2023 (Assessment Year :2014-15) Aakruti Ketan Mehta 2501/2502, Ashok Tower Dr. S.S. Rao Road Parel, Mumbai-400 012 PAN/GIR No.BAVPM3711N Vs. ITO, Ward-35(1)(1) Kautilya Bhavan Bandra Kurla Complex Mumbai-400 051 (Appellant) .. (Respondent) Assessee by Shri Pradip Kapasi Revenue by Shri A.S. Sant Date of Hearing 28/12/2023 Date of Pronouncement 31/01/2024 आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against the order dated 02/12/2022 passed by ld. CIT(A)-57, Mumbai for the quantum of assessment passed u/s.143(3) for the A.Y.2014- 15. 2. In the grounds of appeal, the assessee has raised the following grounds:- ITA No. 53/Mum/2023 Aakruti Ketan Mehta 2 “1] On the facts under the circumstances of the case as well as law on the Subject, the Ld. Commissioner of Income Tax (Appeals) 57, Mumbai has erred in confirming the action of the Assessing Officer in making the addition of Rs. 2,70,01,771-00 U/s.68 of the Act for alleged bogus Long Term Capital Gain on sales transactions of shares of M/s. Sun- Rise Asian Limited. 2] The Lr. C.I.T (A) 57 has also erred in confirming the addition of presumptive brokerage alleged to have been paid to the broker at Rs.8,10,053.00. 3] The appellant craves leave to add, alter, amend or delete any grounds either before or in the course of hearing of appeal. 3. The brief facts are that assessee is an individual deriving income from salary, house property, and also during the relevant assessment year she has also declared long term capital gains from sale of shares. The return of income for the A.Y. 2014-15 was filed on 16/07/2014 declaring total income of Rs.8,52,990/- In the return of income assessee has claimed long term capital gain of Rs.2,58,25,245/- which was claimed as exempt u/s.10(38) of the Act from sale of shares of Sunrise Asian Ltd. The assessee in the calendar year 2011 had purchased 55,000 shares of M/s Conart Traders Ltd. from Santoshima Tradelinks Ltd. on 27/11/2011 for Rs.11,00,000/-. The payment of Rs.11,00,000/- was made through account payee cheque drawn on Tamilnadu Mercantile Bank Ltd. The assessee received debit note on 28/11/2011 from M/s. Santoshima Tradelinks Ltd of Rs.11,00,000/- and the said shares were de-materialized on 22/01/2012. Under the scheme of amalgamation entered into between Santoshima Tradelinks Ltd., and Conart Traders Ltd, ITA No. 53/Mum/2023 Aakruti Ketan Mehta 3 these two entities were merged with Sunrise Asian Ltd. and the said scheme was approved by the Hon’ble High Court of Bombay vide order dated 22/03/2013. On amalgamation, the shares of the said company were swapped with the equity shares of Sunrise Asian Ltd. at a fixed ratio of 1:1. These shares were sold through broker between the period 27/11/2013 to 21/03/2014 on Bombay Stock Exchange for sum aggregating to Rs.2,70,01,771/- @ ranging between Rs.486 to 493 per share. Accordingly, the assessee has computed long term capital gain in the following manner:- 4. The ld. AO noted that assessee has purchased the shares of Santoshima Tradelinks Ltd offline and there was a gap of 21 days between the date of purchase and date of payment. Shares of Santoshima Tradelinks Ltd. did not have any substantial profit or the financial results of company were not lucrative so as to achieve any gain. Thus, he deduced that purchase of these Scrip Name: Sunrise Asian Ltd (formerly known as Santoshima Tradelinks Ltd. Buy Sell Date of purchase /sale Quantity Rate Amount quantity Rate Average Amount Gain 27/11/2011 55000 20 1100000 TOTAL 55000 490.94 27001771 25825245 ITA No. 53/Mum/2023 Aakruti Ketan Mehta 4 shares were predetermined scheme on part of the assessee to acquire long term / short term capital gains or loss by way of dubious methods. Thereafter, AO referred to survey action in the case of Sunrise Asian Ltd. and statement of Director, Shri Kalpesh Manahar Jani which was recorded on 04/02/2015 u/s.131. In his statement on oath, he admitted that “he is not aware of anything related to Sunrise Asian Ltd.” and in response to question; he simply stated that “I do not have any link with this company”. He further admitted that “Shri Vipul Vidur Bhatt (his cousin brother) has used his name and has appointed him as a director to Sunrise Asian Ltd. 2 1/2 years ago.” Further, during the survey action at the registered office of M/s. Sunrise Asian Ltd. at 133, Pancharatna, Opera House, Near Charni Road Railway Station, Mumbai, it was found that no work or any activity was carried out in the office and there are only two employees in the office including one peon and there was only one old computer kept in the office. No books of accounts were kept and maintained in that office. Thus, it appeared that this company had an office at Mumbai which was maintained for receiving letters and mails. Accordingly, he deduced that Sunrise Asian Ltd. is bogus / paper company and Shri Vipul Vidur Bhatt is operator of the company. 5. Later on, the investigation wing of the department from the search conducted u/s 132(1) found that, Shri Vipul Vidhur Bhatt is an established entry operator who is involved in the activity / business of providing bogus accommodation entries to the various beneficiaries for commission from the scrips of Sunrise ITA No. 53/Mum/2023 Aakruti Ketan Mehta 5 Asian Ltd. He controlled, managed and operated as many as 347 bogus entities including Sunrise Asian Ltd. for providing various bogus accommodation entries to the various beneficiaries. In the course of search taken in his case, statement was recorded u/s. 132(4) on 09/02/2016 wherein Shri Vipul Vidur Bhatt had accepted that he is involved in providing bogus accommodation entries of the following natures- (i) Bogus Long Term Capital Gain / Short Term Capital Gain/Loss (ii) One time entry of Share Capital/Share Premium (iii) Unsecured loan entries (iv) Turnover Entries. 6. Further, in his statement u/s.132(4), he accepted that he is aware of the following penny stock companies which were managed, controlled and operated by him for providing long term capital:- (i) M/s. Sunrise Asian Limited (ii) M/s. Sampada Chemicals Limited The ld. AO had also extracted the relevant statement of Shri Vipul Vidur Bhatt recorded on 09/02/2016 which has been incorporated in the assessment order. In so far as M/s. Sunrise Asian Limited, Vipul Vidur Bhatt categorically admitted that it is a bogus company and he has been using this entity for providing accommodation entries to various beneficiaries and he controlled the entire activities and affairs of this company and all the Directors of the company are dummy Directors who are ITA No. 53/Mum/2023 Aakruti Ketan Mehta 6 appointed by him. He has further stated he is an entry operator of shares of M/s. Sunrise Asian Ltd and he alone manages the entire affairs of this company and it is under his control. Further, share price of M/s. Sunrise Asian Ltd. were artificially rigged in Bombay Stock Exchange with an objective to provide bogus long term gain and accommodation entries wherein he used to charge commission in cash between 4-5% of long term capital gain amount. He has also explained in detail the modus operandi of providing bogus long term capital gain in the scrips of M/s. Sunrise Asian Ltd. Relevant questions for the sake of ready reference is reproduced hereunder:- “Q.21 Please inform, in what capacity are you managing the affairs of Sunrise Asian Limited? Ans Sir the shares of Sunrise Asian Limited has been used for providing bogus long term accommodation entries of bogus LTCG I am the operator of the scheme and have managed the affairs of Sunrise Asian Limited Q.22 Please explain in detail the entire modus operandi of providing bogus long term accommodation entry in scripts of Mis. Sunrise Asian Limited. Ans Sir. I acquired M/s Sunrise Asian Limited from one Shri Vijay Bhaiti during 2010-11 which was Isted on BSE however the trading in the scripts was suspended by BSE I had acquired this company for providing accommodation entries of bogus LTCG After the acquisition I got the company suspension revoked Thereafter I managed the amalgamation of two companies with Sunrise Asian Limited viz (1) M/s Santoshima Tradelink Limited and (1) Conart Traders limited Thereafter the beneficiaries of bogus LTCG accommodation entries were allotted shares of (1) Santoshima Tradelink Limited (Formerly known as M/s Santoshima Lease Finance and Investment (India) Limited) and (ii) M/s Conart Traders Limited on preferential basis and thereafter share holders ITA No. 53/Mum/2023 Aakruti Ketan Mehta 7 of these companies were allotted shares of M/s Sunrise Asian Limited in swap ratio of 11 Once this amalgamation was done the price of the shares of M/s Sunrise Asian Limited was rigged and increased through circular trading Once the price of the shares was increased to a desired level the beneficiaries of bogus LTCG were asked to sell the shares of M/s Sunrise Asian Limited For doing the same unaccounted cash was taken from the routed into the accounts of some beneficiaries and the same was companies/firms/individuals managed and controlled by me and thereafter the routed funds were used to purchase the shares of M/s Sunrise Asian Limited held by the beneficiaries of bogus LTCG Q:26 Please give the list of the entities for whom accommodation entry of bogus LTCG was arranged by you through the shares of Sunrise Asian Limited. Ans. Sir as I have already told the beneficiaries of bogus LTCG were Santoshima Tradelink Limited and Conart Traders Limited through preferential allotmen shares of Santoshima Tradelink Limited and Conart Traders Limited were allotted shares of 2011- 12 The Sunrise Asian Limited upon the scheme of Amalgamation When I purchased Sunrise Asian Limited the swapped with the shares of trading in the shares of Sunrise Asian Limited was under suspension At that time some of e beneficiaries were allotted the shares of Sunrise Asian Limited through off market transaction in 2011-12. Thus at the entities which were en preferer hares of Santa Tradelink Limited and Conan Traders Limited are the beneficiaries of bogus LTCG through the shares of Sunrise Asian Limited Also the entities which have received