Krishna Devi, New Delhi V. ITO, Ward- 38(3), New Delhi

ITA 6356/DEL/2019

• Counselvise Citation: [NaN] 107 COUNSELVISE.COM (IT) 1718 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 29-07-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Unexplained cash credit; Unexplained expenditure; Depreciation; Transfer pricing; Income from undisclosed sources; Principle of natural justice; International transaction; Transactions in derivatives; Earning of tax free income; Question of law; Tangible material; Wrong claim; Accommodation entries; Penny stocks; Reason to believe; Borrowed satisfaction; TDS; Capital Gains
• Section: 147; 68; 148; 139; 142(1); 143(2); 208; 113; 13; 153; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI Before Sh. Amit Shukla, Judicial Member Dr. B. R. R. Kumar, Accountant Member ITA No. 6356/Del/2019 : Asstt. Year : 2014-15 Krishna Devi, F-26/124, Sector-7, Rohini, New Delhi-110085 Vs Income Tax Officer, Ward-38(3), New Delhi-110002 (APPELLANT) (RESPONDENT) PAN No. ABRPD0875E Assessee by : Sh. Kapil Goel, Adv. Revenue by : Sh. Umesh Takyar, Sr. DR Date of Hearing: 08.10.2021 Date of Pronouncement: 04.01.2022 ORDER Per Dr. B. R. R. Kumar, Accountant Member: This appeal has been filed by the assessee against the order of ld. CIT(A)-13, New Delhi dated 25.06.2019. 2. Following grounds have been raised by the assessee: Jurisdictional Ground: Assessment is void ab initio “1. That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without appreciating that assumption of jurisdiction u/s 148 was by Ld A.0 was in violation of mandatory jurisdictional conditions stipulated under the Act; 1.1 That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without appreciating that “rubber stamp” reasons in present case are based on borrowed satisfaction and are without independent application of mind This is further evident from following features of reasons recorded: ITA No. 6356/Del/2019 Krishan Devi 2 i) That in reasons recorded in column no 8(a) it is incorrectly stated that assessee has not filed return of income where as factually return was filed on 02/02/2015 which itself vitiates the belief formed; ii) That in reasons no tangible material is narrated or described so as to form valid belief u/s 148 of the Act; iii) That mere DIT information is mentioned in reasons recorded which is nowhere corroborated by any independent material; iv) That merely for verification and examination case is reopened u/s 148 which is not permissible u/s 148 and for verification only possible option is recourse to section 143(2) of the Act which is missed here (refer para 3 & 5 of reasons recorded); v) That as stated in opening para of reasons recorded mere suspicion created by investigation wing information is made as sole basis to form belief which is proscribed in law; vi) That to make deep scrutiny reopening u/s 148 is made as stated in penultimate para of reasons recorded; vii) That existence of information relied in reasons before Ld AO at the time of reasons recording is disputed and seriously questionable; 1.2 That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without appreciating that no back material like investigation wing report details vis a vis assessee, etc, was lawfully confronted to assessee thus invalidating entire reopening (much less cross examined as per due process of law); 1.3 That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without valid approval from superior authority under the Act; 1.4 That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the ITA No. 6356/Del/2019 Krishan Devi 3 order passed by Ld AO u/s 147/143(3) without valid notice u/s 143(2) on basis of return filed u/s 148 on 04/10/2018 (also in assessment order no mention made to notice u/s 143(2) of the Act) ergo orders of Ld AO/Ld CIT-A may please be quashed. 1.5 That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the order passed by Ld AO u/s 147/143(3) as none of the assessee submission is appreciated while adjudicating the appeal; Other grounds on merits qua addition of Rs.24,69,636 2. That order passed by Ld AO dated 29/12/2018 and further order passed by Id CIT-A dated 25/06/2019 are bad in law in as much as addition of Rs 24,69,636/- (break up : addition u/s 68 on a/c of alleged bogus LTCG Rs. 23,52,034/- and addition u/s 68 Rs. 117,602 as unexplained expenditure being transaction expense read with section 115BBE) is made without appreciating that LTCG arising from share sales on floor of stock exchange after due payment of STT through recognized stock broker for which voluminous evidence of purchase and sale are no where contradicted and overruled as per law and on basis of stereotype narrative additions are made and even relevant assessment related office manual of revenue is not abided while making additions. 2.1 That order pas sect by Ld AO dated 29/12/2018 and further order passed by Id CIT A dated 25/06/2019 are bad in law in as much as addition of Rs 24,69,636 /- is made violating principles of natural justice without confronting any investigation wing report relevant extract, statements recorded by investigation wing, etc and without offering cross examination of revenues witness whose statements is extensively relied in impugned orders, which is sufficient to quash the assessment order and order passed by Ld CIT-A. 3. That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the action of Id AO in making addition of Rs 24,69,636/- without appreciating that burden to, prove that ITA No. 6356/Del/2019 Krishan Devi 4 transaction is bogus/sham has remained un-discharged from side of revenue and contrary findings of Ld CIT-A are repudiated at length. 4. That on the facts and in the circumstances of the case and in law, both Id CIT-A and Id AO erred in making subject additions without appreciating that the modus operandi relied extensively in impugned orders is never co-related even remotely to the facts of the present case as there is no iota of evidence brought on record which can display that assessee herein has inducted certain cash at the time of sale to certain indentified broker/middleman/syndicate member who has in turn introduced certain identified artificial paper company for alleged parking of said cash to buy the shares sold by the assessee which theoretical trail has remained inchoate completely modifying the entire basis of the addition. 5. That on the facts and in the circumstances of the case and in law, Id AO and Ld CIT-A erred in making and sustaining subject additions without appreciating that law gives discretion to the assessing officer in applying deeming fictions u/s 68 as applied by Ld AO as firstly opinion and satisfaction u/s 68 as not been objectively arrived in facts of present case on due application of mind secondly assessee has no economic capacity and source to generate given amount of unaccounted income, thirdly law requires that additions under said deeming fiction cannot be made sans incriminating material brought on record which is completely lacking in present case Lastly section 68 does not apply to sale of shares where no unexplained cash credit within meaning of section 68 can be said to have arisen therein. Significantly no books of assessee are there before Ld AO within meanings of section 68 of the Act. (refer para 11.1 of asstt. Order & para 5.5/page 22 of CIT-A order) 6. That on the facts and in the circumstances of the case and in law, ld CIT-A erred in sustaining the action of ld AO in making addition of Rs.24,69,636/- without appreciating that basis of findings of the lower authorities is “suspicion” and “human probabilities” only which is never converted to reliable and trustworthy material and entire assessment order is passed on sole basis of “borrowed satisfaction” and ITA No. 6356/Del/2019 Krishan Devi 5 without any independent application of mind (like a rubber stamp order). 7. That on the facts and in the circumstances of the case and in law, ld. CIT-A erred in sustaining the action of ld. AO in making addition of Rs.24,69,636/- without appreciating that no opportunity is given to the assessee to be confronted with back material relied extensively in impugned orders like investigation Wing report etc. and no opportunity to cross examine the revenue’s witness was given despite specific written request in this regard made to Ld. AO/CIT-A. 8. That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the action of Id AO in making addition of Rs 24,69,636/- without appreciating that in identical facts in various orders relief has been granted to assessee accepting LTCG (long term capital gains) as genuine. 9. That on the facts and in the circumstances of the case and in law, Id CIT-A erred in sustaining the action of Id AO in making addition of Rs. 24,69,636/- without appreciating spirit of law contained in section 10(38) and section 43(5)(d) where statutory status is provided to evidences generated from stock exchange system treating the same to be impeccable and only from finance act 2017 with prospective effective from AY 2018-2019, amendment is made in section 10(38), prior to which such gains would remain exempt. 10. That the appellant craves leave to add add/alter any/all grounds of appeal before or at the time of hearing of the appeal. Humble Prayer: i) To quash reopening made without authority of law merely for verification and scrutiny and without valid notice u/s 143(2) of the Act. ii) To delete the addition of Rs 24,69,636/- on a/c of alleged bogus LTCG. iii) To quash assessment order and Id CIT-A order for being passed in serious violation of audi altrem partem. ITA No. 6356/Del/2019 Krishan Devi 6 iv) To hold section 68 etc does not apply to sale of shares and that too sans credit in books of account maintained by assessee; v) To restore returned income vi) Any other appropriate relief” Excerpts from the Assessment Order: 3. The assessee is an individual and during the relevant year, the assessee is house wife only earn interest income on FDRs and saving bank account as income from other sources and also earned Long Term Capital Gains being exempt u/s 10(38). 4. The assessment proceedings u/s 147 of the Income Tax Act, 1961 were initiated by recording reasons and notice u/s 148 of the Act dated 31.03.2018 was issued with prior approval of the Addl. CIT, Delhi-38, New Delhi, Notice u/s 148 dated 31.03.2018 was sent through Speed post requiring the assessee to furnish her Return of income within 30 days in response to notice u/s 148. The assessee did not comply with this notice nor had filed her return of income within the stipulated period or filed any application seeking, adjournment etc. 5. Notice u/s 142(1) dated 28.08.2018 was issued and served through ITBA also requiring the assessee to file her return of income for AY 2014-15 in response to notices u/s 148 of the Act. In compliance to the notices various details as sought by the AO have been filed. 6. During the year, the assessee has earned long term capital gains of Rs. 21,90,385/- and claimed the same as exempt u/s 10(38) of the Act. ITA No. 6356/Del/2019 Krishan Devi 7 7. According to the assessee’s submissions, she had acquired 6000 online share of M/s Esteem Bio (EBFL) of Rs.1,59,000/- on dated 07.02.2013 @ Rs.26.50/- per share. 8. The assessee has sold the entire 6000 shares of M/s Esteem Bio (EBFL) in Mumbai Stock Exchange as follows: Sl. No. No. of shares Sate of Shares Date Sale Price Esteem Bio (EBFL) 1. 1200 21.02.14 4,09,786.83/- 2. 2400 28.02.14 9,36,407.93/- 3. 2400 06.03.14 10,05,839.59/- 6000 Total Sale 23,52,034.35/- . 9. During the course of assessment, the assessee has furnished purchase bill debit note of offline purchase of shares, bank account statements, DP statements and broker notes for sale of above mentioned stock to strengthen the claim of Long Term Capital Gain, which has been claimed as exempt from taxation u/s 10(38) of the Income Tax Act, 1961. 10. The details of purchase and sale of this particular scrip i.e. M/s Esteem Bio (EBFL) (hereinafter referred as The Scrip) were examined. It was also found that the assessee has earned a return of approximately 1584% over a very short period of just over 13 months. These facts demanded a deeper study of the price movements and share market behavior of the entities involved in trade of the scrip as the share price movements and the profit earned by the beneficiaries were beyond human probabilities. Thus a deeper study was needed to ascertain whether the transactions were genuine investment transactions or colorable device only to convert the unaccounted cash into tax exempt income. In short, it was to be ascertained whether ITA No. 6356/Del/2019 Krishan Devi 8 the apparent was real. 11. The scrip were thoroughly examined and the following facts emerged: Facts of the Share namely M/s Esteem Bio (EBFL) 12. The revenue held that from the Individual Transaction Statement of the assessee and the Investigation Report on Manipulation of penny stocks for bogus Long Term Capital Gain (hereinafter referred as LTCG), it was noticed that the assessee is a LTCG beneficiary and during the relevant year has earn LTCG exempt u/s 10(38) of net amount of Rs.21,03,034/- through transactions in the impugned scrip of M/s Esteem Bio (EBFL). 13. The investigation report was thoroughly perused by the AO and after going through the relevant material and statements recorded on Oath u/s 131(1), it was evident that the scrip was operated in a well-coordinated and pre-arranged fashion to provide transactions in the form of bogus LTCG. Accordingly, a detailed study and enquiry was made regarding the profile of M/s Esteem Bio (EBFL) and its scrip price movement history from the information available in public domain and primarily from the BSE website. 14. The factual information/details relevant to assessment of the assessee is being summarized as below: Weak Financials and absence of any real financial credentials/ business activities: 15. Though the company is supposedly engaged in to agriculture operations, wherein they cultivate wheat, paddy, sugar cans, fruits, vegetables and flowers. They also engaged in the operations of wood plantation wherein the company ITA No. 6356/Del/2019 Krishan Devi 9 earned meager revenues. From the information available in the public domain, it is not difficult for any genuine investor to arrive at a conclusion that the company prima-facie is involved in non-economic activities. Even an investor with risk-appetite on a higher side is highly unlikely to invest in such a script unless the investor is in possession of specific information or is certain about the assured return. 16. For the sake of brevity, comparative Profit and Loss A/c sheets of the company for various years is reproduced as below: Balance Sheet of Esteem Bio Organic Food Processing ------------------------in Rs. Cr. -------------------- Mar 14 Mar 13 Mar 12 Mar 11 Mar 10 12 mths 12 mths 12 mths 12 mths 12 mths Sources of funds Total Share Capital 14.92 14.92 0.30 0.05 0.05 Equity Share Capital 14.92 14.92 0.30 0.05 0.05 Share Application Money 0.00 0.00 0.00 0.00 0.00 Reserves 12.40 10.56 8.26 4.94 2.80 Net worth 27.32 25.48 8.56 5.89 3.75 Unsecured Loans 0.39 0.73 3.24 3.38 3.47 Total Debt 0.39 0.73 3.24 3.38 3.47 Total Liabilities 27.71 26.21 11.80 9.27 7.22 Application of Funds Gross Block 13.32 12.69 6.18 5.33 4.24 Less: Accum. Depreciation 1.10 0.52 0.00 0.00 0.00 Net Block 12.22 12.07 6.18 5.33 4.24 Investments 3.15 2.73 0.24 0.24 0.24 Inventories 0.16 0.38 3.13 2.75 1.99 Sundry Debtors 0.32 2.45 1.70 0.14 0.00 Cash and Bank Balance 0.37 0.04 0.55 0.81 0.00 Total Current Assets 0.85 2.87 5.38 3.70 1.99 Loans and Advances 13.49 8.59 0.00 0.00 0.75 Total CA, Loans & Advances 14.34 11.46 5.38 3.70 2.74 Current Liabilities 1.98 0.03 0.00 0.00 0.00 Provisions 0.03 0.02 0.00 0.00 0.00 Total CL & Provisions 2.01 0.05 0.00 0.00 0.00 Net Current Assets 12.33 11.41 5.38 3.70 2.74 Total Assets 27.70 26.21 11.80 9.27 7.22 Book Value (Rs.) 18.31 17.08 285.43 998.86 570.38 ITA No. 6356/Del/2019 Krishan Devi 10 Profit & Loss Account of Esteem Bio Organic Food Processing ------------------------in Rs. Cr. -------------------- Mar 14 Mar 13 Mar 12 Mar 11 Mar 10 12 mths 12 mths 12 mths 12 mths 12 mths Income Revenue From Operations (Gross) 3.20 6.43 0.90 0.23 0.00 Revenue From Operations (Net) 3.20 6.43 0.90 0.23 0.0 Total Operating Revenues 3.20 6.43 0.90 0.23 0.00 Other Income 0.11 0.08 0.00 0.00 0.00 Total Revenue 3.31 6.51 0.90 0.23 0.03 Expenses Operating and direct Expenses 0.00 0.00 0.10 0.05 0.00 Changes in Inventories of FG, WIP and Stock-in-Trade 0.21 2.75 -1.07 -0.92 0.00 Employee Benefit Expenses 0.08 0.16 0.13 0.07 0.00 Depreciating and Amortization Expenses 0.59 0.50 0.06 0.04 0.00 Other Expenses 0.56 0.50 0.06 0.04 0.00 Total Expenses 1.44 3.94 -0.79 -0.76 0.01 Profit/Loss for the period 1.84 2.55 1.69 0.99 0.02 Script price movement being unrealistic and reflecting the typical Bell shape Curve: 17. Captured below is the screenshot of the scrip price movement of the manipulated scrip in question from the official website of BSE for the period 2010-2015. The two peak show the manipulation of scrip twice, during the relevant period under consideration during which the assessee has claimed to have made huge and unrealistic gains. The scrip price movement is in complete contrast with the financials of the company during the entire period (2010-2015). Further the share price movement from April, 2010 to March, 2015 reflected in the below chart reveals sudden price spurt without fundamental support reveals that the company M/s Esteem Bio (EBFL) and the various entities involved in circular trading and sale and purchase of the scrip have all been part of this edifice to convert unaccounted money into accounted one by following the above modus oprendi. ITA No. 6356/Del/2019 Krishan Devi 11 Pattern of Thin Trading through large volumes: 18. The screenshot of bulk/block deals is captured from the official website of Bombay Stock Exchange www.bseindia.com shows the pattern typical of a well-coordinated manipulated stock of thin trading by limited entities in large volumes. Dividend history of the Scrip 19. As per information available in the public domain such as BSE official website www.bseindia.com and moneycontrol.com, there is no significant dividend pay-outs by the company in its entire history. Rejection of Vague & General Facts & Submission of the assessee 20. The reply of the assessee has been considered but not found acceptable in the light of the developments in the case as already discussed above which clearly show that the assessee has not been able to discharge onus of proving genuineness of transactions. From the overall facts of the case as brought out above, it is amply evident that, a. Assessee purchased shares of a company/script which is devoid of any basic fundamentals and was suspended by the BSE for trading previously as well as afterward. A regular and genuine investor would hardly know-that such a company to even listed on BSE. b. From the Audited financials filed by the company with BSE, it is a matter of fact that the listed company does not have any significant/real business as seen from its last many P&L accounts and do not have any significant fixed assets or ITA No. 6356/Del/2019 Krishan Devi 12 plant and machinery most of assets being either investment or loans. c. The price movements of scrip are unrealistic and typically Bell shaped that means huge rise over a short span, staying at peak over a short span of time and then sharp decline in price of share. And not matching with overall movement of share market to general and movement of other scripts in same line of business. d. Price movement of scrip upward and down word done mainly through thin volume and all/most entities involved in the same are related in some way and are mainly operated by some entry operator and are bogus. e. There is hardly any history of dividend pay-outs. f. There existed circumstantial factors such as splitting of shares, change in name and address of the listed company, which is generally done in cases of pre-arranged manipulation o scrip prices to avoid SEBI’s eyes. g. It is self-evident that the scrip price movement was mainly on account of manipulation in a pre-arranged synchronized fashion to book accommodation entries in form of Bogus LTCG as well as provide Short-term Capital loss to a huge number of beneficiaries. h. In such circumstances, given the facts of the case, the onus was on assessee to explain satisfactorily and establish that claimed LTCG was genuine. It is distinctly evident that she has failed to provide any cogent or rational explanation in this regard. Not only are the replies self-contradictory, evasive and unbelievable for any reasonable triad but starkly fail the test of ITA No. 6356/Del/2019 Krishan Devi 13 human probabilities. The explanations made therefore are unsatisfactory. Just to cite a few instances of such unbelievable and unsatisfactory statements. i. The shares were purchased off-market from a Private Party and not through exchange, whereas the scrip was listed in stock exchange in complete contrast with regular investments made by the assesses. j. The assessee has not given any information with regard to the details of the person who advised him to invest in the said scrip. Yet the assessee invested immediately without any further enquiry. k. No analysis was done in this case before investing whatsoever and no cross verification was done in this case. l. The assesses has no idea what the listed company did or does. m. If the AR of the assessee’s version is to be believed, the assessee seem to be having amazing sense to distinguish between various, penny stocks so much so she made above mentioned investments as a regular investor in order to buy the shares of such script. n. The assessee bought the share at a rock bottom price and exited near the peak of the scrip price curve. o. In the replies, the assessee has mainly contended that since sale were made through exchange and the payment was received through banking channel, it was a genuine transaction. Secondly, sale was made online after paying STT ITA No. 6356/Del/2019 Krishan Devi 14 at the market rates therefore sale transactions were also genuine. The contention of the assessee was examined. It is not the case of this office whether purchase of shares through preferential placement did actually took place or shares were sold on the exchange at the prevalent market rates after paying STT or not. What this office has come to conclude on the basis of above analysis, documentary evidences, circumstantial evidences, human conduct and preponderance of probabilities is that what is apparent in this case is not real, that these financial transactions were sham ones and that this entire edifice was only a colorable device used to evade tax. 21. The Assessing Officer further held that according to Oxford English dictionary SHAM means: “A thing that is not what it is purported to be. In this instant case even though prima facie it appears that assessee received the aforementioned proceeds out of sale of shares of the scrip in clandestine manner. The detailed analysis and the modus oprendi discussed above firmly establish the events in the instant case. 22. Based on the holistic investigation and enquiries made by the AO, the modus operndi and the movements of the script, the Assessing Officer came to a conclusion that the transactions have not genuine and disallowed the exemption claimed by the assessee u/s 10(38) of the Act. 23. Aggrieved the assessee filed appeal before the ld. CIT(A). 24. Excerpts from the order of the Ld. CIT(A): During the financial year 2012-13 the appellant purchased 6000 shares of M/s Esteem Bio Organic Food Processing Ltd. (EBFL) ITA No. 6356/Del/2019 Krishan Devi 15 @ Rs. 26.55 per share on 11.02.2013 through the broker ISF Securities Ltd. for a sum of Rs. 1,59,300/-. 2. The shares in Demat form were sold shares in the months of February and March, 2014 though the same broker at almost 17 times the purchase price. 3. It is seen that the appellant is not regular investor and this investment in "EBFL" is the major investment in shares made by her. In fact even after a windfall profit in this scrip no further investment was made in shares, which is against human nature beyond all human probability. 4. The AO has analyzed the financials of the company "EBFL" from the website as well as the reports of the various Investigating Agencies, it was revealed that while the book value as per balance sheet has shifted to Rs. 570.38 from Rs. 18.31 in March 2011, the quantum jump of nearly 1500% in share prices within 13 months defies logic. Chronology of Events/Transactions Date Event Amount 11.02.2013 Purchase of 6000 shares online of EBFL @ 26.55 per share through ISF Securities Ltd. 1,59,300/- 25.02.2014 Sale of 1200 shares @ 341.62 per share (through Demat account) 4,09,944/- 04.03.2014 Sale of 2400 shares @ 390,32 per share 9,36,768/- 10.03.2014 Sale of 2400 shares @ 419.26 per share 10,06,224/- During the appellate proceedings, the AR gave his written submission. The objections raised by her are summarized below: 1. The AO reopened the case and made additions based on the basis of certain information received. ITA No. 6356/Del/2019 Krishan Devi 16 2. The AO did not confirm that the material in the report was relatable to the transaction entered by the assessee. 3. That the copy of the investigation report and statement of persons recorded by the investigation Wing and opportunity of cross examination was not provided by the AO. 4. That the transaction was genuine since, all the documentation was done in which no infirmity was found. 5. The assessee has cited several case laws in her favour and tried to distinguish the judgments relied upon by the AO. The Ld.CIT(A) held that The principle of "preponderance of probability" is judiciously followed as against "beyond reasonable doubt." It is also to be borne in mind, that Directorate of investigation, Kolkata in coordination with other Directorates of Investigation at other places, carried out a major exercise and unearthed the massive racket of entry operators and manipulators to launder the black money and tax evasion. During the said exercise various statements were recorded. Certainly, simultaneous action was not taking place in each and every beneficiary's case. Therefore every beneficiary or his representative was not available at the time of recording of those statements. This situation is unlike a normal court of law where at the time of recording of the statement, the other party or his representative is present in the same court and at the same time and his offering of the said cross examination does not pose any practical difficulty. It was not so in the present case. There is one more aspect of the matter. The Investigation Wing of the Income Tax department in course of discharge of the ITA No. 6356/Del/2019 Krishan Devi 17 official duty, has generated a report which is almost akin to an expert opinion. Therefore, if necessary, the author of the report could be cross-examined. However, at no point of time there was demand to cross examine the author of the report. During the hearings conducted in connection with the present appellate proceedings, the AR did not accept the idea to cross examine the author of the report. Therefore the evidentiary value of the said report is very much there like any other documentary evidence. 4.5 In the present instance, the referred Investigation Report of Investigation wing Kolkata was available on the public domain and the assessee had free access to the said documents. As regards cross examination, there are numerous rulings which support the case of revenue observing that "so long as the party charged has a fair and reasonable opportunity to see, comment and criticize the evidence, statement or record on which the charge is made against him the demands and the test of natural justice are satisfied." Nokia India Pvt. Ltd. vs. DDIT of Hon'ble ITAT Delhi which has relied upon the decision of Hon'ble Calcutta high Court in the case of Kisan Lal Agarwal vs. Collector of land customs AIR 1967 and CAL 80. GTC industries vs. ACIT of Hon'ble ITAT Bombay which held that "principles of natural justice do not require formal cross examination Therefore, it cannot be laid down as a general proposition of law that the revenue could not have relied on any evidences which had not been subjected to cross examination." The LD.CIT(A) held that the assessee has emphatically stated that all the requirements of section 10(38) have been covered and the assessee wes entitled to the exemption. Further that ITA No. 6356/Del/2019 Krishan Devi 18 all the documentary evidences in support of this transaction have been disregarded treating the transaction as sham. To address this objection a background of this entire gamut of the scam is briefly stated below. Outcome of investigations by the Investigation wing • Total 84 BSE listed companies were identified as penny stocks. • More than 60,000 PAN of the beneficiaries was involved. • More than 5000 paper/shell companies involved in providing bogus accommodation entries were detected. • Statements of the directors of the companies were recorded. • Cash trail reflected how unaccounted/undisclosed cash of beneficiaries was routed through to convert black money into LTCG/STCG. IMPORTANT OBSERVATIONS OF NSE/SEBI/SIT • 11 member Special investigation Team (SIT) of Hon'ble Supreme Court on Black Money has also pointed out the Misuse of exemption on Long Term Capital Gains tax for money laundering in the Third SIT report on Black Money. • Order of BSE of January, 2015 showing the list of 22 banned penny stock companies for trading. The Ld. AR, on behalf of the appellant has reiterated, that the various searches and investigations conducted by the IT Dept, Inv Wing Kolkata found no material against the Appellant, hence he has no role and is thus an innocent investor. Prima facie, it may appear to be so but, Income tax Act follows the juridical principle of 'preponderance of probability' and not 'beyond reasonable doubt'. More so in a scam of such a ITA No. 6356/Del/2019 Krishan Devi 19 massive scale, with so many players involved, the laws of evidence have to be accordingly applied. Even the AO has drawn strength from judicial pronouncements which specially address such peculiar circumstances and facts. All the circumstantial evidences point to the active or passive connivance of one and all who were part of it and were beneficiaries from this dubious plan. The appellant's vociferous assertion may for a moment appear reasonable, but then the careful reading of Investigation Wing Kolkata's report gives the true perspective. The predetermined plan was executed with perfection which would not in any case falter with the rules/documentation. But allowing misuse of provisions was never the intent of legislature and least of all judiciary. Based on principles on reasonableness, preponderance of probability and normal human conduct, it is only fair to holistically appreciate the mindful efforts of the Investigation Wing, SEBI and other agencies in establishing and unravelling the true intent of all the beneficiaries, including the appellant. This further goes to prove that all the connected parties were hand in glove in violating rules, laws of the land and thereby defrauding the exchequer. Since, the assessee is also a beneficiary, her connivance in the larger scheme of things, in view of surrounding circumstances cannot be wished away behind the garb of meticulous documentation. The Supreme Court observation in the McDowell case befittingly supports the AO's view which stated that "colourable devices cannot be part of tax planning......”