Appeal Details
Counselvise Citation
[2022] 106 COUNSELVISE.COM (IT) 8370 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 3 month(s) 8 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
10-08-2022
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
SMC
Assessment Year
2015-2016
Appeal Filed On
02-05-2019
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, PUNE SINGLE MEMBER CASE SHRI S.S. GODARA, JUDICIAL MEMBER ITA No. 706/PUN/2019 : Assessment Year : 2015-16 Sangeeta B. Mangrule Plot No. 64, Mayurban Colony, Shahnoorwadi Darga Road, Aurangabad PAN: AJIPM 9153 H :Appellant Vs. The Asstt. CIT Cir. 2, Aurangabad : Respondent Appellant by : None Respondent by : Shri M.G. Jasnani Date of Hearing : 28-07-2022 Date of Pronouncement : 11-08-2022 ORDER This assessee’s appeal for A.Y. 2015-16 arises against the CIT(A)- 2, Aurangabad’s order dated 07-02-2019 passed in case No. ABD/CIT(A)- 2/461/2017-18, involving proceedings u/s 143(3) of the Income-tax Act, 1961, in short “the Act”. 2. Case called twice. None appears at the assessee’s behest. The very factual position existed as on 23-11-2020, 18-12-2020, 10-11-2021, 03-03- 2022 and 30-06-2022 as well. I therefore, proceed ex parte against the assessee. 3. Mr. Jasnani invited my attention at the outset to the CIT(A)’s detailed discussion affirming the assessment findings denying section 10(38) exemption of long capital gain to the assessee amounting to Rs.23,72,323/-. The CIT(A)’s detailed discussion confirming the impugned addition on account of bogus long term capital gains as under: “5. I have duly considered the submissions of the appellant. The brief facts of the case are that the appellant is engaged in the business of purchase and sale of lands. She had filed her return of income for A.Y. 2015-16 declaring total income at Rs. 17,92,890/- on 14-12-2015. In the return of income, the appellant had claimed exemption u/s 10(38) of the Income-tax Act in respect of long term capital gain of Rs. 23,72,323/-. The case was selected for complete scrutiny under CASS on the ground 2 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 of “suspicious sale transaction in shares”. During the course of assessment proceedings, the AO found out that the appellant had purchased 9200 shares of Four K Animation Ltd. on 20.02.2013 in physical form through the broking concern namely Bhusit Trading Pvt. Ltd. The name of Four K Animation Ltd. was subsequently changed to Pine Animation Ltd. The assessee after purchase D’mated the shares of Pine Animation Ltd. On 20.05.2013, the shares of Pine Animation Ltd. got split in the ratio of 1:10. Thus the number of appellant’s shares in Pine Animation Ltd. increased to 92,000 each of face value of Rs.l/- per share. The appellant sold 32,000 shares on 10.12.2014 for a sale consideration of Rs.24,21,971/. After claiming the cost of acquisition, the net long term capital gain was worked out at Rs. 23,72,323/- and same was claimed exempt U/s 10(38) of the Act. The AO was of the opinion that it was not understood as to why the appellant had invested his monies in the shares of Four K Animation Ltd. The AO found out that purchase and sale of shares of Pine Animation Ltd. (earlier name Four K Animation Ltd.) was a predetermined action leading to booking of long term capital gain by way of dubious methods. There was a steep increase in the share price as well as trading volume in the case of Pine Animation Ltd. The appellant purchased 9200 shares of Four K Animation Ltd. on 20.02.2013 at the cost of Rs.5/- per share. On 20.05.2013, the shares of Pine Animation Ltd. got split in the ratio of 1:10. Thus the number of appellant’s shares in Pine Animation Ltd. increased to 92,000 each of face value of Rs.l/- per share. Thus during the period i.e. 22 May, 2013 to 19 June, 2013 there was jump in the price of scrip of Pine Animation Ltd. from Rs.472 /- to Rs.1006/- per share. Thus the share price of Pine Animation Ltd. was jacked up by nearly 113% times within 20 days in spite of the fact that such price movement was not backed up by fundamentals of Pine Animation Ltd. and its financial credibility. In this case, the suspected entities linked up to Pine Animation Ltd. artificially created artificial demand against the supplies from the preferential allottees. Thus the allottees, directors/promoters of Pine Animation Ltd. and suspected entities were hand in glove with each other. The entire modus operandi of allotting preference shares at a premium then bringing the connected entities to provide exit was a scheme devised to deceive the authorities by laundering black money and raking in tax-free profits. In light of above facts, the Investigation Wing of Income-tax Department, Kolkata, keeping in mind various information/details gathered, carried out a countrywide investigation to unearth the organized racket of generating bogus entries of long term capital gain which was exempt from tax. The Directorate of Investigation, Kolkata had carried out investigation in 84 penny stock shares coated on BSE. During the investigation, it also recorded statements of concerned persons/directors of said companies U/s 131 of the Act whereby it was established that the shares of said companies were rigged up/manipulated for generating huge profit or losses, as per the requirements of the clients. The operator also controlled numerous paper/ bogus companies which were utilized for rotation of cash given by the beneficiaries who desired bogus long term capital gain. Keeping this nexus in mind and proving the same, the Directorate of Income Tax (Inv.), Kolkata prepared a cash trail for showing that how the mechanism worked for the syndicate of providing long term capital gain/short term capital loss. For preparing this cash trail, the Investigation Wing, Kolkata followed the money movement from undisclosed proprietorship accounts where cash was being deposited mostly to the companies who were registered as clients with the share brokers. Undisclosed and unaccounted cash got deposited into the bank accounts of proprietorship concerns and from there; it got transferred to client companies who existed on paper only. From the bank account of Jamakharchi client company, money was transferred to the beneficiaries via share broker‟s account. Almost all the proprietorship accounts where cash was deposited never filed their return of income tax. Moreover they tended to close such accounts very often, so that they could evade any STR/FIU/Income Tax Authorities. If one went through the KYCs of such proprietorship accounts, it could be seen that they were opened in the name of dummy persons who were either employees or relatives of entry operators. The Investigation Wing, Kolkata had gone to even the registered offices of many such cash depositing firms, but as expected such persons/firms were not found existing. Almost all such bank accounts were opened with fake addresses. The role of banking 3 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 authorities was also highly questionable. Same was also true in the case of Paper/Jamakharchi/bogus clients. Though they were registered as a client with share brokers and the brokers maintained KYC for such bogus clients also yet these clients did not exist at their given registered address. In many cases, it was found that such client companies were missing or existing nowhere. Even the person of share broker could not find its clients. When share brokers were confronted with this, they either accepted that such clients were bogus or they failed to give any reasonable explanation. During the course of investigation, the Directorate of Investigation, Kolkata recorded the statement of Shri Anil Kumar Khemka, one of the operators who admitted that he was providing accommodation entries in the form of long term capital gain in the shares of Pine Animation Ltd. The AO noticed that the share price of Pine Animation Ltd. was manipulated by the various operators and the variation in its price between May, 2013 to Jan, 2015 was depicted on page 6 of the assessment order. The AO analyzed the details of balance sheet and profit & loss account of Pine Animation Ltd. on page 7 & 8 of the assessment order and came to conclusion that it was showing meager profits during the FY 2012-13 to FY 2014- 15. Further the financial worth of Pine Animation Ltd. was also insignificant. It was found out that Pine Animation Ltd. was having poor financial condition and razor thin profits. After the split in the ratio of 1:10, the share price of Pine Animation Ltd. rose to all time high of Rs.472/- (unadjusted and Rs.47.2/- adjusted to share split). The average volume in the scrip of Pine Animation Ltd. jumped to 2,97,319 shares. The AO also found out that trading in the scrip of Pine Animation Ltd. was suspended between 09.11.1998 to 21.06.2012 on account of payment of listing fees. On 13.12.2012, M/s Pine Animation Ltd. made a preferential allotment of 1.5 crore equity shares at the price of Rs.10/- per share to 49 entities. Thereafter the promoters namely First Entertainment Pvt. Ltd. and Unique Image Production Pvt. Ltd. which were holding shares in the physical form, transferred their entire holding i.e. 9,27,400 shares to six entities who in turn transferred the shares to 62 entities during the period from 28.12.2012 to 05.02.2013. About 49 such entities subsequently sold 54.76% of their shareholding. Subsequently on 15 m March, 2013 M.s Pine Animation Ltd. made another preferential allotment of 97 lakhs equity shares at the price of Rs.10/- per share to 48 entities. The shares allotted on preferential basis were locked-in for a period of one year in terms of regulations of SEBI. On 20.05.2013, the equity shares of Pine Animation Ltd. were split in the ratio of 1:10. During the FY 2011-12, Pine Animation Ltd. had incurred a loss of Rs.7,08,037/- and during the FY 2012-13, Pine Animation Ltd. had earned a meager profit of Rs. 15,60,007/- and its EPS was around Rs. (- 0.24/-) for the FY ended 31.03.2012 and Rs.0.15/- for the FY ended 31.03.2013. During this period, there was no corporate announcement made by M/s Pine Animation Ltd. Thus the sharp rise in the shares of Pine Animation Ltd. was not supported by strong fundamentals or genuine factors. Further the trading in the scrip of M/s Pine Animation Ltd. was suspended w.e.f. from 09.11.1998 and it was revoked w.e.f. 22.12.2012. But the trading in the scrip of M/s Pine Animation Ltd. started only on 28.03.2013. During the period 22.05.2013 to 30.01.2015. SEBI had undertaken an inquiry in the dealings in the scrip of M/s Pine Animation Ltd, and passed an interim order U/s 11(1). 11(4) and 11B of Securities Contract Regulation Act. 1956 vide order dated 08.05.2015 whereby the directors, promoters, various entities, exit providers and preferential allottees had been restrained from buying and selling or dealing in said securities either directly or in directly. In light of above facts, the AO disallowed the exemption U/s 10(38) to the appellant. On the other hand, the counsel of the appellant has merely submitted copies of contract notes of the broker, copy of D-mat account etc. Further it was argued that sale transactions had been done through stock exchange; the holding period was more than 12 months; due STT was paid on sale of shares, therefore it was argued that the capital gain arising out of the said transaction was exempt from tax as per provisions of section 10(38) of the Act. It has been asserted that monies in question have been received through the banking channels. It has been further argued that there was no evidence that the long term capital gain declared by the appellant was sham/bogus. It was stated that the AO applied the scheme of penny stock companies in the case of the appellant without giving any documentary evidence and solely relying on statements of third parties. On careful consideration of facts & circumstances of the present case, I am not inclined to accept the arguments of the appellant. Penny stocks are shares of small public companies that trade at low prices. They may not be listed on a national exchange and fail to meet other specific criteria. They have a small market capitalization. These stocks are generally considered highly speculative carrying high risks because of their lack of liquidity, large bid-ask spreads and limited following and disclosure. In other words, such shares are highly illiquid and speculative. Trading in penny stocks is done 4 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 by investors with a high tolerance for risk. Typically, penny stocks have a higher level of volatility, resulting in a higher potential reward and a higher level of risk. In brief, most penny stocks are high-risk investments with low trading volumes. The shares of penny stock are closely held as the general public is not interested