the Asian Limited trough off market transaction are also the beneficiaries of bogus LTCG Q.27 Please explain in details about the modus operandi that has been adopted by you for providing accommodation entry of LTCG Ans Sir. I have arranged accommodation entry of bogus LTCG through the shares of Sunrise Asian limited and Sampada Chemicals Limited I have done major work in Sunrise Asian ITA No. 53/Mum/2023 Aakruti Ketan Mehta 8 Limited For doing the same. I took control of Sunrise Asian limited and purchased this company from Sihn Vijay Bhaiti during 2010- 11 I was also managing and controlling various companies for my business of accommodation entry I was in control of Santoshima Tradelink Limited and Conart Traders Limited I approached various intermediaries and also various intermediaries approached me for availing accommodation entry of LTCG Santoshima Tradelink Limited and Conart Traders limited were amalgamated in Sunrise Asian Limited As per the scheme of amalgamation, the shareholders of Santoshima Tradelink Limited and Conart Traders Limited were allotted shares of Sunrise Asian Limited in the swap ratio of 1:1 during May 2013. These shares were listed on the stock exchange in June 2013. Meanwhile, the prices of the shares were increased through arranged trading from around Rs. 50 in October 2012 to Rs. 450 in Feb 2013. After the price of The shares was increased, I arranged for the sale of the shares of the beneficiaries for providing accommodation entry of bogus LTCG This entire scheme was managed by me and Shri Hiren Shah and Shi Jitendra Joshi. Q.32 Please explain what happened after the shares were allotted to the beneficiaries of LTCG Ans. Sir some of the beneficiaries were allotted the shares of Sunrise Asian Limited itself in 2011-12 and the others were allotted the shares of Santoshima Tradelink Limited M/s Santoshima Lease Finance and Investment (India) Limited) and M/s. Conart Traders Limited The suspension in the trading was revoked in August 2011 Thereafter, since October, 2012 the price of the shares of Sunrise Asian Limited started rising This price rise in the shares of Sunrise Asian Limited was managed by Shri Hiren Shah. He used to purchase/sell the shares of Sunrise Asian Limited through the entities maintained and controlled by him The price was rigged through circular trading whereby the entities of Hiren Shah used to place the purchase order and then one of our entities used to sell the shares. The purchase orders were usually put near the circuit limit so as to gain maximum price rise in a day Sometimes the outside parties used to place purchase orders early in the morning and we used to release 10-15 shares during the day to those outside parties to execute the trade and to increase the last traded price. Thus the prices of the shares were rigged ITA No. 53/Mum/2023 Aakruti Ketan Mehta 9 and were artificially increased on the stock exchange Once the price of the shares was increased, the shares of the beneficiaries were sold on the exchange The price of the shares was increased from Rs. 00 in Oct 2012 to around Rs. 460 in Feb 2013. Q.33. Please tell how the beneficiaries booked entry of LTCG in their books? Ans. Sir once the price of the shares had been rigged sufficiently the beneficiaries were asked to hand over their unaccounted cash to the intermediaries or to me The cash received from beneficiaries was routed by the intermediaries or by me into the bank accounts of various dummy entities through accommodation entry Thereafter these dummy entities were used to purchase the shares sold by the beneficiaries on the stock exchange I was maintaining numerous companies/firms and was also controlling accounts of various individuals and HUFS Whenever the cash was received from the beneficiaries, the same was routed into the account of one of the entities maintained by me. This routing was usually done through cheque discounting agents or bill discounting agents. These agents are into the business of providing RTGS entry against cash. Thus the cash received from beneficiaries was converted into RTGS entries into one of the entities maintained by me. Thereafter I used to layer the funds by routing the RTGS into another entity controlled by me Thereafter the entity into which the funds have been transferred used to purchase the shares of the beneficiaries from the stock exchange in this way, the unaccounted income of the beneficiaries was routed into the accounts of the beneficiaries in the form of entry of LTCG Q.34 When did the beneficiaries started booking entry of LTCG? Ans. Sir the price of the shares were increased from Rs. 60 in Oct 2012 to Rs 460 in Feb 2013 The beneficiaries who were allotted shares of Sunrise Asian Limited through off-market transaction were having the shares for more than one year as on Feb 2013. These beneficiaries started selling the shares after Feb 2013. The shares of the beneficiaries through preferential allotment in Santoshima Tradelink Limited and M/s: Conart Traders Limited were listed in June 2013 and they also started selling the shares ITA No. 53/Mum/2023 Aakruti Ketan Mehta 10 after the listing as they had also held the shares for more than one year Q.38 What is the need for providing artificial volume and which are the shares in which such activity has been done by you? Ans Sir, the artificial volume helps in giving a legal face to the trades done in a penny stock By creating artificial volume it is shown that the shares are widely traded whereas in realty there are no genuine traders in the shares. I did volumes in Sunrise Asian limited and have also in some other shares. Q.54 Please inform, have you earned any commission income for the accommodation entries arranged by you? Ans Sir for the entries of unsecured loans I received a cash commission at the rate of 1% of the quantum of entry In the case of LTCG the cash commission was around 4% of the amount of the LTCG entry. This cash commission of 4% was distributed equally between myself, Hiren Shah and Jitendra Joshi. 7. AO further noted that the price of share of Sunrise Asian Limited sky rocketed without having any profit, EBIDTA margin, EPS, bonus, dividend etc. Despite none of the essential parameters for increase of price, the share price of Sunrise Asian Limited increased more than 100 times. Thereafter, AO has referred to certain action taken by SEBI against Sunrise Asian Limited and has given general remark and also how the Director of Income Tax Investigation, Kolkata has prepared a small cash trail and how the entry operator operates and how the mechanism works in the syndicate for providing long term gain / short term loss. ITA No. 53/Mum/2023 Aakruti Ketan Mehta 11 8. In response to show-cause notice, assessee stated that the sales were made through broker and were duly reflected in the D-mat account and assessee has received the tax against sale proceeds. Assessee also denied having indulged in any malpractice with the broker / operator / promoter for purchase of shares. The assessee had adduced all the evidences for purchase and sale of shares including contract notes and has also paid STT. AO has also referred to SIT report prepared by retired Hon’ble Judges of the Supreme Court and their recommendations. Thus, in light of these facts and information and material on record, ld. AO rejected assessee’s documents and held that the entire edifice through which assessee has earned huge exempt long term gains within a short span of time is dubious and non-genuine. Thereafter, he has referred to catena of judgments in his orders and added entire sale proceeds of the shares u/s.6 8 of Rs.2,70,01,771/-. He further added commission of 3% of Rs.8,10,053/- for taking accommodation entry from the entry provider as they use to charge commission for providing such accommodation entry. 9. The ld. CIT (A) after recording the assessee’s submission as incorporated in his order and the observations and finding of the AO and the material on record analysed the entire issue in detail. First of all, he has referred to the balance sheet and the financials of Sunrise Asian Ltd. which was available in public domain right for the year ending 31/03/2012 to 31/03/2015 and the financial results which are incorporated from pages 12- 15 of the appellate order. From the financials of the company he ITA No. 53/Mum/2023 Aakruti Ketan Mehta 12 observed that, it indicates that during the period from F.Y.2010- 11 to 2014-15 the turnover of Sunrise Asian Ltd. ranged from Rs.38.11 Lakhs to Rs.172.71 Crores, however, profits were almost negligible and it ranges from Rs.(-)50,45,578- to Rs.69,54,857/-. Further, market price of shares of Sunrise Asian Limited was maintained to Rs.60/- from 08/09/2011 to 08/10/2012 and suddenly on 07/02/2013, the price rose to Rs.419.75 and it further escalated to Rs.596.25/-. Such rise in share price of Sunrise Asian Ltd. was not in consonance with the financials of the company. He further noted that though in the statement u/s. 132(4) recorded by the Investigation Wing Shri Vipul Vidur Bhatt has confirmed his role in providing bogus long term capital gains as entry / exit provider by floating entry / exit provider companies. However, later on, he retracted from his statement by simple affidavit without any evidences. He has referred to certain decisions that such kind of retraction by way of an affidavit cannot be relied upon and has no sanctity. He also referred to search carried out by SEBI and inquiry wherein it was found that there was a manipulation of share price in the scrip of Sunrise Asian Ltd for the period 16/10/2012 to 30/09/2015 and with such observation, violations of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 were committed by certain entities. He also referred to certain modus operandi as an Investigation Wing and also other judgments in his order including Judgment of Hon’ble Delhi High Court in the case of Suman Poddar vs. ITO (2019) 112 taxmann.com 329 and ITA No. 53/Mum/2023 Aakruti Ketan Mehta 13 judgment of Hon’ble Calcutta High Court in the case of PCIT vs. Swati Bajaj (2022) 139 taxmann.com 352 and confirmed the action of the ld. AO. 10. Before us, ld. Counsel for the assessee Shri Pradip Kapasi explained the entire facts and background of the case and in his written submissions he has given a rebuttal of the various observations made by the ld. AO and ld. CIT(A) which for the ready reference is reproduced hereunder:- The following are the ACTIONS OF THE AO AND BRIEF RESPONSES ON THE SAME 1. There was a gap of about 21 days between the date of purchase and date of payment (Pg. 29 &30 of PB-Para 4.4 of Order) Obviously the payment for purchase of shares would proceed the allotment of shares. No allotment would be made unless the payment was made. The AO has no basis for treating the transaction of purchase as suspicious on this ground. Important point in any case is payment was made by cheque and the genuineness was thereof not doubted at all. The ld. AO has confused himself with respect to so called gap between the date of payment of Rs. 11,00,000 and the date of actual purchase of share which is common place in share market as well as in commodity market. 