. ITA No. 6356/Del/2019 Krishan Devi 20 There could be an argument that the sale was a screen based transaction on the Bombay Stock Exchange platform whose genuineness could not be doubted. It is worthwhile to mention here that the Apex Court of the country has rejected this plea that every trading activity done on BSE platform does not have scope of manipulation. Hon'ble Supreme Court in a recent judgment dated 8th February 2018 in the case of Securities and Exchange Board of India versus Rakhi Trading Private Limited (civil appeal number 1969 of 2011 with civil appeals number 3174-3177 of 2011 and civil appeal number 3180 of 2011) has observed as under: "Considering the reversal transactions, quantity, price and time and sale, parties being persistent in number of such credit transactions with a huge price variations it will be too naive to hold that the transactions are through screen-based trading and hence anonymous. Such conclusion would be overlooking the prior meeting of minds involving synchronization of buy and sell order and not negotiated deals. The impugned transactions are manipulative/deceptive device to create a desired loss and oblique or profit." Thus, the screen based transaction would not necessarily make it sacrosanct especially in a scam ridden case of such massive proportion involving thousands of crores of rupees. Ld.CIT(A) relied on the following recent rulings of the ITAT in similar cases involving bogus capital gains through transactions in Penny Stocks: i) Pune ITAT:- Rejects capital-gains claim on 'penny stock' sale; Disregards paper-trail through contract-notes. ITA No. 6356/Del/2019 Krishan Devi 21 Pune ITAT upheld undisclosed income addition for sale proceeds received by assessee-individual on sale of shares & rejected asessee's short term capital gains ['STCG'] claim for AY 2006- 07: Based on the enquiries conducted by BSE/SEBI, AO observed that the shares of a company dealt in by assessee were tainted by penny stock in as much as its prices were manipulated, Accordingly he held that the STCG brought into books was nothing but income from undisclosed sources. It was noted that assessee had claimed huge STCG of Rs. 22 lakh in respect of penny stock purchased for a paltry sum of Rs. 75,000/, further noted that broker from whom assessee purchased the shares was visited with the penalties by SEBI and was debarred from acting as a share broken On assessee's completion of paper-trail by producing contract notes, ITAT remarks that "mere furnishing of contract notes etc. and more specifically when seen in the background of the above noted facts, does not inspire any confidence and cannot be a ground to delete an addition, which is otherwise made on the solid bedrock of detailed enquiries". It therefore concluded that the assessee obtained only accommodation entries in the garb of STCG from transfer of penny stock and also sustained addition to the extent of 2% on account of commission for arranging deal of share-sale. [TS-5-ITAT-2019(PUNE)] ii) Hon'ble ITAT New Delhi in the case of Anip Rastogi & Anju Rastogi [TS- 5007-ITAT-2019(Delhi)] has upheld addition u/s 68 on account of credits arising on sale of penny stock on the ground that assessee had generated bogus entries of long term capital gains on sale of penny stocks. ITA No. 6356/Del/2019 Krishan Devi 22 iii) Very recently Hon'ble Delhi High Court in 1TA No. 49/2018 pronounced on 17.01.2019 in the case of Pr. CIT Vs. NDR Promotors Pvt. Ltd. almost similar circumstances held that "we have no hesitation in holding that the transactions in questions were clearly sham and make belief with excellent paper work to camouflage their bogus nature..... the reasoning given is contrary' to human probabilities for in the normal course of conduct, no one will make investment of such huge amount without being concerned about the return and safety of such investment. Accordingly the appeal is allowed." iv) Hon'ble Nagpur ITAT while delivering judgment dt.10.04.2017, in l.T.A. No. 61/Nag/2013. Assessment Year: 2006-07, in case of Saniav Bimalchand Jain L/H of Smt. Shanti devi Bimalchand Jain Vs. Pr.CIT-1, Nagpur has dealt with this issue and observed as under:- v) Hon'ble Nagpur ITAT while delivering judgment dt.10.04.2017, in I.T.A. No. 61/Nag/2013. Assessment Year: 2006-07, in case of Sanjay Bimalchand Jain L/H of Smt. Shanti Devi Bimalchand Jain Vs. Pr. CIT-I, Nagpur has dealt with this issue and observed as under: "7. In this regard I may gainfully refer to the decision of Hon'ble jurisdictional High Court in the case of Major Metals Ltd. vs. Union of India and others in Writ Petition No. 397 of 2011 vide order dated 22nd February, 2012. The Hon'ble jurisdictional High Court in this case has held that a company cannot command disproportionate and huge share premium and such receipt of bogus share application money even though through banking channel can be held to be assessee's undisclosed income received in the garb of unjustified share application money. In the present case I find that there is no ITA No. 6356/Del/2019 Krishan Devi 23 justification whatsoever that the shares of an unknown company of Rs.5/- can be sold within two years time at Rs. 485/- without there being any reason on record. This unexplained spurt in the value of unknown company shares is beyond preponderance of probability. It has been held by Hon'ble Apex Court in the case of Durga Prasad More and Sumati Dayal that the test of human probabilities have also to be applied by the authorities below. In the case of Sumati Dayal 214 ITR 801, it was held that during the year 1970-71 (pertaining to the assessment year 1971-72) between April 6, 1970, and March 20, 1971, the appellant claims to have won in horse race a total amount of Rs. 3,11,831/- on 13 occasions out of which ten winnings were from jackpots and three were from treble events. Similarly in the year 1971-72, the appellant won races on two occasions and both times the winning were from a jackpot. These receipts were tested on the touch stone of human probability and it was found that apparent was not real. That it was contrary to statistical theory and experience of the frequencies and probabilities. The exceptional luck enjoyed by the assessee was held to be beyond preponderance of probability. Hence the Hon'ble Apex Court has affirmed the view that it would not be unreasonable to infer that the appellant had not really participated in any of the races except to the extent of purchasing the winning tickets after the events presumably with unaccounted funds. 8. When the present case is examined on the touch stone of above case law, it is clear that these transactions of the assessee can by no stretch of imagination be considered as investment transactions. They are only make believe transaction. Hence I do not find any infirmity in the revenue taxing the receipt in this regard. ITA No. 6356/Del/2019 Krishan Devi 24 9. The entire amount of the so called receipt of share sales could well also be treated as unexplained credit u/s 68 of the I.T. Act as it has all the ingredients of attracting the rigors of the said section. Section 68 of the I.T. Act provides that where any sum is found credited in the books of the assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the AO satisfactory, the sum so credited may be charged to income tax as income of the assessee of that year. In the present case the assessee's explanation that the said receipt is on account of investment in shares whereby share of Rs.5/- of unknown company has jumped to Rs.485/- in no time has been totally rejected by the authorities below. The assessee has not at all been able to adduce cogent evidences in this regard. There is no economic or financial justification for the sale price of these shares. The so called purchaser of these shares has not been identified despite efforts of the AO. The broker company through which shares were sold did not respond to queries in this regard. Hence the fantastic sale price realization is not at all humanly probably; as there is no economic or financial basis, that a share of little known company would jump from Rs. 5/- to 485/-. In these circumstances, I do not find any infirmity in the orders of the authorities below. Accordingly I affirm the same and decide the issue against the assessee." It can be seen from the above that the Hon'ble 1TAT has held that this, kind of receipt can be taxed u/s 68. 4.8 The A.O. has applied section 68 of Income Tax Act, 1961. The relevant provisions of section 68 are reproduced as under: "68. Cash credits ITA No. 6356/Del/2019 Krishan Devi 25 Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year.” 4.9 It may be seen that whether explanation of the appellant is satisfactory or not is to be seen with reference to the opinion of the assessing officer. The legal position in this regard is discussed in the following paragraphs. In the context of section 147, Ld.CIT(A) held that Hon'ble Supreme Court while delivering judgment in the case of Raymond Woollen Mills Ltd Vs. Income-Tax Officer And Others [1999] 236 ITR 34 (SC) laid down a ratio that the sufficiency or correctness of the material is not a thing to be considered by the courts. This view is reaffirmed by Hon'ble SC, in case of Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. 291 ITR 500(5C). The Hon'ble SC has stated as under: "This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)]; Raymond Woollen Mills Ltd. v. ITO [1999 (236) ITR 34 (SC)]." 4.11 In Anant Kumar Saharia Vs. CIT [1998] 232 ITR 533 (Gauhati), it was held as follows (page 539): ITA No. 6356/Del/2019 Krishan Devi 26 "The belief is that of the Assessing Officer and the reliability or credibility or for that matter the weight that was attached to the materials naturally, depends on the judgment of the Assessing Officer. This court in exercise of power under article 226 of the Constitution of India cannot go into the sufficiency or adequacy of the materials. After all the Assessing Officer alone is entrusted to administer the impugned Act and if there is prima facie material at the disposal of the Assessing Officer that the income chargeable to income-tax escaped assessment this court in exercise of power under article 226 of the Constitution of India should refrain from exercising the power. In the instant also, the case of the petitioner was fairly considered and thereafter the above decision is taken." (emphasis supplied). 4.12 In Phool Chand Bajrang Lai v. ITO [1993] 203 ITR 456, Hon'ble apex court has held as under (page 477): "From a combined review of the judgments of this court, it follows that an Income-tax Officer acquires jurisdiction to reopen an assessment under section 147(a) read with section 148 of the Income-tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must; record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the ITA No. 6356/Del/2019 Krishan Devi 27 facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief is not for the court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by the Income-tax Officer and examined whether there was any material available on the record from which the requisite belief could be formed by the Income-tax officer and further whether that material had any rational connection. Or a live link for the formation of the requisite belief..." 4.13 Hon'ble Delhi High Court, while delivering the judgment, in case of Dalmia Pvt. Ltd. Vs Commissioner of Income Tax Delhi [2011] 14 Taxmann.com 106 (Delhi), on 25 September, 2011 has uphold this principle. The Hon'ble HC stated as under: "..The sufficiency or correctness of the material is not a thing to be considered at this stage as held by Supreme Court in the case of Raymond Woolen Mills Ltd. V ITO (1999) 236 ITR 34 (SC), Green Arts (P) Ltd. V ITO (2005) 257 ITR 639 (Delhi). The assessee cannot challenge sufficiency of belief-ITO V. Lakhmani Mewal Das (1976) 103 ITR 437 (SC)..." 4.14 Therefore, Ld.CIT(A) came to a conclusion that if the subjectivity of 'reason to believe' cannot be subject matter of consideration of the appellate courts, the subjectivity in 'opinion' of the A.O. can never be subject matter of ITA No. 6356/Del/2019 Krishan Devi 28 consideration of the appellate courts because certain incriminating material having some evidentiary value is required to form 'reason to believe' and there is less chance of subjectivity, however, 'opinion' can be formed' on the basis some material which , strictly speaking, may not have any evidentiary value and has much more (inherent) subjectivity. What can be examined is whether there was material which has been appreciated and whether the opinion formed is logical and one of the possible opinions which could have been formed in the given set of facts and circumstances. DECISIONS RELIED UPON BY ITAT/COURTS IN FAVOUR OF REVENUE ON THE ISSUE OF CIRCUMSTANTIAL EVIDENCE APPLICABLE IN PENNY STOCK CASES • CIT vs. Durga Prasad More [1971] 82 ITR 540 (SC) • Sumati Dayal 214 ITR 801 (SC) • Mc Dowell & Co. 154 ITR 148 (SC) • SornNath Maini 306 UR 414 (HC) • Ashok Mahendru & Sons (HUF) vs. CIT 173 TAXMANN 178 (HC) • Hersh Win Chadha Vs. DCIT 135 TTJ 513 (ITAT Delhi) • Arvind M Kariya Vs. ACIT IN ITA No. 7024/Mum/2010 (ITAT Mumbai) 5.2 DECISIONS ON THE ISSUE OF - RULE OF EVIDENCE AO is a quasi - judicial authority and rigor of the rules of evidence contained in the evidence act are not applicable. There is no presumption in law that the AO is to discharge an impossible burden to assess the tax liabilities by direct ITA No. 6356/Del/2019 Krishan Devi 29 evidence only and to establish the evasion beyond doubt as in criminal proceedings. • Dhakeshwari Cotton Mills Ltd. Vs. CIT (1954) 26 ITR 775 (SC) • S.S. Gadgil vs. Lal & Co. (1964) 53 ITR 231 (SC) • CIT vs. Jay Engineering Works Ltd. (1978) 113 ITR 389 (Delhi HC) • Dinshaw Darabshaw Shroff vs. CIT (1943) 11 ITR 172 (Bom.) • Hersh win Chadha Vs. DCIT 135 TTJ 51 (ITAT Delhi) DIRECT DECISIONS OF HON'BLE COURTS/TRIBUNALS IN THE CASE OF PENNY STOCK COMPANIES • M.K. Rajeshwari vs. ITO in ITA No. 1723/Bang/2018 vide order dated 12.10.2018 • Abhimanyu Soin vs. ACIT in ITA No. 951/Chd/2016 vide order dated 18.04.2018 • Sanjay Bimalchand Jain vs. ITO in ITA No. 61/Nag/2013 vide order dated 18th July, 2016 Han'ble ITAT Nagpur Bench confirmed by Hon'ble Bombay High Court vide order dated 10.04.2017 (89 taxmann.com 196) • Dinesh Kumar Khandelwal, HUF vs. ITO in ITA No. 58 & 59/Nag/2015 vide order dated 24h August, 2016 • Ratnakar M. Pujari vs. ITO in ITA No. 995/Mum/2012 vide order dated 03.08.2016 • Disha N. Lalwani vs. ITO in ITA No. 6398/Mum/2012 vide order dated 22.03.2017 • ITO vs. Shamim M. Bharwoni [2016] 69 taxnnann.com 65 • Usha Chandresh Shah Vs. ITO in ITA No. 6858/Mum/2011 vide order dated 26.09.2014 ITA No. 6356/Del/2019 Krishan Devi 30 • CIT vs. Smt. Jasvinder Kaur 357 ITR 638 order dated 12.06.2013 (Gauhati HC) The Ld. CIT(A) held that while Ld. AR has supported his contention citing various decisions of Hon'ble High Courts and ITATs but the final interpretation of the legislative intent and law of the land has been clearly put forth by the Hon'ble Supreme Court in the following three landmark judgments: • Durga Prasad More [1971] 82 ITR 540 (SC) • Sumati Dayal 214 ITR 801 (SC) • Mc Dowell & Co. 154 ITR 148 (SC) As can be seen from the magnitude, volume and surgical precision of the entire operation, it was an exercise which was targeted to introduce unaccounted money into the books, that too without paying taxes, by abusing the exemption provisions u/s 10(38) of the statute, to circumvent the law of the land, evade taxes and deprive the exchequer of its rightful due. The plethora of cases quoted by the AO all lend support to his decision, especially in such scam ridden cases, wherein it is essential to pierce the veil of legitimacy and innocence/ ignorance and look behind the charade woven to evade taxes. On the other hand, after due consideration of arguments put forth by the appellant, it is held that the Ld. AR has not been able to controvert/ successfully distinguish the judicial pronouncements quoted by the AO. Accordingly, the addition of Rs. 23,52,034/- u/s 68 r.w.s. 115BBE made by the AO, is confirmed. Ld. CIT(A) held that the AO has also made further addition of Rs. 1,17,602/- @ 5% of the total transaction amount of Rs. /- by way of brokerage/commission paid to the entry operator as ITA No. 6356/Del/2019 Krishan Devi 31 admitted by persons who were involved in such share manipulations. However, the addition made by the AO u/s 68 is erroneous and may be treated as unexplained expenditure u/s 69C. While the appellant denies the sale expenditure it is known fact that there are no free lunches in the commercial world. Even the judicial authorities have upheld the incurring of such expenditure for arranging tax exempt income of such a sizable amount. Accordingly, the addition of Rs. 1,17,602/- is hereby confirmed. 25. Aggrieved with the order of the ld. CIT(A), the assessee filed appeal before the Tribunal. 26. The ld. AR argued the issue extensively relying on various case laws with regard to reopening u/s 148 and as well as on merits of the case. Write up of our arguments for your honors kind consideration in forthcoming hearing Ground No. 1 & 1.1 on validity of impugned reopening u/s 148 on basis of reasons recorded in extant case (typed copy placed on records) In reasons recorded u/s 148(2) in present case, it is submitted that same are based on mere vague information which remains totally un-described and inchoate, that too for mere purpose of scrutiny/verification and examination of long term capital gains disclosed in ITR as exempt u/s 10(38) of the Act, impugned reopening u/s 148 is made, which as per coordinate bench decision in case of SBS Realtors (G bench order ITA 779l/Del/2018) is impermissible and similar reasons as ITA No. 6356/Del/2019 Krishan Devi 32 recorded in present case have been hitherto quashed in aforesaid order of coordinate bench. We reproduce the said order here for sake of completeness: M/s SBS Realtors (P) Ltd ITA No.7791/Del/2018 Date of pronouncement: 01.04.2019 “6. From a perusal of the above reasons, it is seen that the Investigation Wing has supplied certain information to the Assessing Officer with regard to receipt of cheques by the assessee from various companies who are considered to be S.K. Jain group companies by the Investigation Wing. As per the Investigation Wing, the above cheques paid by S.K. Jain group companies were accommodation entries to M/s SBS Realtors Pvt. Ltd. i.e., the assessee. However, what is the material found during the course of search of S.K. Jain group cases which had led to form the belief that all those companies are providing accommodation entries is not mentioned in the reasons recorded. It is also not mentioned whether any of the directors of the above companies have provided accommodation entries to M/s SBS Realtors Pvt. Ltd. It is also not mentioned whether any document was found which led to the belief of giving of accommodation entries by those twelve companies to the assessee. On receipt of above information, the Assessing Officer compared the figures in the balance sheet of the assessee filed for assessment year 2009-10 and he found that the share capital has increased by Rs.2,35,00,000/-. After recording the above factual finding, the Assessing Officer has concluded “The same has escaped assessment on account of failure on the part of the assessee to truly and fully disclose all material facts necessary for assessment for the AY 2009-10. In order to verify the genuineness, identification and ITA No. 6356/Del/2019 Krishan Devi 33 creditworthiness of the aforesaid transaction the case needs to be reopened u/s 147 of the I.T. Act 1961.” The conclusion of the Assessing Officer at the end of the reasons recorded as noted above is contradictory. In the first two lines, the Assessing Officer has recorded the finding that the sum of Rs.2,35,00,000/- has escaped assessment but in the last two lines, he has recorded that the case is being reopened to verify the genuineness, identification and creditworthiness of the aforesaid transactions. If the case is being reopened for the purpose of verification of the genuineness, how can there by satisfaction of escapement of income. Any satisfaction with regard to escapement of income or otherwise can be recorded only after the verification of genuineness, identification and creditworthiness of the transaction and not earlier. Thus, we are of the opinion that the Assessing Officer has reopened the case under Section 147 for the purpose of verification of genuineness, identification and creditworthiness of the transactions mentioned in the information supplied by the DIT (Investigation) and this is what the Assessing Officer has concluded at the end of the reasons recorded for issue of notice under Section 148. Now, the question remains whether an assessment can be reopened under Section 147 for the purpose of verification of genuineness, identification and creditworthiness of any transaction. In our opinion, the reply is clearly NO. Thus, if the Assessing Officer considered it necessary to ensure that the assessee has not understated the income, he can issue the notice under Section 143(2). However, proviso to above Section provides the time limit within which such notice can be issued. Once that time limit is expired, in our opinion, the Assessing Officer cannot invoke Section 148 just for the purpose of verification. Therefore, in our opinion, in the case under consideration, the reopening of ITA No. 6356/Del/2019 Krishan Devi 34 assessment for the purpose of verification of genuineness, identification and creditworthiness of the transaction is not permissible under law and is liable to be quashed.” Further in above order on reference to investigation wing information for reopening of the case, it is succinctly held that: “The learned counsel for the assessee has also mentioned that the notice has been issued mechanically without application of mind and the satisfaction by the Assessing Officer is only the borrowed satisfaction of the Investigation Wing. The Assessing Officer, without applying his mind, has simply on the basis of information of the Investigation Wing jumped to the conclusion that there is escapement of income. From a perusal of the aforesaid reasons, we do not find any application of mind by the Assessing Officer for reaching to the conclusion that there was escapement of income except the information from the Investigation Wing. After getting the information from the Investigation Wing, the Assessing Officer compared the figures in the balance sheet and has found that the assessee has issued share capital of Rs.2,35,00,000/-. The issue of share capital by itself is not sufficient to reach to the conclusion of escapement of income. The Investigation Wing has alleged that 12 companies who have given cheques to the assessee company were accommodation entries. However, the basis of such allegation is not mentioned in the reasons recorded. Whether such conclusion is reached by the Investigation Wing on the basis of statement of director of any company or on the basis of some material seized during the course of search of those companies, is not mentioned in the reasons recorded. Whether there was any material with the Assessing Officer while issuing notice under Section 148 is not clear. Therefore, ITA No. 6356/Del/2019 Krishan Devi 35 from the reasons recorded, we do not find any basis for reaching to the conclusion that there was escapement of income by the Assessing Officer...." Even Delhi Bench of ITAT in case of Gopal Chand Mundhra in similar reopening u/s 148 where allegation of bogus Long term capital gains was there while quashing the similar reasons/reopening, Hon’ble bench observed as under (after considering Bombay high court decision and above SBS realtors case) (ITA 1375/Del/2019) (Order: 21.08.2019): Reasons recorded in above case: Subsequently, the Assessing Officer recorded the following reasons for reopening of the assessment u/s 147 of the Act: "Information has been received from Investigation Wing of the Income tax Department that large scale, manipulation had been done in the market price of shares of SPLASH MEDIA by a group of persons acting as a syndicate in order to provide entries of tax exempt long term capital gains to the assessee (beneficiary). According to the information available, the assessee had traded in the above scrip to the tune of Rs.23,74,500/- during the financial year 2010-11 and bogus LTCG amounting to Rs.21,16,776/- had been facilitated to the assessee during the financial year 2010-11. Hence, I have reason to believe that the above income of Rs. 21,16,776/- chargeable to tax has escaped assessment for the asst, year 2011-12, within the meaning ofsec.147 of the Income-tax Act." Held: Even otherwise also, a perusal of the reasons recorded show that the notice has been issued in a mechanical manner without ITA No. 6356/Del/2019 Krishan Devi 36 independent application of mind by the Assessing Officer and the satisfaction by the Assessing Officer is based on borrowed satisfaction of the Investigation Wing. The Assessing Officer, without applying his mind, has simply, on the basis of the information of the Investigation Wing, jumped to the conclusion that there is escapement of income. The reasons so recorded do not show that there is any application of mind by the Assessing Officer for reaching the conclusion that there was escapement of income except the information from the Investigation Wing. The Hon'ble Delhi High Court in a number of decisions has held that reopening of assessment on the basis of report of the Investigation Wing without independent application of mind by the Assessing Officer is not in accordance with law and accordingly the reassessment proceedings have been quashed. The Hon'ble Bombay High Court recently in the case of South Yarra Holdings vs. ITO, vide Writ Petition No.3398 of 2018, order dated 1st March, 2019, at para 7 of the order has observed as under:- “7. It is a settled position in law that re-opening of an assessment has to be done by an Assessing Officer on his own satisfaction. It is not open to an Assessing Officer issue a reopening notice at the dictate and/or satisfaction of some other authority. Therefore, on receipt of any information which suggests escapement of income, the Assessing Officer must examine the information in the context of the facts of the case and only on satisfaction leading to a reasonable belief that income chargeable to tax has escaped assessment, that re- opening notice is to be issued.” ITA No. 6356/Del/2019 Krishan Devi 37 27. The Hon'ble High Court in the case of PCIT vs. Meenakshi Overseas Pvt. Ltd., vide ITA 692/2016, order dated 26th May, 2017, has observed as under:- "19. A perusal of the reasons as recorded by the AO reveals that there are three parts to it. In the first part, the AO has reproduced the precise information he has received from the Investigation Wing of the Revenue. This information is in the form of details of the amount of credit received, the payer, the payee, their respective banks, and the cheque number. This information by itself cannot be said to be tangible material. 20. Coming to the second part, this tells us what the AO did with the information so received. He says; "The information so received has been gone through." One would have expected him to point out what he found when he went through the information. In other words, what in such information led him to form the belief that income escaped assessment. But this is absent. He straightaway records the conclusion that "the above said instruments are in the nature of accommodation entry which the assessee had taken after paying unaccounted cash to the accommodation entry given (sic giver)". The AO adds that the said accommodation was "a known entry operator" the source being "the report of the Investigation Wing". 21. The third and last part contains the conclusion drawn by the AO that in view of these facts, "the alleged transaction is not the bonafide one. Therefore, I have reason to be believe that an income of Rs. 5,00,000 has escaped assessment in the AY 2004-05 due to the failure on the part of the Assessee to disclose fully and truly all material facts necessary for its assessment... " ITA No. 6356/Del/2019 Krishan Devi 38 22. As rightly pointed out by the /TAT, the 'reasons to believe' are not in fact reasons but only conclusions, one after the other. The expression 'accommodation entry' is used to describe the information set out without explaining the basis for arriving at such a conclusion. The statement that the said entry was given to the assessee on his paying "unaccounted cash" is another conclusion the basis for which is not disclosed. Who is the accommodation entry giver is not mentioned. How he can be said to be "a known entry operator" is even more mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom. 23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. 24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the ITA No. 6356/Del/2019 Krishan Devi 39 bare minimum mandatory requirement of the first part of Section 147(1) of the Act." I find the coordinate Bench of the Tribunal in the case of M/s SBS Realtors (P) Ltd. vs. ITO vide ITA No. 7791/Del/2018 order dated 1st April 2019 has also quashed the reassessment proceedings based on the information provided by the Investigation Wing without any independent application of mind. It was held that there was no tangible material which formed the basis for the belief that income has escaped assessment. The various other decisions relied by the id. Counsel also supports his case. Since, in the instant case, the reopening of the assessment has been made on the basis of information received from the Investigation Wing and there is no independent application of mind by the Assessing Officer and such reopening is made on the basis of borrowed satisfaction, therefore, such reopening is not in accordance with law and ha to be quashed. Accordingly, such reassessment proceedings have to be treated as not in accordance with law and has to be quashed.” Prayer on legal /jurisdictional challenge: We humbly request your honors to follow the above rulings, in present case and quash the impugned reopening action u/s 148 of the Act which in our humble submission is clearly without authority of law and merely for purpose of verification/scrutinizing and examination impugned reopening is made which is held to be impermissible and for that provisions of section 143(2) must have been used if at all which is nowhere done as mandated in law. Plea on merits of the case: Addition of Rs. 24,69,636 (break up : addition u/s 68 Rs 23,52,034 on ground of alleged bogus ITA No. 6356/Del/2019 Krishan Devi 40 LTCG and addition of Rs 117,062 on ground of alleged unexplained expenditure u/s 68 of the Act) Brief facts: During the period under consideration appellant assessee earned, long term capital gains of Rs.23,52,034/- on sale of 6000 shares of M/s Esteem Bio Organic Food Processing Ltd (EBFL) (date of sale February and March 2014) which were acquired online for Rs.1,59,000/- on 07.02.2013 for which reference may be made to paragraph 4.2 & 4.3 of impugned assessment order. For which relevant contract notes are enclosed in our paper book at pages 9-12, Entire sale proceeds for share sale has been added back u/s 68 of the Act of Rs.23,52,034/- and further Rs.1,17,062/- has been added on alleged brokerage /commission paid @5% of Rs.23,52,034/-. So total addition made in assessment order was Rs.24,69,636/- which was sustained at CIT-A level, and same is impugned here before this Hon’ble Tribunal. With this brief factual introduction we wish to humbly submit straightway that in identical /same facts in assessee’s own case for AY 2015-2016, this Hon’ble ITAT (A bench Delhi ITAT in ITA 1070/Del/2019) vide order dated 06/08/2019 has deleted the identical addition for which we reproduce relevant paragraphs from said order to display present matter is fully covered by that order: "3. The appellant purchased shares of following companies:- 1. M/s. Esteem Bio Organic Food Processing Ltd. - 6,000 shares on 11.02.2013 2. M/s. Randers Corporation Ltd. - 3500 shares on 20.11.2012 ITA No. 6356/Del/2019 Krishan Devi 41 4. The shares were purchased online through two brokers namely ISF Securities and SMC Global Securities stationed at New Delhi. 