in these stocks due to their poor financials. The operator chooses one of such penny stock for laundering black money of his clients. The promoters/ directors of such penny stock companies are paid some commission in cash and in turn, they allow the operator to manage the affairs of their companies. The operator generally issues the shares of penny stock companies through the route of preferential allotment i.e. private placement. As per the Securities and Exchange Board of India (issue of capital and disclosure requirements) Regulations, 2009, the shares that are allotted through private placement have a lock in period of one year. Therefore the shares can be sold by the allottees only after a period of one year from the date of allotment. This enables the beneficiary to claim the benefit of exemption U/s 10(38) of the Income Tax Act. The penny stock companies have no actual business transactions besides lack of financial credentials. It is not in dispute that a genuine trader or an investor would not take the risk of putting his or her money in these penny stock companies. It is further noticed that in the present case, the appellant had initially purchased 9200 shares of Pine Animation Ltd. on 20.02.2013. Such off market transaction for purchase of shares was in violation of the established rule and the SEBI guidelines. These shares were then split up in the ratio of 1:10 i.e. number increasing to 92,000. The appellant had purchased shares of Pine Animation Ltd, (earlier name Four K Animation Ltd.) at the rate of Rs,5/- per share on 20.02,2013 and sold the shares at the rate of Rs.75.69/- per share on 10.12.2014 in FY 2014-15. In this connection, reliance is placed on the modus operand! observed by two highly respected judges of the Supreme Court namely Justice Mr. M B Shah (Retd.) and Justice Dr.Arijit Pasayat (Retd.), acting as Chairman and Vice Chairman of the 11 member Special Investigation Team (SIT), in their third SIT report. The relevant details of their observation are as under: Misuse of exemption on long term capital gains tax for money laundering (reference page 82-84 of the third SIT report) This issue was deliberated by SIT during a series of meetings held on 7 th January, 14 th March, 08 th April, 2015. In this egad, it is pertinent to mention the observations of the Committee headed by Chairman, CBDT on “Measures to tackle Black Money in India and Abroad “ which submitted its report in 2012 and which read as follows:- “3.22 Investments are made in the secondary share markets with a view to capturing gains. In this market, out of nearly 8,000 listed companies, several scrips are not traded regularly. With the collusion of promoters, some brokers arrange for prices with purchase of such scrips at nominal costs and sales at exorbitant prices with a view to receive money on sale as capital gains when the long term gain is subjected to a „nil‟ or nominal rate of tax. The advantage for manipulative taxpayer is that he can launder such sale receipts through payment of no tax” SEBI has recently barred more than 250 entitles, including individuals and companies, from the securities market for suspected tax evasion and laundering of black money though stock market platforms. In one such instance price of a scrip rose from Rs. 10.20 to Rs. 489 in 150 trading days- a rise of 4694%. The SIT obtained the background details of these cases and studied them. A typical pattern is observed to be followed in such cases: i) A company with very poor financial fundaments in terms of past income or turnover is able to raise huge capital by preferential allotment of shares made to various entitles. ii) There is a sharp rise in price of scrip once the preferential allotment is done. This is normally achieved through circular trading of shares among a select group of companies. These groups of companies often have common promoters/directors. The scrips with thus artificially inflated prise are offloaded through companies whose funding is provided by the same set of people who want to convert black money into white. 5 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 There is urgent need for having an effective preventive and punitive action in such matters to prevent recurrence of such instance. We recommend the following measures in this regard: i.) SEBI needs to have and effective monitoring mechanism to study such unusual rise of stock prices of companies while such a rise is taking place. We understand that SEBI has a strong IT infrastructure which can generate red flags for such instances. Such red flags could be built upon trading volumes, entitles which contribute to trading volume, financial background of firms through their annual returns and any other indicators SEBI may develop. We believe that with effective and timely monitoring by SEBI a significant number of such instances can be checked in time. Once such instances are detected, SEBI should invariably share this information with CBDT and FIU. ii) Barring such entitles from securities market would not be of strong deterrence in itself. In case it is established that stock platforms have been misused for taking LTCG benefits, prosecution should invariably be launched under relevant sections of SEBI Act, Section 12A read with section 24 of the securities and Exchange Board of India Act 1992 for the predicate offences iii) Enforcement Directorate should then be informed to take action under prevention of Money laundering Act for the predicate offences. Merely creating documents and routing the transactions through banking channels does not sacrosanct the unexplained transaction as genuine. Similarly creating a paper trail through the contract notes is also immaterial when the transactions are collusive in nature. Reliance is placed on the decision of the Hon’ble Supreme Court in the case of Lachminarayan Madan Lai Vs.CIT (86 ITR 439)wherein it was held that even if there was an agreement between the assessee and its agents for payments of certain amounts, assuming there was such payment, that did not bind the Income-Tax Officer to hold that the payment was made exclusively and wholly for the purposes of the assessee‟s business. In this case, the Supreme Court inter aha, observed as under: “Although there might be such an agreement in existence and the payments might have been made, it is still open to the Income-tax Officer to consider the relevant factors and determine for himself whether the commission said to have been paid is properly deductible. In this case absolutely no material on record has been brought by the assessee to suggest that the commission agents had procured any orders for the assessee. The production of bills or payments having been made by account-payee cheques cannot by itself show that the commission agents had procured any order for the assessee. No correspondence in this regard has been placed on record". In the above mentioned case, the Hon‟ble Supreme Court made it very clear that by creating documents and making payment through banking channel to give colour, did not sacrosanct/establishes the genuineness of the transaction. Mere payment by account Payee Cheque is not sacrosanct and it will not make otherwise non- genuine transaction genuine as held by the Hon'ble Calcutta High Court in the case of CIT Vs. Precision Finance Pvt. Ltd. (208 ITR 465). There is no doubt about the modus operandi of the penny stocks in general and about the fact that the appellant is a beneficiary of bogus LTCG on penny stock. In an economy where unaccounted income is a big menace, tax evaders make all efforts to bring their unaccounted income back to their books of account, without paying any tax on the same. Routing the unaccounted income back to the books of account under the guise of long-term capital gain is one of such methods, widely used by the tax evaders since the introduction of section 10(38) of the Income Tax Act, 1961, with effect from 01.04.2005. The shares on which this LTCG is shown are usually the penny stocks whose prices can be easily manipulated 6 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 by few unscrupulous brokers in connivance with entry operators, to provide the beneficiaries with tax exempt long-term capital gain/short term capital loss. The shares of these penny stock companies, although listed on exchange, are always closely held and are controlled by the promoters/directors of the penny stock companies and the operators, who are arranging for the bogus LTCG. This is due to the fact that the general public is not interested in these shares as these companies have no credentials and this helps the operator to keep a control on the price movement of the shares. The method is most prevalent and perhaps also one of the most organized way to convert the unexplained money to the accounted income, without paying any tax on the same. This issue is also covered in the favour of the Revenue by the order of Hon’ble Delhi Tribunal in the case of Anip Rastogi Vs. ITO in ITA No.3809/DEL/2018 dated 08.01.2019 wherein following observations were made: “7. 1 have heard both the parties and perused the records especially the impugned order. I note that the assessee has shown Long Term Capital Gain amounting to Rs.22,28,172/- earned during the FY 2014-15 and exempt U/s 10(38) of the Income Tax Act, 1961. The assessee was asked to explain the source of aforesaid Long Term Capital Gain during the course of scrutiny proceedings. The explanation offered that it is sale proceeds of shares are found to be unsatisfactory. The explanation of the assessee is general in nature that as the transaction is through Stock Exchange and the payment is by cheque, the transactions should be treated as genuine. Further, regarding the statement of Sh. Jai Kishan Poddar, the assessee has only stated that in the statement, there is no specific link with the claim of exemption in respect of Long Term Capital Gain of Rs.22,78,172/- U/s 10(38) by him. He has not stated a thing with respect to the statement of Sh. Jai Kishan Poddar in which he has accepted that facilitation of accommodation entries of long term capital gain/long term capital loss through his share broking firm has been done to few beneficiaries with the help of different accommodation entry operators, promoters of the scrips of various penny stocks other brokers etc. Sh. Jai Kishan Poddar also gave details of different bogus scrips/penny stocks which have been used for providing the accommodation entries of LTCG and LTCL todifferent beneficiaries using his brokerage company Consortium Capital Pvt.Ltd. and the name of CCL International Limited having scrip name CCL Interappears in the list whose shares were sold by the assessee and exemption on LTCG amounting to Rs.22,28,172/- claimed U/s 10(38) of the Act. After perusing the records, I find that in the instant case the investment in shares made by the assessee reveals that he has not been dealing in shares on a regular basis and the entries of LTCG have also been taken by other members of the assessee and the purchase of these shares were claimed to be through off market deals and not through Stock Exchange. The financials of penny stock company M/s CCL International Ltd and movement of its price are abrupt, unrealistic and not based upon any realistic parameters. From the perusal of financial statements of the aforesaid company M/s CCL International Ltd. from the Ministry of Corporate Affairs website (MCA) examining the information available in the public domain from where it was observed that there is no extraordinary increase in the profits of the company to justify the increase in value ofthe shares. I further note that Investigation Wing had recorded the statement of Sh. Jai Kishan Poddar who is one of the Director of M/sConsortium Capital Pvt. Ltd. which is one of the entities utilised for providing entry of bogus long term capital gain of M/s CCL International Ltd. who had admitted that he was involved in scam of providing bogus long-term capital gains through shares of M/s CCL International Ltd. It was also admitted that they were also involved in trading of these Jamakharchi Companies through which manipulative transactions in securities to either artificially raise or lower the market rate of the shares, are being done. I also note that the independent findings of the AO, which are corroborated by the information given by the Investigation Wing. The assessee has failed to substantiate the genuineness of alleged share transactions in respect of long term capital gain U/s 10(38) of the Act. In view of above discussions, the landmark decision of the Hon‟ble Supreme Court in the case of McDowell and Company Limited, 154 ITR 148 are squarely applicable in this case wherein it has been held that tax planning may be legitimate provided it is within the framework of the law and any colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by dubious methods. However, the 7 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 case laws cited by the Ld. Counsel for the assessee are on distinguished facts, hence, not applicable in the instant case. The assessee has not argued any other ground mentioned in the grounds of appeal, but only argued on merit for which assessee has failed to substantiate his claim before the lower revenue authorities as well as before this Bench. In view of above discussions, I am of the considered opinion that Ld. CIT (A) has rightly confirmed the addition in dispute, which does not need any interference on my part; therefore, I uphold the action of the Ld. CIT (A) on the issue in dispute and reject the grounds raised by the Assessee. In the result, the appeal of the assessee is dismissed”. The facts of the present case can be co-related to the facts in the case of Sanjay Bialchand Jain L/H Shantidevi Himalchnd Jain Vs. ITO Ward 4(2), Nagpur in ITA No. 61/Nag/2013 wherein the Hon‟ble ITAT Nagpur decided in favour of the department. Subsequently, Hon‟ble Bombay High Court also decided the appeal in the case of Sanjay Bimalchand Jain, L/HShantidevi Bimalchand Jain Vs PCIT in ITA No. 18 of 2017 in favour of the Revenue, by observing inter-alia asunder: “The assessee had purchased shares of two penny stocks of Kolkata based companies i.e. 8000 shares at the rate of Rs.5.50/- per share on 08.08.2003 and 4000 shares at the rate of Rs.4/per share on 05.08.2003. The assessee sold 2200 shares at an exorbitant rate of Rs.486.55/- per share on 07.06.2005 and 800 shares on 20.06.2005 at the rate of Rs.485.65/-. The broker through whom the shares were sold by the assessee did not respond to the assessing officer's letter seeking the names, addresses and the bank accounts of the persons that had purchased the shares sold by the assessee. The authorities have recorded a clear finding of fact that the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. The authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth Rs.5/- had jumped to Rs.485/- in no time. The Income Tax Appellate Tribunal held that the fantastic sale price was not at all possible as there was no economic or financial basis as to how a share worth Rs.5/- of a little known company would jump from Rs.5/- to Rs.485/-. The findinggs recorded by the authorities are pure findings of facts based on a proper appreciation of the material on record. While recording the said findings, the authorities have followed the tests laid down by the Hon'ble Supreme Court and this Court in several decisions. The judgments reported in CIT Vs. Jamnadevi Agrawal [20121 20 taxmann.com 529 (Bombay HO. Puranmal Radhakishan& Co. Vs. Crni9571 31 ITR 294 (Bombay HC). Raja Bahadur KamakhyaNarain Singh Vs. CITH9701 77 ITR 253 ISO and CIT Vs. Smt. Datta Mahendra Shah 120151 62 taxmann.com 325/235 Taxman 1 (Bombay HC) and relied on by the learned counsel for the assessee are distinguishable on facts and cannot be applied to the case in hand". Further the Hon'ble Bombay High Court in the case of Sanjay Bimal Chand Jain(supra) held that the manifold increase in price of the shares was not supported by economic or financial justification. Reliance is also placed on the decision of Hon'ble Punjab & Haryana High Court on the issue of claim of bogus LTCG on penny stocks in the case of Chandan Gupta Vs.CIT(54 taxmann.com 10), whereinit was held that where assessee could not explain receipt of alleged share transactions profits credited in his bank accounts, then sale proceeds had to be added as income of assessee under section 68. In the case of Usha Chandresh Shah Vs. ITO (2014-TIOL-1459-ITAT-MUM),the Hon‟ble ITAT Mumbai held that the shares of the company was declared as "Penny Stock" by SEBI and the broker Sanju Kabra, (through whom the shares were sold by the assessee) was indicted for manipulating the prices of penny stock shares. The tax authorities have rightly applied the test of human probabilities to examine the claim of purchase and sale of shares made by the assessee. It was held that the CIT(A) was justified in confirming the order of the AO by applying the test of human probabilities. In the case of ITO Vs. Shamim M. Bharwani (69 taxmann.com 65), the assessee, not registered client of the broker namely Suresh Kumar Somani, from whom 2500 shares in a company i.e. Emerald Commercial Ltd. (ECL) were stated to have been purchased on 06.05.2004. The purchase was in cash, so that it was not verifiable, at least in-so-far as to its time, which was of essence. Further the said transaction 8 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 was not through the stock exchange so that the same was not registered with it. In fact, the first trade in the said shares on the Calcutta Stock Exchange with which the assessee's broker, S.K.Somani, was registered, was only on 03.03.2005, i.e. 10 months after the date of the assessee's purchase. The shares were in a nondescript company, with no financial or physical assets of value or reported earnings. The shares purchased at an average rate of Rs.21.70/- per share in May 2004, went up to as much as from Rs.465/- to Rs.489/- in July, 2005 i.e. just over years' time. Each of these incidents matched with that which could be expected in a case of a transaction in a penny stock, the modus operandi of the transactions in which was also listed by the AO. Accordingly, relying on the decisions by the Apex court in the case of SumatiDayalVs. CIT(214 ITR 801) and Durga Prasad More Vs. CIT(182 ITR 540), he assessed the impugned credit of Rs.12.15 lakhs as unexplained income U/s 68 of the Act. In appeal, the assessee however found favour with the CIT (A). The purchase of shares was through a contract note issued by a registered broker, duly accounted for in his books of account, and could not be doubted merely because it was not through the online trading system of the stock exchange. The broker was in fact called for and examined by the AO. The shares were dematerialized in due course of time. The purchase price stood proved by the fact that the shares were transacted on the stock exchange on 06.05.2005 at Rs.21.70/- per share i.e., the same rate at which the assessee had purchased them in May,2004. The sale proceeds were received through account payee cheques and duly deposited in the assessee's bank account and not withdrawn in cash. Security transaction tax (STT) was paid on the impugned sale transactions, proved with documentary evidences and accordingly all the conditions of section 10(38) conferring exemption to the gains arising on the sale or transfer of shares were fulfilled. The observations of Hon'ble Mumbai ITAT are reproduced as under: "4. We have heard the parties and perused the material on record. As shall be evident from the foregoing narration of events, the primary 7 facts (and figures) of the case are not in dispute, which arises principally on account of the different inferences drawn from the same set of primary facts by the two Revenue authorities. The issue is thus, essentially factual, revolving or centering around as to which of the two inferential findings are maintainable in law i.e. in view of the surrounding facts and circumstances of the case. The Revenue's principal and the only charge is qua the genuineness of the transactions and which has been acceded to by the first appellate authority in view of the documentary evidences furnished by the assessee in support of his claims. That genuineness could validly be tested on the ground or principle of preponderance of human probabilities, which could thus form a valid ground or parameter for determining the genuineness, stands since settled by the Apex court in Sumati Dayal (supra), relied upon by the Revenue, wherein the apex court, in declaring the transaction as non- genuine, discarded a host of documentary evidences filed or relied upon by the assessee-appellant. That documentary evidences are not by themselves conclusive and the truth of the matter or the documents could be determined on the basis of or on the anvil of the surrounding facts and circumstances of the case is well settled, and for which the Revenue relies on the decision in the case of Durga Prasad More (supra). What is relevant, more so where the genuineness of the transaction is in issue, is the true of the documents furnished in substantiation as well as the substance of the transaction and not its form and which is to be determined on the basis of and on the conspectus of the entirety of the facts and circumstances of the ease. The issue before us is whether the documents furnished by the assessee including averments made by him or even his broker, satisfy the test of preponderance of human probabilities. In our view if the assessee has reasonably explained the ‟intriguing‟ facts and circumstances as pointed by the AO and on the strength of which the genuineness is assailed by him and which further agree with that observed in the case of a penny stock company, no case for treating the transaction as not genuine shall arise. The onus U/s 68 though is on the assessee, so that his explanation would, however, require being substantiated or proved. The case law in the matter is legion, and toward which we may, if only for the sake of completeness of our order, advert to the some of the celebrated decisions by the Apex court in the matter i.e. A. Govindarajulu Mudaliar Vs. CITf 19581 34 ITR 807 (SC): Sreelekha Banerjee Vs. CITI19631 49 ITR 112 (SC):Kale Khan Mohammad Hanit Vs. CITfl9631 50 9 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 ITR 1 (SC): Durga Prasad More (supra);CITVs. Biju Patnaik [19861 160 ITR 674/26 Taxman 324 (SC): Sumati Dayal (supra) and CITVs. P. Mohanakala [20071 291 ITR 278/161 Taxman 169 (SO. We may further clarify that in proceeding with the matter, we have circumscribed the entire material on record. 4.2 The assessee, to begin with, has nowhere explained as why the shares were purchased in cash, the source of which is ascribed to cash-in-hand, and not to any contemporaneous evidence, as cash withdrawn from bank on that or nearby dates. How was the cash, one may ask, transmitted from Mumbai, where the assessee is resident, to Kolkata, where the purchase stands made, and the broker, to whom it is paid, located? 4.3 Then, again, why was the transaction not carried through a recognized stock exchange (SE), mandatory in law, even as it was done through its registered member. This becomes relevant and significant for more than one reason. Firstly, it proves the time of the transaction, which is of essence inasmuch as it determines the holding period of the shares/asset, with reference to which, where over 12 months, exemption from tax to gains arising on transfer is granted by law per section 10(38) read with other relevant defining provisions of the Act. The first appellate authority has in this regard mentioned the settlement number of the transaction as D- 2005326. The same, even as stated by the A.O. (refer para 4.8 of the assessment order), is the number of the contract note issued by the broker. The settlement, where the transaction is carried through the Stock Exchange, which is admittedly not the case, is between the brokers or the members of the Stock Exchange and, accordingly, only a net amount is payable or receivable by a particular broker for a particular period, called the settlement period, which extends to generally one week or a fortnight, and which is to or from the Stock Exchange, which aggregates the financial impact, i.e. the net result of all the transactions amongst all the brokers for the settlement period, acting as a collecting/disbursing agency. A single amount is thus either payable or receivable by each broker to or from the Stock Exchange for a particular period, which is again numbered (i.e. as settlement number) and serves to settle the financial obligations to or claims on all the other members of the exchange i.e. of each broker, for that period. This is of course accompanied by giving and taking delivery of the shares, either in physical form or by issuing or accepting delivery which in either case is remitted by the member to his clients, for on behalf of the whom he acts, charging a fee called brokerage/commission, for his services. The whole purport of the forgoing note on the trading process is to clarify that the settlement only signifies a settlement between the brokers, carried out through the exchange acting as a nodal agency, so that the purchase transaction/s under reference may not be so construed inasmuch the same is admittedly off the market (exchange) which stands established by the Revenue through the communication per its letter to the AO in response to a notice U/s 133(6) by the Calcutta Stock Exchange. This aspect is in fact not disputed by the