2. The price of share of Sunrise Asian Limited sky rocketed without having any awesome profit. (Pg. 38 of PB-Para 3.10 of Order) This finding of the AO is devoid of any facts and is without any evidence or finding. The AO has not specified the period for which he alleged the jump in which the shares were held for a period of about three years ITA No. 53/Mum/2023 Aakruti Ketan Mehta 14 and the prices have risen subsequent to the merger of the company and the listing of the shares amalgamated company ie Sunrise Asian Limited where the net worth of the company rose from about 1 crore rupees to 45 crores. So there was a forty-five fold increase in net worth and the price of the share has multiplied for about 20 times only. Prices have moved in the same range of Rs. 450 to 600 for about 2 years before sale of shares and thereafter for another 2 years after the sale of shares (Rate/Copies attached). The fact is the share prices of the scrip in question has moved the tandem with the index. Secondly, no evidence is brought on record that such prices were found to be manipulative by the appellant or the authorities regulating the stock exchange. Thirdly, genuineness of transactions on the ground of market price cannot be disregarded without establishing the direct involvement of the appellant and involvement of unaccounted income and cash of the appellant. Kindly note that no inquiry of any nature was conducted by the AO. The company had net worth of Rs. 46 crores and the total assets of about Rs. 166.38 crores and a turnover of Rs. 26 crores, a credibility that could not be ignored. There was substantial rise in the top line and also the profits of the company Sunrise Asian Limited. 3. The step of acquiring stake in a Public Limited company incurring loss, merger of three entities, substantial increase in share capital of listed company & convenient share allotment at the time of merger are the circumstantial evidences that the operators/promoters are determined to benefit the beneficiaries by arranging LTCG. (Pg. 38 of PB-Para 3.13 of Order) The entire scheme of amalgamation was approved by the High Court on satisfaction of the genuineness of amalgamation. ITA No. 53/Mum/2023 Aakruti Ketan Mehta 15 The scheme was approved by the High Court only after consent of the commissioner of Income Tax. 4. A Statement was recorded of the director of Sunrise Asian Limited, Shri Kalpesh Manahar Jani (Pg. 30 of PB-Para 5 of Order) First of all, the facts of AO's reliance on the statement of Kalpesh Manahar Jani was gathered by the appellant for the first time only on receipt on assessment order. No copy of the statement has been provided to your appellant till date. Neither Kalpesh Manahar Jani was examined by AO nor was he produced for cross examination. In the circumstances, no reliance would have been placed by the AO on the statement of Kalpesh Manahar Jani to disbelieve the facts of the appellant. The copy of the statement of Kalpesh Jani has not furnished till date. Secondly, even the contents of his statement are not known nor are they captured in the body of the order. The said Mr. Jani has not been examined by the AO nor was he produced for cross- examination and importantly the Appellant was never show caused to seek his explanation. 5. A Statement was recorded of Shri Vipul Vidur Bhatt (Pg. 31 of PB-Para 3.1.2 of Order) The copies of statements on oath of Shri Vipul Vidur Bhatt other than the one recorded on 09.02.2016 has not been given inspite of the repeated requests to do so. The AO has denied the cross examination of Shri Vipul Vidur Bhatt inspite of request to do so. In any case he himself had retracted his statement on 02.09.2016 (Pg. 351-356 of PB). Shri Vipul Vidur Bhatt has clearly explained ITA No. 53/Mum/2023 Aakruti Ketan Mehta 16 the reason for possessing the books of accounts of the companies by stating that he was the tax consultant for all such companies. 6. Sunrise Asian Limited is a bogus/paper company and Vipul Vidhur Bhatt is the operator of the company (Pg. 31 of PB-Para 5 of Order) This finding of the AO is without any basis and is made without any inquiry into the affairs of the company. The said company is a listed company and was not delisted on the dates of sales. 7. Intention of the assessee to purchase these shares was nothing but an act of conscious mind to dupe the provisions of the Income Tax Law for routing of unaccounted money in the form of exempted income. (Pg. 30 of PB - Para 4.7 of Order) - This is a baseless allegation. No evidence of any strength and credibility has been brought by the AO on record to support his wild allegation. Allegations of conversion unaccounted income into exempted income is made without bringing on record of any proofs to establish that the appellant had or was in possession of such income and had a source for such income and that such alleged income was used in financing the share transactions resulting into tax free Long Term Capital Gains. No inquiry whatsoever was made by AO/CIT(A) to supported there wildest assumption. 8. This entire edifice through which the assessee claimed to have earned huge tax exempt gains within a very short period of span of time fails both genuineness and human probabilities. (Pg. 48 of PB - Para 10.4 of Order) The appellant has had the shares for almost three years which surely was not a short period. The prices have moved over a period of 2 years and the rise of the prices was commensurate with the progress of the company from net worth of 1 crore to 45 crores. ITA No. 53/Mum/2023 Aakruti Ketan Mehta 17 Appellant has brought on record overwhelming evidence in support of the genuineness of the transaction and the intentions of the investment behind the transactions and its monitoring by the appellant. There was no failure on any count of the appellant. The failure if any was squarely that of the Ld. AO. The gains made by the assessee in shares of the company are a long term capital gain and is fully disclosed in the accounts of the assessee. The investment in the shares was made in the calendar year 2011 and has since then been accepted as the explained investment year after year. 9. The amount of Rs. 2,70,01,771 received as sale proceeds on sale of shares is required to added back towards taxable income u/s. 68 of the Act. (Pg. 52 of PB-Para 14.4 of Order) S. 68 is not applicable to the case of deposits by account payee cheques in the bank account of the appellant in which deposits were disclosed as representing the sale proceeds. There was therefore no 'cash credit' that was received and credited in the books in the name of third party. S.68 does not apply when the receipt was credited as the revenue and income. The appellant had made investments in acquiring shares that had resulted into LTCG which investment was made by the account payee cheques in the preceding previous years and the cost of acquisition of such investment together with indexation was eligible for deduction u/s 48 in computing the capital gains. The AO was not justified in treating capital gain arising from sale of shares as unexplained cash credit III. CIT(A)'s action and reasons ITA No. 53/Mum/2023 Aakruti Ketan Mehta 18 • The CIT(A) in confirming action of the Id. AO has stated the following: The Appellant had failed to substantiate the claim that it had made investment in shares of Sunrise Asian Ltd., as a genuine investor. All this definitely casts serious doubts on the genuineness of the sale price and, thus, the ensuing gain. (Pg. 314 of PB-Para 4.3.8, pg 17 of Order) The appellant is not able to explain abnormal rise in share price. The appellant's claim of exemption u/s10(38) of the act in respect of long term capital gain (LTCG) of Rs. 2,58,25,245/- on sale of shares is not justified. (Pg. 323 of PB-Para 8, pg 26 of Order). The rise in price was over a period of three years and was maintained for another 2 years after the sale of the shares. • The rise was on account of merger of the company and the listing of the shares amalgamated company i.e Sunrise Asian Limited where the net worth of the company rose from about 1 crore rupees to 45 crores. o So there was a forty-five fold increase in net worth and the price of the share has multiplied for about 20 times only. Appellant has brought on record overwhelming evidence in support of the genuineness of the transaction by producing 10 evidences one of which disputed by AO/CIT(A) (Page 54 to 258, 329, 337 to 339, 349 to 359, 388 to 390 of the PB) and (Page 14 & 15 of Factsheet) and the intentions of the investment behind the transactions and its monitoring by the appellant. There was no failure on any count of the appellant. The failure if any was squarely that of the Ld. AO. Extensive investigation was carried out by the Income-tax Department in the cases of key players such as brokers, operators, directors of company and found that price of shares of M/s Sunrise Asian Ltd were manipulated only with the intention of giving benefitof high LTCG without paying any tax to the beneficiaries, including the appellant. (Pg. 315 of PB - Para 4.3.8, pg 18 of