6. Shares of M/s. Esteem Bio Organic Food Processing Ltd. were sold on different dates namely 22.02.2014 1200 shares, 28.02.2014 1200 shares, 04.03.2014 2400 shares and on 06.03.2014 1200 shares. The sale transactions were done through the de-mat account via online trading. 24. The report from the Directorate Income Tax Investigation Wing, Kolkata is dated 27.04.2015 whereas the impugned sales transactions took place in the month of March, 2014. The ex- parte ad interim order of SEBI is dated 29.06.2015 wherein at page 34 under para 50 (a) M/s. Esteem Bio Organic Food Processing Ltd was restrained from accessing the securities market and buying selling and dealing in securities either directly or indirectly in any manner till further directions. A list of 239 persons is also mentioned in SEBI order which are at pages 34 to 42 of the order the names of the appellants do not find place in the said list. At pages 58 and 59 the names of pre IPO transferee in the scrip of M/s. Esteem Bio Organic Food Processing Ltd. is given and in the said list also the names of the appellants do not find any place. At page 63 of the SEBI order-trading by trading in M/s. Esteem Bio Organic Food Processing Ltd. - a further list of 25 persons is mentioned and once again the names of the appellants do not find place in this list also. 25. As mentioned elsewhere the brokers of the assesses namely ISG Securities Limited and SMC Global Securities Limited are stationed at New Delhi and their names also do not find place in the list mentioned here in above in the SEBI ITA No. 6356/Del/2019 Krishan Devi 42 order. There is nothing on record to show that the brokers were suspended by the SEBI nor there anything on record to show that the two brokers of the appellants mentioned here in above were involved in the alleged scam. The Assessing Officer has not even considered examining the brokers of the appellants. It is a matter of fact that SEBI looks into irregular movements in share prices on range and warn investor against any such unusual increase in shares prices. No such warnings were issued by the SEBI. 29. As mentioned elsewhere the shares of M/s. Esteem Bio Organic Food Processing Ltd. were suspended from trading in the stock exchange but that was from 29.06.2015 which is date of the order of the SEBI, The shares of two companies were purchased by the assessee in the month of February 2013 and November, 2012 which were sold in the month of February/March 2014 and these transactions took place much before the report of the Investigation Wing and also before the order of the SEBI. 30. Considering the vortex of evidences, we are of the considered view that the assessee has successfully discharged the onus cast upon him by provisions of section 68 of the Act as mentioned elsewhere, such discharge of onus is purely a question of fact and therefore the judicial decisions relied upon by the DR would do no good on the peculiar plethora of evidences in respect of the facts of the case in hand and hence the judicial decisions relied upon by both the sides, though perused, but not considered on the facts of the case in hand. 31. We accordingly direct the Assessing Officer to accept the long term capital gains declared as such. ITA No. 6356/Del/2019 Krishan Devi 43 32. As mentioned elsewhere the facts of all the appellants are identical, the companies whose shares have been purchased / sold giving rise to long term capital gain are same, though the quantum may differ. For our detailed discussion here in above, the appeals of all the appellants are allowed with the direction to accept the long term capital gain declared as such. 33. Since we have accepted the long term capital gains we do not find any merit in the additions on account of alleged payment of commission to the brokers and, therefore, additions made on this account is also directed to be deleted. 34. In the result, all the appeals filed by the different assessee’s are allowed.” Prayer: Since same script is involved namely EBFL and same online purchase and sale is there. with same broker M/s ISF Securities Limited, so we request your honors to apply above decision in present case and please delete the addition of Rs.24,69,636/-. For sake of completeness we humbly draw your honors attention to some more orders from this Hon’ble Tribunal which supports our above prayer for deletion of addition: In case of Riaz Munshi Delhi F bench vide order dated 11.03.2020 on issue of whether company EBFL for whom shares were sold in that case (also same here), for AY 2014-2015 (same period here), can it be called penny stock company, answer to this is given in paragraph no. 6 of the order of Hon’ble Tribunal which is reproduced below for sake of ready reference: ITA No. 6356/Del/2019 Krishan Devi 44 “6. We have considered the rival submissions and perused the material on record. The assessment order clearly show that the A.O. merely reproduced the modus operandi of the entry providers who booked bogus long term capital gains through penny stock companies in which either there is no business or they have accumulated losses or a Company is floated only for that purpose. Learned Counsel for the assessee has filed financials of M/s EBFL from A, Ys. 2011-2012 to 2017-2018 and for the assessment year under appeal the financials are reproduced above, which clearly show that this Company is dealing in actual business activities. Its financials are very heavy and as such the modus operandi of this type of penny stock companies would not be available in the case of M/s EBFL. The findings of the A. O. are entirely based upon interim order of SEBI. However, it is an admitted fact that interim order of the SEBI have been later on revoked by the SEBI on assessee as well as M/s EBFL have been cleared from all allegations and charges.... ” Above holding squarely applies to present facts. Further, Chennai bench of ITAT in two decisions where online purchase of share were made, whether allegation of penny stock can sustain on consequential online sale (same facts in present case) it is succinctly held as under: Shri Nirav Kumar Mahendra Kumar Sapani ‘A’ BENCH, CHENNAI ITA No.2032/Mds/2017 Date of Pronouncement: 08.02.2018 “5. We have considered the rival submissions on either side and perused the relevant material available on record. The purchase of shares of Swaca Business Machines Ltd. by both ITA No. 6356/Del/2019 Krishan Devi 45 the assessee was evidenced by way of Contract Note issued by the recognized stock broker ASE Capital Markets Ltd. It is not in dispute that ASE Capital Markets Ltd. is one of the recognized stock brokers by Security Exchange Board of India. The shares were also sold through ASE Capital Markets Ltd. The Contract Notes for purchase and sale of shares were filed by both the assessees before the Assessing Officer at the time of assessment proceeding. The assessment proceedings were completed on the ground that one Shri Chandrakant Shah provided accommodation entry to various persons. The question arises for consideration is whether the assesseee transaction in respect of purchase of shares and sale of shares through ASE Capital Markets Ltd. is a bogus transaction? This Tribunal is of the considered opinion that when the fact that ASE Capital Markets Ltd. is a recognized stock broker is not in dispute and the assesseee have also purchased the shares at the market rate and sold the same at market rate through recognized stock broker of Security Exchange Board of India, it cannot be said that the transaction was a bogus one. When the fact that the purchase and sale of shares through recognized stock broker is established and the shares were purchased and sold at market rate, this Tribunal is of the considered opinion that both the authorities below are not justified in disallowing the claim of the assessees. Accordingly, orders of both the authorities below are set aside and the additions made by the Assessing Officer in respect of both the assessees are deleted.” Vijay Kumar Baid (HUE), I.T.A. No.2300/CHNY/2018 Date of Pronouncement: 24-01-2019 ITA No. 6356/Del/2019 Krishan Devi 46 However, records produced by the assesses before me in the nature of contract note: issued by M/s. MSE Financial Services Ltd and certificate of M/s. Stock Holding Corporation of India Limited clearly indicate that the shares were purchased by the assessee through on-market transactions, and that too in demat form. Payments were made by the assessee were also through bank. Ld. Counsel for the assessee has certified that these records were with the lower authorities. It is a matter of record that SMIL had issued bonus shares in the ratio of 3:1 and thereafter split their shares. Sale made by the assessee was also through stock exchange and consideration received through bank only. In similar circumstances in the case of Nirav Kumar Mahendra Kumar Sapani (supra) this Tribunal had held as under:- “5. We have considered the rival submissions on either side and perused the relevant material available on record. The purchase of shares of Swaca Business Machines Ltd. by both the assessees was evidenced by way of Contract Note issued by the recognized stock broker ASE Capital Markets Ltd. It is not in dispute that ASE Capital Markets Ltd. is one of the recognized stock brokers by Security Exchange Board of India. The shares were also sold through ASE Capital Markets Ltd. The Contract Notes for purchase and sale of shares were filed by both the assessee before the Assessing Officer at the time of assessment proceeding. The assessment proceedings were completed on the ground that one Shri Chandrakant Shah provided accommodation entry various persons. The question arises for consideration is whether the assessee’s transaction in respect of purchase of shares and sale of shares through ASE Capital Markets Ltd. is a bogus transaction? This Tribunal is of the ITA No. 6356/Del/2019 Krishan Devi 47 considered opinion that when the fact that ASE Capital Markets Ltd. is a recognized stock broker is not in dispute and the assesses have also purchased the shares at the market rate and sold the same at market rate through recognized stock broker of Security Exchange Board of India, it cannot be said that the transaction was a bogus one”. In the circumstances, I am inclined to follow the decision of Co- ordinate Bench in the case of Nirav Kumar Mahendra Kumar Sapani (supra). Transactions done through recognized stock exchanges where payments were made through bank cannot be doubted or disbelieved based on an investigation report of the Department, which at the best can be strong reason to suspect the veracity of the claim but not good enough to disbelieve it. I am therefore of the opinion that there is nothing concrete brought on record by the Department to show that transactions entered by the assessee in the shares of SMIL were bogus or sham. I therefore do not find any reason to uphold the orders of the lower authorities. Such orders are set aide and the addition is deleted.” Prayer: We humbly submit that above inundated jurisprudence squarely applies to present facts where online purchase/sale of share remains undisputed so allegation of bogus LTCG cannot sustain as opined in orders of Hon’ble Tribunal. Copies of all above decisions are enclosed herewith. So we pray for quashing of impugned reopening proceedings u/s 148 of the Act and deletion of addition of Rs 24,69,636/-. ITA No. 6356/Del/2019 Krishan Devi 48 27. The ld. AR relied on the following case laws:  Gopal Chandra Mundhra in ITA No. 1375/Del/2019  Riaz Munshi order dated 11.03.2020  SBS Realtors in ITA No. 7791/Del/2018  Nirav Kumar Mahendra Kumar Sapani in ITA No. 2032/Mds/2017  Vijay Kumar Baid (HUF) in ITA No. 2300/CHNY/2018  Ishwar Chand Mittal in ITA No. 8706/Del/2019 28. On the other hand, the ld. Sr. DR extensively relied on the orders of the revenue authorities below. He has extensively quoted from various judgments and reiterated the facts that have been mentioned above as excerpts from the orders of the Assessing Officer and the ld. CIT(A). 29. Heard the arguments of both the parties and perused the material available on record. 30. With regard to the reopening u/s 148, we have gone through the reasons recorded by the Assessing Officer before issuing of notice. The reasons are as under: “Smt. Krishna Devi is an existing assessee of this ward as per territorial jurisdiction. ITR has been filed by assessee for the assessment year under consideration in this ease. 2. In this case information was reed transferred from F.NO CCIT-2 / DLI/ Exchange information /2017-2018 dated 08.11.2.017 on account of non genuine long term capital gain. It is gathered that during the FY 2013-2014 the assessee had traded shares of M/s Esteem Bio amounting to Rs 23,57,640. As per information forwarded it has been noticed that trading in this script is suspicious and this company used to facilitate ITA No. 6356/Del/2019 Krishan Devi 49 introduction of unaccounted income of members of beneficiaries in the form of exempt capital gain or short term capital loss in their books of accounts. It is noticed that the financial of the company for the relevant period do not show any substantial change so as to support such a huge price movement. Since the assessee is one of the beneficiary who has transacted with this company the issue of bogus short/long term capital gain cannot be examined /verified. 3. In this case although the return of income was filed for year under consideration but without scrutiny the amount of capital gain cannot be examined /verified. Therefore the issue of capital gain is clearly covered by the explanation to section 147 of the Income Tax Act, 1961. Hence it is a case where it shall be deemed to be case where Income chargeable to tax has escaped assessment. 4. In view of the findings stated in para 2 above the undersigned has reason to believe that the assessee’s income for AY 2014-2015 has escaped assessment within the meaning of section 147 of the I.T.Act,1961. 5. Since without scrutiny the matter of bogus capital gain cannot be examined /verified, the only requirement to initiate proceeding u/s 147 is reason to believe which has recorded above (refer paragraphs 2 to 4) 6. In this case four years but not more than six years have elapsed from the end of the assessment year under consideration and income chargeable to tax which has escaped assessment is more than Rs 1 lac necessary sanction to issue notice u/s 148 of the Act is being obtained separately from the ITA No. 6356/Del/2019 Krishan Devi 50 Pr CIT 13 DELHI under amended provisions of section 151 of the Act w.e.f 01/06/2015.” 31. In the backdrop of recording of reasons, the issue of notice where income as escaped assessment and the sanction for issue of notice as per the provisions of Section 147, Section 148 and Section 151 of the Act are perused which are as under: “ Section 147: Income escaping assessment. 147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not ITA No. 6356/Del/2019 Krishan Devi 51 necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :— (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E; (c) where an assessment has been made, but— (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed; (ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of section 133C, it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (d) where a person is found to have any asset (including financial interest in any entity) located outside India. Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. ITA No. 6356/Del/2019 Krishan Devi 52 Explanation 4.—For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.” 32. The provisions of Section 148 of the Act are as under: “Section 148. Issue of notice where income has escaped assessment. 148. (1) Before making the assessment, reassessment or re- computation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139: Provided that in a case— (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and (b) subsequently a notice has been served under sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, re-assessment or re-computation as specified in sub- section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice: Provided further that in a case— (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and (b) subsequently a notice has been served under clause (ii) of sub- section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or re-computation as specified in sub- section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice. ITA No. 6356/Del/2019 Krishan Devi 53 Explanation.—For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section. (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so. 33. The provisions of Section 151 of the Act are as under: “Section 151. Sanction for issue of notice. 151. (1) No notice shall be issued under section 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice. (2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. (3) For the purposes of sub-section (1) and sub-section (2), the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or the Commissioner or the Joint Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself.” 34. The ld. AR argued on the issues ranging from non- scrutinizing and examination of records to approval u/s 151. The ld. AR argued that the Assessing Officer has failed to scrutinize and examine the record before him and the reasons recorded were merely the reasons to suspect but not reasons to believe. The ld. AR has also argued the reopening u/s 148 cannot be used for making roving and fishing enquiries. He also vehemently argued that the satisfaction by the Assessing Officer was borrowed and the approval is mechanical. The ld. AR relied on the judgments in the case of Synfonia Trade Links ITA No. 6356/Del/2019 Krishan Devi 54 Pvt. Ltd. Vs. ITO, Ward-22(4) dated 26.03.2021 of Hon’ble High Court of Delhi. 35. We have gone through the record before us and facts on record and also various judicial pronouncements on the issue of reopening u/s 148. We find from the reasons recorded, the Assessing Officer has clearly mentioned that he has got territorial jurisdiction to reopen the case. Hence, there is no jurisdictional defect. The Assessing Officer has diligently gone through the contents of the information received from the Co- ordinate revenue authorities with regard to the trade of shares of M/s Esteem Bio Organic Food Processing Ltd. The entire modus oprendi was available with the Assessing Officer and the same has been available in the public domain. The Assessing Officer has clearly mentioned that the financials of the company for the relevant period do not show any substantial change to support a huge price moment reflect that the Assessing Officer has been very focused on the issue which triggered the reopening u/s 147. The Assessing Officer is aware of the fact that the capital gains need to be examined in detail before taxing the same shows that the Assessing Officer has not merely swayed by the information received but take a conscious decision to examine the capital gains declared by the assessee in detail so as to tax or exempt the same. The Assessing Officer has clearly mentioned that as reasons to believe that the income of the assessee has escaped assessment for the A.Y. 2014-15 within the meaning of Section 147 of the I.T. Act. The Assessing Officer is well aware of the time limit to reopen the assessment as per the provisions of Section 151 and has obtained due approval from the relevant authorities in the case the Pr. CIT-13, New Delhi. Thus, the provisions of Section 147 espousing when the Assessing Officer ITA No. 6356/Del/2019 Krishan Devi 55 has to issue a notice and believe the escarpment of income have been duly adhere. Similarly, the provisions of Section 148 with regard to issue of notice before making the assessment has been duly served and the assessee within the due date and such notice has been served after taking due approval of the Pr. CIT in accordance with the provisions of Section 151. In our opinion, the formation of belief by the Assessing Officer that the income of the assessee chargeable to tax had escaped assessment was reasonable as well as rationale and related to the information received which is discernable from the bare reading of the reasons recorded by the Assessing Officer. While the reasons themselves are undisputable, there is no reason to find out fault with the approval given by the ld. PCIT which is based on the facts enumerated before him. We find nothing on record to dispute the approval given by the ld. PCIT u/s 151 for issue of notice u/s 148. 36. Further, it is the case of the Ld.AR that there was no independent application of mind by the sanctioning authorities for according approval. Whilst it is the settled position in law that the sanctioning authority is required to apply his mind and the grant of approval must not be made in a mechanical manner, however, as noted by the Division Bench of the Hon’ble Calcutta High Court in Prem Chand Shaw (Jaiswal) vs. ACIT 383 ITR 597, the mere fact that the sanctioning authority did not record his satisfaction in so many words would not render invalid the sanction granted under section 151(2) when the reasons on the basis on the basis of which sanction was sought could not be assailed and even an appellate authority is not required to give reasons when it agrees with the finding unless statute or rules so requires. ITA No. 6356/Del/2019 Krishan Devi 56 37. There is no requirement to provide elaborate reasoning to arrive at a finding of approval when the Principal Commissioner is satisfied with the reasons recorded by the AO. Similarly, in Virbhadra Singh vs. Deputy Commissioner Circle Shimla 88 taxmann.com 888 where the competent authority was in agreement with the reasons assigned by the Assessing Officer, so placed before him, which came to be considered and sanction accorded with proper application of mind, by recording "I am satisfied that it is a fit case for issuance of notice u/s 148", the issuance of notice under section 147/148 was held to be valid. 38. In the case of PCIT Vs Meenakshi Overseas Pvt. Ltd. in ITA No. 651/2015 order dated 11.01.2016 by the division bench of Hon’ble Jurisdictional High Court held, “16........for the purpose of Section 151(1) of the Act, what the Court should be satisfied about is that the Addl. CIT has recorded his satisfaction “on the reasons recorded by the Assessing Officer that it is a fit case for the issue of such notice”. In the present case, the Court is satisfied that by recording in his own writing the words: “Yes, I am satisfied”, the mandate of Section 151(1) of the Act as far as the approval of the Addl. CIT was concerned, stood fulfilled.” 39. The above preposition has been referred to in the case of S. Gandhi & Others in WP(C) 8482/2018 order dated 10.09.2018 by the Hon’ble Jurisdictional High Court. 40. Similar view has been expressed by the Hon’ble High Court of Delhi in the case Experion Developers Pvt. Ltd. Vs. ACIT 115 Taxman 338. ITA No. 6356/Del/2019 Krishan Devi 57 41. The expression “has reasons to believe” is wider than “is satisfied and the reasons must have be live link with the formation of believe. In the instant case, we find that the reasons had a live link on the reopening as the information pertains to the trading in the stocks of specified scrip. The assessee has entered into transactions in the same scrip which proves the live link with the information in the reasons invoked by the Assessing Officer in this case. Similarly, we find that there is existence of reason and existence of belief by the AO to reopen the assessment based on the information and on verification of the material before him. 42. The Hon’ble Supreme Court in the case of Lakhmani Mewal Das 103 ITR 437 enunciated that the two conditions required to be satisfied before the Income Tax Officer issued a notice under s. 148 of the Income Tax Act are that he must have reason to believe (i) that the income chargeable to tax had escaped assessment and (ii) that such income had escaped assessment by reason of the omission or failure on the part of assessee, to disclose fully and truly material facts necessary for assessment for that year. Both these conditions must co-exist in order to confer jurisdiction on the Income Tax Officer. Further the Income Tax Officer should record his reasons before initiating proceedings under s. 148(2); before issuing the notice after the expiry of four years from the end of the relevant assessment year, the Commissioner should be satisfied on the reasons recorded by the Income Tax Officer that it was a fit case for the issue of such notice. ..... ............ (c) The grounds or reasons leading to the formation of the belief under s. 147(a) must have a material bearing on the ITA No. 6356/Del/2019 Krishan Devi 58 question of escapement of income. Once there exist reasonable grounds for the Income Tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. While the sufficiency of grounds which induce the Income Tax Officer to act is not justiciable, it is open to the assessee to contend that the Income Tax Officer did not hold the belief that there was such non-disclosure. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income-Tax Officer. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. In the instant case, we find that the information and the reasons to belief have tangible and rationale interconnection much needed for reopening of the case u/s 147. 43. The Hon’ble Supreme Court in the case of Raymond Woolen Mills Vs ITO 236 ITR 34 held as under: “We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority.” ITA No. 6356/Del/2019 Krishan Devi 59 44. At the time of reopening what is required is reasons to believe with regard to escapement of income, the Assessing Officer is not required to establish escapement of income. Establishing escapement of income is the culmination of examination of material and investigation of the facts following the due procedure as envisaged in the Income Tax Act. What is necessary to reopen an assessment is not a final verdict but a prima facie reason. In the instant case, neither the information was wrong nor the reasons to believe were faltered. Hence, we uphold the action of revenue authorities on the issue of impugned notice dated 31.03.2018 u/s 148. On Merits: 45. On merits of the case, the ld. AR primarily argued that the issue is no longer res integra based on the judgment of the Hon’ble High Court in the case of the assessee. The ld. AR has produced the order of the Hon’ble High Court dated 15.01.2021. We have gone through the same and find that the scrips involved in that year are different from the scrips involved in the instant year. The order of the Hon’ble High Court dealt with the scrips namely Gold Line International Finvest Ltd.(para 11 of the order of Hon’ble HC) whereas the scrips involved in the instant year are M/s Esteem Bio Organic Food Processing Ltd. In that case, the enquiry of the AO were not inclusive and no action has been taken by the AO for not responding to the notices issued by the revenue authorities. We, with great respect, humbly submit that the issues, shares involved and the investigation in both the years are different and hence differentiable. The observation of the adjudicating authorities that the said scrip and brokers were not involved in manipulation defers from the facts on record. The ld. AR ITA No. 6356/Del/2019 Krishan Devi 60 relied on the various orders of the Tribunal in ITA No. 1070/Del/2019 for the A.Y. 2015-16, MB Jain Vs ACIT SCA No. 16881 of 2018 the facts of which are not applicable to the instant case as the reasons recorded are at variance at the reasons recorded in the instant case. Similarly, the reliance placed by the ld. AR on the judgment of Hon’ble High Court of Bombay in the case of M/s Shodiman Investments Pvt. Ltd. in ITA No. 1297/2015, we find that the reasons recorded are in the said referred case are different from the instant case. 46. It was argued that the scrips involved have been traded online and hence no allegation of whatsoever can be made against the assessee. It was further argued that the shares of M/s Esteem Bio Organic Food Processing Ltd. cannot be treated as a penny stock. 47. We have gone through the decisions and also facts on record. The ld. AR’s contention that the report of the investigation wing and the enquiries conducted by the revenue is much later than the dates of purchase and sale of shares and the order of the SEBI is also much later than the date of transactions and nowhere SEBI has declared the transactions at earlier dated as void cannot hold any water for the simple reason that any act of a person involving an operation against the law would always be liable for action only after the due enquiries have been made and the facts have come to fore. It cannot be said that since no enquiries have been conducted and the transactions have been undertaken, the conduct of the assessee is certified one cannot be established. Any enquiry in a scam is initiated only after the scam erupts in public and taken due cognizance. Hence, it cannot be said that since the transactions have been taken before the enquiries such ITA No. 6356/Del/2019 Krishan Devi 61 transactions remain un-coloured or simple, straight and genuine. 48. The assessee cannot take shelter for the sole reason representing that the transactions have been taken place on the stock exchange platform when there is an enormous evidence in the position of the revenue that the transactions have been undertaken in collusion with the brokers and promoter entities. The assessee cannot wash off her hands saying that the assessee is not in active connivance with entire scheme of operation but only a passive beneficiary of the manipulation of the trades/scrips by some other persons or entities. In order to prove the passive benefit gained by the assessee , the assessee has to come with suitable or reliable evidences which can exonerate the assessee which is grossly absent in the assessee’s case. 49. We have also gone through the various enquiries conducted by the SEBI in the case of M/s Esteem Bio Organic Food Processing Ltd. The said scrips has been restrained from operation of trading. The details are as under: 50. The Competent Authorities of SEBI has passed orders dated 13.03.2019 and 22.12.2020 which has indicted the trading of shares in circumspective nature against the interest of the public. The company was also restrained from trading on the SEBI platform. Further, the Metropolitan Stock Exchange vide order dated 23.12.2020 has also restrained from accessing the securities market by issuing prospectus, offer document or advertisement soliciting money from the public in any manner for a period of 8 years. ITA No. 6356/Del/2019 Krishan Devi 62 51. The order dated 13.03.2019 of the SEBI is as under: SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTIONS 11(1), 11(4) AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 IN THE MATTER OF ESTEEM BIO ORGANIC FOOD PROCESSING LIMITED In respect of: Sl. No. Noticees /Name of the entities PAN 1 Accurate Buildwell Pvt. Ltd. AAGCA4053L 2 Shri Pawan Kumar Kaul APJPK8855K 3 Shri Vishal Yadav AJKPY8234D 4 Shri Ashwin Verma AKFPV6256L 5 Century Buildmart Pvt. Ltd. AADCC2898Q 6 Core Capital Services Limited AAACC2840D 7 River High Right Share Brokers Pvt. Ltd. AAGCR2643P 8 Sure Portfolio Services Pvt. Ltd. AATCS2129L Background in brief 1. Securities and Exchange Board of India (hereinafter referred to as "SEBI") passed an ex- parte ad-interim order on June 29, 2015 in the matter of Initial Public Offers (IPOs) of Esteem Bio Organic Food Processing Ltd. (hereinafter referred to as ‘Esteem Bio’), ECO Friendly Food Processing Pvt. Ltd., Channel Nine Entertainment Ltd. and HPC Biosciences Ltd., as it was prima facie found that several entities have indulged in manipulative transactions in securities and misuse of the securities market. The interim order, pending investigation, restrained these persons, including the Noticees in the present ITA No. 6356/Del/2019 Krishan Devi 63 case, from accessing the securities market and from buying, selling or dealing in securities, either directly or indirectly, in any manner, till further directions. 