assessee. The same may not necessarily imply that the transaction is not genuine or not undertaken at the relevant time, but then the same would have to be shown with reference to some corroborative, external evidence. The contract note/bill by the broker is only an 'internal voucher’ i.e. by person who is party to the transaction and, thus, acting in cohesion, if not in collusion. It is after all a document generated by him, so that its truth, in the context of paper companies, the 'selling' of 'gains’ and 'losses' in which the brokers, as operators, play a significant role. cannot therefore be decided with reference thereto or the statement by the broker, a related party. This, however, would be so only where there are strong factors or circumstances which cause serious doubt about the transaction. For example, how one may ask, were the shares transmitted to the assessee, located at Mumbai, who would have signed the transfer form? The broker or the assessee nowhere states the reason for carrying out the transaction in the manner done i.e. off the market which is not ordinarily permissible and is subject to some legal constraints under Securities Contracts (Regulation) Act, 1956. Rather, how could he deal with the assessee who is not his client! Then, again, why was it paid for in 10 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 cash, for which there is no evidence and neither has the broker been shown to accept cash in the ordinary course of his business. Why for the persons trading therein, this would be an impediment to claim the cost of shares traded in, in view of the non obstante clause of section 40A(3). The brokers are in fact required to maintain separate bank account for the funds received from or on behalf of the clients so that the same do not merge with that of the broker himself. What is equally important is the date on which the shares were dematerialized. This is as no transaction could be carried out in listed shares i.e. in the physical form, where the shares stand dematerialized by the company. Why were the shares sent for dematerialization only in May 2005 i.e. after a delay of over a year, having been dematerialized only on 12.07.2005 (PB pg.10) i.e. days prior to their sale on 22.07.2005. That is, assuming that the shares were actually purchased and delivered to the assessee in May, 2004. Rather, as it would appear to us, the dematerialization of the shares coincides with the spiraling price of the scrip, so that an orchestration of the 'events' is apparent. The shares, even assuming a valid purchase, thus, would be close to the dates of dematerialization. The assessee states of having reported its purchase (of shares) on 06.05.2004, per his balance-sheet as at 31.03.2005, enclosing it along with his return of income for A.Y.2005-06 (PB pgs. 15, 16). The return of income, however, is filed only on 28.10.2005, which is even subsequent to the sale of shares on 12.07.2005, so that the said reporting of the transaction, which of course does not bear the date of purchase, is to no moment. The assessee relies on a communication from the company dated 17.05.2004 (PB pg. 2) to show that the shares were lodged for transfer with the company immediately upon purchase on 06.05.2004, evidencing, thus, the validity of the purchase date. In this regard, we may firstly clarify that proving purchase as genuine; the Revenue doubting the price rise and thus the gain would therefore only make out a case for the exclusion of a part (Rs. 54,250/-) of the impugned sum of Rs.12.15 lakhs, which represents the entire sale proceeds of the shares. It needs to be appreciated that what is essentially under cloud, and being seriously doubted as to the genuineness, is the gain stated to arise on the transaction. It is the gain which is abnormal i.e. both qua the scrip; its trading and thus, its quantum and unexplained, besides being tax exempt, and which is independent of its purchase. The purchase of shares of a little known company of the face value of Rs. 10/- each at Rs.21/- to Rs.22/- would even otherwise hardly raise any eyebrow or doubt. The purchase gets doubted examined only for the reason that it represents a part of the overall transaction, which is considered by the Revenue as an artifice. In other words, proving the purchase would by itself not prove the transaction of gain which stands impugned and, further, being at a minor sum has little bearing in the matter. In fact, the AO states precisely this (refer para 4.9(a) of his order), that even assuming the purchase as genuine, the sales, given the high rates for such penny stocks, with no real buyers, are bogus. Coming to the assessee's contention on merits, the letter dated 17.05.2004 supra inspires little confidence. It does not specify the name of the authorized signatory, the sign being otherwise not visible. It bears no serial number, even as it represents a communication, which a company or its secretarial department is required to make in the regular course of its business. It further does not bear any indication of the manner in which it is conveyed to the assessee, i.e. by hand, per post- ordinary or registered; per courier etc., which is again, a norm, besides establishing its date. Such remittances are generally through registered post so that it would constitute evidence with the company for having delivered the shares which are even otherwise valuable documents. The incidental question that arises is the date when the shares were dematerialized by the company. This is as it clearly shows that the shares, issued only on 31.03.2004, being remitted to the transferee in the physical form on 17.05.2004, were not converted into the D-mat form till then. This is relevant as the trading on the exchange, which only would make the share a listed share, gain on which is exempt U/sl0(38), could as per the guidelines only be in the D-mat form. No wonder, the trading on the exchange in the said scrip commences only on 03.03.2005. 'How could, in that case, it be said that the assessee has transferred/sold a listed share 11 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 after holding it for a period of a year or more? 1 The assessee speaks of having deposited STT, but then, the question is whether the said payment would make a non-genuine transaction, genuine. 4.4 Further on, why and on what basis, the assessee, a teacher by profession as well as a partner in a partnership, with no documented or reported experience in trading in shares or investment therein-his balance sheet as on 31.03.2005 reflecting no investment in shares except the 2500 shares in ECL (besides another for a meager amount of Rs. 2100), pick the said shares i.e. selected the said scrip for investment and which in fact stood issued only days earlier on 31.03.2004. The company reportedly has no standing either in the industry or in the market (i.e. for the goods or services it presumably deals in) or even in the trading circles i.e. for shares. That apart, no material to establish its business activity viz. it's annual reports, or of the companies under same management/industry, etc. to exhibit its credentials in any manner, stands adduced by the assessee at any stage of the proceedings. Continuing further, how and on what basis, a share trading in the range of Rs.21/- to Rs.22/- in May 2005, witness a rise to Rs.465/- to Rs.490/- inside a couple of months - the assessee's sale, at Rs.487/- apiece, being on 22.07.2005. This is amazing by any standard, and which has not been explained in any manner i.e., assuming it to be not a case of price manipulation which is the modus operandi adopted for reflecting prices on the Stock Exchange. Who, onemay ask, are the purchasers of such shares i.e. in a nondescript company at such high prices; no information qua which stands furnished at any stage, even as it is they who have apparently bought the shares, supplying the credit to the assessee, which is being questioned and examined as to its genuineness U/s 68 of the Act. All this definitely casts serious doubts on the genuineness of the sale price and thus, the ensuing gain. This in fact, is classical feature of a penny stock, the price zooming for no apparent, economic or even technical, reasons. One could understand where the same is in sympathy with the market sentiment or some industry-wise favourable development, even as the share ostensibly trades i.e. going by the market quote, at over 22 times its price obtaining two months earlier, implying, by correspondence, a jump in the market index to the same or similar extent i.e.2200% over the same period which is both unheard of work as it does to growth rate of 13200% p.a. and of course, not shown. There is again no whisper and, consequently, no information on record of the particular industry in which if any, the said company operates or its financials, much less future prospects, the information on all of which gets factored into and captured in what is called 'price', representing an equilibrium of the supply and demand forces. In fact, each of the other incidences i.e. for a penny stock company, are exhibited in the present case, as pointed out by the AO per paras 4.8 and 4.9 of his order.4.5 The assessee was show caused on all these parameters, seven in number, listed at para 4.11 (page 7) of the assessment order, to no satisfactory reply by the assessee and, in fact, at any stage. There is in fact no reply to the AO (refer para 4.14 (i) of the assessment order), whose satisfaction the law mandates so that the purview of the appellate authority is as to whether the AO in being not satisfied had acted reasonably i.e., given the assessee's explanation, including the materials/evidences furnished in support or not. The AO accordingly, treated the impugned transaction as not satisfactorily explained and added the same U/s 68 of the Act. The Tribunal in the case of Ziauddin A.Siddique in IT Appeal Nos. 4699 & 4700 (Mum. of 2011, dated 25.04.2014issued a finding of fact, of course on the basis of the material on record, as to circular trading, in case of a penny stock company, Eltrol Ltd., exposing or validating the modus operandi as stated to be adopted in the case of such stocks - the price, de hors any fundamentals or other factors, of paper companies being raked up on the Exchange, so as to yield 'gain', and then again, equally without basis, grounded to yield 'loss', both of which, i.e. 'gain' and 'loss', find ready 'customers' or 'takers'. The purpose is to evade tax or to yield some tax benefit. True, this has not been established in the present case, but the features are strikingly same, 12 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 with the impugned transaction bearing the same incidents, so that odds are loaded heavily against the genuineness of the transaction. The onus to establish the same, it is to be borne in mind, is on the assessee. The CIT (A) has dismissed the same as merely suspicions. We are, however, unable to, for the reasons afore-stated, persuade ourselves to agree with him, each of the several incidents and, therefore, the questions arising, that impugn the genuineness in the present case, are based on admitted and undisputed facts. The issue, as clarified at the beginning of the discussion, being the validity of the inferential findings -there being a difference between the two Revenue authorities. We find the observations by the AO as valid and relevant, to no satisfactory answer or explanation by the assessee, i.e., to the questions, incidents or the phenomenon observed. Dismissing the same as mere suspicions, as does the CIT(A), is, to our mind, glossing over the many attendant facts and incidents, the most vital, and on which we observe complete silence or absence of any explanation, is the absence of any credentials of the investee-company. The CIT (A) picks up one incident or aspect of the transaction at a time to note of it being backed by documentary evidences and therefore genuine. The approach is fallacious. Firstly, documentary evidences, in the face of unusual events, as prevailing in the instant case, and without any corroborative or circumstantial evidences, cannot be regarded as conclusive. Two the preponderance of probabilities only denotes the simultaneous existence of several ’facts', each probable in itself, albeit low, so as to cast a serious doubt on the truth of the reported 'facts', which together make up for a bizarre statement, leading to the inference of collusiveness or a device set up to conceal the truth i.e. in the absence of credible and independent evidences. For a scrip to trade at nearly 50 times its' face value, only a few months after its issue, only implies, if not price manipulation, trail blazing performance or great business prospects (with of course proven management record, so as to be able to translate that into reality), while even as much as the company's business or industry or future program (all of which would be in public domain), is conspicuous by its absence, i.e. even years after the transactions. The company is, by all counts, a paper company and its share transactions managed. We, accordingly, reversing the findings of the first appellate authority, confirm the assessment of the impugned sum U/s 68 of the Act. We decide accordingly. 