Order) ITA No. 53/Mum/2023 Aakruti Ketan Mehta 19 None of the above facts were revealed to the appellant nor the appellant was confronted with the alleged statement and findings neither the AO/CITA(A) has verified the bonafide of the alleged statement nor they produced any of them for cross examination by appellant. In the circumstances, no reliance can be placed on any of the alleged statement. • Investigation if made did not show any link between appellant and the alleged manipulation. • Importantly, the Id. AO did not at all conduct any inquiry or examination to establish that the evidence produced were unbelievable in law. The appellant is one of the beneficiaries of the shares of Sunrise Asian Ltd. In the case of penny stocks including Sunrise Asian Ltd, statements of several persons were recorded and there are several beneficiaries. It is not practical to allow cross examination of all the persons in case of each beneficiary. Accordingly, the contentions of the appellant that opportunity of cross examination was not provided and principles of natural justice is not followed is not valid and it is rejected. (Pg. 326 of PB - Para 4.3.11, pg 29 of Order) Denial of cross examination of persons whose statement were relied upon was a serious violation of justice. Please see Kishinchand Chellaram, 125 ITR 713(SC), and Andaman Timber Industries, 62 taxmann.com 3 (SC) In view of the above fact retracted statement of Shri Vipul Vidur Bhatt has no sanctity and it could not be used an evidence. The original statement recorded w/s. 132(4) has to be relied upon as an evidence. (Pg. 313 of PB- Para 4.3.5, pg 16 of Order). • Kindly refer to pg. 351 to 356 wherein the retraction is made in the form of an Affidavit explaining the circumstances in which he was forced to make an untrue statement and giving the correct facts with explanation. ITA No. 53/Mum/2023 Aakruti Ketan Mehta 20 11. Thereafter, ld. Counsel submitted that assessee had purchased shares offline of Santoshima Trade links Ltd and same were paid through account payee cheques and duly recorded in the books of accounts. He further submitted that the said company had high net worth of Rs. 45,78,01,810 and sufficient capital of Rs. 25,57,73,700 and reserves of Rs. 20,20,28,109 of its own which was reflected in the financial statements. The total Turnover of the company for the year of issue was Rs. 25,64,71,363 and net profit was Rs. 14,57,760. The purchase value of share being Rs. 20 (Rs. 10 Face Value and Rs. 10 premium) was commensurate to the earnings and business of the company. The fact of purchase was duly declared in the balance sheet filed with return of income for earlier years. Further, when assessee was allotted shares of Sunrise Asian Ltd post amalgamation, it was a listed company of the Bombay Stock Exchange and sold all the shares through recognised stock exchange electronically on payment of STT and other charges through registered broker. Thus, the credit appeared in the books of accounts were on account of sale of shares only. He further submitted that, in the statement of Shri Vipul Vidur Bhatt, nowhere the name of the assessee is mentioned nor anywhere it has been found that share transactions were not genuine. He has nowhere alleged of any bogus transaction with the assessee. Even the SEBI has not proceeded against assessee or her broker nor have they been charged or fined by the SEBI. Further, no material belonging to assessee was found in the ITA No. 53/Mum/2023 Aakruti Ketan Mehta 21 course of search of Shri Vipul Vidhur Bhatt. He further submitted that the assessee at any point of time before passing of ld. AO was ever informed nor was asked to show cause about the statement of Shri Vipul Vidhur Bhatt, neither assessee was given any opportunity on these information gathered by investigation wing or statements or was confronted that AO was proposing to rely on the statement of Vipul Vidhur Bhatt and Kalpesh Manahar Jani or the investigation report of the DDIT or the alleged proceedings before SEBI. It was only from the order of the AO, the assessee for the first time was shocked to learn of the sole reliance of the AO on the above mentioned documents based on which the ld. AO had held the transactions in shares to be bogus and deny the exemption u/s. 10(38) in respect of the Long term Capital Gains of Rs. 2,58,25,245. 12. The AO or the ld. CIT (A) have themselves not examined Vipul Vidhur Bhatt or Kalpesh Manahar Jani nor have they produced any one of them for cross- examination. Thus, in this case there was a serious violation of equity, fairness and justice by using documents behind the back of the assessee nor even the statement of Shri Vipul Vidur Bhatt was confronted at the time of assessment proceedings. The assessee had informed this aspect and brought on record before the ld. CIT (A) through various submissions. The ld. CIT(A) has even adjourned the matter for remanding the matter to the file of the ld. AO for furnishing the copies of the above documents and facilitating the cross examination of Shri Vipur Vidur Bhatt and Shri Kalpesh Manahar Jani one of his associate who was involved in such ITA No. 53/Mum/2023 Aakruti Ketan Mehta 22 accommodation entry. However no such remand report came on record and ld. CIT(A) has simply confirmed the action of the AO. He also referred to certain judgments that order has been passed by violation of natural justice, then same deserves to be quashed. For the sake of ready reference his contention and the reliance placed on judgments are as under:- The appellant relies on the decisions in the cases of Prabhatam Investment (P) Ltd., ITA.Nos. 2523 to 2525/Del./2015; R.W. Promotions (P.) Ltd. 61 taxmann.com 54 (Bom.); Kanubhai Maganlal Patel, 79 taxmann.com 257 (Guj.), D. Kanta, 19 taxmann.com 92/205 Taxman 115 (Kar.) (Mag.); Rahul Vineet Traders, 41 taxmann.com 86/221 Taxman 46 (All) and Vijay Kumar Jain, 41 taxmann.com 433/221 Taxman 180 (All) to submit that the order passed by AO in gross violation of the provisions of natural justice that required AO/CIT(A) to issue summons, conduct inquiry, produce parties for cross examination deserves to be quashed. • Your appellant also submits that the AO had failed to examine a) Santoshima Tradelink Ltd (Santoshima), b) Registered Brokers, c) their AO, d) their bankers e) Depositories (DP) and f) Others before disbelieving the evidences furnished by them and the facts stated by the appellant. • Your honour's kind attention is drawn to the following decisions wherein it had been held that assessment made without furnishing the material used against the assessee must be quashed. It was held that the assessee must be furnished with the copies of such material and should be given an opportunity to explain his case and rebut the findings of the Income Tax Department. In P. Shreelekha Bannerjee, 49 ITR 112 (SC), the court held that the enquiry must be conducted in accordance with the rules of natural justice and all the material for and against the assessee must be shown to him and an opportunity must be given to him to rebutt the findings and to present his case. The Madras High Court in V. Datchinanurthy and another, 149 ITR 341 confirmed the above findings. Please also see the decision in the ITA No. 53/Mum/2023 Aakruti Ketan Mehta 23 case of Dilipkumar Kalicharan, 52 ITD 310 and Colonisers, 41 ITD 57 (Hyd)(SB). Please see the decision of the Supreme Court in Kishanchand Chellaram, 125 ITR 713(SC), wherein it was held that the material collected behind the back and without the knowledge of the assessee had no evidentiary value more so when no opportunity of cross examination was provided to the person against whom such material was used. • Documents produced were not even examined and/or disapproved by AO before making additions as had been his duty. Please see- Softline Creations (P) Ltd, 387 ITR 636 (Delhi) Laxman Industrial Resources, 397 ITR 106 (Delhi) Multitex Filtrations Engineers, 13 SOP 208 (Delhi) (Trib) • The documents relied upon by AO/CIT(A) but not confronted with to the appellant are not reliable and should be ignored in adjudicating the appeal. • No defects have been found by the AO in the evidences furnished and as a consequence no addition was possible. Please see- Rahul Vineet Traders, 41 taxamnn.com 86(All) Shyam Indus Power, 52 ITR (T) 512 (Delhi) Your appellant pleads that an assessment made in violation of the provisions of natural justice be quashed.” 13. Thereafter, he has referred to various documents submitted before the ld. AO and ld. CIT(A) to prove the genuineness of the transaction in his written submissions which for the sake of ready reference are hereunder:- Your appellant now seeks to explain each of the propositions in detail together with evidences. (A) (1) Details of Santoshima Tradelink Ltd, and of Sunrise Asian Ltd, and of the Registered Brokers and proofs and evidences of ITA No. 53/Mum/2023 Aakruti Ketan Mehta 24 the transactions of purchase and sale were provided to the Ld. A.O. Various details such as address and PAN of the Santoshima and also the Broker through whom shares were sold and also bank statements of the appellant showing payment for purchase and receipt of sale of shares was submitted to Id. A.O. The appellant once again re-iterates that the following details were furnished before the AO as well as CIT(A); (Please refer to page 276, 277 of the written submissions dt. 03.01.2022 and 288 and 289 of the written submissions dt. 10.11.2022 and also confirmed by CIT(A) in its Order at para 4.3.3 page 10 and 11 and page 307 and 308 of PB) The debit-note dated 28-11-2021 of M/s. Santoshima Trade Link Ltd of Is. 11,00,000.00 issued to the assessee towards the sale of 55000 shares of M/S. CONART TRADERS LID & Rs. 20- per share (Pg. 339 of PB) • The copy of the statement of A/c of Tamilnad Mercantile Bank Ltd. recording the payment of Rs. 11,00,000.00 to M/s. Santoshima Trade Link Ltd by payee's A/c cheque on 07.09.2011. (Pg. 330 to 334 of PB) • An application dated 27.11.2011 for Share Transfer in the name of the assessee. (Pg. 420 to 423 of PB) • Copy of the Share Certificate No. 426 recording