2. It has been observed in the interim order that these companies had very small capital base prior to the year 2011. During the year 2011 and 2012, these companies increased their capital base by issuing shares to several entities. Once the equity share capital base of these companies increased substantially, they came out with IPO in the year 2013. After listing, the share price of all these companies increased astronomically till December 31, 2014. More particularly, the price of the scrip of Esteem Bio witnessed substantial increase during the period February 7, 2013 to December 31, 2014, i.e. within a span of 244 trading days. 3. It has also been observed that these scrips were not in demand by the general investors. However, a set of connected entities were pushing up the price by putting unusual trades, i.e. 1 or 2 trades per day in such a manner so as to make positive contribution to the Last Traded Price (LTP) and establishing New High Prices (NHP). These connected entities whose trades contributed majorly to the buying volume and to the price rise of the scrip were referred to as the "Trading Group" entities. Direct/ indirect connection was observed amongst the trading group entities and also with other entities related/connected to companies on the basis of Know Your Client (KYC) details, bank statements, off-market transactions amongst themselves and information available on the MCA website, etc. 4. Subsequent to passing of the interim order, investigation was carried out by SEBI to find out fraudulent practice, if any, ITA No. 6356/Del/2019 Krishan Devi 64 in the trading of the above mentioned scrips and to look into the trading activity of the entities so as to ascertain any price manipulation in breach of provisions of the securities law. The investigation into the trading activity of certain entities in the scrip of Esteem Bio has revealed that eight connected entities of the trading group have contributed to the price rise of the scrip of Esteem Bio by their positive contribution to LTP and establishing NHP in the scrip by trading amongst themselves in a concerted manner. It was observed that 8.89% to total market positive LTP during the period of investigation was contributed by the Noticees 1-8 who traded amongst themselves continuously. Similarly, 9.15% of total market NHP during the period of investigation was contributed by Noticee No. 1 to 7 by executing the trades amongst themselves. Accordingly, based on the above findings from the investigation where trades of these eight entities were found to be unusual they have been further proceeded against and the entities against whom nothing adverse could be found in the investigation were granted relief vide revocation order dated September 6, 2017 passed in the matter. 5. As discussed above, pursuant to the investigation carried out in the case of trading of the scrip of Esteem Bio, a Show Cause Notice (SCN) dated November 30, 2017 was issued to the eight entities, i.e., the Noticees. The SCN alleges that they were not genuine traders and the trades executed by them were instrumental in artificially increasing the price of the scrip by establishing New Higher Prices and contributing to positive LTP. They have been alleged to have violated the provisions of Regulation 3 (a), 3(b), 3(c), 3(d), 4 (1), 4(2)(a) & 4(2)(e) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP ITA No. 6356/Del/2019 Krishan Devi 65 Regulations). The Noticees have therefore been called upon to show cause as to why directions under sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 (SEBI Act) be not issued against them for the aforesaid alleged violations. 6. I find that in response to the SCN issued to the Noticees, Shri Ashwin Verma (Noticee No. 4) has responded vide letters dated June 11, 2018. However, none of the other Noticees has responded to the SCN till date. In order to proceed further in the matter, an opportunity of hearing was granted to the Noticees on January 30, 2019. On the date scheduled for hearing, Shri Dipak Purwar, Chartered Accountant, appeared for hearing as Authorized Representative of Noticee No. 4 and made oral submissions on the lines of the written reply filed by the Noticee in the matter. The summary of the written and oral submissions made by Noticee No. 4 is as under: a) He does not know anything about Esteem Bio, its IPO and its preferential allotment or the fraudulent scheme or mechanism, if any. He is not connected or related to the company, its promoters/directors or to any company related to Esteem Bio. b) The trading account through which the alleged manipulative trades were done in the scrip was not opened by him but by some other person whom he does not know. Trades done in his name from this account were without his knowledge or consent. c) He is an investor and invests in securities market from his own savings and he is trading in securities market through his genuine trading accounts opened in the year 2010, 2013 & 2014. He is facing mental agony and harassment due to the ITA No. 6356/Del/2019 Krishan Devi 66 restrictions imposed on him on buying, selling and dealing in any shares or commodities. 7. During the course of hearing, the authorized representative was advised to furnish certain documents by February 4, 2019, in support of his claim that the trading account, demat account and bank account were misused and that the Noticee had not authorized anyone to execute the alleged manipulative trades. He was also advised to furnish details of demat statement, bank statement and Income Tax Returns for the relevant period as it was claimed by him that he has been a regular investor in securities. However, till date, no documents have been furnished by the Noticee. 8. The remaining Noticees have neither filed their reply nor appeared for hearing. I note that in this case an ex-parte interim order was passed on June 29, 2015 prior to the issuance of SCN dated November 30, 2017. Noticees have been granted sufficient time to file their replies and have been provided adequate opportunities to appear for hearing, however, they have chosen not to avail the same. Therefore, I have to proceed and decide the matter on merit on the basis of the SCN, the reply received and all the documents available on record. Consideration and findings: 9. I have gone through the contents of the SCN, written reply of Noticee No. 4 received in the matter and the documents and materials available on record. The allegations against the Noticees are that they have traded amongst themselves in a concerted and pre¬meditated manner in the scrip of Esteem Bio and were instrumental in increasing the ITA No. 6356/Del/2019 Krishan Devi 67 price of the scrip by successive contribution to positive LTP and by establishing successive NHP during the period of investigation. The SCN alleges that regulations 3(a), (b), (c), (d), 4(1), 4(2) (a) and (e) of PFUTP Regulations have been violated by the Noticees. The provisions of these regulations are reproduced hereunder: Regulation 3. Prohibition of certain dealings in securities “No person shall directly or indirectly — (a) buy, sell or otherwise deal in the securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.” Regulation 4. Prohibition of manipulative, fraudulent and unfair trade practices ITA No. 6356/Del/2019 Krishan Devi 68 “(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:— (a) indulging in an act which creates false or misleading appearance of trading in the securities market; (e) any act or omission amounting to manipulation of the price of a security; 10. I would now proceed to examine as to whether or not, in the facts of this matter, the manner of trading in the shares of Esteem Bio by the Noticees can be considered as trades executed in normal course of trading or it contains elements which would amount to violation of the aforesaid provisions of PFUTP Regulations. 11. The SCN mentions that the eight Noticees were part of the ‘trading group’ entities, i.e. the entities whose trades have contributed to price rise in the scrip. Based on the findings of the investigation, it was alleged that there was connection/relation amongst them as there were several direct or indirect transactions executed between them. The investigation has found that within the trading group, certain entities are having common directors, common addresses, common phone numbers, common email address, etc. It has been also noted that certain entities of the trading group are having several, direct or indirect, off- market transactions and fund transactions amongst them. I find that the Noticees have been provided with all the relevant documents along with the SCN. The details of the connection found amongst the Noticees ITA No. 6356/Del/2019 Krishan Devi 69 and relied upon in support of the allegations made in the SCN have also been furnished to the Noticees. 12. It is noted from the said details annexed to the SCN that Accurate Buildwell Private Ltd. (Noticee No. 1), River High Right Share Brokers Pvt. Ltd. (Noticee No. 7) and Century Buildmart Pvt. Ltd. (Noticee No. 5) were directly or indirectly effecting fund transactions between them. Further, as per KYC documents, River High Right Share Brokers Pvt. Ltd. (Noticee No. 7) is having common contact number with Century Buildmart Pvt. Ltd. (Noticee No. 5) and it was also having off- market transactions with Shri Ashvin Verma (Noticee No. 5). Shri Ashvin Verma and Shri Pawan Kumar Kaul (Noticee No. 2) shared common email address and contact number. Shri Pawan Kumar Kaul has executed off- market transactions with Core Capital Services Ltd. (Noticee No. 6). Shri Ashvin Verma (Noticee No. 4) has executed off-market transactions with River High Share Brokers Pvt. Ltd. (Noticee No. 7), Core Capital Services Ltd. (Noticee No. 6), Shri Vishal Yadav (Noticee No. 3) and others in the group. Shri Vishal Yadav (Noticee No. 3) has also executed off-market transactions with Core Capital Services Ltd. (Noticee No. 6), River High Share Brokers Pvt. Ltd. (Noticee No. 7), Shri Ashwin Verma (Noticee No. 4) and others in the group. Sure Portfolio Services Pvt. Ltd. (Noticee No. 8) has traded in the scrip of Esteem Bio and it is having common director, address and email id with several other entities in the trading group. 13. The details of the trades executed by and between the Noticees along with the inter-se connections and relationship shared by the Noticees with each other were provided to them along with the SCN. Most of the Noticees have chosen not to ITA No. 6356/Del/2019 Krishan Devi 70 respond to the SCN and even the Noticee who has filed a written reply, i.e., Noticee no. 4, has not disputed the connections and transactions as alleged in the SCN. The Noticee has also not disputed his relation with counterparties to the trades. Similarly, other Noticees have also not raised any disputes with regard to their connections as pointed out in the SCN. I find it relevant to refer a judgment of the Hon’ble Securities Appellate Tribunal (SAT) dated December 08, 2006 in the case of Classic Credit Ltd. vs. SEBI (Appeal No. 68 of 2003), wherein Hon’ble SAT have observed that, “...the appellants did notfile any reply to the second show-cause. This being so, it has to be presumed that the charges alleged against them in the show cause notice were admitted by them”. This finding was reiterated by Hon’ble SAT in a recent case decided on February 11, 2014 (Sanjay Kumar Tayal & Ors. vs. SEBI - Appeal No. 68 of 2013), where it was observed that, “... As rightly contended by Mr. Rustomjee, learned senior counsel for respondents, appellants have neitherfiled reply to show cause notices issued to them nor availed opportunity of personal hearing offered to them in the adjudication proceedings and, therefore, appellants are presumed to have admitted charges levelled against them in the show cause notices. ...”. Under the circumstances I can conclude that the relationships shared by the Noticees as observed in the SCN is undisputed. 14. Before I proceed further, at this stage it will be relevant to discuss the trades in detail executed by the eight Noticees in the scrip of Esteem Bio which have provided the cause of action against them based on the allegations made in the SCN. The SCN alleges that the trades of the Noticees executed amongst themselves in the scrip of Esteem Bio were instrumental in ITA No. 6356/Del/2019 Krishan Devi 71 contributing to positive LTP and establishing NHP. It is noted that while positive contribution to LTP increases the price of the scrip, NHP is the price which is higher than the price already established in the scrip over a period which is under consideration. On the basis of LTP and NHP analysis carried out during the investigation it has been alleged that the Noticees contributed to substantial and unusual price rise in the scrip of Esteem Bio by trading amongst themselves. The details of trades executed amongst the Noticees and their resultant contribution to LTP and NHP are indicated as under: Positive contribution to LTP by Noticees trading among themselves Buyer / counterparty Accurate Buildwell Private Limited (LTP eontributi on in Rupees, Number of trades in bracket) Pawan Kumar KanJ (LTP eontributi on in Rope.es, Number of trades In bracket) Ashvin Verma (LTP eontributi oil in Rupees, Number of trades in bracket) Vtslmi Yackv (LTP eontributi on in Rupees, Number of trades in bracket) Sure Portfolio Services Private Limited (LTP contiibyti on in Rupees) Number1 of trades In bracket) T oral (LTP contributi on in Rupees, Number of trades in bracket) Accurate Buildwell Private limited 0.05 (1) 24.75 (2) .. _ 24.80 (3) Century Buildmart Private limited 10.7 (1) 15.1 (2) - - 25.80 (3) Core Capital Services Limited 14.50 (1) 14.50 (1) Pawan Kumar Kaul 5.5 (t) - - - _ "■ River High Eight Share Brokers Private limited 10.1 (1) 1.85 (1) 11.95 (2) Vishal Yadav - - 7.85 (1) - 7.85 (1) Total 15.65(3) 35.45 (3) 22.95 (3) 14.50(1) 1.85 (1) 90.4 (11) NHP contribution of the Noticees by trading among themselves Buyer / Counterparty Accurate Buildwell Pvt. Ltd. (NHP contribution in Rupees, Number of trades in bracket) Pawan Kumar Kaul (NHP contribution in Rupees, Number of trades in bracket) Ashvin Verma (NHP contribution in Rupees, Number of trades in bracket) Vishal Yadav (NHP contribution in Rupees, Number of trades in bracket) Total (NHP contributi on in Rupees, Number of trades in bracket) ITA No. 6356/Del/2019 Krishan Devi 72 Accurate Buildwell Pvt. Ltd. 0.05 (1) 8.95 (1) 9 (2) Century Buildmart Pvt. Ltd. 10.1 (1) 8.1 (1) 18.2 (2) Core Capital Services Limited 6.55 (1) 6.55 (1) Pawan Kumar Kaul 0.05 (1) - - - 5.5 (1) River High Right Share Brokers Pvt. Ltd. 10.1 (1) 10.1 (1) Vishal Yadav 7.85 (1) 7.85 (1) Total 15.15 (3) 19.05 (2) 15.95 (2) 6.55 (1) 56.70 (8) Details of trades in which Noticees were counter parties and NHP contribution Date Bover Name Seller Name Bur Order No. Sell. Older No. Buy Order Time Sell Order Time Trade Price Dirt NHP Trade Qt 16/01/14 Ccatorf Buildmart Pvt. Ltd Prevail Kumar Kaul 1400012S3063S8 15000101265572 3:09:5 PM 3:99:53 PM 134.9 ToTo 1.200 17/01/14 River High Right Share Brokers Pvt Ltd Accurate Buildwell Pvt, Ltd 12000105130311 19000124089524 10:25:49 AM 10:18:35 AM 145 10.10 1200 21/01/14 Core Capital Services Limited Visfaal Yadav 13000104444696 11000090155806 3:03:19 PM 11:33:49 AM 165,5 6.55 1200 22/01/14 Vishal Yadav Ashvm Verma 11000089111133 18000122161439 3:04:26 PM 10:43:34 AM 173.85 7.85 1200 23/01/14 Paw-in Kumar Kaul Accurate Buildwell Pvt Ltd 23000061480869 19000083088345 3:11:05PM 3:11:01 PM 182 590 1200 27/01/14 Century Buildniaii Pvt Ltd Ashvin Verma 17000079468104 18000079541800 3:25:46 PM 3:24:23 PM 193.1 8.10 4800 06/02/14 Accurate Buildwell Pvt. Ltd Pawan Kumar Kaul 12000067203635 17000086053281 3:11:40 PM 10:25:20 AM 214.75 8.95 1200 26/02/14 Accurate Buildwell Pvt. Ltd Accurate Buildwell Pvt. Ltd 17000123702166 12000105075272 3:19:32 PM 9:51:12AM 384 0.05 1200 15. The above trades were executed by the Noticees during the month of January and February 2014. I note that the trade log for the above trades and the pre-order book positions for both buy and sell orders were provided to the Noticees along with the SCN. Noticees have not responded to the same, therefore, it can be assumed that they have nothing contrary to offer in their defence to the allegations made in the SCN However, m order to examine whether the trades executed by the Noticees were manipulative or not, the aforesaid trades executed by the Noticees are discussed further hereunder. ITA No. 6356/Del/2019 Krishan Devi 73 16. From the details of trades entered into by the Noticees and the details of orders placed during the day on which the trades were executed, I note that for the trade executed between Shri Pa wan Kumar Kaul (Noticee No. 2) and Century Buildmart Pvt. Ltd. (Noticee No, 5) on January 16, 2014, the order book analysis has revealed that Pawan Kumar Kaul placed sell order for 1200 shares at 3:09:53 PM at a price ofRs.134.90. Before this sell order there was no other sell order available in the system. The buy order available in the system was at the price of Rs. 112.35, which was much lower than the sell order price. Within 4 seconds of placing the sell order, i.e. at 3:09:57 PM, Century Buildmart Pvt. Ltd. (Noticee No. 5), a connected entity, placed buy order at the same price and die same volume as the sell order of Noticee No. 2 and the trade for 1200 shares was executed at the price of Rs. 134.90, This trade created NHP difference of Rs.10.10. Considering the absence of liquidity in. the scrip and negligible volume of trade and the timing of orders placed by the connected entities, I find that the trade was not executed in normal course of trading. The Noticee No. 5 by placing buy order to match the sell order of Noticee No. 2 contributed to price rise in the scrip and established NHP of Rs.134.90 which was Rs.10.10 more from the last high price in the scrip. 17. On January 17, 2014, Accurate Buildwell Pvt. Ltd. (Noticee No. 1) placed sell order tor 1200 shares at 10:18:35 AM at a price of Rs.145.00 per share. Before this sell order, there was no other sell order in the system. The buy order available in the system was at Rs.121.45, which was much lower than the sell order price. At 10:25:49 AM River High Right Share Brokers Pvt. Ltd. (Noticee No. 7), a connected entity, placed buy order at the same price and the same ITA No. 6356/Del/2019 Krishan Devi 74 volume as the sell order of Noticee No. 1 and the trade for 1200 shares were executed at Rs.145.00. This trade also established a NHP and the difference of this high price from the last high price was Rs.10.10. 18. On January 21, 2014, Vishal Yadav (Noticee No. 3) placed sell order for 1200 shares at 11.53.49 AM at price of Rs.165.50. Before this sell order there was one more sell order available in the system for 1200 shares at 166.00. There was no buy order available in the system. At 5.03.19 PM, Core Capital Services Ltd. (Noticee No. 6), a connected entity, placed buy order at the same price and volume as the sell order of the connected entity and the trade for 1200 shares were executed at Rs.165.50. This trade created a NHP difference of Rs. 6.55. 19. On January 22, 2014, Shri Ashwin Verma (Noticee No. 4) placed sell order for 1200 shares at 10:43:44 AM at price of Rs.173.85. Before this sell order there was no other sell order or buy order in the system. In the evening, before closure of market, Shri Vishal Yadav (Noticee No. 3), a connected entity, placed buy order at the same price and the same volume as the sell order of Noticee No. 4 and the trade for "1200 shares were executed at Rs.173.85. This trade created NHP difference of Rs.7.85, Thus, I find that the sell order of Noticee No, 4 was pending in the system since morning and there was no buying interest in the scrip at the price quoted by the Noticee No. 4. It was only after a group entity (Noticee No. 3) placed a matching buy order, the sell order resulted into a trade and established a NHP. 20. On January 23, 2014, Accurate Buildwell Pvt. Ltd. (Noticee No. 1) placed sell order for 1200 shares at 3:11:01 PM at a ITA No. 6356/Del/2019 Krishan Devi 75 price of Rs. 182.00. Before this sell order there was no other sell order or buy order pending in the system. At 3:11:05 PM, Pawan Kumar Kaul (Noticee No. 2), a connected entity, placed buy order at the same price and the same volume as the sell order of Noticee No. 1 and die trade for 1200 shares got executed at the rate of Rs.l82.00 per share. This trade established a NHP and the difference of this high price from the last high price was Rs.5.00.1 note that the orders were placed in the evening by the Noticees and the orders matched within a time difference of 4 seconds. Considering the absence of liquidity in the scrip and the negligible volume of trade and the timing of orders placed by the connected entities, I find that the trade was not executed in normal course of trading. The Noticee No. 2 by placing buy order to match the sell order of Noticee No. 1 contributed to price rise in the scrip and established another NHP which was Rs.5 more from the last high price in the scrip. 21. On January 27, 2014, Ashwin Verma (Noticee No. 4) placed a sell order tor 4800 shares at 3:24:23 PM at a price of Rs. l 93.1 per share. At the time of placing of the sell order by Notices No. 4, other sell orders were available m the system m the range of Rs. 184.00 to Rs. 185.00, while a buy order was available at the price of Rs.l75.00. The sell order placed by the Noticee No. 4 was at a price higher than the available sell order price. Within minutes of placing of the sell order by Noticee No. 4, a buy order was placed by Century Buiidmaxt Pvt. Ltd. (Noticee No. 5), a connected entity. The buy order was at the same price and of the same volume as the sell order of Noticee No. 4 and the trade for 4800 shares got executed at Rs. 193.10 per share. This trade again established a NHP and created a NHP difference of Rs.8.10. ITA No. 6356/Del/2019 Krishan Devi 76 22. On February 6, 2014, Pawan Kumar Kaul (Noticee No. 3) placed sell order for 1200 shares at 10:25:20 AM at price of Rs.214.75. At die time of placing of the sell order by Noticee No. 3, one sell order was pending in the system at the price of Rs.215.00 per share and a buy order was pending with a buy order price of Rs.200.00. The sell order remained pending in tire system since morning. However, in die evening before closing of the trading on the exchange, a buy order was placed by a connected entity, namely, Accurate Buildwell Pvt. Ltd. (Noticee No. 1) matching the price and the volume of the sell order placed by Noticee No. 3 and die trade for 1200 shares got executed at a. price of Rs.214.75 per share. This trade created NHP difference of Rs.8.95. 23. I further note that Accurate Buildwell Pvt. Ltd. (Noticee No. 1) executed a self-trade on February 26, 2014. Self-trades are fictitious trades which are executed without intention of change in ownership of shares as same person places orders from buy as well as sell side. Such trades merely creates artificial appearance of trading and establishes new price. Accurate Buildwell placed sell order for 1200 shares at a price of Rs.384.00 at 9:51:12 AM. At the time of placing the sell order, there were no pending sell orders available, while one buy order was pending at Rs.369.10. Subsequently, buy order was placed by tire same entity at same price and for the same volume as sell order which resulted into trade at a price of Rs.384.00 per share. This trade established a NHP in the scrip and artificially raised the price of the scrip sending a false and deceptive perception to innocent investors about the market value of the scrip. ITA No. 6356/Del/2019 Krishan Devi 77 24. I also note that the trades of the Noticees have made positive contribution to LTP on several occasions in the scrip of Esteem Bio and such trades executed by the Noticees were instrumental in unusual price rise in the scrip. The Noticees by acting as counterparty to each other have executed successive trades at prices higher than the last traded price and as per findings of the investigation, such trades have contributed Rs.90.04 to the price use in the scrip. Sure Portfolio Services Pvt. Ltd. (Noticee No. 8) has executed trades which contributed Rs.1.85 to positive LTP and the trade has matched with River High Right Share Brokers Pvt. Ltd. (Notic.ee No. 7). Similarly, trades of other Noticees have also contributed to the price rise. 25. It is noted that the trades executed by and between the Noticees have been executed in a way to ensure matching of orders placed by one Noticee with other Noticees. The Noticees apparently have placed their orders in such a way that every time the order placed by one of them matches with the order of another counterparty Noticee, it leads to establishing a NHP and making positive contributions to LTP in the scrip of Esteem Bio. Their pattern of trading was unusual and did not contain the characteristics for being held to be executed by persons in normal course of trading in the market. 26. As can be observed from the above analysis, during the period of price rise only a few trades were taking place in the scrip of Esteem Bio on each day and the trades were mostly happening on account of matching and execution of orders placed by the Noticees. On most of the days failing in the above period that witnessed sharp rise in price of Esteem Bio scrip, sell order placed by a connected entity in the morning remained in. the system till the evening when buy order of ITA No. 6356/Del/2019 Krishan Devi 78 equal quantity was placed by a connected entity matching the sell order price so as to get the trades executed and to establish a NHP on that day and also to make positive contribution to LTP. Further, on many days when sell orders were placed in the evening, matching buy orders were placed within few seconds or minutes by connected entities. Thus, the manner in which the orders were placed and matched shows that there was a continuous meeting of mind and the trades executed by the connected entities were premeditated in order to gradually raise the price of the scrip of Esteem Bio. I find from tire pattern of trading by the Noticees that one of them was invariably placing buy order chasing the pending sell order price of another Noticee in such a manner that the orders must end in matching with a known counterparty and result in establishment of NHP and in the process making positive contribution to LTP. 27. As revealed during the investigation that the trades executed by the Noticees 1 to 8 in the aforesaid manner by trading amongst themselves have contributed 8.89% to the total market positive LTP and the trades executed by Noticee No. 1 to 7 amongst themselves have contributed 9.15% of total market NHP. As stated earlier these findings have not been disputed by any of the Noticees so far. In this context I would like to refer to the order of Hon’ble Securities Appellate Tribunal (SAT) in the matter of Shri Lakhi Prasad Kheradi Vs. SEBI decided on June 21, 2018 wherein the Hon’ble SAT while addressing the issue as to whether the entity had contributed to 9.17% of the market NHP within a span of two weeks has observed as follows: ITA No. 6356/Del/2019 Krishan Devi 79 “....Very fact that the appellant had indulged in self-trades/ LTP/ NHP without giving any justifiable reason, dearly justifies the inference dram by the .AO that the trades executed by the appellant were manipulative trades..." 28. After analyzing the trades executed by the connected entities (the Noticees) amongst themselves, one can surely say that such a trading pattern cannot be called as involving any genuine trading; rather by so trading continuously for a period of around one and half months, such trading pattern had resulted into an artificial rise in price and volume in the shares of Esteem Bio thereby creating a false and misleading impression about the trading in the scrip of Esteem Bio to the investors at large in the market. By continuously entering sell and buy orders deliberately to match each other’s order and entering into trades in the scrip in a concerted manner the Noticees have collusively established higher prices of the scrip which was bound to have influenced the decision of the innocent investors to invest in die scrip. In this regard, the observations made by die Hon’ble SAT in its order dated March 21, 2014 in Saumil Bhavnagari Vs. SEBI are worth recalling, which are as under: “... but by purchasing shares at the higher price in LTP in most of the trades, the noticee bad given a wrong impression about the liquidity of the scrip in the market. It must not be forgotten that every trade establishes the price of the scrip and the Noticees trading at higher than LTP resulted in the price of the scrip going up and wm done with a view to set the price at a desired level and thereby influencing the innocent/gullible investors. By purchasing at a higher price m most of his trades, the noticee had given the wrong impression about the price of ITA No. 6356/Del/2019 Krishan Devi 80 the scrip in the market. It is an accepted state of affairs that in cases of manipulation of the volume and / or price of a particular scrip, it is usually an arduous task to obtain direct evidence. However, the analysis of the trade and order logs as undertaken hereinabove, establishes the malafide intention of the appellant." 29. With regard to the submission made by Shri Ashvin Verma (Noticee No. 4) that the trades executed in his name were not authorized by him, it is observed that he has neither submitted any document in support of his claim nor have taken any action against persons who have misused his accounts. Further, I find it difficult to agree with him that an unknown person can open a bank account, demat account and trading account only with the help of photocopy of or forged documents, as claimed by the Noticee, without producing any original document at the time of opening these accounts. Therefore, I do not find any merit in his contention. 