4.6 The assessee has relied on several case laws. As would be apparent from the forgoing, abundant case law has been relied upon by the both sides. The issue is not of the application of any particular case law. The legal propositions being well settled, each case rests on its own facts. Our decision, likewise, and as would also be apparent, is guided solely by the facts and circumstances of the instant case, including the assessee's explanation in respect thereof. The reliance on case law, the facts of none of which were gone through at the time of hearing, even as the issue is principally factual, would thus be of no assistance to the assessee's case. We may though clarify that the Revenue having invoked the provision of section 68, the burden to prove the credit transactions and thus, its genuineness, is on the assessee. It is therefore not necessary or incumbent on the Revenue to i.e. for the purpose of application of section 68, to either disprove or exhibit the transaction as sham or bogus, and its obligation only extends to show that the genuineness of the impugned credit transaction is doubtful or has not been satisfactorily proved by the assessee. 5. In the result, the Revenue's appeal is allowed". The Hon’ble Mumbai ITAT in the case of Ratnakar M. Pujari VS. ITO in IT A no. 995/Mum/2012 dated 09.05.2016 also decided the issue in the favour of the Revenue. In the cited case, the assessee had purchased shares of Shiv Om Investment Consultancy quoted at Calcutta Stock Exchange, which was a penny stock and sold after holding for 12 months. It was held by the ITAT that the SEBI de circular no. SMDRP/Policy/CIT-21/99, dated 14.09.1999 had banned all negotiated deals including 13 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 cross deals and all such deals were required to be executed only on the screens of exchanges in the price and order matchingmechanism of the exchange just like any other normal trade. Thus the transactions were illegal and not in conformity with regulatory guidelines. Further the assessee was not a regular investor in shares. The share was a penny stock and the purchase and sale of share was sham and bogus transaction. The sale inconsequence thereof in stock exchange were of no help to the assessee for claiming the exemption as LTCG as the allegation of the revenue was that the assessee had in collusion with the brokers, had manipulated and camouflaged the entire transactions of sale and purchase to earn tax free exempt LTCG on sales of shares U/s 10(38) of the Act whereby un-accounted cash of the assessee had been introduced in disguise in lieu of sale proceeds of shares. The counsel of the appellant has placed reliance on the decision of Hon'ble Mumbai High Court in the case of CIT Vs. Mukesh Ratilal Marolia in ITA No.456 of 2007 dated 07.09.2011 and CIT Vs. Shyam R. Pawar (54 taxmann.com 108). However it is pertinent to mention here that the decision rendered in the case of Mukesh Ratilall Marolia was discussed by the Hon'ble Pune ITAT in the case of Zikarullah Chaudhary in ITA No. 669/PN/2012 dated18.02.2014. It was held by the Hon'ble ITAT that the assessee was dealing in shares which were penny stock and the shares were purchased at a very low price and sold at very high price. The ITAT Pune dismissed the appeal of the assessee by holding as under: "6.6 We find the Hon'ble Supreme Court in the case of CIT Vs. Durga Prasad More reported in 82 ITR 540 has held as under : "though an apparent statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real, in a case where a party relied on self serving recitals in document, it was for that party to establish the truth of those recitals. The taxing authorities are entitled to look into the surrounding circumstances to find out the reality of such recitals". Further Hon’ble Mumbai ITAT Mumbai in the case of Arvind M. Karia Vs. ACITin ITA No.7024/Mum/2010 dated 30.01.2013 held while discussing judgment of Mukesh R. Moralia that where there were claims of unexpected long term capital gains in span of one year, the test of probability could be applied by the department. It was further held that in the case of Mukesh R. Moralia, the Tribunal had not considered the test of probabilities as laid down by Hon‟ble Supreme court in the case of Sumiti Dayal. 5.1 It is pertinent to mention here that Hon'ble Bangalore ITAT in the case of Smt. M. K. Rajeshwari, proprietor Laxminarayana Agro Industries Vs. ITO in ITANo.l723/Bang/2018 dated 12.10.2018 for AY 2015-16 has decided the issue relating to penny stocks in the favour of Revenue. Before the ITAT, the learned Counsel for the assessee had invited the attention to balance sheets as on 31.03.2013 and 31.03.2015 and the share certificates, Demat account and the bank statements in order to establish the transaction in shares were genuine and the assessee had rightly claimed deduction under section 10(38) of the Act. The department on the other hand contended that a big scam in Kolkata had surfaced during the course of investigation conducted by various agencies and it had been revealed that unaccounted money was converted into a long term capital gain on which deduction under section 10(38) of the Act was claimed. It was further contended that in such type of transactions, the decision should not be taken on the basis of contract notes and the rates quoted at the stock exchange. The financials of the company and its increase in the financial worth should also be examined. The reasons for the sharp increase in the share price should also be examined. In the instant case, the lower authorities had examined that no corporate announcement had been made by the Mahavir Advanced Remedies Ltd., which would have made a positive impact in the shares and which could support the phenomenal increase in the price. The sharp rise in the price of the scrip was not supported by its fundamentals or any other genuine factor. The department further invited the attention of the Hon‟ble Members of the ITAT to the fact that Mahavir Advanced Remedies Ltd., had been found involved in fraudulent practices by the SEBI and in its finding, the SEBI stated that this syndicate of people acted as accommodation entry providers. They 14 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 chose a particular scrip and rig its prices to provide bogus capital gain and capital loss to various beneficiaries. Based upon its findings SEBI had restrained these persons from trading in market. The findings of the Hon‟ble ITAT in para 6 are reproduced as under: 6. Having carefully examined the orders of the lower authorities in the light of rival submissions, I find that the assessee has purchased 12500 shares of Mahavir Advanced Remedies Ltd., (MARL) on 22.02.2013 at a total purchase cost of Rs. 1,00,000/- at the rate ofRs.8/- per share. The consideration for purchase of these shares was by transfer of funds from Lakshmi Narayana Rice Mills to her account in which the assessee has a stake. This purchase was through M/s. . Global Enterprises and Eager Corporation, Mumbai. The assessee has made the payment to the aforesaid entity and not to the owner of the shares of MARL. As is evident from the receipts issued by M/s. Eager Corporation, Mumbai, the invoice indicates the share price at Rs.8/- per share whereas the face value of the scrip itself is Rs. 1 0/- per share. It is also evident from the record that the MARL in its Extraordinary General Body Meeting held on 18.02.2013 has increased share capital from Rs.5.5 crores to Rs.15.5 crores by issue of 1,00,00,000 shares ofRs.10/- each at a price of Rs.il/- per equity share including premium of Rs.l/- per share to the non-promoters. The AO has also noted that 2500 shares of MARL have been transferred to the assessee from Mr. BVS Koteeswar Rao and 10,000 shares have been transferred to the assessee from Smt. Vijayalakshmi B and Mr. BVS Koteeswar Rao is the Managing Director of the company and Smt. Vijayalakshmi is related to him. As per share transfer certificate, the shares of MARL have been transferred to the assessee only on 24.08.2013 and price of each equity share is priced at Rs.10/- whereas the assessee has paid only Rs.8/-. The AO has also examined the report submitted by Mr. BVS Koteeshwara Rao and Smt. Vijayalakshmi and noted that Mr. BVS Koteeswara Rao and Smt. Vijayalakshmi have sold 3,04,500 shares and 3,15,600 shares respectively of MARL on 13.06.2013 for a total sale consideration of Rs.l8,27,000/- and Rs.l8,93,600/- respectively. The AO further observed that on going by this sale price of each share works out to Rs.6/- per share, which is almost half the price fixed by the company at its Extraordinary General Body Meeting held on 18.02.2013. It is also worthwhile to mention that sale has been done off line. The AO has also further observed in its order that there is a sharp rise in the price of the scrips which was not supported by its fundamentals or any other general factor. The AO carefully examined the findings of the investigation wing who has investigated the scam of penny stock and the dubious schemes through which unaccounted money of the beneficiaries moves into the books of accounts in the garb of long term capital gain. This entry of longterm capital gain is taken by selling the shares on the exchange andregistering the proceeds arising out of sale of shares into books as long-term capital gain (LTCG). For implementing this scheme, shares of penny stock companies were used. The same modus is adopted for providing accommodation entries of being bogus logs. It was further observed that in this scheme, shares of penny stock exchange are acquired by the beneficiaries of the LTCG at very low price through the root of preferential allotment (private placement) and off market transactions. These shares have a lock-in-period of one year as per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. Another route to acquire the shares is through Amalgamation or merger. In this route, the beneficiaries of LTCG are allotted shares of a private limited company which is subsequently amalgamated with a listed penny stock and the beneficiaries receive shares of the listed penny stock in exchange of the shares of private limited company. The modus operandi of conversion of unaccounted money in long-term capital gain was examined by the AO before coming to the conclusion. The AO has also examined the balance sheets of Mahavir Advanced Remedies Ltd., and the balance sheet and profit and loss account for the last 3 years was extracted in the assessment order 7. The AO has also examined the price value statements quoted on the stock exchange and noticed that there was abnormal price rise by the overall percentage increase in Sensex during the period when the shares stock phenomenal price rise and has made the following observation: "(v) This abnormal price rise is also highlighted by the overall percentage increase in the Sensex during the period when the shares saw 15 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 phenomenal price rise. Normally, the Sensex is a benchmark of the average price movement in any share. Most of the stocks which have good market capitalization and are majorly held by public tend to follow the price movement of the Sensex. The deviation in price movement vis-à-vis Sensex is usually guided by the fundamentals of the company and the behavior of - individual investors. When the price increase in the shares of M/s. Mahavir Advanced Remedies Ltd. is compared with the movement in the Sensex, it is seen that there is no correlation. While Sensex is deviating only marginally, the price of the share M/s. Mahavir Advanced Remedies Ltd. are moving abnormally. Hence, it is clear that the price of M/s. Mahavir Advanced Remedies Ltd. has moved in absolute disregard to the general market sentiments. From the perusal of above chart as well as the trading data of the scrip which was collected from the BSE, it is evident that during the period of price rigging, the volume of the shares traded as well as number of trades on each trading day was very low. Now the interesting factor to be noted here is that on all these days, there has been a constant rise in the price of the shares. A close look reveals that on most trading day, the percentage increase in price is in the range of 3% to 4 %. This percentage price rise on each day was just short of 5% which was the circuit limit for price rise as per the exchange guidelines in respect of T type scrips. On some trading days, the percentage increase in price is in the range of 1.90% to 1.99% which again was just short of percentage increase of 2% which was the circuit limit for price rise as per the exchange guidelines in respect of T type scrips. On some trading days, the percentage increase in price is in the range of 1.90% to 1.99% which again was just short of percentage increase of 2% which was the circuit limit for price rise as per the exchange guidelines on those trading days. Thus, it is seen that the price of these shares have seen phenomenal rise and have been constantly traded near the circuit limit so as to avail maximum price rise without hitting and triggering the circuit limit and thereby avoid surveillance by the Stock Exchange Regulator. This continuous price rise has been achieved over a very thin volume and almost a single trade per day. During this period of price rise, no corporate announcement has been made by M/s, Mahavir Advanced Remedies Ltd. which would have made a positive impact on the shares and which could support this phenomenal increase in price. Thus, the sharp rise in the price of the scrip was not supported by its fundamentals or any other genuine factor. The above discussion clearly establishes the fact that the prices of the shares of M/s. Mahavir Advanced Remedies Ltd. were rigged in a pre-planned systematic manner by conducting limited trades and with miniscule volume". 