the transfer of shares in the name of the assessee on the back side. (Pg. 337 to 338 of PB) • The copy of Acknowledgment issued by TMB Demat services of receipt of 55000 shares to be dematerialized in the name of the assessee. (Pg. 340 of PB) • Copy of the Statement of Account of the assessee under DP ID 303069 showing the demat of 55000 shares of Conart Traders Ltd on 23.02.2013 which were transferred on 28.06.2013 under Sunrise Asian Ltd in pursuance of scheme Amalgamation. (Pg. 388 to 389 of FB) ITA No. 53/Mum/2023 Aakruti Ketan Mehta 25 Copy of statement of A/c of Tamilnad Mercantile Bank Ltd disclosing the transfer of 55000 shares in the name of the CM Karvy Stock Broking Ltd a registered Broker under the caption in rolling market spreading for the period from 10.12.2013 to 26.12.2013. (Pg. 330 to 334 of PB) Copies of all the 37 Brokers Note recording the sales of 55000 impugned shares on different dates stretching from 27.11.2013 to 21.3.2014 is corroborated by Contract-Notes issued by SEDI registered broker. (Pg. 54 to 258 of PB) The Contract-Notes show the order time, Trade number and Trade time of the shares sold. Also show Security Transaction Tax, Service Tax paid by assessee. No defect has been pointed out in documents submitted by the assessee. (Pg. 54 to 258 of PB) Ledger A/c of the assessee for A. Y 2014-2015 and A.Y 2013-2014. Bank statements of Tamilnad Mercantile Bank Ltd for the period from 01.04.2013 to 31.03.2014 crediting all the receipts out of sales of 55000 shares under head "Deposits" on different dates received from Karvy Stock Broking Ltd in the a/c of the assessee. (Pg. 330 to 334 of PB) Source of payments with proof for purchase of shares by appellant (Pg.347-348, 339 of PB) Balance sheet showing the investment made in shares (Pg. 349 of PB) Share Certificate of Conart Traders Ltd. (Pg 335 of PB) COI of Santoshima dt. 16.09.2011 (Pg. 350 of PB) • Application of funds by appellant on sale of shares (Pg. 420- 423 of PB) (A) (ii) AO & CIT(A) accepted the facts and evidences filed ITA No. 53/Mum/2023 Aakruti Ketan Mehta 26 • Assessing Officer and the CIT(A) have confirmed that the appellant had filed documentary evidence in support of the genuineness of the transactions. The appellant has furnished all the above details mentioned in point (A) were furnished before the AO as well as CIT(A) • The Courts in similar circumstances held that where assessee proved genuineness of share transaction by contract notes for sale and purchase, bank statement of broker, demat account showing transfer in and out of shares, as also abstract of transactions furnished by stock exchange, Assessing Officer was not justified in treating capital gain arising from sale of shares as unexplained cash credit. 14. Ld. Counsel further referred to certain decisions of the Tribunal wherein similar transaction of shares of Sunrise Asian Limited and additions were made on the basis of statement of Shri Vipul Vidur Bhatt has to be deleted by the Tribunal. Thereafter, he has reiterated his submissions in various forms regarding prices of the shares, dematerialization, transaction done through recognised stock exchange and addition has been made by the ld. AO merely on presumptions and certain findings of the ld. AO are misleading. His main contention was that no opportunity was afforded to the assessee to produce the material and to cross examine. 15. On the other hand, ld. DR on behalf of the Revenue after referring to various observations of the ld. AO and ld. CIT (A), submitted that here in this case SEBI has passed an order wherein it has found that the share price of Sunrise Asian Limited was manipulated and the trading of said scrip was banned by the SEBI. The copy of adjudication order and the final ITA No. 53/Mum/2023 Aakruti Ketan Mehta 27 order passed by SEBI dated 06/09/2021 and 17/06/2022 has been filed before us. Thus, he submitted that now in view of the order of the SEBI wherein all the allegations which have been made by the ld. AO has been found to be correct, then there cannot be any different view to hold that share transaction of sale of shares of Sunrise Asian Ltd is not bogus or it was not part of any rocket of accommodation entry. Thus, the order of the ld. AO and ld. CIT(A) should be confirmed. 16. In rejoinder, ld. Counsel submitted that here the entire order of the authorities below has been passed on the basis of of the statement of Shri Vipul Vidur Bhatt, appraisal report of the Investigation wing and the order of SEBI. However, the statement of third party and the reports of the parties relied upon by the ld. AO has been used behind back of the assessee without confronting with the same for providing opportunity to assessee. Neither the copy of third party statement or alleged investigation wing was furnished to the assessee nor was its content made known to the assessee for completion of assessment. Shri Vipul Vidur Bhatt was never produced for cross examination despite assessee made a request to the ld. CIT(A) and the ld. CIT(A) has merely said that it was not practical to get cross examination of Shri Vipul Vidur Bhatt and it is not necessary. He has also referred to various judgments that any material used against the assessee when confronting or without cross examination, additions cannot be sustained. He has also referred to the decision of the Hon’ble Supreme Court in the case of Andaman ITA No. 53/Mum/2023 Aakruti Ketan Mehta 28 Timber Industries reported in 62 taxmann.com 3 and also invited our attention to the judgment of the Tribunal in the case of Deepak Valji Karia in ITA No.259/Mum/2021 wherein on identical facts involved of Sunrise Asian Ltd in the statement of Shri Vipul Vidur Bhatt, the Tribunal held that a suspect made on the basis of statement recorded from third parties and thus, statements were not provided in cross examination to the assessee, assessment order as such is bad in law. 17. He further submitted that SEBI has passed an order only on 06/09/2021 and no finding of SEBI was available to the ld. AO in the date of passing of assessment order dated 23/12/2016 and there was no evident of price manipulation or rigging as third party on the date of assessment order. The order of SEBI which has been passed subsequently much later to the orders of the CIT (A) and therefore, subsequent finding has no evidential value. Finally he submitted that, neither in the statement of Shri Vipul Vidur Bhatt nor in the appraisal report of the Investigation Wing, nor in the SEBI order, assessee has been implicated for rigging of the price or any relationship has been established with the assessee with these entities nor was assessee found recorded as beneficiary. Thus, such order passed by the ld. AO and confirmed by the ld. CIT (A) cannot be sustained. Decision 18. We have heard rival submissions and also perused the relevant finding given in the impugned orders as well as materials referred to before us. Here in this case, the addition ITA No. 53/Mum/2023 Aakruti Ketan Mehta 29 has been made on sale of shares of Sunrise Asian Limited which has been claimed as exempt long term capital gain u/s.10(38). 19. The background of the case has already discussed in the foregoing paragraphs. To adjudicate such cases, what is required to be seen is totality of attending facts, circumstances surrounding the transaction undertaken by the assessee right from the stage of purchase to the sale of the shares and persons and entities involved in whole of the transaction and what are the material and information against such persons. It is not necessary that there would be any direct evidence or information against the assessee. A holistic approach has to be examined based on a test of ‘preponderance of probabilities’ wherein various factors are to be analysed. The factors which are explained and contended by the assessee and the factors and circumstances brought on record by the departmental authorities as well as material facts coming on record before us. 20. Before us, ld. Counsel for the assessee has relied upon the following factors in favour of the assessee. Firstly, assessee had purchased 55,000 equity shares of Conart Traders Ltd being held by Santoshima Tradelinks Ltd. on 27/11/2011 for Rs.11,00,000/- to market from one closely held company at Rs.20/- per share. Shares were purchased through account payee cheques paid on 07/09/2011. Share certificates regarding transfer of shares in the name of the assessee was issued by the said company which was later on de-materialized in the name of the ITA No. 53/Mum/2023 Aakruti Ketan Mehta 30 assessee after couple of months. Thus, it was a genuine purchase transaction. Secondly, M/s. Conart Traders Ltd. was amalgamated with M/s. Sunrise Asian Ltd., in pursuance to the scheme of amalgamation and were duly approved by the Hon’ble High Court and as per the scheme of amalgamation, share swapping ratio was fixed as 1:1 and accordingly, the shares of M/s. Conart Traders Ltd. was swapped with shares of M/s. Sunrise Asia Ltd. which was also credited in the D-Mat account in the month of June 2013. Shares were sold from 27/11/2013 to 21/03/2014 for a total consideration of Rs. 2,70,01,771/- through broker at an average selling price of Rs.490.94 per share. In support of which assessee through its contract notes had shown the order time, Trade number and Trade time of the shares sold and also assessee paid STT of the sale proceeds have been credited in the bank account of the assessee and different dates received from Karvy Stock Broking Ltd., in the account of the assessee. Thirdly, The reliance placed by the ld. AO and ld. CIT (A) on the statement of Shri Vipul Vidur Bhatt who was allegedly entry operator managing, controlling of M/s. Sunrise Asian Ltd. was not confronted to the assessee by the ld. AO and before the ld. CIT(A) also despite request assessee was not given opportunity to cross examine to the said person. Lastly, AO has not made available any Investigation report or any material against the assessee specially when there is ITA No. 53/Mum/2023 Aakruti Ketan Mehta 31 no reference of the assessee in the statement of Shri Vipul Vidur