30. To sum up, the discussions in the preceding paragraphs clearly indicate that the Noticees have executed their traded in a pre-meditated manner and as revealed by the investigation have contributed 8.89% to the total market positive LTP and 9.15% of total market NPIP by trading amongst themselves during the relevant period. From the multiple trades executed between the Noticees, it is clear that they were not trading as genuine buyers/ sellers and had no bona fide intention to trade. Almost each trade of the Noticees was instrumental in establishing a NHP and contributing to LTP to increase the price of the scrip of Esteem Bio. In view of the repeated nature of such trades, the culpability in increasing the price is established. I can clearly find that the trades of the Noticees ITA No. 6356/Del/2019 Krishan Devi 81 are not trades executed in normal course of trading and investment in securities market. Noticees have deliberately .manipulated the price of the scrip and created a misleading appearance of trading in the scrip to induce innocent investors in the securities market thereby contravening the provisions of regulations 3 (a), 3(b), 3(c), 3(d), 4 (1), 4(2)(a) and 4(2)(e) of the PFUTP Regulations. Directions: 31. In view of the foregoing. I, in order to protect the interest of the investors in the securities market, in exercise of the powers conferred upon me under sections 11 (1), 1 IB, 11(4) read with section 19 of die SEBI Act, 1992 hereby restrain the Noticees from accessing the securities market and further prohibit them from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of four years. However, for the purpose of computation of the period of restrain and prohibition as directed above, the period of restraint already undergone by the Noticees in terms of the interim order dated June 29, 2015 shall be taken into account. It is also clarified that during the period of restraint, the existing holding, including units of mutual, funds, of the Noticees shall remain frozen. 32. The above, directions shall be effective from the date of this order. 33. A copy of this order, shall be served upon the Noticees, Stock Exchanges, Depositories and Registrar and Share Transfer Agents of all Mutual Funds for ensuring compliance with the above direction. ITA No. 6356/Del/2019 Krishan Devi 82 -Sd- Date: March 13, 2019 S. K.MOHANTY Place: Mumbai WHOLE TIME MEMBER 52. Further, the order dated 22.12.2020 has also made enquiries with regard to the trading of scrips and also with regard to the brokers namely, Goldline International Finvest Pvt. Ltd. as well as ISF Securities who have been duly involved in the operation of the scrips of M/s Esteem Bio Organic Food Processing Ltd. The entire report is reproduced for the sake of ready reference. WTM/SM/IVD/ID3/9875/2020-21 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: S. K. MOHANTY, WHOLE TIME MEMBER ORDER Under Sections 11(1), 11(4)and 11B (1) of the Securities and Exchange Board of India Act, 1992 In respect of: Sl. No. Name of the Noticee PAN 1 Esteem Bio Organic Food Processing Ltd. AAACE1925D 2 Jai Kumar CSQPK1236G 3 Brij Kishore Sabharwal AAXPS6830P 4 Goldline International Finvest Ltd. AACCG6377M 5 Satendra Kumar & its Proprietorship firm viz. Nisha Traders, Bright Securities AWWPK8525E 6 Madhukar Dubey & its Proprietorship firm viz. N V Sales Corporation, A One Furniture AIJPD7329J 7 Ram Prakash & its Proprietorship firm viz. Khan Enterprise AXFPR4439L 8 Aavia Softech Pvt. Ltd. AAKCA4089N 9 Mayfair Infosolution Pvt. Ltd. AAFCM3716M 10 Avisha Credit capital Pvt. Ltd. AAACA5715D ITA No. 6356/Del/2019 Krishan Devi 83 11 Nikky Printing Press Pvt. Ltd. AADCN5292K 12 Neel Kanth Trading Co. - 13 Ace Consultant ABGPK4707P 14 Amsons Apparels Pvt. Ltd. AAFCA3887K 15 Gracious Software Pvt. Ltd. AADCG0392F (The entities mentioned above are individually known by their respective name or Noticee no. and collectively referred to as “Noticees”) In the matter of Esteem Bio Organic Food Processing Limited Background: 1.The present proceedings are arising out of a show cause notice dated August 14, 2017 (hereinafter referred to as “SCN”) alleging inter alia that a scheme was devised in the Initial Public Offer (hereinafter referred to as “IPO”) of equity shares of Esteem Bio Organic Food Processing Limited(hereinafter referred to as “Esteem Bio/Company”), wherein the applicants of the IPO were funded by entities connected with the Company itself and subsequently the IPO proceeds were not utilized towards the objects of raising funds and instead were allegedly transferred to few of the entities who had funded the applicants of the IPO. Before conducting the investigation in the IPO of the Company, a common ex-parte ad interim order dated June 29, 2015 was issued inter alia against the Company and to three other companies who were seen to have followed a common modus operandi in deploying a fraudulent scheme with respect to their respective IPOs. 2. The brief facts related to the IPO and the scheme allegedly deployed by the Company and other Noticees, as noted from the SCN, are as under: ITA No. 6356/Del/2019 Krishan Devi 84 i. The Company came out with an IPO by offering 45,00,000 equity shares (30.20% of the post issue size) of INR10 each at an issue price of INR 25, to raise INR11.25 Crore. The equity shares of the Company were listed on SME segment of BSE Ltd. (“BSE”) on January 07, 2013. ii. The Company had disclosed in the Prospectus that the funds so raised in the IPO shall be utilized in the following manner: Table 1: Proposed Utilization Sr. no. Particulars Amount (INR in Lakh) 1 Setting up of Shade Net Cultivation facility 380.00 2 Development of Farm land for transition to Organic Farming 565.00 3 Procurement of farm tools and equipments 30.00 4 Brand Building and General Corporate purposes 80.00 5 Issue Expenses 70.00 Total 1125.00 iii. During the investigation conducted by SEBI, the Company was asked to provide the details of the utilization of the IPO proceeds. The Company, vide its letter dated December 25, 2015, submitted the following details of utilization of the IPO proceeds, as on March 31, 2015: Table 2: Utilization of the IPO Proceeds (as per letter dated December 25, 2015 of Company) Sr. No. Particulars Utilized as on 31/03/2015 (INR in Lakh) Setting up of shade Net cultivation facility 375.00 ITA No. 6356/Del/2019 Krishan Devi 85 2. Development of farm land for transition to organic farming 564.49 3. Procurement of farm tools and equipments 29.06 4. Brand Build and General Corporate Purpose 30.00 5. Issue Expenses 31.28 6. Investment in short term, advances 99.67 Total 1129.50 iv. The Company was asked to furnish details of the utilization of funds raised through the issuance of securities with supporting documents to substantiate the utilization of funds as per its clam however, it did not provide the supporting documents. v. The IPO of the Company was subscribed 1.06 times and it had received 512 applications for 47,88,000 equity shares (including market maker application for 750000 shares). Out of the said applications, 29 applications for 1,74,000 shares were rejected due to various reasons. After rejection of such applications, total valid applications remained 483 for 46,14,000 shares, which was 1.03 times of the offer size. Finally, out of those valid applications, the Company allotted 45,18,000 shares to 470 applicants. The Company, was able to raise an amount of INR11.29 Crore from 470 applicants. The details of applications received, shares allotted etc., are tabulated herein below: Table 3: Break up of applications Class of applicant No. of applicatio ns No. of shares applied No. of shares allotted No. of Allottees whom shares allotted No. of shares Application rejected Market Maker 1 7,50,000 7,50,000 1 0 HNI 32 11,64,000 11,46,000 32 0 RII 479 28,74,000 26,22,000 437 1,74,000 Total 512 47,88,000 45,18,000 470 1,74,000 ITA No. 6356/Del/2019 Krishan Devi 86 vi. It was also noticed during the investigation that certain entities had provided funds to several IPO applicants to enable them to make application under the IPO of the Company. Such entities were further noticed to be connected with the Company itself, based on various factors like fund transactions, common directorship in companies, etc. For the sake of convenience of reference, the said entities are hereinafter referred to as “funding group entities”. vii. The investigation further revealed that applications of 270 Retail Individual Investors (RIIs) were funded by the funding group entities, out of which 238 applicants were allotted 14,28,000 shares. Similarly, in HNI category also, 60,000 shares allotted to one HNI were funded by the funding group entity. Further, in the market maker category, the application for 7,50,000 shares were funded by the funding group entities. In total, out of 45,18,000 shares allotted under the IPO, 23,34,000 shares allotted to 240 applicants (238 RIIs,+ 1 Market maker+ 1 HNI),were funded by the funding group entities, which comes to 51.66% of the total shares allotted under the IPO. viii. It was further unearthed in the investigation that out of the total IPO proceeds of INR11.29 Crore (approx.), the Company had transferred an amount of INR11 Crore (approx.) to various entities. The details of such transfers are depicted in the following pictorial representation: ITA No. 6356/Del/2019 Krishan Devi 87 ix. The details of funding by the funding group entities and the amounts of money received by such entities and inter se fund transactions amongst such entities are narrated as follows: Table 4: Details of Fund Transactions Sr. N o. Name Bank A/c no. Funding by funding group entity Details of funds movement by funding group entity 1 Goldline Internatio nal Finvest Ltd. (“Goldline ”) ICICI Bank – 66300512 044 9 • Goldline had issued 42 cheques of INR 1.50 Lakh each to the Company on behalf of 42 non ASBA allottees. Also 8 non ASBA applicants directly received INR 1.50 Lakh each from • It had received INR 239.60 Lakh from the Company from IPO proceeds, and INR 245 Lakh from Eco Friendly Food Processing Ltd. Sr. N o. Name Bank A/c no. Funding by funding group entity Details of funds movement by funding group entity ITA No. 6356/Del/2019 Krishan Devi 88 (Noticee no. 4) Goldline to make application in the IPO. (37 allottees got allotment) • It had also funded INR 187.50 Lakh to Guiness Securities Ltd and INR 15 Lakh to Mr. Sanjeev Agarwal to make ASBA application. (“ECO”) which was in fact received by ECO from the Company. • It had received INR 206 Lakh from Mayfair Infosolution Pvt. Ltd. (Noticee no. 9) on various dates. 2 Satendra Kumar Proprieto rsh ip Firm • Nisha Trader s • Bright Securi tie s (Noticee no. 5) Yes Bank - 01368390 000 2254 • Nisha Traders had issued 39 cheques of INR 1.50 Lakh each to the Company on behalf of 39 Non ASBA retail investors.(38 allottees got allotment). • It had received INR 37 Lakh from Bright Securities and INR 13.50 Lakh from Magnum Industrial Corporation. Yes Bank - 01368390 000 2195 • Bright Securities had fund movement with Nisha Traders, Magnum Industrial, N V Sales Corporation, A One Furniture (Proprietorship firms of Noticee no. 6), Goldline and AMS Powertronic Pvt. Ltd. 3 Madhukar Dubey Proprieto rsh ip Firm • N V Sales Corpor at ion • A One Furnit ur e (Noticee no. 6) Dhanlaksh mi Bank – 01910670 000 1580 • N.V. Sales Corporation had issued 16 cheques of INR 1.50 Lakh each to the Company on behalf of 16 Non ASBA retail investors. (9 allottees got allotment) • It had received INR 10.60 Lakh from Khan Enterprises (Proprietorship firm of Noticee no. 7) Yes Bank – 01368390 000 2266 • A One Furniture had issued 20 cheques of INR 1.50 Lakh each to the Company on behalf of 20 Non ASBA retail investors. (20 allottees got allotment) • It had received INR 16.50 Lakh from Magnum Industrial Corporation and INR 15 Lakh from Sumit Kumar. 4 Ram Prakash Proprieto rsh ip Firm • Khan Enterpri se (Noticee no. 7) Tamilnad Mercantile Bank – 21115005 080 0272 • Khan Enterprise had issued 19 cheques of INR 1.50 Lakh each to the Company on behalf of 19 Non ASBA retail investors. (18 allottees got allotment) • It had received INR 22.40 Lakh from Shiv Traders & INR 5 Lakh from Garg Traders & Suppliers. • Shiv Traders (TMB - 211150050800237) had received INR 81.50 Lakh from ECO, INR 67 Lakh from the Company in October and December, ITA No. 6356/Del/2019 Krishan Devi 89 2012. 5 Aavia Softech Pvt. Ltd. (Noticee no. 8) Axis Bank - :9120200 240 45250 • Aavia Softech Pvt Ltd had issued 10 cheques of INR 1.50 Lakh each to the Company on behalf of 10 Non ASBA retail investors. (9 allottees got allotment) • It had received INR 15 Lakh from Mayfair Infosolution Pvt. Ltd. (Noticee no.9), and INR 80 Lakh from ECO. • It also had fund movement with Goldline, the Company and other connected entities. Sr. N o. Name Bank A/c no. Funding by funding group entity Details of funds movement by funding group entity 6 Mayfair Infosoluti on Pvt. Ltd. (Noticee no. 9) Axis Bank – 91202000 412 1565 • It had given INR 1.50 Lakh each to 23 Non ASBA applicants who had made application in the IPO of the Company. (20 allottees got allotment) • Aavia Softech (Noticee no.8) has received INR 15 Lakh & Gracious Software Pvt. Ltd. (Noticee no. 15) received INR 63 Lakh from Mayfair Infosolution (Noticee no.9). 7 Avisha Credit Capital Ltd. (Noticee no. 10) HDFC Bank – 05982740 000 567 • It had given INR 1.50 Lakh each to 3 Non ASBA applicants who had made application in the IPO of Esteem.(3 allottees got allotment) • It had received INR 15.50 Lakh from IPO proceeds of the Company. • Further, it had fund movement with ECO, Goldline, Mayfair Infosolution (Noticee no. 9). 8 Nikky Printing Press Pvt. Ltd. (Noticee no. 11) Axis Bank – 91102003 414 3910 • It had issued 30 cheques of INR 1.50 Lakh each to the Company on behalf of 30 non ASBA allottees. (25 allottees got allotment) • It had received INR 45 Lakh from Mayfair Infosolution (Noticee no. 9) and also had fund movement with ITA No. 6356/Del/2019 Krishan Devi 90 Godline, AMS Powertronic, Madhukar Dubey (Noticee no. 6). 9 Neel Kanth Trading Co. (Noticee no. 12) Dhanlaksh mi Bank – 01910670 000 0717 • It had issued 14 cheques of INR 1.50 Lakh each to the Company on behalf of 14 non ASBA allottees. (14 allottees got allotment) • It had fund movement with AMS Powertronic Pvt. Ltd. 10 Ace Consultan t (Noticee no. 13) HDFC Bank - 03142000 000 740 • Ace Consultant had funded INR 1.50 Lakh to 1 Non ASBA entities. (1 allottees got allotment) - 11 Amsons Apparels Pvt Ltd. (Noticee no. 14) Axis Bank - 91202001 496 4077 • It had issued 3 cheques of Rs. 1.50 Lakh each to the Company on behalf of 3 non ASBA allottees. (2 allottees got allotment) • It had received INR 5.00 Lakh from Core Capital Services Pvt. Ltd. Further, it had fund movement with AMS Powertronic Pvt. Ltd., Goldline, Madhukar Dubey (Noticee no. 6). 12 Gracious Software Pvt Ltd. (Noticee no. 15) Axis Bank - 91202001 500 6932 • It had issued 42 cheques of INR 1.50 Lakh each to the Company on behalf of 42 non ASBA allottees. (42 allottees got allotment) • It had received INR 63 Lakh from Mayfair Infosolution Pvt Ltd. Further, it had fund movement with Goldline. x. A summary of the amounts funded by various funding group entities, no. of allottees who got allotment of shares due to such act of funding made on their behalf by the respective funding entities etc., are presented in the table herein below: ITA No. 6356/Del/2019 Krishan Devi 91 Table 5 Sr. No. Funding Entity Amount funded (Rs. in lacs) No. of allottees got allotmen t Received back from IPO proceeds of Esteem (Rs. in lacs) No. of shares allotted 1 Goldline International Finvest Ltd. (Noticee no. 4) 277.50 39(2 ASBA) 484.60 10,32,000 2 Satendra Kumar & Proprietorship firm (Noticee no. 5) 58.50 38 - 2,28,000 3 Madhukar Dubey & Proprietorship firm (Noticee no. 6) 54.00 29 - 1,74,000 4 Ram Prakash & Proprietorship firm (Noticee no. 7) 28.50 18 - 1,08,000 5 Aavia Softech Pvt. Ltd. (Noticee no. 8) 15.00 9 40 54,000 6 Mayfair Infosolution Pvt. Ltd. (Noticee no. 9) 34.50 20 81 1,20,000 7 Avisha Credit capital Pvt. Ltd. (Noticee no. 10) 4.50 3 15.50 18,000 8 Nikky Printing Press Pvt. Ltd. (Noticee no. 11) 45.00 25 - 1,50,000 9 M/S. Neel Kanth Trading Co. (Noticee no. 12) 21.00 14 - 84,000 10 ISF Securities Ltd. (Ace Consultant- Noticee no. 13) 1.50 1 - 6,000 11 Amsons Apparels Pvt. Ltd. (Noticee no. 14) 4.50 2 - 12,000 12 Gracious Software Pvt. Ltd. (Noticee no. 15) 63.00 42 - 2,52,000 13 Indirect Funding 96000 Total 607.50 240 621.10 23,34,000 3. Thus, based on the aforesaid details, the SCN alleges that the Company and its Directors had devised and planted a scheme with the help of the funding group entities to ITA No. 6356/Del/2019 Krishan Devi 92 achieve the threshold of minimum applications (90%) of the offer size required for listing of its scrip on the SME segment of BSE, as has been envisaged under Regulation 14(1) of SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2009, (ICDR Regulations)(hereinafter referred to as “ICDR Regulations”) 4. As the Company and its connected entities had allegedly acted in concert to fund to the tune of 51.66% of the total allotted shares, the achievement of compliance with Regulation 14(1) of the ICDR Regulations was allegedly done under a fraudulent scheme, under which certain funds from the IPO proceeds were transferred to few of the funding group entities post-IPO (apparently to compensate them for the funding of IPO applications done by them) The said act of devising such a scheme to ensure listing of securities with the help of the funding group entities has been alleged to be in violation of Sections 12A(a), (b) and (c) of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “SEBI Act, 1992”) read with Regulation 3 (a), (b), (c) and (d) and 4(1) of SEBI (Prohibition of Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”). 5.I note that the SCN was served on Noticee nos. 1, 2, 3, 4, 9, 10, 12, 13through SPAD and Notice nos. 5, 6, 7, 8, 11, 14 and 15,through affixation. It is noted that the Noticee nos. 1, 3, 4, 10and 15 had sought inspection of the documents which was granted to them. Later on, opportunity of personal hearing to the Noticees was granted on June 18, 2019 which was rescheduled to July 02, 2019. However, as inspection of documents was sought by few more Noticees, the personal ITA No. 6356/Del/2019 Krishan Devi 93 hearing was again rescheduled to August 06, 2019. It is noted from the records that the hearing notice was served upon on various Noticees through substituted mode of service, viz., Newspaper publication, with the following details: Table 6 6. On the said date, i.e., August 06, 2019,only Noticee no. 13 appeared through authorize On the said date, i.e., August 06, 2019, only Noticee no. 13 appeared through authorized representative and he was heard, while adjournment requests were received from Noticee nos. 1, 3, 4,10and 15Accordingly, the Noticee no. 1, 3, 4 10and 15were provided with another opportunity of personal hearing on November 14, 2019. On the said date only, Noticee no. 3appeared on his behalf as well as on behalf of the Company (Noticee no.1) also and inter alia informed that Noticee no. 2has expired. 7. The Company i.e. Noticee no. 1, vide its letter dated October 06, 2017and Noticee no. 3vide his letter dated June 13, 2019, have sought copy of the entire investigation report and all other material collected by SEBI during the investigation and to support their request for such documents, reliance has been placed by them on the judgment of the Hon’ble Supreme Court of India in the matter of SEBI Vs. Price Waterhouse (Civil Appeal no. 6003-6004/2012).Further, vide letter dated November 25, 2019, Noticee no. 1 and 3 have filed a written reply to the SCN and also vide letter dated March 09, 2020, a post hearing written submission has been filed by them. The following key submissions have been made in the said letters: ITA No. 6356/Del/2019 Krishan Devi 94 i. In compliance with the Regulation 106Pof SEBI ICDR Regulations, 2009, the IPO of Esteem Bio was 100% underwritten. The said fact reflects that the charges of arranging funds for subscription to the IPO cannot be sustained. In support, the copy of the underwriting agreement has been filed. ii. The transactions with various entities including Noticee no. 4 (Goldline International Finvest Ltd.) whichhave formed the basis of allegations in the SCN, were in commercial nature. The Company has no control on the transactions executed by other entities. Noticee no. 4is having business dealing in securities and corporate loans etc. iii. The IPO of the Company was launched in compliance with the applicable laws. Guiness Corporate Advisors Pvt. Ltd. was appointed as Lead Manager and Cameo Corporate Services Ltd. was appointed as the RTA. iv. The SCN has been issued after 4 years of the closure of the issue and due to the said delay, the charges should be dropped. v. There is no finding in the SCN to the effect that investigation conducted by SEBI was hampered due to lack of information. For certain other entities, proceedings initiated by passing of interim orders have been dropped by SEBI. vi. The charges of violating Section 12 A(a), (b), (c) of SEBI Act, 1992 and Regulation 3 (a), (b), (c) and (d) and 4(1) of PFUTP Regulations are not made out as no transaction in securities in the secondary market segment of capital market has been done. ITA No. 6356/Del/2019 Krishan Devi 95 vii. The investigation conducted by SEBI has picked up selected financial transactions and financial transactions of third parties like Goldline have formed basis of making allegations. The case deserves re- investigation for appreciation of correct facts, as has been done in certain other cases. viii. IPO proceeds were utilized towards the stated objects and land development agreements for an amount of INR 5.66 Crore have been executed by the Company. ix. Apart from the above, the Company had spent INR29.00Lakh (approx.) towards expenses of IPO. The details of the said amount spent are: INR2.66 (approx.) Lakh to BSE; INR2.88 Lakh to SAP Printer Solutions Pvt. Ltd.; INR20.00Lakh (approx.) to Guiness Corporate Advisor (Merchant Banker); INR1.23 Lakh to NSDL and CDSL; and INR1.24 Lakh (approx.) to Innovative Communication. Also, INR 58.00 Lakh has been paid to Cameo Corporate Services. x. The Company has also extended an amount of INR 4.40 Crore in short term loans to various entities. 8. Noticee no. 10 (Avisha Credit Capital Limited), vide its letter dated September 11, 2017, while denying the allegations, has submitted that it is a Non-Banking Financial Company (hereinafter referred to as ‘Avisha’) and in its normal course of business, it had provided funds to needy people, who in turn have discretion to utilize such funds as per their requirement. The Noticee no. 10,vide its letter dated June 12, 2019, has sought copy of entire investigation report, all other material collected by SEBI during the course of investigation, and also has sought cross ITA No. 6356/Del/2019 Krishan Devi 96 examination of persons whose statement were recorded by SEBI during the investigation. Further, vide letter dated July 29, 2019, the Noticee no. 10sought time to file additional reply and has also sought certain documents. The said documents were already provided to the Noticee vide SEBI’s letter dated July 25, 2019, however, so far no further reply has been filed by the Noticee no. 10. 9. Noticee no. 13 (Ace Consultants) vide its written reply dated October 03, 2017 and through a post-hearing written submission vide letter dated August 19, 2019has advanced the following submissions: i. Ms. Sunita Khemka the proprietor of the Noticee firm has association in the field of financial and capital market as consultant for over 25years and has been dealing regularly in securities. ii. Ms. Sunita was a Designated Director in SEBI registered Stock Broker ISF Securities Ltd. (hereinafter referred to as “ISF”) and she, along with her husband hold 51% stake in ISF Securities Ltd. The stake in ISF was purchased in January 2012 (46.87%) and January 2014 (4.13%). The appointment as Designated Directors and Dominant Promoters of ISF has been done with the approval of BSE and NSE. iii. The SCN has alleged connection based on directorship of Noticee no. 3 (Brij Kishore Sabharwal) in ISF. Noticee no. 3was Director of ISF before ISF was acquired by Ms. Sunita and her husband. However, in order to maintain existing retail clients of ISF, Noticee no. 3continued to be a Director of ISF even after ITA No. 6356/Del/2019 Krishan Devi 97 change in control and Noticee no. 3 resigned from the directorship of ISF on March 21, 2014. The relationship with the Noticee no. 3was purely professional. iv. The SCN alleges that Noticee no. 13(Ace Consultants) being a funding group entity has funded Ms. Sunita Khemka for subscription to the IPO of the Company. The said allegation is baseless as Ms. Sunita herself is the proprietor as well as signatory of the bank account of Noticee no. 13 and being a proprietorship firm, Noticee no. 13could not have applied for the shares under the IPO. v. The application under IPO was only for 6000 shares for a small amount of INR1.50 Lakh, which cannot be said to have made under instructions of anyone else, particularly in the absence of any evidence. vi. Ms. Sunita had also applied under the IPO of another company viz., Eco Friendly Food Processing Park Ltd. (“ECO”). The said application in the IPO was rejected and the refund amount of INR1.50 Lakh was utilized towards application of IPO of Esteem Bio. vii. In ECO also, Noticee no. 3(Brij Kishore Sabharwal), is one of the Directors. As her application for shares of ECO was rejected, the same shows that Ms. Sunita does not have any connection (except professional) with the Noticee no. 3. viii. There is no direct connection with Noticee no. 4 (Goldline International Finvest Ltd.). It has taken loan of INR50.00 Lakh from Noticee no. 4, which was a RBI registered NBFC, during FY 2012-13. The said loan has been repaid during FY 2014-15 with interest of INR 5.81 Lakh (approx.). ITA No. 6356/Del/2019 Krishan Devi 98 ix. There is no allegation of receipt of IPO proceeds by Ace Consultants. x. For an act to be termed as ‘fraudulent’, inducement or misrepresentation needs to be present, as held by Hon’ble Supreme Court in the matter of Ram Chandra Singh Vs. Savitri Devi and Ors. [2003 8 SCC 319]. By the investment ofINR1.50 Lakh, there is no inducement caused to anyone nor any false statement has been alleged to be made. xi. Similarly, to prove an act to be manipulative, a mere single act is not sufficient and series of acts reflecting the manipulative intent is required, as has been held by Hon’ble SAT in the matter of Sterlite Industries (India) Ltd. Vs. SEBI. xii. The evidence to prove the allegation of ‘fraud’ requires stronger evidence as has been observed by Hon’ble Supreme Court in the matter of Bank of India Vs. Degala Surya Narayan (AIR 1999 SC 2407) 10. Noticee no. 15 (Gracious Software Limited), vide its letter dated June 12, 2019, has made identical requests for copies of documents, as have been made by other Noticees. Further, vide letter dated July 29, 2019, the Noticee no. 15 sought time to file written reply to the SCN, however, so far, no reply has been filed by the Noticee no. 15. Consideration of Issues and findings 11. Before addressing the contentions raised on merits of the case by various Noticees, I observe that a technical ground raised by certain Noticees needs consideration first. It is noted that few of the Noticees have made a request to provide all the documents collected during investigation ITA No. 6356/Del/2019 Krishan Devi 99 and a copy of the entire investigation report etc. At the outset, it is observed that the Noticees have made a very generic request seeking all the documents pertaining to the present proceedings without specifying as to which document they need to defend their case on merit. Insofar as the copy of investigation report and alleged non-compliance of principles of natural justice is concerned, I refer to the observations made by the Hon’ble SAT in the case of Reliance Commodities Ltd Vs. National Commodity & Derivatives Exchange Ltd.(Date of decision: July 23, 2019). The relevant portion of the said observations are under: “2. Having heard the learned counsel for the parties and having perused the list of documents so required for inspection we are of the opinion that the documents sought for is nothing but a roving and fishing enquiry. We accordingly do not find any merit in the submission of the learned counsel for the appellant that these documents are essential for the purpose of filing an appropriate reply. 3. However, we are of the opinion that if any document is relied by the respondent while disposing of the matter such document should be made available to the appellant........” 12. Similar observations have also been made by Hon’ble SAT in the matter of Shruti Vora Vs. SEBI (Date of decision: February 12, 2020). In the said matter, the appellant therein had challenged the rejection of her request to inspect all the documents collected during the investigation. While rejecting the said challenge, Hon’ble SAT inter alia held : “...A bare reading of the provisions of the Act and the Rules as referred to above do not provide supply of ITA No. 6356/Del/2019 Krishan Devi 100 documents upon which no reliance has been placed by the AO, nor even the principles of natural justice require supply of such documents which has not been relied upon by the AO.” (emphasis supplied). Therefore, applying the ratio of the aforesaid orders in the present case, I observe that the demand of the Noticees to provide them with the copy of investigation report and other material collected during the investigation is devoid of merit and has to be rejected since in the extant case, all the documents that have been relied upon in the SCN to make the allegations against the Noticees have already been furnished to them along with the SCN itself. Moreover, as per the materials before me, no statement of any person has been recorded during the investigation, hence, the question of providing a copy of any statement does not arise. I find the SCN containing all the findings of Investigation relevant to the Noticees based on which the allegation have been made therein and in support of those allegations all the relevant facts and documents have already been conveyed to the Noticees through the SCN and its Annexures. Therefore, the demand of the Noticees for a copy of Investigation Report and all documents etc., are found to sans any merit, hence rejected. 13. Moving on further, it is observed that adequate opportunities of personal hearing have been provided to all the Noticees, however, the Noticee nos. 4 to9, 11,12, 14 and 15have neither filed any reply to the charges made in the SCN nor have availed the opportunities of personal hearing granted to them. I am therefore, of the view that as the said Noticees have chosen not to respond to the SCN, it would be appropriate to proceed in the matter, based on materials available on record. ITA No. 6356/Del/2019 Krishan Devi 101 14. I have carefully perused the SCN along with its annexure as well as the submissions made by the various Noticees. Based on these the records and submissions, I observe that in order to adjudge the charges leveled against the Noticees in the SCN, the following issues needs to be addressed: Issue I: Whether the Noticee nos. 4 to 15enjoy connection with the Company and the Company through its connected entities/Noticees devised a scheme to ensure the successful subscription of its IPO? Issue II: Whether the proceeds of IPO have been utilized by the Company in terms of the Objects stated in the Prospectus? 