8. The AO has also examined the SEBI's findings about the accommodation entry providers obtained on the basis of various investigations and has brought out sufficient material on record to demonstrate that the transactions are not genuine and he accordingly concluded that the long term capital gain booked by the assessee in the books were pre-arranged method to evade taxes and laundered money. The findings and observations of the AO were not controverted by the assessee by placing any evidence. He placed reliance upon the various judicial pronouncements in support of his contention that once the assessee has placed the evidences with regard to payments and the identity of the persons and the credit worthiness of the creditors, no addition under section 68 is called for. Since the assessee has placed the contract note, payment through cheques identifying the company whose shares were transacted, the genuineness of claim of long term capital gain should not have been doubted. We do not find merit in these contentions of the assessee in the light of the facts that there is prevalent practice in the country through which unaccounted money is converted into long-term capital gain by circuitous means. While dealing with the issue of long-term capital gain accrued to the assessee in short span, one has to examine the financials of the company whose shares were inflated within a short period and after the sharp rise in the price of shares it again came down. In the instant case, financials were examined by us and we find that the financial worth of the company is meagre and not at all worth to be invested therein. With such financials, we are unable to understand how there can be manifold increase in the shares. In the light of the duration of transactions and the financials of the company whose shares were transacted, we find that the Revenue has brought sufficient material on record to demonstrate that unaccounted money was introduced in the books of accounts through long-term capital gain by adopting such method. Whatever judicial pronouncements are relied upon, these are in those cases where the transactions are genuine. Under these circumstances, we are 16 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 of the view that Revenue authorities have rightly adjudicated the issue and no interference is called for in the order of the CIT(A). 9. In the result, appeal of the assessee stands dismissed”. The counsel of the appellant has relied on the decision of Hon'ble Mumbai High Court in the case of CIT Vs. Shyam R. Pawar (54 taxamnn. com 108). However the judgments rendered in the cases of Shyam R. Pawar and Avinash Kantilal Jainwere discussed by the Hon'ble Mumbai ITAT in the case of Smt. UshaChandresh Shah in ITA No.6858/Mum/2011 dated 26.09.2014 and it was held that the shares of Prime Capital Markets were declared as “penny stock” by SEBI and the broker Sanju Kabra through whom the shares were sold by the assessee was indicted for manipulating the prices of penny stock shares. Hence, in its view, the tax authorities had rightly applied the test of human probabilities to examine the claim of purchase and sale of shares made by the assessee. The relevant paras of the judgment are reproduced as under: "11. Though the assessee has claimed to have purchased the shares in physical format in May, 2004, she chose to D-Mat the same only in June 2005, just two months prior to its sale. The shares were sold through a share broker named Sanju Kabra, who is indicted by SEBI for rigging the prices of penny stock shares. It is pertinent to note that the share prices of M/s Prime Capital Markets Ltd went from Rs.5.17 (May, 2004) to Rs.279.50 (September, 2005). The assessee could not furnish any reasons or at-least stock market news to support the abnormal increase in the prices of the said shares. Thefinancial statements of the above said company were also not produced. Though M/s Prime Capital Markets Ltd has confirmed the entries in its books of account with regard to the purchases made by the assessee, it could not identify the name of purchaser to whom the shares were sold by the 12. We have already seen that the Tax Authorities have applied the test of human probabilities explained by the Hon'ble Supreme Court in the cases of Sumati Dayal (214 ITR 801) and Durga Prasad More (supra) to disbelieve the claim of Long term Capital gains put forth by the assessee. We notice that the test of human probabilities was not applied by the co-ordinate benches of Tribunal in the case of Shri Avinash Kantilal Jain (supra) and Mr. Shyam R. Pawar (supra). Hence, in view, the assessee cannot take support from the above said decisions. We further notice that the ld ClT(A) has placed reliance on the decision dated 04.1.2011 rendered bv ITAT Delhi in the case of Haresh Win Chaddha Vs. DDIT. wherein the Tribunal has expressed the view that there is no presumption in law that the AO is supposed to discharge an impossible burden to assess the tax liability bv direct evidence only and to establish the evasion beyond doubt as in criminal proceedings. Further it was held that the AO can assess on consideration of material available on record, surrounding circumstances, human conduct and preponderance of probabilities and nature of incriminating information/ evidence available on record. 15. We notice that the Mumbai D bench has considered an identical issue in the case of Shri Ramesh Kumar D Jain in ITA No.3192/Mum/2010 relating to assessment year 2006-07. The Tribunal, vide its order dated 15- 06-2011, rejected the claim of making speculation gains on the reasoning that speculation transactions could not have been entered into by the assessee therein without paying margin money to the broker. Accordingly, the claim of purchase of shares was rejected by the Tribunal and consequently the claim of sale of shares was also rejected. It is pertinent to note that, in the decisions relied upon by the assessee, the claim of speculation profits was not considered by the Tribunal. In yet another case of Shri Arvind M. Karia 17 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 considered by "A" bench of Hon'ble Mumbai ITAT, the test of human probabilities was applied to reject the claim of profit realized on sale of penny stocks. There should not be any dispute that the onus to produce necessary evidences to convincingly show that the shares were purchased and sold at the prices claimed always lies upon the assessee. This view finds support from the decision rendered by Hon'ble Guwahati High Court in the case of CIT Vs. Smt. Jasvinder Kaur (357ITR 638). "16. In view of the foregoing discussions, we are of the view that the decisions relied upon by the assessee cannot be taken support of by the assessee for the reasons discussed supra. Accordingly, we are of the view that the LdCIT(A) was justified in confirming the order of the assessing officer by applying the test of human probabilities". Therefore various decisions relied upon by the counsel of the appellant have been reversed by the ITAT in subsequent orders after realizing that in the earlier orders the fact that the stocks were penny stocks and the price were manipulated was not discussed. The decision of Hon'ble Mumbai ITAT in the case of Arvind M. KariaVs. ACIT in ITA no.7024/Mum/2010 dated 30.01.2013 is also very pertinent. In this case, the assessee had shown LTCG from Shalimar Agro Products and G. Tech I nfo Training Ltd, which were purchased for a nominal amount and sold with the huge profit within a short span of one and a half year. The assessee offered the capital gains for tax during search proceedings but retracted while filing return of income. It was held by the ITAT that the search party believed the statement and withdrew without making any further investigation. This was clearly against the rule of estoppels as provided under the Evidence Act believing on the truth of the statement made by the assessee, the department changed its position to its detriment Therefore the assessee had stopped from denying the truth of his statement earlier made. Relying upon judgment of CITVs. Durga Prashad More (82ITR 540) and Sumiti Dayal (214 ITR 081), it was held that the present case had to be considered in the light of human probability. Though there was no direct evidence that the share prices had been rigged by fraudulent operators, an inference about such a purchase connived with such companies had to be drawn on the basis of circumstances available on the record. It was also held that it was improbable that any person would transact in shares by taking physical delivery of the shares. When many instances had been surfaced relating to bad delivery or bogus scrips, the Regulatory authorities had made it compulsory to transact through Demat account. It was further held that: 20. Needless to say that Income-tax proceedings are civil proceedings and the degree of proof required is by preponderance of probabilities, therefore, applying the test of preponderance of probabilities and considering the entire sequence of events, the revenue authorities have rightly concluded that the assessee‟s claim about the long term capital gains from the sale of shares is not genuine. 21. Therefore, it cannot be said that the explanation offered by the assessee in respect of the sale consideration has been rejected unreasonably and that the findings that the said amounts are income of the assessee from other sources is not based on evidence. Accordingly, findings of the Ld. CIT(A) are confirmed. Ground No. 1 is dismissed. 