Bhatt or assessee as instructed by the SEBI. 21. On the other hand, the case of the department before us, as put forth by the ld. DR relying upon the order of the ld. AO and ld. CIT(A) are that: firstly, assessee had purchased shares of unlisted company which did not have any substantial business or any prospect or credentials so as to attract any prudent person to invest or buy the shares; Assessee had purchased the sahres offline and later on when the said company was amalgamated with M/s. Sunrise Asian Ltd., it was merely scheme adopted for giving accommodation entry because M/s. Sunrise Asian Ltd was found to be bogus / paper entry and Shri Vipul Vidur Bhatt was found to operator of the company in the search conducted by the investigation. Secondly, in the statement recorded of the Director of the company Shri Kalpesh Manahar Jani categorically admitted that he is neither aware of anything nor or affairs of M/s. Sunrise Asian Ltd nor does he have any link with this company. He also admitted that his cousin brother Shri Vipul Vidur Bhatt has used his name and has appointed him as a dummy director. Thirdly, during the survey action at the registered office of M/s. Sunrise Asian Ltd. at Mumbai it was found that no work was carried out from office and there were only two employees including one peon and there was no ITA No. 53/Mum/2023 Aakruti Ketan Mehta 32 infrastructure except one old computer kept and no books of accounts or documents are found regarding the affairs of the company. Fourthly, statement of Shri Vidur Vipul Bhatt has been incorporated in the assessment order wherein he has categorically admitted that M/s. Sunrise Asian Ltd. was not only paper / bogus company and he was an entry operator from this company he was providing accommodation entry for bogus long term capital gain and short term capital loss to various beneficiaries who had approached him for a commission of 4-5%. He has also explained the entire modus operandi and how alongwith Shri Hiren Shah and Shi Jitendra Joshi were in connivance with him for arranging transaction with M/s. Sunrise Asian Ltd and they were involved with him for providing accommodation entry. He has also explained the modus operandi in his statement which has been incorporated by us in the foregoing paragraphs. Lastly, M/s. Sunrise Asian Ltd. did not have financial strength or profit to justify such a high escalation of prices which reached up to more than Rs. 500 per share in a short span. Ld. CIT (A) has also analysed the financials of the said company in impugned order as discussed above. 22. Based on these factors, the Revenue has taken the entire transaction of sale of shares of M/s. Sunrise Asian Ltd. as bogus transaction in the form of accommodation entry taken by the ITA No. 53/Mum/2023 Aakruti Ketan Mehta 33 assessee and accordingly, the entire sale proceeds have been added u/s.68 on the ground that it is not a genuine transaction and all the documents submitted by the assessee are mere paper formalities. 23. During the course of hearing we had enquired about the trading pattern of M/s. Sunrise Asian Ltd. in Bombay Stock Exchange; and also there was a reference of enquiry / investigation by the SEBI in the case of M/s. Sunrise Asian Ltd. alongwith other entities who were involved in rigging of the prices and manipulation of the scrips and also against Shri Vipul Vidur Bhatt, so we asked to produce the orders of SEBI. Both the parties have shared the information before us at the time of hearing. 24. First of all, from the perusal of the movement of prices between 2014-2017, it is seen that it has reached to its peak on 31/03/2015 at Rs.596.25; and later as on 16/01/2017, the price went steep down to Rs.2.63 per share and there was hardly any trade volume. Post 2017 there is no such trading and there is no information about this company in the stock exchange. Thus, this company boomed in stock exchange only for a short period of 2011-12 to 2016-17. The prices got escalated from 07/02/2013 when it closed at Rs.419.75 from Rs.60/-, which kept on increasing for a period of two years till it reaches 596.25 and then suddenly it started decreasing and reached to its vanishing point. This bell shaped graph itself shows that there is no substance in the company to justify such a huge rise and fall ITA No. 53/Mum/2023 Aakruti Ketan Mehta 34 of the shares especially when there are no factors as brought on record as to why the business of the said company were down or share prices felt too meager sum of Rs.2/- in the year 2017 and later on wiped out from the stock exchange, in the sense there is no trading at all. This factor itself cast a doubt on the credentials of the scrip of M/s. Sunrise Asian Ltd. This further gets corroborated by the inquiry and investigation by SEBI and the order passed, which is discussed herein below. 25. The most important piece of material which has been brought on record before us is that, SEBI has conducted detailed enquiry and investigation in the scrip of M/s. Sunrise Asian Ltd. alongwith the persons and entities associated with it. The SEBI has noted that 80 connected entities had manipulated the price of the scrip of M/s. Sunrise Asian Ltd in four patches in trading during the investigation period. 77 out of 83 entities were counter parties to the sale of shares by 1059 entities at artificially inflated / manipulated prices. The list of such entities who manipulated the prices during the period 16/10/2012 to 29/02/2015 have been discussed in detail. After considering the replies filed by all the noticees and giving sufficient time, some of the findings in the order dated 06/09/2021 are reproduced herein below:- “From the above Table VII, it is observed that by trading amongst themselves, the group of connected entities contributed 920, which is 31.47% of the market positive LTP, Kiss, the connected entities listed at Br. No 34-46 had aided other connected entities (Sr. No. 1-33) selling shares to increase the price of the scrip. Regulations (a)-(d) of the PRUTP Regulations, 2003 inter alia prohibit ITA No. 53/Mum/2023 Aakruti Ketan Mehta 35 employment of any manipulative/deceptive device, scheme or artifice to defraud in connection with dealing in securities; engaging in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with dealing in securities. Regulation 4(1) of the PFUTP Regulations, 2003, provides for prohibition on Indulging in fraudulent or unfair trade practices in securities. Regulations 4(2)(a) and (s) of the PRUTP Regulations, 2003, provides that dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves Indulging in an act which creates false or misleading appearance of trading in the securities market or any act or omission amounting to manipulation of the price of a security. The role played by the Noticees at Sr. no. 1 to 46 of the above Table to artificially increase the price during Patch 1 needs to be seen holistically, more particularly, when all of them have followed a common, uniform but unique trading strategy to buy and sell their shares only to manipulate the market price of the scrip which they did accomplish by cumulatively contributing to the LTP of the scrip during the aforesaid period of Patch 1. The said trading behaviour of the Noticees gravely affected the normal price discovery mechanism in the securities market and resulted in the disruption of market equilibrium and integrity. 7.11 In cases of market manipulation, where direct evidence may not be available, transactions as Indicated above are to be tested for any manipulative intent on the basis of conduct of parties and abnormality of practices. In other words, the requirement is for proving that in a factual matrix, preponderance of probabilities indicate a fraud. In this regard, the observations of Hon'ble Supreme Court of India in SEBI vs. Kishore R. Ajmera (2016) 6 SCC 368 - Judgment dated February 23, 2016, are referred to, wherein it had observed: "It is a fundamental principle of law that proof of an allegation levelled against a person may be in the form of direct substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the ITA No. 53/Mum/2023 Aakruti Ketan Mehta 36 allegations/charges made and levelled. While direct evidence is a more certain basis to come to a conclusion, yet, in the absence thereof the Courts cannot be helpless. It is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion therefrom. The test would always be that what inferential process that a reasonable/prudent man would adopt to arrive at a conclusion..." In the instant proceedings, the pattern of trading by the entities listed at Sr. no. 1-46 of Table VII in the scrip of Sunrise Asian coupled with the inter se connection amongst themselves and with the Company, based on the preponderance of probability, leads me to conclude that the trades executed in said scrip were manipulative in nature. 7.12 In view of the significant positive LTP contribution by the group of connected entities (listed in Table VII) by trading amongst themselves, it is concluded that connected entities had not acted as genuine buyers (Sr. No. 1-33) or sellers (Sr. No 34-46) and had no bona fide intention to buy/sell the shares of Sunrise Asian. Rather, the orders placed by them were laden with all the ingredients to be held as unfair and misleading, which in turn resulted in price manipulation of the scrip by contributing to the price rise, in violation of Regulations 3(a)-(d) and Regulations 4(1), 4(2)(a), (e) of PFUTP Regulations, 2003. 7.13 In the instant proceedings, I would like to reiterate and rely on my findings as articulated above while dealing with the manipulative trades executed by the Noticees during Patch 1 with respect to the trades executed during Patch 2, 3 and 4 as well. Moreover, the Noticees who have traded during Patch 1 and also during Patch 2, 3 and 4, were connected with one another.” 26. Thereafter considering the submissions of all the parties and while discussing the manipulation of the prices for each period, ITA No. 53/Mum/2023 Aakruti Ketan Mehta 37 similar finding has been given and elaborated in the impugned order. In this context, para 7.30 & 7.31 are also reproduced hereunder:- 7.30 From the above Table X, it is observed that by trading amongst themselves, the group of connected entities contributed 855.85, which is 16.87% of the market positive LTP. Also, the connected entities listed at Sr. No 34-42 had aided other connected entities (Sr. No. 1-33) by selling shares to increase the price of the scrip. In view of the significant positive LTP contribution by the group of connected entities by trading amongst themselves and also the reasoning brought out at paragraphs 7.10-7.13, it is concluded that connected entities listed in the above Table manipulated the price of the scrip by contributing to the price rise and have violated Regulations 3(a)-(d) and Regulations 4(1), 4(2)(a), (e) of PFUTP Regulations, 2003. 7.31 In the instant proceedings, I find that Noticee nos. 1-6 1.e. Sunrise Asian and its Directors, had devised an arrangement whereby 83 connected entities (Noticee nos. 7-89) had manipulated the price of the scrip in four patches of trading during the Investigation period (see also Table III), thereby violating Regulations 3(a)-(d) read with Regulation 4(1) of the PFUTP Regulations, 2003. Further, as stated above, 77 out of the aforementioned 83 connected entities were counterparties to the sale of shares by 1059 entities/allottees at the artificially inflated/manipulated price thereby violating Regulations 3(a)-(d) read with Regulation 4(1), Regulations 4(2)(a) and (e) of the PFUTP Regulations, 2003. It is also noted that during the Financial Years 2013, 2014 and 2015, Sunrise Asian had registered a profit of only ₹0.27 Crore, ₹0.70 Crore and ₹0.95 Crore, respectively. The aforementioned actions of the aforementioned Noticees as detailed in the preceding paragraphs clearly resulted in 'fraud" under the PFUTP Regulations, 2003, being committed, which in turn affected the interests of investors in the securities market. In this context, ITA No. 53/Mum/2023 Aakruti Ketan Mehta 38 reliance is also placed on the observations of the Hon'ble SAT in the matter of Amaresh Pathak vs. SEBI, Appeal no. 332 of 2020- Order dated February 16, 2021, wherein it had observed: '11.... When a person enters into a transaction in securities with the intention to artificially raise the price, he thereby automatically induces the innocent investors in the market to buy/sell the stocks. The buyer or the seller is invariably influenced by the price of the stocks and if that is manipulated the person doing so is necessarily influencing the decision of the buyer/seller thereby inducing him to buy or sell. This is what Regulation 4 of the PFUTP Regulation speaks of. Inducement to any person to buy or sell securities leads to manipulation in the price of the scrip. If the factum of inducement is established, it will necessarily follow that a fraud has been played and there has been a manipulation. Accordingly, I find this to be a fit case for issuance of suitable directions in the interest of securities market. 27. Thus, SEBI having powers u/s.11(1), 11(4) and Section 11B of the SEBI Act have directed that noticees / entities shall not access the securities market or buy, sell or deal in the securities market, either directly or indirectly and trading of such scrip was banned. Further, vide order dated 17/06/2022, the SEBI u/s. 15(i) of the SEBI Act had imposed penalties and fines. In the entire 139 pages order, they have highlighted the various malpractices conducted by the Directors and entities and persons involved in the manipulation and rigging of the prices and how these entities inconsonance have adopted malpractices for rigging of the prices. After considering the entire material on records, investigation conducted and also the replies of all these entities / persons, finally SEBI found that there was employment or manipulative deceptive device, scheme or artifice to defraud in ITA No. 53/Mum/2023 Aakruti Ketan Mehta 39 connection with dealing in securities of scrip of M/s. Sunrise Asian Ltd., and accordingly, has levied penalty of Rs.1 Crore jointly and separately under the provision of Section 15(h) of SEBI Act on all noticees. 28. Now, in light of the fact that an independent agency like SEBI has found that the transaction of M/s. Sunrise Asian Ltd., was manipulative and rigging of the prices by certain entities which included Shri Vipul Vidur Bhatt also and his entities which was controlled by him through which he has provided accommodation entry. This factor alone substantiates and corroborates the initial investigation in the case of Shri Vipul Vidur Bhatt wherein he has admitted that he was providing accommodation entry and has explained the entire modus operandi. Though later on he has refracted his statement by way of an affidavit and assessee’s objection was that since he was not allowed to be cross examined, therefore, his statement cannot be relied upon. In such cases, the statement alone is not edifice for making the addition but catena of various factors and circumstances surrounding the transaction as such needs to be taken into account. If the SEBI itself after considering the entire facts and materials on record and investigation and even the submissions of the various persons and entities have found that these persons / entities have manipulated the prices and after providing accommodation entry including the exit providers who were involved assisting in purchasing of the shares from various persons. If this finding is corroborated by the other factors which has been referred and relied upon by the department as noted ITA No. 53/Mum/2023 Aakruti Ketan Mehta 40 above, we cannot put blinkers in our eyes on these factors and material coming on record and simply because assessee adduced certain documents for purchase and sale of shares does not make the transaction genuine. 29. Here one important factor is that assessee is not a regular trader of the shares and dealt with one of such purchases of shares of a company which was not having substantial business or credibility, or any future prospects, assessee has brought the shares and later on had sold at a huge price then also without any financial credentials to justify the rise of shares. The financials and its credibility have been discussed in detail by the SEBI in its order. This factor definitely creates suspicion about the entire transaction. In such cases, it is not necessary that there should be direct evidence available against the assessee or assessee has been specifically found to be beneficiary in any statement or any document. What needs to be seen that immediate and proximate facts and circumstances surrounding the whole event which has been found during the course of investigation by the agencies and specially here in this case SEBI. Here, it is not the case that simply based on some investigation and some statement of a broker that he has dealt in particular scrip for providing accommodation entry is the basis for making the addition. Albeit, the main concerned person who was hand in gloves for manipulating the price of the shares has also stated that he was an entry provider for bogus long term capital gain in M/s. Sunrise Asian Ltd. Even though he has reiterated or he has not been subjected to cross examine but ITA No. 53/Mum/2023 Aakruti Ketan Mehta 41 later on when SEBI gave opportunity of these entities including Shri Vipul Vidur Bhatt and they were unable to substantiate or explain the case that they had not done any fraud or manipulation for manipulating the price in the stock market. The SEBI has categorically noted that how in various patches prices were rigged and who were entities involved during those periods and all these persons / noticees were directly or indirectly involved in purchase and sale of shares acting as exit providers were also rigging all the prices. Thus, without there any cross examination also it cannot be held that Shri Vipul Vidur Bhatt was not involved or his conduct later on found by agencies should be ignored simply because assessee was not allowed cross examination. As stated above, his statement alone is not the entire basis for the addition but there are other catena of factors and circumstances as discussed above including abnormal rise of the price and later on subject to ban by SEBI on this scrip and also later no trading of the shares took place as the price failed to such a low, that post 2017 there has been no trading at all. 30. Even though SEBI has adjudicated this issue post passing of the ld. CIT (A) order, however, now it has been brought on record that the entire trading of the shares in the stock market was only a fraud to provide accommodation entries by these persons to the parties who had approach them to provide accommodation entry. This factor is crucial to induct the assessee also that it is not a simple purchase and sale of shares in a bonafide manner in the open market. Even though, there cannot be any direct ITA No. 53/Mum/2023 Aakruti Ketan Mehta 42 evidence against the assessee, but all these factors do cast a shadow on test of genuineness of the transaction which requires juridical frown and condemnation. The assessee cannot act bonafide merely relying upon the documents in their hands to contend that transactions were genuine. The test of genuinety has to be seen on principles of ‘preponderance of probabilities’ and here all the factors show that there is nothing genuine about this transaction. The company which does not have any significant value before such high rise in stock exchange and later on it vanishes from trading, ostensibly goes to show that it was nothing but a paper/sham company as trading was among selected few with predetermined exit providers to provide accommodation entry to few beneficiaries, which was revealed from the inquiry and adjudication order of SEBI and this fact was also found by the income tax department in the course of the search conducted on the key entry operator of these shares. At this point it would be relevant to refer and rely upon the ratio and the Hon’ble Calcutta high Court in the case of PCIT vs. Swati Bajaj, for the sake of ready reference are