15. Before adverting to the specific facts of the case, it is deemed appropriate to first refer to the provisions of SEBI Act, 1992 and regulations, which have been either alleged to be violated by the Noticees or are otherwise relevant for the present proceedings. The said provisions are reproduced hereunder for ready reference: SEBI Act, 1992 Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control Section 12A. No person shall directly or indirectly— (a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive ITA No. 6356/Del/2019 Krishan Devi 102 device or contrivance in contravention of the provisions of this Act or the rules or the regulations made there under; (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange; (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder. SEBI (PFUTP) Regulations, 2003 Prohibition of certain dealings in securities Regulation 3. No person shall directly or indirectly— (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made thereunder; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any ITA No. 6356/Del/2019 Krishan Devi 103 person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made thereunder. Prohibition of manipulative, fraudulent and unfair trade practices Regulation 4 (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 Minimum Subscription 14. (1) the minimum subscription to be received in an issue shall not be less than ninety percent of the offer through offer document: Provided that in the case of an initial public offer, the minimum subscription to be received shall be subject to allotment of minimum number of specified securities, as prescribed in sub-clause (b) of clause (2) of rule 19 of Securities Contracts (Regulation) Rules, 1957. 16. It is observed that the Noticees in the matter have been alleged to be connected with the Company and fund transfer from the Company to the funding entities, both directly and indirectly, forms the primary basis for establishing connection amongst majority of the entities (Noticees) apart from other attending factors such as common addresses, ITA No. 6356/Del/2019 Krishan Devi 104 common directorship in companies etc., to corroborate such connections amongst the Noticees. The said details of connections amongst various Noticees as have been narrated in the SCN, are highlighted herein below: Sr. no. Particulars Connection - Fund Movement 1 Goldline Internationa l Finvest Ltd. (Goldline) (Noticee no. 4) • Goldline had received IPO proceeds of INR 239.60 Lakh from Esteem Bio (Company). • Esteem Bio(Company)had transferred INR 245.00 Lakh to Eco Friendly Food Processing Ltd. (“ECO”), which was in turn transferred by ECO to Goldline. • Goldline had fund movement with Mayfair Infosolution Pvt. Ltd., Guiness Securities Ltd. and Sanjeev Agarwal. • Goldline had also fund movement with the entities who had funded to IPO allottees viz. AMS Powertronic Pvt. Ltd, Bright Securities, Columbia Sales. 2 Satendra Kumar • Nisha Traders had received funds from Magnum Industrial and Bright Sr. no. Particulars Connection - Fund Movement Proprietors hip Firm Bright Securities • A R Enterpris e • Nisha Traders (Noticee no. 5) Securities. • Bright Securities had fund movement with Nisha Traders, Magnum Industrial, N V Sales Corporation, A One Furniture, Goldline and AMS Powertronic Pvt. Ltd. • Address: Plot No. 3, Gali No. 3, East Guru Angad Nagar, Laxmi Nagar, Delhi - 110092. • Proprietorship firm of Sumit Kumar, Madhukar Dubey and Satendra Kumar were having common address. ITA No. 6356/Del/2019 Krishan Devi 105 3 Madhukar Dubey Proprietors hip Firm • Alliance Traders • N V Sales Corpora tion • A One Furnitur e • Magnum Industri al (Noticee no. 6) • N V Sales Corporation had fund movement with Khan Enterprises, AMS Powertronic Pvt. Ltd. • A One Furniture had received funds from Magnum Industrial. • Alliance Traders had received funds from AMS Powertronic Pvt. Ltd., Mayfair Infosolution Pvt. Ltd., A One Furniture, N V Sales Corporation, Nisha Traders. • Magnum Industrial had received funds from ECO and A One Furniture. • Address: Plot No. 3, Gali No. 3, East Guru Angad Nagar, Laxmi Nagar, Delhi- 110092. • Proprietorship firm of Sumit Kumar, Madhukar Dubey and Satendra Kumar were having common address. 4 Ram Prakash Proprietors hip Firm • Khan Enterpri ses • Aggraw al Traders (Noticee no. 7) • Khan Enterprise had fund movement with Shiv Traders and Garg Traders & Suppliers. • Aggrawal Traders had received funds from the Goldline. • Ram Prakash is the common Director in following companies (as per MCA Database); i. Aavia Buildtech Pvt. Ltd. ii. Aavia Softech Pvt. Ltd. 5 Aavia Softech Pvt. Ltd. (Noticee no. 8) • It had fund movement with Mayfair Infosolution Pvt. Ltd., ECO, Goldline and Esteem Bio. • Aavia Buildtech Pvt. Ltd. and Aavia Softech Pvt. Ltd. have common address: 1/2486, Gali No. 26, Ramnagar, Modern Shahdra, East Delhi - 110032. (MCA Website) Sr. no. Particulars Connection - Fund Movement ITA No. 6356/Del/2019 Krishan Devi 106 • Aavia Buildtech Pvt. Ltd. and Aavia Softech Pvt. Ltd. have common Director: 1) Kamal Singhal 2) Ramprakash • Mr. Ramprakash is the proprietor of M/s. Khan Enterprise and M/s. Aggrawal Traders. 6 Mayfair Infosolutio n Pvt. Ltd. (Noticee no. 9) • It had received IPO proceeds of INR 81.00 Lakh from the Company. • It had fund movement with Aavia Softech Pvt. Ltd, Goldline, Esteem, AMS Powertronic Pvt. Ltd and Gracious Software Pvt. Ltd. • Director Name :1) Sumit Kumar 2) Vinay Kumar • Mayfair is connected with AMS Powertronic Pvt. Ltd., Nikky Printing Press Pvt. Ltd., through common Directors. 7 Avisha Credit Capital Ltd. (Noticee no. 10) • It had received IPO proceeds of INR 15.50 Lakh from the Company. • Further, it had fund movement with ECO, Goldline, ISF Securities Ltd., and Mayfair Infosolution. 8 Nikky Printing Press Pvt. Ltd. (Noticee no. 11) • It had fund movement with Goldline, Mayfair Infosolution, AMS Powertronic and Madhukar Dubey. • Director Name: 1) Sumit Kumar 2) Vinay Kumar • Nikky Printing Press Pvt. Ltd. is connected with Mayfair Infosolution Pvt. Ltd, AMS Powertronic Pvt. Ltd., through common Directors. 9 Neel Kanth Trading Co. (Noticee no. 12) • It had fund movement with AMS Powertronic Pvt. Ltd. 10 Ace Consultant (Noticee no. 13) • It had fund movement with the ISF Securities Ltd and Goldline. • Common Address with ISF Securities Ltd. • Till March 2014, Brij Kishore Sabharwal (Director of Eco & Esteem Bio) was the director in ISF Securities Ltd. ITA No. 6356/Del/2019 Krishan Devi 107 11 Amsons Apparels Pvt. Ltd. (Noticee no. 14) • It had fund movement with AMS Powertronic Pvt. Ltd., Goldline, Madhukar Dubey and Mayfair Infosolution Pvt. Ltd. 12 Gracious Software Pvt. Ltd. (Noticee no. 15) • It had fund movement with Goldline and Mayfair Infosolution Pvt. Ltd. 13 Aavia Buildtech Pvt. Ltd. • It had received IPO proceeds of INR 40.00 Lakh from the Company. • Aavia Buildtech Pvt. Ltd. and Aavia Softech Pvt. Ltd., were having common address: 1/2486, Gali No. 26, Ramnagar, Modern Shahdra, East Delhi - 110032. • Aavia Buildtech Pvt. Ltd. and Aavia Softech Pvt. Ltd. have common Directors: 1) Sr. no. Particulars Connection - Fund Movement Kamal Singhal 2) Ramprakash. • Mr. Ramprakash is the proprietor of M/s. Khan Enterprise and Ms/. Aggrawal Traders. 14 Shiv Traders • Shiv Traders had fund movement with Mayfair Infosolution Pvt. Ltd., Khan Enterprise, Neelkanth Trading, AMS Powertronic Pvt. Ltd., Aavia Buildtech Pvt. Ltd., Esteem Bio. ITA No. 6356/Del/2019 Krishan Devi 108 15 AMS Powertroni c Pvt. Ltd. • It had received INR 325.00 Lakh from the IPO proceeds of Esteem Bio. • It had fund movement with Mayfair Infosolution Pvt. Ltd., Goldline, Amsons Apparels Pvt. Ltd., N V Sales Corporation, Aavia Softech Pvt. Ltd., Nisha Traders, Shiv Traders, ECO, Aggarwal Traders, Madhukar Dubey, Esteem Bio. • Director Name: 1) Sumit Kumar 2) Vinay Kumar • Sumit Kumar is the common Director in AMS Powertronic Pvt. Ltd., Nikky Printing Press Pvt. Ltd. & Mayfair Infosolution Pvt. Ltd. 17. From the aforesaid tabular representation, as far as the IPO subscriptions are concerned, I note that the SCN makes allegations of connections that were being enjoyed by various Noticees amongst themselves and largely the said allegations have been premised on fund transactions that were executed between various entities. For illustration, the Noticee no. 1has been alleged to have transferred INR 239.60 Lakh from the IPO proceeds, to the Noticee no. 4 (Goldline). Further, it has also been alleged that an amount of INR 245 Lakh was transferred by the Noticee no. 1to another company viz., Eco Friendly Food Processing Ltd., which in turn transferred the said amount to Noticee no. 4.I note that similar to the above said allegation, Noticee no. 10 (Avisha Credit Capital Pvt. Ltd.) has also been charged for having received an amount of INR 15.50 Lakh from the IPO proceeds of the Noticee no. 1. Further, the Noticee no. 15also faces allegation of connection based on fund transfers with Noticee no. 4 and Noticee no. 9. 18. It is observed that despite categorically imputing the allegation of connection based on fund movements and other factors, none of the Noticees has been able to discharge the onus successfully by demonstrating that such transactions were not due to the alleged collusive nexus between them, but on account of some bonafide commercial ITA No. 6356/Del/2019 Krishan Devi 109 reason. As noted above that many of the Noticees have till date preferred to remain silent and have not filed any reply to the SCN. The Noticees who have responded to the allegations made in the SCN, are also found to have made only various bald assertions and their denial of having any connection with the Company or with other entities has not been backed by any credible supportive evidences, so as to inspire confidence in any of their explanations to counter the allegations of connections made against them in the SCN. 19. On a careful perusal of the replies filed by the Noticees, it is observed that the Noticee no. 1has simply tried to shrug off the allegations of connections with other entities by claiming that the fund transactions alleged in the SCN, took place out of commercial dealings, however, no verifiable documents such as balance sheets, invoices, TDS certificate, agreement/contract etc., have been produced before me to support such a tall claim of having transferred huge sums of money, viz :INR 239.60 Lakh from the IPO proceeds directly and INR 245 Lakhs indirectly (through ECO), to the Noticee no. 4 as a matter of so called commercial transactions. Similarly, Noticee no. 10, which has claimed to be an NBFC as also made a bald and superfluous statement stating that it had provided funds to needy people, who had their own discretion to utilize such funds(in the manner they wanted). I note that the said assertions of the Noticee no. 10have not been supported by any independently verifiable piece of evidence to lay credence on the arguments so advanced by it that it financed the needy people. No documents corroborating such loans & advances made by it to the needy people, such as the copies of applications made by such people to it for financial support, the purpose of ITA No. 6356/Del/2019 Krishan Devi 110 such advances made, the subsequent recoveries of such advances with interest etc. have been made available to me to verify and get satisfied with their explanation. I would rather say that the said Noticee being a NBFC appears to have acted in unprofessional manner, as no documents pertaining to said fund transfers, like nature of loan, rate of interest, period of loan, copy of agreement, copy of ITR etc., pertaining to the purported loan/advances extended in pursuance of its non-banking financial activities were furnished during the proceedings. Further, the reply of the Noticee no. 10 is conspicuously silent on the allegation that it had received INR 15.50 Lakh from the IPO proceeds of the Company (Noticee no. 1).There is no doubt that had such transactions were entered into in due course of its genuine NBFC business transactions, the Noticee no. 10 would have certainly been able to substantiate its claim through its records, but it clearly has failed miserably to do so and therefore, I have no hesitation in rejecting the submissions of the Noticee in defense of its funding the IPO application as it has failed to disprove or controvert the allegations of its connection with the Noticee no. 1,as well as with other Noticees like Noticee no. 4 etc. 20. As regards the Noticee no. 13, the SCN has proceeded to allege that the Noticee no. 13had fund movements with the Noticee no. 4and another company, namely ISF Securities (“ISF”). It has further been alleged that the Noticee no. 3 (Mr. Brij Kishore Sabharwal), who was a common Director of Noticee no. 1as well as of ECO, was also a Director of ISF. Hence Noticee no. 13 is allegedly connected with the Company through Noticee no. 3. ITA No. 6356/Del/2019 Krishan Devi 111 21. As per the submissions made before me and the documents filed, Ace Consultant is a proprietorship firm of Ms. Sunita Khemka. While referring to the submissions of the Noticee no. 13, I find that it has not denied its connection with the Noticee no. 3.It has been explained that the said Ms. Sunita Khemka (prop. of Noticee no. 13) along with her family members owned majority shareholding of ISF and further she was one of the Designated Director of ISF. It has further been stated that Noticee no. 3remained as a Director of ISF for some time after the family members of the Ms. Sunita Khemka acquired the said company. It has however been contended that there was no personal or collusive nexus with the Noticee no. 3 (Mr. Brij Kishore Sabharwal),who eventually left the Board of ISF. In so far as the transactions with Goldline (Noticee no. 4) is concerned, the Noticee no. 13has vehemently argued that it had received an amount of INR 50.00 Lakh from Noticee no. 4 (Goldline International)and the said amount was repaid to it along with interest @ 9%. In support of her contentions, the Noticee no. 13has submitted copy of bank account statement showing the relevant transaction entries, copy of Income Tax Returns and balance sheetsetc. A perusal of the said documents reflectsthat the Noticee no. 13had received INR 25 Lakh each on January 15 and 17, 2013 from the Noticee no. 4and has also transferred back INR 15 Lakh each on March 03, 2014 and March 07, 2014. Similarly, through three separate transactions executed on June 25, 2014, July 08, 2014 and July 17, 2014, the Noticee no. 13has transferred back another sum of INR 25 Lakh to the Noticee no. 4and finally on July 26, 2014, an amount of INR 81, 917 has been transferred to the Noticee no. 4. ITA No. 6356/Del/2019 Krishan Devi 112 22. It is noted that apart from showing the payment of interest on the said amount, the Noticeeno.13has also credibly demonstrated before me that the said transactions were genuine loan transactions between Noticee no. 4 and Noticee no. 13, as found to have been corroborated from various other documents, viz:-the Income Tax Returns and the balance sheets. It is noted that in the Income Tax Return of Ms. Sunita Khemka, M/s. Ace Consultant has been shown as her proprietorship firm and in the balance sheet filed along with it, certain amounts have been shown as unsecured loans, and the said amounts are way higher than the amount transferred by Noticee no. 4to Noticee no.13. Further, the detailed balance sheets of two years (as on March 31, 2013 and as on March 31, 2014), also mention about the loans taken from Goldline, which in the subsequent year (March 31, 2014), gets reduced from INR 50, 92,465 to INR 25,22,492, apparently, due to the payments of INR 30 Lakh made till March 07, 2014, as noted in the previous paragraph. Therefore, when all the documents are considered holistically, in my view the Noticee no. 13 has succeeded in discharging the allegations that its financial transactions with the Noticee no. 4 (Goldline International) were loan transactions, as have been corroborated by verifiable documentary evidence produced by the Noticee no. 13 before me. Under the circumstances, I am persuaded by the aforesaid documentary evidences that the allegations of dubious funds transaction with Noticee no.4 stands adequately clarified or defended by the Noticee no.13. 23. I further note that apart from its financial transactions with Noticee no. 4, the SCN alleges that the Noticee no. 13 had fund transfers with ISF and also shared its address with ISF. I ITA No. 6356/Del/2019 Krishan Devi 113 note that the natural person (Ms. Sunita Khemka)behind the Noticee no. 13(as a proprietor of the firm), was admittedly also a Director and a majority shareholder in ISF in which Noticee no. 3 was also a Director. Undoubtedly, proprietorship of a firm is inseparable cannot be taken away from the proprietor of such firm, who in the present case also happened to be a Director and shareholder in ISF, hence the connection between Noticee no.13 (a proprietorship firm of Ms. Sunita Khemka) and Noticee no. 3(Mr. Brij Kishore Sabharwal) is inevitably clear and settled. It has been contended before me that in the initial transition days of acquisition of ISF by Ms. Sunita Khemka and her family, it was thought proper to let Noticee no. 3continue for a while as a Director of ISF to retain retail clients of the said company and the Noticee no. 3eventually ceased to be Director of ISF w.e.f March 21, 2014. I find such an explanation is completely baseless offering no justification of continuation of Noticee no.3 as a Director of a company acquired by the proprietor of Noticee no.13 since the services of Noticee no. 3 could have been availed in any other form also to retain retail clients, instead of allowing him to continue as a Director of the Company. Irrespective of the aforesaid, in my view a close connection between Noticee no.3and Noticee no.13, is now established beyond doubt. 24. The details of connections amongst the rest of the Noticees have already been enumerated in the Table no.7 above and in the absence of any plausible explanation offered by such persons/Noticees, I am constrained to conclude that the allegations that these entities were enjoying a close connection amongst themselves stand vindicated based on the common factors indicated in the Table ITA No. 6356/Del/2019 Krishan Devi 114 no. 7, more particularly in the light of the fact that basis of such alleged connections has been derived from tangible factual supports like common directorships, common addresses and fund movements etc., observed amongst these Noticees. 25. I note that as per the regulatory framework prevailing at the relevant point of time when the Company came out with its IPO, in order to apply for the equity shares of the Company under its IPO, the prospective investors were given option either to file application along with payment of consideration by cheque or to avail the facility of ASBA i.e., - Application Supported by Blocked Amount, which entails blocking of the amount of consideration in the account of applicant till allotment of shares by the Company. 26. As noted earlier, the SCN has alleged that various funding group entities had funded large number of applicants under the IPO of the Company and based on the support of such funding, shares were allotted by the Company to such applicants. The SCN also enumerates the details of such funding in a graphical representation, which is reproduced herein below: RII: Retail Individual Investor ITA No. 6356/Del/2019 Krishan Devi 115 27. I observe that in majority of such cases, the funding group entities are seen to be transferring money directly to the IPO account of the Company on behalf of multiple investors. For an illustration, Noticee no. 4, Satendra Kumar through his proprietorship firm viz., Nisha Traders, had transferred INR 58.50 Lakh to the Company’s account on behalf of 39 investors (IPO applicants). Similarly, Noticee no. 15 has been noticed to have transferred INR 63 Lakh to the Company on behalf of 42 IPO applicants. I note that entities like Noticee no. 4 (Goldline) have not only transferred funds directly to the IPO account of the Company (e.g. INR 63 Lakh paid on behalf of 42 investors) but also had provided funds to certain other entities, who in turn have used such funds to finance the IPO applications either in ASBA mode or paid application amount directly to the Company by way of cheque on behalf of IPO applicants, out of the funds so received from the Noticee no. 4. 28. I note that neither the ultimate recipient of the funds, i.e., the Company, nor the transferor of the funds, i.e., the funding group entities on behalf of various IPO applicants, have furnished any justification for such fund movements in their ITA No. 6356/Del/2019 Krishan Devi 116 accounts on behalf of the applications filed by large number of third party unrelated applicants. It is pertinent to mention here that the Company has allotted shares to those applicants whose applications were supported by cheques issued by various third- party funding group entities (and not by the applicants themselves) which was grossly against the norms governing the issue of shares under IPO. 29. Having found that the Noticees have prima facie enjoyed inter se connections amongst themselves as alleged in the SCN, I note that the other connected leg of the allegation pertaining to the funding of IPO applicants by the funding group entities and their direct and indirect funds movements with the Company indicating that the Company, out of the IPO proceeds so received by it in the IPO, has transferred huge amounts of money to many of the funding group entities also stands on solid factual evidence. I have already placed a graphical representation at para 2 (viii) of this order showing the transfer of funds from the IPO proceeds of the Company to various entities which included funds transfers to certain funding group entities. 30. Curiously, I find that the Company has offered no justification whatsoever to provide an insight as to why did it accept cheques directly from various third parties on behalf of large number of individual IPO applicants, who even apparently were not related to those third party funding entities. It is observed that the Company has evaded this aspect by claiming that transactions executed by other parties should not be used to attribute misdeed on the part of the Company as it has no control on such third parties. I find such an explanation to be casual, evasive and irresponsible, as the third party funding ITA No. 6356/Del/2019 Krishan Devi 117 transactions that have been imputed here have in fact led to allotment of huge number of shares under its IPO. I note that both the transferor and transferee of funds were under an obligation to furnish justification supported by documentary evidence so as to show that the transactions were genuine commercial transactions. However, there is a clear failure on the part of the Company as well as the funding group entities in defeating the allegations of SCN. In view thereof, I find the Company has miserably failed to demonstrate as to why it accepted the payments directly from third partyfunding group entities (instead of from the applicants). When the payment for applications was made on behalf of RIIs by third party entities, not only the Company accepted such applications, but also proceeded to allot shares to such RIIs under its IPO. The Company therefore ought to explain its misconduct and irregularities with justification to defend the bonafide of such transactions, but it has not been able to explain the rational of such transactions before me. 31. I note that most of the funding group entities have remained absent from the proceedings of the present matter and even all of those who participated, have not been able to justify their fund transactions. For illustration, as pointed out earlier in this order I find that when the Noticee no. 10 was confronted with the charges of funding 3 entities(applicants/investors) to the tune of INR 4.5 Lakh for their IPO applications, it has made a shallow statement that it has provided funds to some needy persons, in pursuance of its business activity of non-banking financial company. It has further been argued by them that the recipient of the funds had their discretion to utilize such funds (over which it had no control). However, as I have observed before, the Noticee ITA No. 6356/Del/2019 Krishan Devi 118 no.10 has neither furnished any particulars of such advances having been made to such needy people who applied for shares of the Company under its IPO nor has provided any documentary evidence so as to substantiate its claim of having transacted with those people in course of its activities as a NBFC. 32. Insofar as the Noticee no. 13 (Ace Consultant) is concerned, I note that it faces the allegation of having funded one ASBA applicant, who was eventually allotted shares under the IPO of the Company. In this regard, the Noticee no. 13 has argued that the allegations do not have merit as it was the proprietor of the Noticee no. 13 itself, viz., Ms. Sunita Khemka, whose application has been alleged to have been funded by the Noticee no. 13 (her proprietorship firm). I further observe that the Noticee no. 13 has filed various documents like copy of bank account statements, income tax returns etc., in its support to justify the movement of fund on behalf of its proprietor. 33. I have carefully perused the allegations against the Noticee no. 13 and its submissions to counter the said allegations. At the outset, it is noted that the Noticee no. 13 is facing a limited allegation of having funded one ASBA applicant and there is no charge levelled against the Noticee no. 13 to have received the funds from the IPO proceeds of the Company or to have funded other IPO applicants. Further, in order to verify the claim of the Noticee no. 13, I have perused the annexure to the SCN containing details of IPO allottees who got funding from the funding group entities. In the said list, the name of Ms. Sunita Khemka, proprietor of Noticee no. 13 finds mention at Serial no. 225, who was allotted 6000 shares of the ITA No. 6356/Del/2019 Krishan Devi 119 Company with the financial backing of Ace Consultant and ISF Securities. In this connection, as has already been observed by me while adjudging the allegations of connections shared by Noticee no.13 with other Noticees, the three entities, viz., ISF Securities, Ace Consultants and Ms. Sunita Khemka are certainly and admittedly connected with each other since, Ms. Sunita Khemka is the proprietor of Ace Consultant and shareholder Designated-Director of ISF Securities. 34. Be that as it may, for the purpose of allegation under reference, I have to evaluate the transaction based on which allegations have been made against the Noticee no. 13 that it had transferred INR 1.50 Lakh to Ms. Sunita Khemka, who utilized the said amount for making application under IPO and got the allotment of shares of the Company. It is an obvious fact that the Noticee no. 13, being the proprietorship firm of the individual, Ms. Khemka has transferred funds for making IPO application in her name. As per extant legal framework; the proprietor and the proprietorship firm are considered one and the same, undistinguishable from each other for all legal, taxation and practical purposes. Further, there is no provision to enable a proprietorship firm to be an IPO applicant in exclusion of its proprietor. In the present case, the Noticee no. 13 has filed copy of ITR of Ms. Sunita Khemka for 2 years wherein the details of the Noticee no. 13, as proprietorship firm of Ms. Sunita Khemka, have been duly captured, which in the absence of any other contradictory evidence, have to be accepted. Therefore, as the allegations against Noticee no. 13 are limited to funding the IPO application of its own proprietor, the said charges are not maintainable in view of the factual support and legal framework, as discussed above. ITA No. 6356/Del/2019 Krishan Devi 120 35. Adverting to the allegation against the Company and the other Noticees, it is noted in the SCN that the Company has with the help of its connected entities, funded large number of IPO applications and has effected subsequent allotments of shares to those investors. As can be seen from the narrative of the SCN, out of 450 retail applicants, applications of as many as 270 applicants were funded by the funding group entities and out of the said applications, a total number of 238 applicants got allotment of 14,28,000 shares from the Company under its IPO. Another set of 96000 shares were also funded indirectly. Further, the market maker category also was fully funded since one market maker, who was allotted 7,50,000 shares was also funded by Noticee no. 4 (Goldline) and similarly, in the HNI category, out of total 11,46,000 shares allotted, application of one HNI for 60,000 shares was funded by the Noticee no. 4. Thus, in total, out of 45,18,000 shares allotted by the Company under its IPO, the allotment of 23,34,000 shares was funded by the funding group entities, which comes to 51.66% of the total shares allotted, while all the funding group entities have been found to be directly/indirectly connected with the Company itself. 36. As the Company and its connected entities were the major financial source behind the IPO applications of a huge chunk of 51.66% of the total shares allotted, it is apparent that but for the aforesaid financial support/funding made by the Company and its connected entities, and only due to the concerted efforts made by them in funding such large number of applicants, the quantum of application of the IPO of the Company was able to cross the mandatory and regulatory threshold of 90% of the shares offered, in terms of Regulation 14(1) of ICDR Regulations. Thus, if the Noticees had not by ITA No. 6356/Del/2019 Krishan Devi 121 their covert act of providing funding to the large number of IPO applicants played their respective roles in the scheme that involved such a concerted effort by all the connected entities, the Company would have miserably failed to achieve the requisite minimum applications of 90% of the shares offered under its IPO. Consequently, the Company would have been forced to drop the issue of its equity shares and would have been statutorily liable to refund the rest of the money collected from the other non- funded subscribers/applicants and the IPO would have been declared as a failed IPO Hence, without the support from a pre-conceived scheme and the players (all the connected entities) who participated in the said scheme to make the IPO a success story, the issuance of equity shares of the Noticee no. 1 would not have seen the listing platform on the SME segment of the stock exchange. 37. It has strongly been contended on behalf of the Company that the charge of providing funding in order to achieve the minimum applications of 90% has not been made based on any evidence available on record and annexed with the SCN. The Company has argued that the charges of ensuring subscription through funding of the IPO applicants are erroneous for the reason that the IPO was 100% underwritten. The Company has also furnished the copy of the Underwriting Agreement in support of the said contention. 38. At this stage, I observe that there was no need for the Company to even refer to the underwriting agreement, had the Company and/or the other Noticees were able to show an iota of bonafide in their transactions thereby successfully controverting the allegations of funding the IPO applicants who were allotted shares by the Company. The details of funding ITA No. 6356/Del/2019 Krishan Devi 122 made by the funding group entities need no further discussion in this order, as the same have already been elaborated earlier and have been found to be uncontested by any of the submissions of the Noticees. 39. Without prejudice to the above, in order to deal with the argument pertaining to the Underwriting Agreement, its relevant clauses are reproduced hereunder: “2. Underwriting On the basis of representations and warranties contained in this Agreement and subject to its terms and conditions, the Underwriter hereby agrees to underwrite and/or procure subscription for the Equity Shares in the manner and on the terms and conditions contained in Section 5 of this Agreement. ...... 