22. Before parting, the counsel for the assessee relied upon the decision of the Tribunal in ITA No.787/M/2010 . However, facts are clearly distinguishable in as much as in that case the Tribunal has not considered the statement of the assessee U/sl32(4) of the Act. The counsel further relied upon the decision of Mukesh R Marolia (6 SOT 247) (Mum.), however, in 18 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 this case the Tribunal has not considered the test of probabilities as laid down by the Hon'ble Court in the case of Sumati Dayal (supra). The Ld. Counsel also placed reliance on the decision of the Tribunal in ITA 2669 , 2670/M/2006 >where also the Tribunal has not considered the test of probabilities as mentioned herein above nor in these cases the assessee has offered income on sworn statement U/sl32(4) of the Act". The Hon'ble Mumbai ITAT in the case of Ratnakar M. Pujari Vs. ITO in ITA No. 995/Mum/2012 dated 09.05.2016 on similar facts & circumstances decided the appeal against the assessee. In the cited case, the assessee had purchased shares of Shiv Om Investment Consultancy quoted at Calcutta Stock Exchange, which was penny stock and sold after holding for 12 months. It was held by the ITAT that the SEBI vide circular no. SMDRP/Policy/CIT-21/99 dated 14.09.1999 banned all negotiated deals including cross deals and all such deals were required to be executed only on the screens of exchanges in the price and order matchingmechanism of the exchange just like any other normal trade. Thus the transactions were held to be illegal and not in conformity with regulatory guidelines. Further the assessee was not a regular investor in shares. The share was a penny stock and the purchase and sale of share was sham and bogus transaction. It was held that the sale inconsequence thereof in stock exchange was of no help to the assessee for claiming the exemption as LTCG as the allegation of the revenue was that the assessee had in collusion with the brokers had manipulated and camouflaged the entire transactions of sale and purchase to earn tax free exempt LTCG on sales of shares U/s 10(38) of the Act whereby un accounted cash of the assessee had been introduced in disguise in lieu of sale proceeds of shares. In the case of Zakirullah Chaudhary in ITA No. 669/PN/2012,dated 18.02.2014, the assessee had taken a plea that the shares of Tanu Health Ltd. were purchased through the brokers by account payee cheque and purchase and sale was made through the DMAT account. The sale was also made through the broker and amount was received by the cheque. However, the assessee admitted the income arising from capital gains to buy peace of mind. The assessee subsequently retracted from the statement. The AO held that the shares were penny stock and purchased at a very low price and the history and pattern of share pricing showed that there was steep rise in the price of the share and the company was a paper company. The AO further stated that the retraction had to be supported by suitable evidence and it was a settled law that admission/statement is a good piece of evidence and the same can be used against the person who makes it. The reason behind this was that a person making a statement stopped the opposite party from making further investigation. This view had been held by Hon‟ble ITAT Pune in the case of Hotel Kiran Vs. ACIT(82 ITD 453). The Hon‟ble ITAT Pune dismissed the appeal of the assessee on the ground that assessee had dealt in penny stocks which were manipulated and the assessee had surrendered the income during assessment proceedings after the modus operandi was confronted to the assessee. 5.2 Reliance is also placed on the recent decision of Hon'ble Madras ITAT, Bench-D in the case of Smt. Vidya Reddy Vs. ITO in ITA No.2016/Chny/2017 dated 15.05.2018 for AY 2014-15 wherein the issue under consideration was decided in the favour of Revenue. In the cited case also, the AO had received information from the Investigation Wing of Kolkata which revealed that there was an organized racket of generating bogus entries of long term capital gain being exempt from tax and the modus operandi of the operators was also exposed. Bringing those facts & finding out the other details such as financial reports of M/s. Surabhi Chemicals & Investment Pvt. Ltd., the AO held that long term capital gain claimed by the assessee was a rigged one. By placing reliance on the report of SIT headed by the Judges of 19 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 Supreme Court on the issue of misuse of exemption on long term capital gain tax for money laundering and applying the ratio of Hon‟ble Delhi ITAT in the case of Harsh Win Chadha Vs. DCIT in ITA No.3088 to 3098 & 3107/Del/2005, the AO held that transactions entered by the assessee was not genuine. The trading patterns of M/s. Surabhi Chemicals & Investment Pvt. Ltd. also showed that the assessee had manipulated the sale of shares within a short span of time in collusion with the brokers to earn tax free exempt income U/s 10(38) of the Act. The AO thereafter treated the entire sale consideration as unexplained credit U/s 68 of the Income Tax Act. The Hon‟ble Madras ITAT went through the SIT report on misuse of exemption on long term capital gain in para 5 of the appellate order. The findings of Hon‟ble ITAT in para 6 of its order dated 15.05.2018 are reproduced as under: “6. We heard the rival submissions and gone through relevant material. The facts found by the AO are that the assessee, an individual settled in USA, has purchased 6000 shares of face value of Rs.10/- each @Rs.25/- per share of M/s. Surabhi Chemicals & Investments Limited, offline, on 04.09.2012 from M/s. Akriti Advisory Services Private Limited, Mumbai when they were traded in the market @ Rs.0.26 paise. Further, as mentioned in detail in the assessment order, the financial results of the company from FY 2011-12 to FY 2015-16 do not show any prospective growth in the net-worth of the company to purchase share at Rs.25/-. The price of share of M/s. Surabhi Chemicals & Investment Ltd. was sky rocketed without having any awesome profit, EBITA margin, EPS bonus, dividend etc. None of the parameter, which is essential for increase of price of share, was present. In spite of this, if the share price is increased multi folded, then it is definitely due to artificial increase. The table in the assessment order clearly indicates that there is manipulation in trading of M/s. Surabhi Chemicals & Investments Limited, which clearly establishes that the share of the said company is a penny stock only. Further, the assessee had sold 60,000 shares of M/s. Surabhi Chemicals & Investments Limited. The trades have been executed with mutual understanding by placing simultaneous synchronized orders. This is also evident from the chart extracted in the assessment order. Successive bidding of order placed for large volume of shares like 18000 on 28.01.2014, 18000 on 03.02.2014, 7000 on 10.02.2014 &9000 in Feb., 2014 indicate that buyers are in collusion. Otherwise, execution of order placed is not possible particularly when trade price is static for various trades executed. All the trades have been executed at fraction of second. All these trading pattern show that LTCG admitted by the assessee is an arranged one. The payment of Security Transaction Tax was to paint creditworthiness to the transaction and claim exemption U/s 10(38). In view of the information provided by the Investigation Wing, Kolkata, the recommendations of SIT on Black money etc, the AO required the assessee to prove her claim of exemption. After considering her reply etc. he held, inter alia, that it is clear that the assessee has manipulated the sale of shares within a short span of time in collusion with the brokers in order to earn tax free exempt long term capital gains on sale of shares U/s 10(38) etc. It is clear from the orders of the Lower authorities that the assessee has not placed any material to prove that her transactions are genuine. She has also not placed any material to prove that her claim of exemption U/s 10(38) is genuine and valid. Since, the right to exemption must be established by those who seek it, the onus therefore, lies on them. In order to claim the exemption from payment of income tax, the assessee had to put before the Income Tax authorities proper material which would enable them to come to a conclusion (35 ITR 312) (SC). No part of the concurrent findings recorded by the AO and the Ld. CIT (A) is disputed by the assessee. Further, she has not placed any material before us to dislodge the findings recorded by the Lower authorities. Thus, the above 20 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 actions of the assessee are nothing, but a premeditated, contumacious conduct, surreptitiously done for specific reasons for converting unaccounted money of the assessee under the guise of long term share transactions, that too without paying the requisite tax on the same. This is clearly in the realm of tax evasion. Hence, we do not find any reason to interfere with the order of the Ld. CIT (A). On the other hand, from the above facts and surrounding circumstances, human conduct, preponderance of probabilities etc., the AO has clearly established that the impugned transaction is not made for an investment, i.e. the motive is not to derive income but to earn a profit that too by an arrangement and it is manipulated transaction in collusion with the brokers to paint creditworthiness to the transaction and claim exemption U/s 10(38). This is accordance with the ratios laid by the Hon‟ble Apex Court in Sumati Dayal Vs. Commission of Income Tax, 214 ITR 801 (SC) that “the apparent must be considered the real until it is shown that there are reasons to believe that the apparent is not real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be consider by applying the test of human probabilities (CIT Vs. Durga Prasad More [1971] 82 ITR 540 (SC). Further, the Hon‟ble Apex Court in Kale Khan Mohammad Hanif Vs. CIT, in 50 ITR 1 (SC) held that “it is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the Income Tax Officer is entitled to treat it as a taxable income (Govindarajulu Mudaliar Vs. CIT 34 ITR 807 SC). On the above facts and circumstances, it is clear that the assessee has not established her case. Though it did cross in our minds, that the assessee could be granted another opportunity to produce evidences in the form of producing the books involved in the transactions, their contemporary records, share transfer forms, the records of the company whose shares has been dealt with etc., for examination before the AO, we are no inclined to restore this issue to the AO as the assessee has not produced any convincing evidence to justify such re- adjudication by the AO. In the circumstances, the assessment made by the AO and confirmed by the Ld. CIT(A) is an accordance with the ratios of the Hon'ble Apex Court (supra) and hence we dismiss all the grounds of assessee‟s appeal. 5.3 The issue under the consideration is covered in the favour of the department by the order of the Hon‟ble Pune Tribunal in the case of Rajkumar B. Agarwal & others Vs. DCIT in ITA Nos.l648-52/PUN dated 04.01.2019 wherein the appeal of the assessees were dismissed. The findings of the Hon‟ble Tribunal in para 11 to para 19 are reproduced as under: “11. The facts apropos this issue are that the assessee declared short term capital gain of Rs. 22,02,745/- on sale of shares of PIL. The assessee was requested to substantiate the said claim by providing various details, such as name of company, number of shares, date of purchase, purchase cost per share, total purchase cost, date of sale, sale price per share, total sale price etc. The assessee filed certain details which have been reproduced on page 19 of the assessment order, claiming that he purchased 15000 shares of PIL on 03-09-2004 which were sold in two trenches of 1 lakh and 50000 shares. It was further explained that 15000 shares were purchased with face value of Rs. 10/- each and larger on the face value of share was split to Rs. 1/- each and accordingly, the assessee was allotted 1,50,000 shares in lieu of original 15000 shares of PIL, which were later on sold and resulted into capital gain. That is how, the assessee claimed that 15000 shares of PIL purchased for a sum of Rs. 75,197/- were sold for a total consideration of Rs. 22,77,943/- resulting into short term capital gain of Rs. 22,02,745/-. The 21 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 assessee further stated that the shares were purchased through broker Vijay Bhagwandas and Company and sold through another broker, namely Macy Securities Pvt. Ltd.. Despite the A.O‟s requirement to furnish Demat account in entirety, the assessee could furnish the Demat account details of the shares of PIL only from 2-06-2005 to 30-06-2005 and 04-07-2005 to 07-07-2005. The AO observed that the shares of PIL dealt in by the assessee were tainted and penny stock inasmuch as its price were manipulated. Such a conclusion was fortified from the enquiries conducted by Bombay Stock Exchange 9BSE) and Securities Exchange Board of India,(SEBI) in respect of the shares of PIL> The AO further observed that the shares were purchased through Vijay Bhagwandas & Co. who was suspended by SEBI for illegal activities in the trading of shares. The AO further observed that full-fledged enquiries were launched by BSI and SEBI into the purchase and sale of penny stock which divulged that the prices of the shares of PIL were also manipulated. In the absence of any Demat details filed by the assessee, the AO held that there was no proof of having received the shares of PIL immediately after the alleged date of purchase. The AO further observed that the family members of the assessee also claimed to have earned huge short term capital gain by trading in shares of PIL during the same period. In this backdrop of facts, he came to hold that the share prices of PIL were manipulated with an intention to provide short term tax free capital gain to the persons like the assessee and also simultaneously providing artificial loss to certain persons intending to evade tax by setting off the said artificial loss against other taxable actual profits. He treated the entire transaction as sham by holding that the short term capital gain brought into books/accounts was nothing but income of the assessee from undisclosed other sources. He, therefore, did not accept the genuineness of the accommodation entries in respect of penny stocks of PIL and charged to tax the sale proceeds of Rs.22,77,943/- as undisclosed income. He further held that no broker would give accommodation entries to the assessee without any commission. He estimated commission @ 6% on sale proceeds of 1,50,000 shares and made a further addition of Rs.1,36,677/-. The Id. CIT(A) sustained the addition by relying inter alia on two orders passed by the Mumbai Bench of the Tribunal viz. ITO Vs. Shamin Bharwani ITA No. 4906/Mum/2011 dated 27-03-2015 and Usha Chandresh Shah Vs. ITO ITA No.6858/Mum/2011 dated 26.09.2014, in both of which the additions made under similar circumstances were confirmed by the Tribunal. The assessee is aggrieved by the confirmation of addition. 