reproduced hereunder:- ■ The report submitted by the Investigation department could not be thrown out on the grounds urged on behalf of the assessees. The assessees have not been shown to be prejudiced on account of non-furnishing of the investigation report or non-production of the persons for cross examination as the assessee has not specifically indicated as to how he was prejudiced, coupled with the fact as admitted by the revenue, the statements do not indict the assessee. That apart, the investigation has commenced targeting the individuals who dealt with the penny stocks and after examining the modus seeing the cash trail the report has been submitted recommending the same to be placed before the ITA No. 53/Mum/2023 Aakruti Ketan Mehta 43 DGIT (Investigation) of all the States of the country. It is thereafter the concerned Assessing Officers have been informed to consider as to the bona fideness and genuineness of the claims of LTCG/LTCL of the respective assessees qua the findings which emanated during the investigation conducted on the individuals who dealt with the penny stocks. Therefore, the assessments have commenced by the Assessing Officers calling upon the assessee to explain the genuineness of the claim of LTCG/LTCL made by them. In all the assessment orders, substantial portion of the investigation report has been noted in full. A careful reading of the same would show that the assessee has not been named in the report. If such be the case, unless and until the assessee shows and proves that she/he was prejudiced on account of such report/statement mere mentioning that non-furnishing of the report or non-availability of the person for cross examination cannot vitiate the proceedings. The assessees have miserably failed to prove the test of prejudice or that the test of fair hearing has not been satisfied in their individual cases. In all the cases, the assessees have been issued notices under sections 143(2) and 142(1) they have been directed to furnish the documents, the assessee have complied with the directions, appeared before the Assessing Officer and in many cases represented by Advocates/Chartered Accountants, elaborate legal submissions have been made both oral and in writing and thereafter the assessments have been completed. Nothing prevented the assessee from mentioning that unless and until the report is furnished and the statements are provided, they would not in a position to take part in the inquiry which is being conducted by the Assessing Officer in scrutiny assessment under section 143(3). The assessee were conscious of the fact that they have not been named in the report, therefore made a vague and bold statement that the non-furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee. If the report was available in the public domain as has been downloaded and produced by the revenue, nothing prevented the assessees who are ably defended by the Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defence. Therefore, the based on such general ITA No. 53/Mum/2023 Aakruti Ketan Mehta 44 statements of violation of principles of natural justice the assessees have not made out any case. [Para 65] ■ To prove the allegations, against the assessee, can be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled and when direct evidence is not available, it is the duty of the Court to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded so as to reach a reasonable conclusion and the test would be what inferential process that a reasonable/prudent man would apply to arrive at a conclusion. Further proximity and time and prior meeting of minds is also a very important factor especially when the income tax department has been able to point out that there has been a unnatural rise in the price of the scrips of very little known companies. Furthermore, in all the cases, there were minimum of two brokers who have been involved in the transaction. It would be very difficult to gather direct proof of the meeting of minds of those brokers or sub- brokers or middlemen or entry operators and therefore, the test to be applied is the test of preponderance of probabilities to ascertain as to whether there has been violation of the provisions of the Income-tax Act. In such a circumstance, the conclusion has to be gathered from various circumstances like the volume from trade, period of persistence in trading in the particular scrips, particulars of buy and sell orders and the volume thereof and proximity of time between the two which are relevant factors. Therefore, the methodology adopted by the revenue cannot be faulted. [Para 69] ■ A holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, the court cannot loose sight of the fact that the shares of very little known companies with in-significant business had a steep rise in the share prices within the period of little over a year. The revenue was not privy to such peculiar trading activities as they appear to have been done through the various stock exchanges and it is only when the assessees made claim for a LTCG/STCL, the investigation commenced. As pointed out the investigation did not commence from the assessee but had ITA No. 53/Mum/2023 Aakruti Ketan Mehta 45 commenced from the companies and the persons who were involved in the trading of the shares of these companies which are all classified as penny stocks companies. Therefore, the argument of the assessee that the copy of the investigation report has not been furnished, the persons from whom statements have been recorded have not been produced for cross examination are all contention which has to necessarily fail. To reiterate, the assessee was not named in the report and when the assessee makes the claim for exemption the onus of proof is on the assessee to prove the genuinity. Unfortunately, the assessees have been harping upon the transactions done by them and by relying upon the documents in their hands to contend that the transactions done were genuine. Unfortunately, the test of genuinity needs to be established otherwise, the assessees are lawfully bound to prove the huge LTCG claims to be genuine. In other words if there is information and data available of unreasonable rise in the price of the shares of these penny stock companies over a short period of time of little more than one year, the genuinity of such steep rise in the prices of shares needs to be established and the onus is on the assessee to do so as mandated in section 68. Thus, the assessees cannot be permitted to contend that the assessments were based on surmises and conjectures or presumptions or assumptions. The assessee does not and cannot dispute the fact that the shares of the companies which they have dealt with were insignificant in value prior to their trading. If such is the situation, it is the assessee who has to establish that the price rise was genuine and consequently they are entitled to claim LTCG on their transaction. Until and unless the initial burden cast upon the assessee is discharged, the onus does not shift to the revenue to prove otherwise. It is incorrect to argue that the assessees have been called upon to prove the negative in fact, it is the assessees duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. The assessees cannot be heard to say that their claim has to be examined only based upon the documents produced by them namely bank details, the purchase/sell documents, the details of the D-Mat Account etc. The assessees have lost sight of an important fact that when a claim is made ITA No. 53/Mum/2023 Aakruti Ketan Mehta 46 for LTCG or STCL, the onus is on the assessee to prove that credit worthiness of the companies whose shares the assessee has dealt with, the genuineness of the price rise which is undoubtedly alarming that to within a short span of time. [Para 73] ■ While it may be true that assessees could have been regular investors, investors could or could not have been privy to the information or modus adopted. What is important is that it is the assessee who has to prove the claim to be genuine in terms of section 68. Therefore, the assessee cannot escape from the burden cast upon him and unfortunately in these cases the burden is heavy as the facts establish that the shares which were traded by the assessees had phenomenal and fanciful rise in price in a short span of time and more importantly after a period of 17 to 22 months, thereafter has been a steep fall which has led to huge claims of STCL. Therefore, unless and until the assessee discharges such burden of proof, the addition made by the Assessing Officer cannot be faulted. [Para 75] 31. We are not going into details of various judgments wherein additions have been deleted on this scrip of M/s. Sunrise Asian Ltd and statement of Shri Vipul Vidur Bhatt has been discarded on the ground assessee was not given cross examination. We have given our finding based on various other factors and the most crucial one, the order of the SEBI brought on record before us wherein there is detailed investigation and enquiry and finding in the case of M/s. Sunrise Asian Ltd. and how various other entities and persons connected with the manipulation and rigging of the prices in the stock exchange recommend to provide accommodation entry. Thus, the addition of Rs.2,70,01,771/- made u/s.68 is confirmed. 32. In so far as addition on presumption of brokerage of Rs.8,10,053/- alleged to have been paid to the broker, though we ITA No. 53/Mum/2023 Aakruti Ketan Mehta 47 have confirmed the aforesaid addition that assessee’s transaction is not genuine based on the discussion made above, however, the presumptive addition on account of brokerage which assessee might have paid to the broker cannot be sustained without any actual material of outgoing by the department.Accordingly, addition of Rs.8,10,053/- made by the ld. AO is deleted. 32. In the result, appeal of the assessee is partly allowed. Order pronounced on 31 st Jan, 2024., Sd/- (PADMAVATHY S) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 31/01/2024 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy//
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