5. Issue Notwithstanding anything contained elsewhere or otherwise in this Agreement, the Company agrees that the maximum number of Equity Shares in the Issue that the Underwriter have to underwrite is 45,00,000 Equity Shares, which is allocated as under: Name of the Underwriter No. of Shares Underwritten GMBPL 37,50,000 GSL 7,50,000 In the issue, Underwriter shall only be responsible for ensuring completion of the subscription in respect of such applicants, including ensuring full payment of the issue Price in respect of the Equity Shares for which such applications are made, in the manner set forth in this Section. ITA No. 6356/Del/2019 Krishan Devi 123 The default in full and timely payment of the Issue Price in respect of the Equity Shares for which the applicant has placed a application and received allocation in respect of such application; or The withdrawal of a applicant, in respect of which an allocation of Equity Shares has been made, by the applicant prior to allotment of the Equity Shares subscribed by such applicant; The Underwriter shall be liable to discharge its underwriting obligations as follow: The Underwriter will be required for themselves, to the extent of applications procured by them, to make good any default by such applicants.”(underlines supplied) 40. The Company has sought to draw strength from the aforesaid Underwriting Agreement by contending that based on such an agreement alone, the charges of the SCN would fail. I have carefully perused the contents and have gone through the aforesaid relevant clauses of the Underwriting Agreement. As can be deciphered from the afore stated clauses, the agreement casts limited obligation on the underwriter, only to such applications which would have been procured by it (the underwriter) and the said liability is further restricted only to those cases, where the applicant would default in the payment or withdraws his application. The clauses of the agreement nowhere provide for any omnibus provision which could support the contention of the Noticee that by virtue of Underwriting Agreement being in place, the underwriter was under contractual obligation to subscribe to the entire unsubscribed portion of the IPO, so as to cross the minimum threshold of 90%of the offer size of the IPO. Therefore, the Company has ITA No. 6356/Del/2019 Krishan Devi 124 not been able to demonstrate as to how the Underwriting Agreement can lead to an absolute prima facie presumption that there was no necessity on the part of the Company to conceive any plan or scheme to arrange funding for its IPO applicants as alleged in the SCN, so as to absolve it from the charges of arranging funds with the connivance of connected funded group entities. Even after considering that the aforesaid clauses of the Underwriting Agreement did provide some comfort to the Company in the matter of subscribing against the defaults in making payment by some of the applicants, the unassailable facts remain that the Company and its connected entities were indeed involved in providing funding to as much as 51.66% of the total shares allotted and in the absence of such efforts made by the Company and its connected entities in an organized manner, the IPO of the Company was bound to fail. 41. In view of the aforesaid discussions, I observe that on a holistic assessment of the financial transactions that have taken place between the Company and various funding group entities as highlighted above, that have neither been disputed nor could be substantiated with any tangible justifiable reasons by the Noticees and additionally looking at the non-response of large number of Noticees to the SCN , the preponderance in all probabilities that emerges is unabashedly tilted in support of the allegation of the SCN that the Company and its connected entities have indeed acted upon a pre-mediated scheme to fund large number of IPO applicants in order to garner the statutory minimum number of applications so as to make the IPO successful. Thus, as far as the first issue for consideration is concerned, I am clear that the same has to be answered affirmatively against the Noticees and in favour of the ITA No. 6356/Del/2019 Krishan Devi 125 allegations made in the SCN. I shall now deal with the second issue to cover the next set of allegations that the after completion of the IPO process, the Company transferred the IPO proceeds to various funding group entities in deviation from the objects of IPO prospectus. Issue II: Whether the proceeds of IPO have been utilized by the Company in terms of the Objects stated in the Prospectus? 42. It is noted from the SCN that the Company had raised an amount of INR 11.29 Crore (approx.) by allotting 30.20% of its post issue capital. The shares were allotted at the issue price of INR 25 per share and the said shares got listed on the BSE- SME segment after the process of IPO was over. During the investigation conducted by SEBI, the Company was asked to provide the details of utilisation of the IPO proceeds and in response thereto, the Company vide its letter dated December 25, 2015, furnished the break-up of the utilisation of IPO proceeds, as on March 31, 2015. The said details are already captured under Table 2 of the present order and are not being repeated herein for brevity. 43. As can be noted from the details of the Table 2, the Company had claimed to have utilised INR 3.75 Crore towards setting up of a Shade Net Cultivation facility; INR 5.64 Crore towards development of farm land; INR 99.67 Lakh towards investment in short term advances and another set of amounts towards certain other expenses like Brand building etc. 44. I note that on the basis of prima facie observations recorded in the course of investigation the Noticee Company was categorically pointed out to the fact that it has transferred the IPO proceeds to the funding group entities as a pay back to ITA No. 6356/Del/2019 Krishan Devi 126 those entities which helped the Company in achieving the minimum subscription threshold of 90% to ensure a successful listing of its securities. In the aforesaid context, it goes without saying that the Company was under obligation to counter the charges made in the SCN with cogent reasons and supporting documents so as to substantiate the trail of funds out of the IPO proceeds, justifying the utilisation of IPO proceeds on the lines as stated under the object clause of the Prospectus. However, the Company has not been able to provide a complete picture of the utilisation of the entire amount of IPO proceeds in any of its replies. 45. It is observed that, the Company had, during the investigation, filed certain details of utilisations such as: (i) INR 3.75 Crore towards setting up of shade Net cultivation facility; (ii) INR 5.64 Crore towards development of farm land; (iii) INR 29 Lakh towards purchase of tools etc; (iv) INR 30 Lakh towards Brand building; (v) INR 31.28 Lakh towards Issue expenses; (vi) and INR 99.67 Lakh claimed to have been invested in short term loans On the other hand contrary to the aforesaid claims made during the investigation., as noted in the SCN, the Company was found to have actually transferred almost the entire proceeds so raised in the IPO to different entities soon after the completion of the IPO . Further out of the said transfers, as much as INR 5.80 Crore has also been transferred to a few of the funding group entities. The Company has offered no explanation or subsequently no reasoning to explain as to why in its submission made during the investigation were subsequently found to be not supported by any verifiable evidence and instead the same is found to be a false claim on the face of the actual funds transfers that have taken place in its accounts post IPO exercise. ITA No. 6356/Del/2019 Krishan Devi 127 46. In so far as the expenses claimed to have been incurred towards one of the stated objects of the Prospectus viz., development of farm land for transition to organic farming is concerned, it is noted from the Prospectus that the Company had stated to have taken a land admeasuring 295.80 Acres in the year 2008, on a lease for the period of 99 years which commenced from 01.03.1933. The Company has claimed to have paid INR 5.60 Crore to 4 different firms for the purpose of development of portions of the afore stated piece of land, by executing exactly identical agreements with each of such four entities. It is noted from the records that apart from the agreements, the Company has also filed copies of bank account statements, invoices, ledger to justify the above noted payment of INR 5.60 crore etc. The details of said agreements with respective funds transfer with the 4 entities are tabulated as under: Table 8: Details of land development agreements Sr. no. Name of the entity Amount (in INR) Supporting documents Dates of transactions 1. Raj Marketing India 1,84,41,000 Copy of agreement; Copy of invoices; Ledger of the said company in the books of accounts of the Company, bank account statement 50 Lakh on 12.10.2012 15 Lakh on 20.10.2012 60 Lakh on January 15, 2013 2. Garg Traders and Supplies 60.00 Lakh -do- 60 Lakh on 15.01.2013 3. S.P. Enterprises 1.00 Crore -do- 40 Lakh on 19.12.2012 60 Lakh on 15.01.2013 ITA No. 6356/Del/2019 Krishan Devi 128 4. Shiv Traders 2.16 Crore -do- 17 Lakh on 05.10.2012 50 Lakh on 08.10.2012 50 Lakh on 12.10.2012 39 Lakh on 15.10.2012 60 Lakh on 15.01.2013 Total 5.60 Crore (approx.) 47. A bare perusal of the aforesaid agreements produced by the Company shows that those are actually un-notarized agreements which were executed on the letter head of the Company and not even on a stamp paper. Strangely enough, the Company had decided to part with such an amount constituting more than 50% of the money raised from the public through certain agreements recorded on a plain and un- stamped and un-notarized piece of paper which renders their documents ab initio unenforceable in law. It is also seen that the contents of all the four agreements are identically worded. The Company did not pay heed to get these agreements registered/notarized, so as to safeguards its interest in case of any future dispute/default from the counter party. Again, from those agreements, it is not clear as to who is the executant on behalf of the second parties, viz., Raj Marketing, S P Enterprises etc. There is also no witness to those agreements meaning thereby, these agreements do not possess any qualities to be called as valid and lawfully enforceable documents. 48. Another factual contradiction/discrepancy noticed in the submissions of the Noticee Company, is the dates mentioned in those unenforceable agreements. For illustration, the agreement with Raj Marketing India Limited, proprietorship firm ITA No. 6356/Del/2019 Krishan Devi 129 based in Ghaziabad is meant for development of 97.34 acres of land, and it carries date of execution as April 02, 2012. It may be recalled here that the Company came out with its IPO only in January, 2013. Thus, after raising money through the IPO in January, 2013, a document which was purportedly executed almost 9 months prior to the IPO has been shown in support of the Company’s claim of having utilized the IPO proceeds (raised 9 months after the date of execution of the said document) for the aforesaid object of IPO. I observe that the said agreement, if was really executed prior to the IPO, should have been mentioned in the disclosures made by the Company in its IPO prospectus. However, the Prospectus filed by the Company does not contain any detail of such an agreement having been executed by the Company. The aforesaid observation assumes crucial significance in the calling the Company’s bluffs as the purpose behind executing the said invalid agreements, i.e., to meet the object of land development of farm land for transition to organic farming, is in fact the major object disclosed in the Prospectus. The Company’s claim of deploying the aforesaid amount of INR 5.60 crores to meet the above noted object of IPO through those invalid unenforceable agreements with the 4 entities, is clearly found to be a false, fictitious and concocted claim, without any substance. 49. It is further pertinent to mention here that the Company in its Prospectus had stated as: “The Company has so far not entered into any technical or financial collaboration agreement”. Further, in yet another disclosure, the Company had stated that is has not entered into any agreement with suppliers of soil bed etc. The said clause reads thus: “We have not entered into any agreement with the suppliers for supply of soil bed, shade net cultivation etc. for the Project, we have ITA No. 6356/Del/2019 Krishan Devi 130 also not entered into any contract with contractors as specified in the Objects of the Issue. Any delay in entering into such agreements may delay the implementation schedule, which may also lead to increase in prices of the equipment and machineries in future affecting our costs, revenue and profitability.” 50. I find that the Prospectus contains a reference to the quotation given by Raj Marketing for Land Development at the rate of INR 127 per Sq. Meter, however, the agreement referred to above, which has been supposedly executed 9 months before the IPO, has been executed for Land development (total consideration of INR 1,84,18000 for 97.34 Acres/393920 Sq. Meters) at the rate of INR 46.75 per Sq. Meter. Thus, in a short span of time, the price for land development has been shown to have increased multi fold in the IPO documents. 51. Further, as can be easily deciphered from the dates of fund transfers mentioned in the table above, except for few transactions amounting to INR 2.40 Crore, all the remaining fund transactions were executed by the Company in the pre-IPO period. For illustration, the Company has projected to have paid INR 2.16 Crore to Shiv Traders out of the IPO proceeds for land development, however, out of the said amount, all the transactions (mentioned in serial no. 4 of the table), except for one transaction of INR 60 Lakh, were executed during October, 2012. Thus, the Company has clearly attempted to claim its pre-IPO transactions with those entities for its explanations for utilization of proceeds of IPO which creates an incongruous and contradictory situation that can hardly justify the utilization of IPO proceeds. ITA No. 6356/Del/2019 Krishan Devi 131 52. After noting the above said factual contradictions, I further note that although the Company has claimed to have executed the agreements of large values, they are not supported by any documents pertaining to Board level processes, approval by the Board of Directors, Board resolutions, document in nature of authorization in favour of the executant of the agreement, disclosures to stock exchange etc. Similarly, the execution of these agreements is also not found to be supported by any statutory documents nor the Company has demonstrated crucial compliances like approval of layout/Land development plan from local authorities, incorporating such amounts of transfers in the balance sheets, profits/losses arising out of such agreements as required to be mentioned in Company’s book of accounts, deduction of tax at source from the payments made to those vendors, TDS certificates issued by it etc. 53. I also note that notwithstanding the fact that the so called agreements have been signed by the Company on its letter head, these agreements undoubtedly deal with complex work of development of large tracts of land parcels owned by an incorporated entity. However, from a perusal of those agreements, it is noted that no fixed time frame has been laid down for completion of the work of development of those vast portion of land. The Company has also not been able to produce before me even the least minimum evidence like possible photograph of the Land etc., so as to demonstrate the development carried out/or being carried out on the said land by the said developer, ever since those agreements were executed. The Company had come out with the IPO in the early part of 2013 and yet it appears that the project has not yet even commenced till date, leave alone the completion of the ITA No. 6356/Del/2019 Krishan Devi 132 same. It is also observed that each of the four agreements has been executed with respect to development of a small piece of land, out of the entire land admeasuring 295.80 Acres, owned by the Company. However, surprisingly enough, none of these agreements mentions any details with respect to the exact identification of those small parcel of land assigned to each of the 4 vendors entities and basic information such as survey numbers etc., are also conspicuously missing in those agreements. 54. To sum up, I note that the Company has attempted to justify its huge financial transactions involving development of farm land for transition to organic farming, aggregating to almost half of the IPO proceeds, by producing unverifiable documents like unregistered/un- notarized self-generated agreements recorded on its letter heads, self-generated invoices etc. which have no legal sanctity nor are they enforceable in a court of law. Moreover, the Company has not been able to furnish any statutory documents like approved development plan, payment of land revenue/property tax, audited balance sheets showing the aforesaid transactions pertaining to land development, evidence of deduction of TDS from payment made to the counter parties/contractors etc., in support of its claim that those transfers of large sums of amounts were indeed meant for the land development of farm land for transition to organic farming. The Company has not been able to show any corresponding revenue earned out of such agreements and payments made to various parties or any latest status report with respect to the development of the said land even after 7 years of executing those so called agreements. Moreover, the Company has not even identified the respective portions of land, the development of which was ITA No. 6356/Del/2019 Krishan Devi 133 entrusted to those 4 entities under those fabricated agreements. Thus, I find that the claim of the Company that it has spent INR 5.60 Crore towards one of the most important stated objects, of its IPO i.e. development of land for organic farming, is grossly misleading, lacking any genuineness as the Company has not been able to produce even elementary evidentiary material and basic documentary support which could have substantiated the rationale behind transfer of such large sums of amounts out of IPO proceeds to various entities. Instead, the explanations offered by the Company to justify these transfers of funds to those entities are replete with contradictions, hence cannot hold any value. 55. In the light of the observations recorded above, I am constrained to hold that the aforesaid invalid agreements cannot provide any respite to the Company in defending such a serious charge made in the SCN about non-utilization or rather wrongful utilization of IPO proceeds in deviation from the stated objects as per the prospectus of IPO. As already observed earlier, the so called agreements executed by the Company on its internal letter head in an un- notarized form suffer from serious infirmities hence prima facie do not appear to be genuine, hence, in my view, the Company has not been able to justify the transfer of INR 5.60 Crore out of the IPO proceeds. 56. Moving on to the next claim of the Company, I find the Company, in its reply, has claimed to have extended an amount of INR 4.40 Crore as ‘short term loans’ to 4 entities with following details: Table 9: Details of advances extended by the Company ITA No. 6356/Del/2019 Krishan Devi 134 Sr. no. Name of the entity Amount (in INR) Documents 1) GDR Finance and Leasing Pvt. Ltd. 2,80,68,0 00 Ledger account, bank account statements and Form 26 AS 2) AGI Hospitalities Pvt. Ltd. 10,00,000 -do- 3) Mammon Concast Pvt. Ltd. 10,00,00, 00 -do- 4) Saroj Mittal 50,00,000 Ledger account and bank account statements Total 4,40,68,000 57. In this regard, I observe that out of the 4 entities, the Company had transferred funds to 3 entities in the year 2013 itself, immediately after receipt of funds from the IPO. Ironically even after passage of 7 years, the Company is still claiming these advances as “short term”, which is nothing but in contradiction with the disclosures made in the IPO Prospectus, and also falls far short of being termed as a short term loan transaction from any perspective. There is no second view that a company which raises funds from the public by offering its securities, is obligated to disclose the true objects of such issuance and also to adhere to the said stated objects. In the present case, the Company had not disclosed in the objects of IPO any intention to extend short term loans to any entity however, in deviation from the stated objects it has gone ahead in advancing short-term loans of such large amounts to those four entities. The information submitted by the Company during investigation had only stated about Investment in short term advances for an amount of INR 99.67 Lakh, which is not the same as advancing short term loans and admittedly the amount of such loans is INR 4.40 Crore which is far higher than the amount of INR 99.67 Lakh, as noted above. Thus, the ITA No. 6356/Del/2019 Krishan Devi 135 transfer of IPO proceeds amounting to INR 4.40 Crore towards short term loans is certainly an act done by the Company outside the declared objects of IPO behind the back of the public shareholders. Further, the Company has also not bothered to provide any details on the recovery status of those so called short term loans which have remained outstanding for recovery even after 7 years of advancing them to those four entities. In sum, the Company has failed to satisfy me on utilization of the said amount of INR 4.40 Crore towards the stated objects of IPO as disclosed in the prospectus. 58. I also note that the Company has not mentioned anything about spending of even a single rupee on the stated IPO objects like ‘Setting up of Shade Net Cultivation facility’, ‘Procurement of farm tools and equipment’s’ and ‘brand building’. I note that the Company in its Prospectus, had claimed that it had a plan to spend INR 3.80 Crore, INR 30.00 Lakh and 80.00 Lakh, respectively, for the aforesaid objects. Not only in the Prospectus, even in the communication addressed to SEBI during the investigation, the Company had asserted to have already spent INR 3.75 Crore, INR 29.06 Lakh and 30.00 Lakh respectively on the above said three objects. However, from the records filed during the present proceedings before me, the Company has not furnished details of any such expenditure having been incurred under the aforesaid three heads. Thus, the claim of the Company with respect to the utilization of IPO proceeds on the above stated objects also is found to be false, evasive and misleading. 59. Having found that the Company has not been able to demonstrate appropriate utilization of the IPO proceeds on the lines of the stated objects in the prospectus, the Company has ITA No. 6356/Del/2019 Krishan Devi 136 to be confronted with the allegations of having transferred/diverted the IPO proceeds to various entities including the funding group entities who have funded the IPO applications of large number of applicants. The Company could have easily confronted the said charges with strong evidence to the contrary by showing that the utilization of the funds from the IPO proceeds has actually been made for the right purposes and declared objects as per IPO documents, but as recorded in detail above, none of the claims of the Company about utilization of IPO proceeds was found to be true and duly substantiated with any verifiable evidence and the explanation offered by the Company were found to be rather specious, manipulative and baseless. Under the circumstances, it becomes clear that the Company has fraudulently diverted the IPO proceeds towards some other inexplicable purposes which were never disclosed to the public shareholders in the IPO documents. Therefore, in this context it becomes crucial to discuss in detail the fund transfers made by the Company to various funding group entities, which would again contradict and demolish the claim of the Company about utilization of IPO proceeds as per the stated objects. 60. As discussed in the previous paragraphs, the Company in its written replies has stated that an amount of INR 5.60 Crore has been utilised towards land development agreements, apart from advancing short term loans of INR 4.40 Crore. Thus, as per the Company’s replies the total amount of IPO proceeds utilised towards the land development agreements and short term loans aggregates to INR 10 Crore. However, it is seen from the records that the Company has not provided any details with respect to the transfer of INR 4.84 Crore made to the Noticee no. 4 (Goldline) and also with respect to various ITA No. 6356/Del/2019 Krishan Devi 137 other amounts which were transferred immediately after receiving in the IPO proceeds. Even if the aforesaid submissions of the Company are taken on their face value, the amounts of funds transfers as per the claim of the Company in the submissions at the stage of investigation and the amounts of funds transfer as per the explanation offered by the Company during the present proceedings do not reconcile at all. I note that even during the present proceedings, the Company has not been able to furnish any information whatsoever with respect to the expenses incurred towards setting up of net cultivation facility, purchase of tools, brand building etc., towards which, the Company had claimed to have spent INR 4.34 Crore, as on March 31, 2015 during the investigation proceedings. It is thus clear that the Noticee no. 1 (Company) has not come out with clean hands and has tried to mislead SEBI by coming out with different contradictory explanations and claims at different stages of the proceedings about the utilisation of IPO proceeds while none of the submissions made at different points of time have any strength to rebut the allegations made in the SCN. 61. Against the aforesaid deficiencies and inconsistencies noted in the explanations and submissions made by the Company with respect to the utilisation of IPO proceeds, it may be relevant here to mention that out of the total amount of INR 11.25 Crore raised in the IPO, the Company had transferred a total of INR 4.84 Crore to Goldline, i.e. the Noticee no. 4 (INR 2.39 Crore were transferred directly and INR 2.45 Crore were transferred indirectly through ECO). The Company has simply termed the said transaction with Noticee no. 4 (Goldline) to be a commercial transaction without even attempting to provide any details of those commercial transaction involving such a ITA No. 6356/Del/2019 Krishan Devi 138 huge sum of public money and the Company has not even claimed if the above amounts transferred to Goldline were in compliance with any of the stated objects of IPO. It is observed that the said amount of INR 4.84 Crore constituted around 43% of the total amount raised by the Company but the Company has not been able to provide any justification for transferring such huge amounts to Noticee no.4. Similarly, the Company has also not been able to furnish the any supporting details for various other fund transfers like transfer of INR 3.25 Crore to an entity called AMS Powertronics; INR 40 Lakh to another entity viz., Aviva Buildtech; INR 81 Lakh to Noticee no. 9 and transfer of INR 15.50 Lakh to Noticee no. 10 etc. It is pertinent to mention here that all these transactions took place immediately after the receipt of IPO proceeds and within a short span of 11 days after the IPO exercise was over, the Company had transferred approximately INR 11.00 Crore to various entities, details of which have been enumerated in the pictorial representation under para 2 (viii) of this order. Thus, the gross inability of the Company to furnish any supporting details to substantiate the transfer of funds to various entities coupled with the evasive & misleading explanations offered by it from time to time as pointed out in previous paragraphs speak volumes of the unscrupulous misconduct of the Company and does not inspire confidence in any of the submissions made by the Company. 62. In terms of the charges made in the SCN, the Company had transferred INR 4.84 Crore to the Noticee no.4 (Goldline); INR 81 Lakh to Noticee no. 9 (Mayfair Infosolutions); and INR 15.50 Lakh to the Noticee no. 10 (Avisha Credit Capital), all of whom are called the funding group entities, out of the proceeds of the IPO. Thus, in total the Company had transferred INR 5.80 Crore to the aforesaid 3 funding group entities, all of ITA No. 6356/Del/2019 Krishan Devi 139 which were found to be involved in providing funds to a large number of retail IPO applicants so as to ensure that the minimum mandatory subscription level is achieved thereby ensuring a successful listing of the equity scrip of the Company. 63. The Company has contended that the transfer of funds made to the above stated four Noticees including Noticee no. 4 were arising out of commercial transactions. However, as already noted and discussed at length while dealing with the aspects of connection between various entities, no details with respect to the business for which such funds transfers were effected, have been provided by the Noticee no. 1. I, find it beyond acceptance that the Company would enter into so called commercial transactions with four incorporated entities and transferred funds to them involving large sums of money out of the IPO proceeds in the range of INR 15.50 Lakh to INR 4.84 Crore and when asked about the details of such fund transfer, there would be no answer either from the Company or from the receiving entities (Noticee nos. 4, 9 etc.). Moreover, the Company which was under a serious statutory obligation to utilize such funds in the interest of investors by deploying such funds towards the stated objects of IPO but it has palpably offered no reasoned explanation to justify the purpose of such transfers of funds. 64. It is also pertinent to mention here that all the funds out of IPO proceeds were transferred out to various entities immediately after the completion of the IPO within a span of 11 days, however, despite the fact that more than 7 years have elapsed by now , the Company has even not been able to provide any basic information as to what was the purpose of such fund transfers, how were they ultimately utilized, whether ITA No. 6356/Del/2019 Krishan Devi 140 any revenues have been generated out of those funds transfers or whether any recovery has been effected out of the funds so transferred 7 years ago etc., leave alone producing any documentary evidence to substantiate the purpose & objectives of those funds transfers. These unexplained transfers of IPO proceeds compounded by the fact that no satisfactory explanation is forthcoming from any of the notices to justify these funds transfers further strengthen the preponderance of probabilities that the Noticees have skillfully devised & successfully implemented the scheme of funding, both directly and indirectly, almost half of IPO subscriptions by a large number of IPO applicants in collusion with other funding Noticees. 