12. We have heard both the sides and gone through the relevant material on record. It is seen that the assessee claimed to have earned short term capital gain of Rs.22,02,745/- in respect of sale of shares of PIL which were purchased for a paltry stun of Rs.75,197/- and sold for Rs.22,77,943/-. The AO on verification of the credentials of PIL and other attending circumstances observed that PIL was included in the list of penny stock companies in enquiries conducted by BSE and SEBI, whose prices were manipulated. The Id. AR was requested to place on record the balance sheet of PIL for verifying the findings of Id. CIT(A) of a very high P/E ratio of the shares of PIL, whose shares with Rs .l/- face value raised sharply from the bottom level of 0.31 paise to Rs.21.10 paise with multiple of 300 times. The Id. AR could not place on record copy of balance sheet of PIL. M/s DSP shares and Securities Ltd. and M/s Galaxy broking Ltd. Were fined vide SEBI orders dated 22.09.2012 and 24.09.2012 for manipulating the prices of PIL. The broker from whom the assessee allegedly purchased the shares of PIL namely, M/s. Vijay Bhagwandas & Company was visited with penalties vide SEBI orders dated 26-06-2009, 31-08-2009, 26-11-2009 etc. for manipulating the prices of various shares. They were debarred from acting as a share broker vide order dt. 24.01.2006 passed by the SEBI. Then the 22 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 assessee claimed to have sold the shares of PIL to M/s Macy Securities Pvt. Ltd. This company was also warned by SEBI vide orders dated 02.05.2011 and 02.06.2011 for manipulating the prices of different shares. All such details have been incorporated in the impugned order, which have not been controverted on behalf of the assessee. It is further relevant to note that the AO requires the assessee to furnish certain details including Demat account for the shares of PIL. The assessee miserably failed to place such details except for transactions from 29-06-2005 to 30-06-2005 and 04-07-2005 to 07- 07-2005. The entire position which thus emerges is that PIL is a penny stock company, which fact got established from enquiries conducted by BSE and SEBI. Not only the DSP shares and Securities Ltd. and Galaxy Broking Ltd. were fined for manipulating the prices of shares of PIL, even the broker from whom the assessee allegedly purchased the shares was suspended and debarred from acting as a broker by SEBI and further the broker to whom such shares were sold, was also warned by SEBI for manipulating the prices of different shares during the relevant period. There is doubt that the assessee completed paper-trail by producing contract notes for the purchase and sale of shares of PIL. In our considered opinion, 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. 13. At this juncture, it will not be out of place to refer to the judgment of the Hon‟ble Supreme Court in CIT Vs. Durga Prasad More (1971) 82 ITR 540 (SC), in which the assessee claimed before the ITO that income of certain property should not be taxed in his hands as it was a trust property. The ITO rejected the claim and included the income in the hands of the assessee. The Tribunal affirmed the decision of the ITO which was reversed by the Hon‟ble High Court. Reversing the verdict of the Hon‟ble High Court, their Lordships noticed that thought the assessee made a claim that income of the property was not his and produced conveyance executed in his favour and the deed of settlement executed by his wife, nearly about a year after the conveyance, however when the ITO asked the assessee about the source from which his wife got the amount, apart from saying that it was „sthridhan‟ property, he failed to disclose any source from which his wife could have got the amount for purchasing the premises. In this backdrop of facts, their Hon‟ble Supreme Court held that although the apparent must be considered as real, but if there are reasons to believe that the apparent is not real, as is the case under consideration as well, then the apparent should be ignored to unearth the harsh reality. 14. Similar view has been canvassed in Sumati Dayal Vs. CIT (1955) 214 ITR 801 (SC). The question for consideration in that case was whether the assessee purchased winning tickets after the event. If was observed that in all cases in which a receipts is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if a receipts is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act, lies upon the assessee. But in view of section 68, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In deciding the issue against the issue, their Lordships held that: „Apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitles to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of 23 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 human probabilities‟. This shows that a decision based on the attending circumstances and human probabilities does not get vitiated if there are compelling reasons to reject the frontage of a transaction based on the so- called evidence, which is nothing more than a mere paper work. 15. It is further pertinent to note that it was not only the assessee who booked short term capital gain on the sale of shares of PIL to the above extent but his family members were also not left behind. They also indulged in the similar paper transactions by allegedly purchasing and selling shares of PIL from the same brokers and showing huge amounts of short term capital gains, for which addition of Rs. 1871,906/- has been made in the hands of his son Sh. Bharat Rajkumar Agarwal and Rs. 20,21,001/- in the hands of his wife Ameeta Rajkumar Agarwal for the same assessment year, the appeals of which are being disposed off through this batch of cases. 16. In view of the factual and legal position discussed above, it is crystal clear that PIL is a penny stock company and the assessee obtained only accommodation entries in the grab of short term gain from transfer of shares of PIL, for which an appropriate addition has rightly been made and upheld by the authorities below. We therefore, countenance the impugned order on this score. 17. Before parting with this issue, we want to record that the ld. AR has relied on certain decisions in which the additions made on account of accommodations entries got deleted. In the oppugnation, ld. DR has also relied on certain decisions, including those referred to in the impugned order, in which the addition on account of accommodation entries got confirmed. We are not separately referring to those decisions as the factual position prevailing in such case varies with the facts of the instant case as recorded above Even a single slightest variation the extent case is different from those relied on by the rival parties, we are therefore desisting from distinguishing such cases separately. These grounds are, therefore, dismissed. 18. The next ground is against the confirmation of addition of Rs. 1,36,677/- on account of commission paid by the assessee for arranging deal of sale of shares of PIL. 19. We have hereinabove held that the transactions of purchase and sale of shares of PIL were only accommodation entries provided by the brokers.. such accommodation entries are obviously provided against certain commission. Considering the entirely of facts and circumstances of the instant case, we are of the considered opinion that it would be just and fair if the rate of commission is restricted to 2% as against 6% upheld in the first appeal”. 5.4 The test of human probability was also applied by the Hon'ble Punjab &Haryana High Court in the case of Som Nath Maini Vs. CIT (306 ITR 414). In this case, the assessee in his return declared loss from sale of gold jewellery and also declared a short-term capital gain from sale of shares so that the two almost matched each other. This simple tax planning became ineffective after the Assessing Officer disbelieved the astronomical share price increase applying the test of human probability. The Assessing Officer observed that short-term capital gains was not genuine in as much as the assessee had purchased 45000 shares of Ankur International Ltd. at varying rates from Rs.2.06/- to Rs.3.1/- per share and sold them within a short span of six-seven months at the rate varying from Rs.47.75/- to Rs.55/- per share. Even though the two respective transactions for purchase and sale of shares were routed through two different brokers, yet the Assessing Officer did not believe the astronomical rise in share price of a company from Rs.3/- to Rs.55/- per share in a short-term. The assessee lost its case before the Tribunal. Confirming the order of the Tribunal, the Hon'ble Punjab and 24 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 Haryana High Court held that the burden of proving that income was subject to tax is on the revenue but to show that the transaction was genuine, burden was primarily on the assessee. As per the Hon'ble High Court, the Assessing Officer was to apply the test of human probabilities for deciding genuineness or otherwise of a particular transaction. Mere leading of the evidence that the transaction was genuine, could not be conclusive. It was further held that genuineness of the transaction could be rejected in case the assessee led evidence which was not trustworthy and the department did not lead any evidence on such an issue. Similar view was taken by the Hon‟ble Punjab and Haryana high Court in the case of ACIT Vs. Balbir Chand Mani (111 TTJ 160).ln the present case, it is beyond preponderance of probability that the fantastic sale price of a little known share i.e. Pine Animation Ltd. without economic or financial basis, would increase from Rs.5/- to Rs.75.69/- per share. If one considers the fact that the assessee got 92,000 shares against original 9200 shares, the price increase is 151 times within 22 months which is evident from the fact that by investing Rs. 15,334/- (for 32,000 shares) the assessee has got Rs.24,21,971/- in a span of 22 months approximately. There is no doubt that the capital gain was manipulated and bogus and was done only to claim exemption U/s 10(38). It can be safely concluded that the AO has rightly added amount of Rs.23,72,323/-to the returned income of the appellant. Once the entire transaction is viewed from the perspective of human probabilities, it definitely fails on all counts. Respectfully following the above decisions and facts of the present case, the addition of Rs.23,72,323/- on account of bogus long term capital gain is confirmed. This ground of appeal is accordingly dismissed.” 4. Suffice to say, it has come on record with the able assistance coming from the Revenue side that the assessee’s impugned long term capital gains have been derived in collusion amongst entry operators and share traders as per the DIT (Investigation)’s report. Various judicial precedents (supra) have already held in identical circumstances that such long term capital gains are bogus in nature since they fail the test of human probabilities. I thus find no reason to interfere with the learned lower authorities’ action denying the impugned exemption to the assessee. I accordingly affirm the learned lower appellate reasoning in entirety in light of CIT Vs. K.Y. Pilliah & Sons (1967) 63 ITR 411 (SC). Ordered accordingly. 5. This assessee’s appeal is dismissed in above terms. Order pronounced in the open Court on this 11 th August 2022. Sd/- (SATBEER SINGH GODARA) JUDICIAL MEMBER Pune; Dated, this 11 th day of August 2022 Ankam 25 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The Pr. CIT - 2,Aurangabad 4. The Pr. CIT-2, Nasik 5. The SMC Bench, ITAT Pune. 6. Guard File BY ORDER, Sr. Private Secretary ITAT, Pune. 26 ITA No. 706/PUN/2019 Sangeeta B. Mangrule A,Y. 2015-16 Date 1 Draft dictated on 02-08-2022 Sr.PS 2 Draft placed before author 02-08-2022 Sr.PS 3 Draft proposed and placed before the second Member JM/AM 4 Draft discussed/approved by second Member AM/JM 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on 11-08-2022 Sr.PS/PS 7 Date of uploading of order 11-08-2022 Sr.PS/PS 8 File sent to Bench Clerk 11-08-2022 Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order
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