65. I observe that the Company while requesting for a re- investigation of the matter has contended that during the investigation by SEBI, only a selected financial dealings have been picked up as it was constrained to furnish all the financial transactions to the investigating officer for some reasons. The Company has further claimed that, if it was provided with sufficient opportunity to furnish explanation about utilizations of the IPO proceeds during the investigation, the outcome of the investigation would have been different. In this regard, I note that the issues involved in the present proceedings pertain to the year 2013 and the Company is now requesting for a re- investigation primarily on the ground that during the investigation, for some constraining circumstances, they were not able to provide complete information and in the absence of the same, the investigating authority has picked up some selected transactions and entries, while proposing initiation of the present proceedings. I have considered the request of the Noticee Company and observe that the Company has neither ITA No. 6356/Del/2019 Krishan Devi 141 explained as to what were the constraining factors that prevented it from submitting all the information during the investigation nor has it explained to me what further details or information it wants to furnish now (which it could not furnish earlier) which will mitigate all its hardships and exonerate it from the allegations made in the SCN. The proceedings before me is a quasi-judicial proceedings and the Company is free to furnish any additional information or evidence as it wishes to give to defend itself against the allegations levelled in the SCN, for which there is no need for having another fresh round of investigation by SEBI. 66. In order to grant a fair trial to the Company before arriving at final conclusion, the Company was afforded repeated opportunities to submit all such documents and information which it failed to furnish to the Investigation Authority. I believe the Company has also availed the opportunities and has put up its best possible defense to rebut the charges made in the SCN. The Company and Noticee no. 2 have appeared before me for personal hearing and also have filed their written replies including documents such as agreements of bank account statements etc., which they claimed to have failed to furnish at the time of investigations. Therefore, the grievances of the Noticees about having been not given a fair trial do not exist anymore and my findings and observations in this order are not only based on the allegations made in the SCN but also after taking into cognizance all the submissions, both oral & written made by the Noticees and various information including copies of banks statements furnished by the Company & other Noticees. In my view, the Company and the other Noticees whoever have responded to the SCN, have provided all the information that they wanted to furnish out of their own ITA No. 6356/Del/2019 Krishan Devi 142 volition during the present proceedings, and none of the Noticees has expressed any constraint or handicaps now for furnishing information to me. Under the circumstances, no bonafide reason for permitting a re-investigation into the matter subsists. In view of the above, the Company’s grievance of bias or prejudice, if any, has been fully taken care of to ensure free and fair trial of the present proceedings. However, the fact remains that despite affording adequate opportunities to all the Noticees, and in spite of various factual submissions and documents submitted by the Noticees in their defense, neither the Company nor any other Noticees could come up with any tangible material or verifiable evidence (which they were deprived of furnishing during the investigation) to justify the huge sums of fund transfers made out of IPO proceeds in flagrant violation of the stated objects of the IPO as per the prospectus. 67. To sum up the present matter, it is found that the Company, working under a pre- conceived scheme to pursue a common objective with other Noticees, first ensured that financial support is provided to the IPO applications of as many as 240 investors who were ultimately allotted 23,34,000 shares from the IPO of the Company. As seen and discussed earlier in this order, immediately after the successful completion of the IPO which garnered support of 51.66% of the applications with the collusion and support of the funding group entities, the Company has transferred INR 5.80 Crore (approx.) that constituted around 51% of the total IPO proceeds, to various funding group entities. All the Noticees, while playing their respective roles in the scheme, have ensured that the IPO sails through and crosses the mandatory statutory threshold of achieving 90% of the shares offered under the IPO which could ITA No. 6356/Del/2019 Krishan Devi 143 be made possible only by their concerted action of funding the applications to the extent of 51.66% the shares allotted under the IPO but for which, the IPO would have certainly failed to meet the mandatory mark in terms of Regulation 14(1) of ICDR Regulations. Consequently, the application received under IPO and would have miserably fallen short of the pre-condition of 90% of offer size and the Company would have been under obligation to repay the rest of the subscription money raised by it from the non-funded applicants under the IPO. The scheme that the Company had crafted and implemented in coordination with other Noticees, especially the funding group Noticees to fraudulently ensure success of its IPO programme, is self- evident and explains why the Company had to transfer bulk of the IPO proceeds to a few of the funding group entities immediately after completion of the IPO and why the Company failed to deploy the IPO proceeds towards the objects of IPO thereby betraying the faith and trust of those genuine investors who had subscribed to its shares under the IPO relying in the misleading disclosures made by the Company. It also amply explains as to why the Company and other Noticees have not been able to produce any concrete reasons and tangible evidence to justify the transfers of such huge sums of money out of IPO proceeds to a number of entities including to certain funding group Noticees and despite their bald & superfluous claims of having utilized the IPO proceeds for the declared objects, why none of the Noticees has been able to substantiate such claims with even a shred of supporting evidence till the conclusion of the present proceedings. Eventually such specious claims about utilization of IPO proceeds remained far away from the actual utilization those IPO proceeds and till date, the objects of IPO have remained as unfulfilled promises to the innocent public shareholders who whole heartedly supported ITA No. 6356/Del/2019 Krishan Devi 144 the Company’s SME listing with the expectation of a good performance from the Company. 68. Keeping in view the aforesaid detailed factual analysis of the matter and my findings as well as observations based on those facts supported by documentary evidence, it is clear to me that the Company and other Noticees have worked as per the aforesaid manipulative scheme in order to get the shares of the Company successfully listed on the SME segment of BSE. Finally, the funds so raised in the IPO were also fraudulently diverted by transferring them to numerous entities including certain funding group entities who had funded the IPO applications of large number of applicants, in a glaring display of breach of trust of the genuine public shareholders who never came to know that the funds raised by the Company from them have actually been utilized for purposes other than the objects/purposes declared by the Company in its IPO documents. Thus, I am satisfied that the SCN has been successfully brought home the charges against the Noticee no. 1 and the funding group entities, viz: Noticee nos. 4 to 12, 14 and 15, who with their active connivance with Noticee no.1 at their respective ends, have contributed their part in fructifying the said scheme. In view thereof, I am convinced beyond doubt to hold that the Noticee nos. 1, 4 to 12, 14 and 15 have violated Section 12 A(a), (b) and (c) of SEBI Act, 1992 read with Regulations 3(a), (b), (c), (d) and 4(1) of PFUTP Regulations, 2003. 69. Insofar as degree of proof to establish the charges is concerned, I note that for proceedings like the present one, the degree of proof is of preponderance of probabilities, which as elaborated above, is totally in support of the charges made in ITA No. 6356/Del/2019 Krishan Devi 145 the SCN. It may be relevant to refer and rely upon the observations of the Hon’ble Delhi High Court that: “Clearly, given the manner in which fraudulent acts are undertaken under deceit and camouflage, if done with the affairs of a company/trust etc., the standards of proof required to prove such fraudulent conduct would necessarily be less stringent.” [SEBI Vs. CRB Capital Markets Ltd. (date of decision: December 05, 2019)] 70. Insofar as Noticee nos. 2 and 3 are concerned, it is noted that both of them have been arraigned as Noticees by virtue of their directorship with the Company during the IPO process of the Company. It is noted that Noticee no. 2 has since expired and copy of the death certificate has also been furnished in this connection, hence, the proceedings in the present matter against the Noticee no. 2 stands abated and therefore no direction needs to be issued. 71. The Noticee no. 3 has not disputed his directorship with the Company nor has claimed to be unaware/ignorant of the charges made against the Company. It is also important to mention that in the present proceeding; it is Noticee no. 3 who has represented the Company before me. 72. I may state here that behind an artificial juristic person like the Noticee Company in the present proceedings, it is the minds and wisdom of certain natural persons who are at the helm of the affairs of such corporate entity which actuate the Company into its actions. All the deeds and misdeeds executed in the name of the Company are actually attributable to these natural persons, i.e., the Directors of the Company who have superintendence and control over all the activities of a ITA No. 6356/Del/2019 Krishan Devi 146 company. In the present case, the fraudulent scheme that was devised which led to achievement of the compliance with the Regulation 14 (1) of ICDR by way of funding the applications of large number of share applicants under the IPO of the Company to the extent of 51.66% its shares subscriptions and the way the funds raised in the IPO were diverted to various entities including funding group entities without utilizing the same for the objects of the IPO it can be said to be the handiwork of the Directors of the Company who managed the affairs of the Company during the relevant period of time. 73. I note that various judicial pronouncements have deliberated on the role and liabilities of directors for the violations committed by the Company. One such case has been decided by the Hon’ble Supreme Court in the matter of N. Narayanan Vs. Adjudicating Officer, SEBI (2013) 12 SCC 152, wherein it was observed that: “33. Company though a legal entity cannot act by itself, it can act only through its Directors. They are expected to exercise their power on behalf of the company with utmost care, skill and diligence. This Court while describing what is the duty of a Director of a company held in Official Liquidator v. P.A. Tendolkar (1973) 1 SCC 602 that a Director may be shown to be placed and to have been so closely and so long associated personally with the management of the company that he will be deemed to be not merely cognizant of but liable for fraud in the conduct of business of the company even though no specific act of dishonesty is provide against him personally. He cannot shut his eyes to what must be obvious to everyone who examines the affairs of the company even superficially.” ITA No. 6356/Del/2019 Krishan Devi 147 74. In my view the facts and circumstances of the present case leave no room for doubt that the fraudulent scheme through which the Company got its IPO successfully funded, subscribed and listed as well as the proceeds of IPO got diverted for objects other than the stated objects of the IPO, was actually conceived and implemented by the natural person such as, Noticee no. 3 in the present case, who managed the affairs of the Company at the given point of time. Therefore, Noticee no. 3 being at the helm of affairs of the Company during the relevant period, has to be held liable for being involved (as a Director of the Company), in the said scheme that ensured the listing of the securities of the Company in the BSE-SME segment, Thus, Noticee no. 3 is equally liable alongwith the Company, for the violations of provisions of law, as already have been held above, to have been violated by the Company. 75. I may add here that the purpose of putting a statutory threshold of achieving subscription of at least 90% of shares being offered under IPO, is apparently to restrict the entry of issuers who may not have the competence enough to garner interest of adequate number of investors and by keeping this mandatory requirement, the interest of investors in the proposed to be listed companies, is sought to be protected. However, certain entities, as noted in the present case, by resorting to devious means, have been able to cross the said threshold of 90% and have accordingly projected an artificial compliance of the said statutory requirement to the general public at large. Such deceitful acts on the part of a yet to be listed company is not acceptable as it carries dangerous potential to create artificial inducement to the gullible shareholders of the said Company as well as to the general ITA No. 6356/Del/2019 Krishan Devi 148 investors of the securities market, who are unaware of such dubious schemes conceived by the Directors to somehow get their companies listed on a stock exchange by short changing the interest of the investors, who would easily fall prey to such schemes and invest in the securities of the Company by relying upon the misleading IPO documents. 76. As the fraudulent scheme employed by the Company now stands exposed establishing the fact that the Company in the ordinary course of its IPO exercise, had practically failed to achieve the mandatory threshold subscription limit of 90% of shares offered under the IPO, it is essential that the shareholders of the Company are given an opportunity to exit from the Company, by its Promoters. Directions: 77. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 11(1), 11(4), and 11 B read with Section 19 of the Securities and Exchange Board of India Act, 1992, pass the following directions: i. Noticee no. 3 (promoter of the Company) is directed to make a public offer through a merchant banker to acquire shares of the Company from public shareholders by paying them the value determined by the valuer in the manner prescribed in Regulation 23 of the SEBI (Delisting of Equity Shares) Regulations, 2009 and acquire the shares offered in response to the public offer, within three months from the date of this Order. ii. BSE is directed to facilitate valuation of shares to be purchased as directed at (i) above, and compulsorily delist the Company, if the public shareholding reduces below the minimum level in view of aforesaid purchase. ITA No. 6356/Del/2019 Krishan Devi 149 iii. The Noticee no. 1 is hereby restrained from accessing the securities market by issuing prospectus, offer document or advertisement soliciting money from the public in any manner for a period of 8 years. iv. Noticee no. 3 is hereby restrained from holding post of director, any managerial position or associating himself in any capacity with any listed public company and with any public company which intends to raise money from the public, or with any intermediary registered with SEBI for a period of 3 years. v. The Noticees, as mentioned below are hereby restrained and prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in any manner whatsoever manner, for the period specified in their respective columns: Table 10 Sr. No. Name of Entity Debarre d vide interim order Period of debarment 1 Esteem Bio Organic Food Processing Ltd. Yes Till date of this order 3 Brij Kishore Sabharwal Yes Till date of this order 4 Goldline International Finvest Ltd. Yes Till date of this order 5 Satendra Kumar & its Proprietorship firm viz. Nisha Traders, Bright Securities Yes Till date of this order 6 Madhukar Dubey & its Proprietorship firm viz. N V Sales Corporation, A One Furniture Yes Till date of this order 7 Ram Prakash & its Proprietorship firm viz. Khan Enterprise Yes Till date of this order 8 Aavia Softech Pvt. Ltd. No 1 Year 9 Mayfair Infosolution Pvt. Ltd. Yes Till date of this order 10 Avisha Credit capital Pvt. Ltd. Yes Till date of this ITA No. 6356/Del/2019 Krishan Devi 150 order 11 Nikky Printing Press Pvt. Ltd. No 1 Year 12 Neel Kanth Trading Co. No 1 Year 14 Amsons Apparels Pvt. Ltd. No 1 Year 15 Gracious Software Pvt. Ltd. No 1 Year vi. Obligation of the debarred Noticees, in respect of settlement of securities, if any, purchased or sold in the cash segment of the recognized stock exchange(s), as existing on the date of this Order, can take place irrespective of the restraint/prohibition imposed by this Order in respect of pending transactions, if any. Further, all open positions, if any, of the aforesaid debarred Noticees in the F&O segment of the stock exchange, are permitted to be squared off, irrespective of the restraint/prohibition imposed by this Order. vii. It is further clarified that during the period of the aforesaid restraint, the existing holding of securities, including the units of mutual funds shall remain under freeze. viii. The proceedings against Noticee no. 2 are abated and against Noticee no. 13 are dropped without any directions. 78. The Order shall come into force with the immediate effect. 79. A copy of this order shall be forwarded to the Noticees, all the recognized stock exchange, depositories and registrar and transfer agents for ensuring compliance with the above directions. -Sd- Date: December 22, 2020 S. K. MOHANTY Place: Mumbai WHOLE TIME MEMBER ITA No. 6356/Del/2019 Krishan Devi 151 53. Further, we also find that Capital markets regulator SEBI imposed a total penalty of Rs 40 lakh on five entities and three individuals for indulging in fraudulent trading activities in the scrip of Esteem Bio Organic Food Processing Ltd. An amount of Rs 5 lakh each has been imposed on them. The entities and individuals are collectively referred to as noticees. An investigation was conducted by the regulator in the shares of Esteem Bio Organic Food Processing during the February 7, 2013 and July 31, 2015 period. It was found that a set of connected entities were pushing up the price of the scrip through unusual trades in such a manner so as to make a positive contribution to the Last Traded Price (LTP) and establishing New High Price (NHP). 54. The observations and finding of fact arrived by the SEBI clearly proves that the scrips of M/s Esteem Bio Organic Food Processing Ltd. where manipulated in stock exchange and fraudulent scheme was deployed by the said company right from year January 2013 during the period which the assessee had entered into the transaction. This fact itself nails the finding of the Assessing Officer which has discussed in detail and also by the ld. CIT(A). It is immaterial that order of the SEBI came in 2018 because the SEBI has analysed the entire trading of shares from year 2013 and found that not only the prices of the scrips of the said company were rigged but also were involved in fraudulent activities, which led to completely debarred its trading in the stock exchange. Thus, this order of SEBI clearly implicates, the entire transaction of purchase and sale of shares and goes to prove that the transaction was not genuine and corroborates the findings of the enquiry conducted by the Income Tax Department. ITA No. 6356/Del/2019 Krishan Devi 152 55. All these enquiries conclusively proved that the trades have been manipulated and the gains or the losses made by the beneficiaries cannot be said to be genuine. 56. Reliance is also placed on the judgment of Hon’ble Jurisdictional High Court in the case of SEBI Vs CRB Capital markets vide order dated 05.12.2019 held that clearly given the manner in which fraudulent acts are undertaken under deceit and camouflage with an affairs of the company/trust etc., the standards of proof required to prove such fraudulent conduct would necessarily be less stringent. 57. This ratio of the Hon’ble High Court is squarely applicable to the facts of this case where every action of the assessee is pointed out to the violations of the provisions of laws of stock market as well as Income Tax. The mere fact that payments have been received through cheque cannot give any credence so as to genuineness of the transactions. 58. Taking cue from the judgment of the Hon’ble Delhi High Court in the case of PCIT-7 Vs. Bikram Singh in ITA No. 55/2017 order dated 25.08.2017, we hold that the transactions in the present appeal are yet another example of the constant use of the deception of stock market transaction to bring unaccounted money into banking channels. This device of stock transactions of unworthy stocks with no profits continues to plague the legitimate economy of our country. As seen from the facts narrated above, the transactions herein clearly do not inspire confidence as being genuine and are shrouded in mystery, as to why the so-called transactions lead to exorbitant returns which are made tax free. ITA No. 6356/Del/2019 Krishan Devi 153 59. The Hon’ble Calcutta High Court in the case of CIT Vs Korlav Trading Company Ltd. 232 ITR 280 and CIT Vs Precision finance P. Ltd. 208 ITR 495 had observed and held that mere filing of confirmation and transaction through the banking channel is not enough to prove the genuineness. 60. The Hon’ble High Court in the case of CIT Vs. Maithan International 375 ITR 123 (Cal) has held that “Assessing Officer could not accept genuineness merely on the basis of bank statement. 61. Further, the Hon’ble Delhi High Court in the case of CIT Vs. Vikram Singh 85 Taxmann 104 observed that even if the transaction is made through cheque it cannot be presumed to be genuine. These observations are more so valid when weighed against the plethora of evidences and incongruence brought out by the revenue to prove the not so genuine of these transactions entered by the assessee. 62. With regard to the arguments of the ld. AR that how strong ever is the suspicion it cannot be a reason to make addition. The ld. AR also argued that the strong suspicion cannot overtake the facts on record and the judicial pronouncements. 63. On this issue we hold that preponderance of the evidence is one type of evidentiary standard used in a burden of proof analysis. Under the preponderance standard, the burden of proof is met when the party with the burden convinces the fact finder that there is a greater chance that the claim is true. This is the burden of proof in a civil trial. The theory of “preponderance of probability‟ is applied to weigh the evidences of either side and draw a conclusion in favour of a ITA No. 6356/Del/2019 Krishan Devi 154 party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. In situations like this case, one may fall into realm of “preponderance of probability‟ where there are many probable factors, some in favour of the assessee and some may go against the assessee, but the probable factors have to be weighed on material facts so collected. Prima facie, it may appear to be a case made on preponderance of probabilities but not beyond reasonable doubt. However, in this case a deeper examination of the facts reveal that in a scam of such massive scale many players and layers involved hence the judgments of Hon’ble Apex Court that the standards of proof required to prove such fraudulent conduct would necessarily be less stringent is squarely applicable and in the instant case the evidences cannot be said to be even less stringent rather they more strong. 64. We are certainly not on the probability theory while dealing the issue before us and certainly we have not been carried away by the single point of profits earned. The facts have been examined holistically with reference to enquiries and the entire operation of the stocks, method of investment, regularity of the investments, enquiries conducted by SEBI , evidences produced by the assessee to support the claim. While we examine the enormous evidences, we find that the only evidence submitted by the assessee was that the amounts have been received by cheque and hence the genunity of the transactions have proved beyond doubt. Keeping in view the judgments of Hon’ble Delhi High Court in the case of CIT Vs. Vikram Singh 85 Taxmann 104, CIT Vs. Maithan International 375 ITR 123 (Cal) (supra), Hon’ble Delhi High Court in the case ITA No. 6356/Del/2019 Krishan Devi 155 of PCIT-7 Vs. Bikram Singh in ITA No. 55/2017 order dated 25.08.2017 (supra), Hon’ble Calcutta High Court in the case of CIT Vs Korlav Trading Company Ltd. 232 ITR 280 and CIT Vs Precision finance P. Ltd. 208 ITR 495 (supra), in the instant case where they have been multiple evidences collected by the revenue, the claim of the assessee that she is a passive beneficiary of the entire operation without her involvement or role cannot be accepted. At this juncture, it is worthwhile to mention, the Hon’ble Apex Court judgment dated 08.02.2018 in the case of SEBI Vs Rakhi Trading Pvt. Ltd. wherein it was observed that based on the huge price variation of the transactions it will be too naïve to hold that the transactions are through screen based trading and hence anonymous. The Hon’ble Court held that such conclusion would be overlooking the prior meeting of minds involving synchronization of buy and sale orders and not negotiated deals. The Hon’ble Apex Court held that such impugned transactions are manipulative, deceptive device to create loss or profit. Thus, on going through the entire factum of the case, we hold that on merits also the profits earned by the assessee cannot be said to be genuine. 65. The ld. Counsel for the assessee has much harped on the judgment of Hon’ble Jurisdictional High Court in the case of the assessee (supra) stating that the facts and ratio laid down therein is clearly applicable in the present case also. We have already clarified in our foregoing paragraph 46 that the facts involved in the present case are different and why the said judgment will not be a binding precedence on the facts of the present case. For the sake of ready reference, the observation and the finding of the Hon’ble High Court while upholding the order of the Tribunal are as under: ITA No. 6356/Del/2019 Krishan Devi 156 “11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a preplanned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent’s unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that ITA No. 6356/Del/2019 Krishan Devi 157 there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.” The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 12. Mr. Hossain’s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in ITA No. 6356/Del/2019 Krishan Devi 158 nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order. 14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration.” 66. First of all, the Hon’ble High Court did not find any perversity on the finding of fact arrived by the Tribunal based on evidences placed on record and deficient enquiry of the AO. Secondly, there was no independent source of fact to corroborate the finding of the AO which was purely based on uncorroborated enquiry by the Investigation Wing. Here in this case, the most crucial fact brought on record is the order of the SEBI and finding arrived by the SEBI as to how the scrips of ITA No. 6356/Del/2019 Krishan Devi 159 M/s Esteem Bio Organic Food Processing Ltd. was rigged and this company was involved in fraudulent scheme only for giving accommodation entries. This finding itself distinguishes the case before the Hon’ble High Court. The Hon’ble High Court has not laid down any principle albeit has confirmed the finding of ITAT based on facts which we have already and held as clearly distinguishable. Accordingly, reliance placed by the ld. Counsel on the said judgment is not relevant. 67. Thus, on going through the entire facts and circumstances of the case, it can be concluded based on the following snap shot that transactions entered by the assessee are not genuine. 1. A tangible and reliable information has been available with the Assessing Officer to initiate proceedings u/s 148 of the Act. 2. Proper reasons have been recorded before issue of the notice. 3. The reasons recorded are related to the information received 4. The information received and the reasons recorded pertain to escapement of income. 4. The Assessing Officer had reasons to believe based on the information received which have been duly recorded. 5. The Assessing Officer has right jurisdiction to issue the notice and the same has been duly served as per the requirements of the Income Tax Act. 6. There has been live nexus between the information received, reasons to believe and the reasons recorded. 7. What is required for issue of notices, the prima facie reasons to believe as per the ratio laid down by the Hon’ble Supreme Court. The Hon’ble Apex Court has also ITA No. 6356/Del/2019 Krishan Devi 160 held that formation of belief by the Assessing Officer is within the realm of subjective satisfaction. 8. In the instant case, the approval given u/s 151(1) cannot be faulted in accordance with the judgment of Hon’ble High Court (HP) wherein it was held that the Court is satisfied that by recording in his own writing the words: “Yes, I am satisfied”, the mandate of Section 151(1) of the Act as far as the approval of the Addl. CIT was concerned, stood fulfilled. 9. There has been an independent application of mind that the Assessing Officer which deciphered from the reasons recorded by the Assessing Officer. 10. In the backdrop of the facts of the case, the following judgments have also relied upon: a. Raymond Woollen Mills Ltd. Vs. ITO 236 ITR 34 (SC) b. ACIT Vs. Rajesh Jhaveri Brokers Pvt. 291 ITR 500 (SC) c. ITO Vs. Selected Dalurband Coal Co. Pvt. Ltd. 217 ITR 597 (SC) d. Anant Kumar Saharia Vs. CIT 232 ITR 533 (Gauhati) e. Phool Chand Bajrang Lal Vs. ITO 203 ITR 456 (SC) 11. The price of shares has been risen from Rs.26.50 to Rs.392.00 (average) any span of 13 months. 12. The company had no profit/ meager profit to demand such price. 13. The assessee is not a regular trader investing in the stock market transactions. 14. In the entire period of 5 years, there was only highest spurt for the smallest period wherein the sale took place in the entire period between 2010 to 2015 as depicted in the graph above showing typical bell shape. ITA No. 6356/Del/2019 Krishan Devi 161 15. The shares were purchased of market from private party. 16. No iota of due diligence viz. the advisor, the analysis of fundamentals, the profits, the assets undertaken by the assessee. 17. The order of the SEBI dated13.03.2019 and 22.12.2020 proving the manipulation in trading of the scrips. 18. The undeniable proof of involvement of the broker ISF Securities found by the SEBI. 19. Order dated 23.12.2020 of Metropolitan Stock Exchange enquiry indicting the involvement of operation in the case of M/s Esteem Bio Organic Food Processing Ltd. 20. Levy of penalty by SEBI in fraudulent trading activities in the scrip of Esteem Bio Organic Food Processing Ltd. 68. Hence, we find no merit on the arguments of ld. AR on the issue of reopening of the case u/s 148 of the I.T. Act as well as on merits of the issue. In the result, the appeal of the assessee is dismissed. 69. In the result, the appeal of the assessee is dismissed. Order Pronounced in the Open Court on 04/01/2022. Sd/- Sd/- (Amit Shukla) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 04/01/2022 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR