Pinky Agarwal , Kolkata V. ACIT, CC-3(1), Kolkata , Kolkata

ITA 984/KOL/2018

AI Insights

The case involves multiple appeals by different assessees against the orders of the Commissioner of Income Tax (Appeals) which confirmed the additions made by the Assessing Officer under sections 68 and 250 of the Income Tax Act, 1961. The additions were related to alleged bogus short-term capital loss and bogus long-term capital gain claimed by the assessees from transactions in penny stocks. The Tribunal heard the appeals together due to the commonality of issues and facts. The main legal contention revolved around the violation of principles of natural justice and the reliance on third-party statements and SEBI's interim order, which were later found to be insufficient to substantiate the claims of the Revenue.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 136041 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-02-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 10-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Deduction for capital gain; Search and seizure; Opportunity of being heard; Principle of natural justice; Opportunity of cross examination; Third party statement; Accommodation entries; Benefit of exemption; Onus to prove; Retraction; Sham transactions; Revised return; Penny stocks; Set aside; Capital Gains
• Section: 131; 68; 132; 143(3); 142(1); 133A; 250; 143(2); 64; 43; 48; 73; 72; 13; 22

Judgement Text

कोलकाता 'बी' पीठ, कोलकाता मŐ IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘B’ BENCH, KOLKATA ŵी संजय गगŊ, Ɋाियक सद˟ एवं डॉ. मनीष बोरड, लेखा सद˟ के समƗ Before SRI SANJAY GARG, JUDICIAL MEMBER & DR. MANISH BORAD, ACCOUNTANT MEMBER I.T.A. No.: 982/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd.....................................Appellant [PAN: AABCG 1634 L] Vs. ACIT, CC-3(1), Kolkata.................................................................Respondent I.T.A. No.: 983/KOL/2018 Assessment Year: 2014-2015 M/s. Nishit Agarwal Beneficiary Trust..........................................Appellant [PAN: AABTN 3350 K] Vs. ACIT, CC-3(1), Kolkata..................................................................Respondent I.T.A. No.: 984/KOL/2018 Assessment Year: 2014-2015 Pinky Agarwal................................................................................Appellant [PAN: ACGPA 7438 L] Vs. ACIT, CC-3(1), Kolkata.................................................................Respondent I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 2 of 74 I.T.A. No.: 2068/KOL/2018 Assessment Year: 2014-2015 Pratik Agarwal Beneficiary Trust..................................................Appellant [PAN: AABTP 7516 K] Vs. ACIT, CC-3(1), Kolkata.................................................................Respondent Appearances by: Sh. N. S. Saini, A/R, appeared on behalf of the Assessee. Sh. Sudipta Guha, CIT (D/R), appeared on behalf of the Revenue. Date of concluding the hearing: June 23 rd , 2023 Date of pronouncing the order: July 14 th , 2023 ORDER Per Manish Borad, Accountant Member: The captioned appeals filed by different assessees pertaining to the Assessment Year (in short “AY”) 2014-2015 are directed against separate orders passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) by ld. Commissioner of Income Tax (Appeal)-21, Kolkata [in short “ld. CIT(A)”]. 2. As the issues raised in these appeals are mostly common and the facts are almost identical, therefore, as agreed by both the parties, these are heard together and being disposed off by way of this common order for the sake of convenience and brevity. 3. The assessee is in appeal before this Tribunal raising the following grounds in the case of M/s. Gateway Financial Services Ltd. in I.T.A. No.: 982/KOL/2018: I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 3 of 74 “1) That under the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming addition of a sum of Rs.16,40,62,615/- holding the same to be the bogus loss claimed by the assessee. The addition, being based on the surmises & conjectures, need to be deleted. 2) That the assessee craves leave to add, alter, amend or withdraw any ground or grounds of appeal before or at the time of hearing.” 4. As regards I.T.A. Nos.: 983, 984 & 2068/KOL/2018 since the grounds are similar except the change in figure of the addition, we therefore, reproduce below the grounds of appeal raised in the case of M/s. Nishit Agarwal Beneficiary Trust in I.T.A. No.: 983/KOL/2018: I.T.A. No.: 983/KOL/2018: “1) That under the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming addition of a sum of Rs.7,54,31,166/- made by the AO for the long term capital gain claimed by the assessee folding the same to be bogus. The addition, being based on the surmises & conjectures, need to be deleted. 2) That the assessee craves leave to add, alter, amend or withdraw any ground or grounds of appeal before or at the time of hearing.” 5. In the case of the assessee namely M/s. Gateway Financial Services Ltd. (I.T.A. No.: 982/KOL/2018), facts in brief are that the assessee is a limited company. Income of Rs. 45,83,180/- declared in the return for AY 2014-15 filed on 27.09.2014. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. The reason for selecting the case for scrutiny was for verifying suspicious transaction relating to long term capital gain on share, low net profit from share broking business, Large value sale of option in securities (derivatives) in a recognised stock exchange, Large value sale of futures (derivatives) in a recognized stock exchange and Suspicious transactions relating to short term capital loss on share. Ld. AO observed that during the year the I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 4 of 74 assessee has claimed short term capital loss suffered on account of sale of equity shares of Blue Circle Services Ltd. Ld. AO on analysis of the financial details of the listed company namely Blue Circle Services Ltd. observed that the same has been used to set off income with bogus short term capital loss with the help of many connected parties through price rigging and price manipulation. Statement of Mr. Dhruva Narayan Jha son of Mr. Bhagender Jha who is an employee of Blue Circle Services Ltd. was recorded. Further, statement of Mr. Jagdish Prasad Purohit also recorded who is alleged to be the key person maintaining and controlling 246 companies. Further statement of Mr. Praveen Kumar Agarwal director of M/s. Gateway Financial Services Ltd. also recorded who stated that books of accounts of all the companies are properly maintained and it is prepared for filing of return only on the basis of bank statement. Ld. AO also noticed that Securities & Exchange Board of India (in short ‘SEBI’) vide order dated 17 th April, 2015 and 19 th December, 2014 has restrained Blue Circle Services Ltd. from dealing its securities market. Thereafter, ld. AO examined the financials of Blue Circle Services Ltd. and observed that in the long run, share prices of any company depends on its performance, financial stabilities, distribution of dividend, earning of the company and any major corporate announcements which indicates the promising future. Further, ld. AO observed that since there is not a single condition being fulfilled by this company i.e. Blue Circle Services Ltd. to justify the sudden sharp rise and fall of share price, the alleged claim of short term capital loss is bogus. However, while making the disallowance of short I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 5 of 74 term capital loss, ld. AO has mentioned it as addition towards long term capital gain. 7. As regards the remaining three assessees namely M/s. Nishit Agarwal Beneficiary Trust, Pinky Agarwal and Pratik Agarwal Beneficiary Trust the case of the assessee(s) were selected for scrutiny and ld. AO observed that all the three assessees have earned huge amount of long term capital gain claiming exemption u/s 10(38) of the Act from the sale of scrip namely Radford Global Ltd. Respective Assessing Officers while dealing in all these three individual cases mainly relied on the statement of Mr. Praveen Kumar Agarwal on 21.01.2016 before the Investigation Wing. However, the same was retracted on 16.04.2016. Ld. AOs have also referred to the statement of Mr. Soumen Chaudhury, Mr. Ranjeet Gupta and Mr. Chiranjit Mahanta recorded on 10.02.2015 as well as statement of Mr. Amit Singh and Mr. Bal Krishan Sikaria recorded on 22.12.2015 and 04.01.2016 respectively and report of investigation wing on similar types of transactions and role of entry operators. Under the similar facts, ld. AOs of the respective assessees held that the alleged long term capital gain is bogus and additions were made u/s 68 of the Act for unexplained cash credit towards bogus long term capital gain and undisclosed brokerage expenses. 8. Aggrieved, all the four assessees preferred appeal before ld. CIT(A) against the action of ld. AO but failed to succeed as ld. CIT(A)s have given almost identical finding in the instant appeals confirming the action of ld. AOs holding that bogus loss and bogus LTCG is claimed for dealing in I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 6 of 74 penny stock. For reference, we reproduce the finding of ld. CIT(A) in the case of M/s. Gateway Financial Services Ltd.: “6. After hearing the rival submissions, going through the orders of authorities below and paper book, we find that M/s Ankur International Ltd., although it is a quoted company, its shares were not being transacted at Ludhiana Stock Exchange at, the relevant time. Shares have been purchased and sold through the brokers and payments have been received in cheque on different dates as per the statement of account of M/s S.K. Sharma & Co, Factual matrix of the case from start of the purchase of shares at the rate of Rs. 3 to the sale of shares at Rs. 55 in a short span of time and shares being not, quoted at Ludhiana Stock Exchange and the way in which different, instalment payments have been received from the brokers and nonavailability of the records of the brokers and the shares remaining in the name of assessee even long after the sale of the shares does not stand the test of probabilities. As rightly pointed out by the learned Departmental Representative, these types of companies function in the capital market whose sale price is manipulated to astronomical height only to create the artificial transaction in the form of capital gam. Surrounding circumstances differ from the normal share market transactions in which they are ordinarily carried out. Taking all the steps together, final conclusion does not accord with the human probabilities. The Hon'ble Supreme Court in the case of CIT v, Durga Prasad More held as under: It is a story that does not accord with human probabilities. It is strange that High Court found fault with the Tribunal for not swallowing that story. If that story is found to be unbelievable as the Tribunal has found and in Our opinion, rightly that the decisions remains that the consideration for the sale proceeded from the assessee and therefore, it must be assumed to be his money. It is surprising that the High Court has found fault with the ITO for not examining the wife and the father-in-law of the assessee for proving the Department's case. All that we can say is that the High Court has ignored the facts of life. It is unfortunate that, the High Court has taken a superficial view of the onus that lay on the Department. 7. The learned CIT(A) only got swayed by the issuance of notice by the AO under Section 131 to both the brokers from whom shares were purchased and sold and came to the conclusion that share transactions were genuine overlooking the material gathered by the AO from the statements recorded of broker M/s S.K. Sharma & Co. and the other facts and circumstances that volume of transactions of Jaipur Stock Exchange is only 600 shares and 1000 shares. Payments have been I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 7 of 74 received from the brokers only in instalments over a period of 6-7 months. It is true that when transactions are through cheques, it looks like real transaction but authorities are permitted to look behind the transactions and find out the motive behind transactions. Generally, it is expected that apparent is real but it is not sacrosanct. If facts and circumstances so warrant that it does not accord with the test of human probabilities, transactions have been held to be non-genuine, it is highly improbable that share price of a worthless company can go from Rs. 3 to Rs. 55 in a short span of time. Mere payment by cheque and receipt by cheque does not. Render a transaction genuine. Capital gain tax was created to operate in a real world and not that of make belief. Facts of the case only lead to the inference that these transactions are not genuine and make believe only to offset the loss incurred on the sale of jewellery declared under VDIS. In the totality of facts and circumstances of this case and material on record, we are of the considered view that the CIT(A) was not justified in deleting the impugned addition. We, accordingly set aside the order of the CIT(A) and restore that of the AO. 8. In the result, the appeal of the Revenue is allowed. [Unquote] 10. Moreover, all the judgments relied upon by the appellant fall flat in the face of the facts of the case, and the preponderance of probability against the assessee. In a decision of the Hon'ble Bombay High Court in the case of Sanjay Bimalchand Jain Vs Pr. CIT by their order dated 10th April, 2017 have upheld the orders of the Hon'ble ITAT, Nagpur Bench dated 18.07.2016 in ITA No. 61/Nag/2013 in Sanjay Bimalchand Jain Vs ITO, Ward-4(2), Nagpur, wherein it was held that on the facts emergent in the case, and the preponderance of probabilities, entire Capital Gains claims were to be treated as fictitious and bogus. Bogus LTCG from Penny stocks: The assessee has not tendered cogent evidence to explain how the shares in an unknown company worth Rs.5 had jumped to Rs.485 in no time. The fantastic sale price was not at all possible as there was no economic or financial basis to justify the price rise, 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 gain has accordingly to be assessed as undisclosed credit u/s 68. In view of the above discussion, I find no infirmity in the orders of the Ld. AO, and I confirm the same, holding the claim of STCL of Rs.16,40,62,61/- to be bogus. Therefore this ground of appeal stands dismissed.” I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 8 of 74 9. Aggrieved, all the four assessees are now in appeal before this Tribunal. The assessee has filed separate written submissions for all the four appeals but they are almost identical and therefore, we reproduce below the written submission in the case of M/s. Gateway Financial Services Ltd.: “i) Gateway Financial Services Ltd., the appellant is a leading broking house of the country membership of the National Stock Exchange 1994. Gateway Financial Services Ltd is also a member of BSE & NSDL catering to the services of all financial products. The appellant purchased from the market 52,30,616 equity shares of Blue Circle Services Ltd. vide ISIN. INE526K01023 on the rolling market lot basis during the FY 2012-13 on various dates. The total purchase price paid through the bank account for the shares was Rs. 21,76,72,318/-. The evidence of purchase being the copy of SAUDA register is filed on pages nos. 70 to 86 of the paper book filed on 03.02.2023. The evidence of sale of 52,30,616 equity shares of Blue Circle Services Ltd. being copy of SAUDA register is filed at page nos. 87 to 93. The entire sale consideration of Rs.5,36,09,703/- was received through the banking channel. Also, the above shares were held in Demat Account with Gateway Financial Services Ltd, Id 10000140 at the time of the above transaction. The Appellant suffered a loss of Rs. 16,40,62,616/-the working of which is at page nos. 94 to 95 of the paper book. All documents of the transaction were filed before the lower authorities. In the said transaction there was no merger or amalgamation issue and therefore the finding of the Ld. CIT (A) at Page 52 of his order is incorrect. The transaction is shown to be very simple and established by direct evidence. Ld. AO at Page-2 of the Assessment Order has noted that statement of Sri Dhruva Narayan Jha was recorded on oath in the course of survey operation u/s 133A at the business premises of M/s. Blue Circle Services Ltd on 21.01.2015 and in reply to Question No. 6 he submitted that Sri Jagadish Prasad Purohit is the Managing Director of the group companies and proprietor of BC Purohit & Co. In reply to Question No. 7 he submitted that he was an employee of the group companies managed by Sri Jagadish Prasad Purohit and on his direction became the director of the companies. Ld. AO has also noted that statement of Sri Jagadish Prasad Purohit was recorded during search and seizure operation u/s 132(4) at his residential premises on 21.01.2015 when in reply to Question No. 10 he mentioned that 246 companies are managed and controlled by him. In reply to Question No. 16, it was stated by him that he was providing accommodation entries in the form of long term capital gain to different entities. In reply to Question No. 17, he stated I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 9 of 74 that Sri Bal Kishan Sikaria was referred by him to the client for availing the benefit of long term capital gain. ii) Ld. AO observed that SEBI vide Order dated 17.04.2015 and 19.12.2014 has restrained Blue Circle Services Ltd on the basis of manipulation charges from dealing in Security market in any form. iii) The appellant relies on the consolidated order dated 26.03.2021 of Delhi Bench of the Tribunal in the case of ITO, Ward-3(2), New Delhi Vs. M/s. Arizona Ventures Pvt. Ltd in I.T.A. No. 1428/ DEL/2016 and ITO, Ward-3(2), New Delhi Vs. M/s. Arizona Global Services Pvt. Ltd in I.T.A. No. 1429/DEL/2016 passed for the Assessment Year 2012-13 wherein Page-47 of the order it is noted that the statement made by Sri Jagadish Prasad Purohit during search u/s 132(1) on 21.01.2015 was retracted by him by way of an affidavit on 30.01.2015. The Tribunal therefore taking note of the same had proceeded to decide a similar issue in favour of the assessee and dismissed the appeal of the Revenue. In this case, it is pointed out to your Honours that the appellant filed a stricter Affidavit to the department on 18.04.2016 before the assessment proceeding, whereby the appellant had demanded a copy of the statements of the persons relied upon in the assessment and also required for cross-examination of the maker of the statement. Ld. AO neither supplied a copy of the statement requested nor allowed cross-examination of the persons whose statement was relied upon for making the addition. This goes to show that there is no specific information or material adverse to the appellant. However, the assessment having been based on suspicion and surmises is illegal. Further, the Appellant would draw the attention of the court to provisions of section Sec. 142(3) of the Act which provides that an opportunity for hearing shall be given to the assessee where ld. AO proposes to utilise any material gathered based on any enquiry under section 143(2) for the assessment where assessment is made u/s 143(3) failing which makes the assessment is void ab initio. iv) The Hon'ble Supreme Court in the case of CIT vs. Odeon Builders Private Limited [2019] 418 ITR 315 (SC) has held that Addition or disallowance cannot be made solely on third-party information without independently subjecting it to further verification by ld. AO. v) The Appellant relies on the decision of the Chennai Bench of the Tribunal in the case of Smt. Vandana Jain & Ors. Vs. ITO in ITA Nos. 1903 & 1904/Chny/2019 Order dated 31.03.2022 where the Hon'ble Tribunal in Para-12 of the Order has held that compliance of provisions of Sec. 142(3) is a mandatory statutory requirement in completing the assessment proceedings failing which may vitiate the entire assessment itself since the sub- sec. uses the word "shall". I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 10 of 74 vi) The Hon'ble Supreme Court in the case of Andaman Timber Industries Vs Commissioner of Central Excise reported in [2016] 38 GSTR 117 (SC) has held that the adjudicating authority's denial of the assessee's claim to cross-examine the witnesses through the statements of those witnesses was made the basis of the order, was a serious flaw which nullified the order since it was a violation of the principles of natural justice. vii) Also in the case of Principal Commissioner of Income Tax (Central) vs Oriental Power Cables Ltd reported in [2022] 143 taxmann.com 371 (SC) has held that failure to give the assessee the right to cross-examine witnesses whose statements are relied on results in a breach of principles of natural justice. It is a serious flaw which renders the order a nullity. viii) In the case of Kishinchand Chellaram (AIR 1980 14 SC 2117), the Hon'ble SC on the aspect of cross-examination held as follows:- "Indeed, the proceedings under the Income Tax law are not governed by the strict rules of evidence and therefore it might be said that even without calling the Manager of the Bank in evidence to prove this letter, it could be taken into account as evidence. But before the Income Tax Authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the Manager of the Bank concerning the statements made by him." ix) The Hon'ble Calcutta High Court in Eastern Commercial Enterprise, (1994) (Cal) [210 ITR 103] at page-111: Held as under:- Cross-examination is the sine qua non of due process of taking evidence and no adverse inference can be drawn against a party unless the party is put on notice of the case made out against him. He must be supplied with the contents of all such evidence, both oral and documentary so that he can prepare to meet the case against him. This necessarily also postulates that he should cross-examine the witness hostile to him. x) A similar view was also taken by the Hon'ble High Court of Rajasthan in the case of CIT vs. Smt. Sunita Dhadda reported in [2018] 406 ITR 220(Raj) wherein the Hon'ble Court has considered the judgment of the Hon'ble Supreme Court in the case of M/s Andaman timber Industries vs. CCE (supra) and confirmed the view taken by the Tribunal holding that "if the assessee is not provided any opportunity to cross-examine the person who stated to have received 'on-money' is a violation of principles of natural justice which, thus called for the deletion of addition so made by the Ld. Assessing Officer". I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 11 of 74 Four basic principles of law as has been consistently adopted for this type of case are: 1) The person who alleges should prove; 2) All adverse material is required to be supplied to the person against whom the allegation is made; 3) No findings can be recorded on surmises and conjectures; 4) Adverse action can be initiated only based on evidence; Except for a few exceptional cases where the facts were very weak, it was merely settled by countless judicial decisions of the Tribunal and the High Court that the Long Term Capital Gain claimed by the assessee on what is called PENNY STOCKS is genuine and has been taxed accordingly. xi) Recently, the Hon'ble Calcutta High court in Principal CIT Vs Swati Bajaj 446 ITR 56 (Cal) has set aside the Tribunal's order in favour of the assessee and upholding the orders of ld. AO, the Commissioner (Appeals) and the Commissioner (u/s 263), the Court decided the issue against the assessee and in favour of the Revenue. The assessee in this case submitted in support of the genuineness of the Long Term Capital Gain on Penny stock on direct evidence, such as the contract notes from the brokers, profit & loss A/c, Balance Sheet, computation of total income, proximate facts and circumstances surrounding the event on which the charges or allegations are founded to reach a reasonable conclusion and the test would be what inferential process a reasonable of prudent man would apply to conclude. The proximity and time and prior meeting of minds was also a very important factor especially when the Department pointed out that there had been an unnatural rise in the price of the scrips of very little-known companies. In all cases, there were a minimum of two brokers involved in the transactions. It would be very difficult to gather direct proof of meeting of mind of those brokers or sub-brokers or middlemen or entry operators, therefore the test to be applied was the test of preponderance of probability to ascertain whether there had been a violation of the provisions of the Act. Therefore the conclusion had to be gathered from various circumstances such as volume of trade, period of persistence in trading in the particular scrips, particulars of purchase and sale orders, the volume thereof and proximity of the time between the two which are relevant factors. Therefore methodology adopted by the Department could not be faulted. I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 12 of 74 The holistic approach was required to be made and the test of the preponderance of probability had to be applied in doing so one could not lose sight of the fact that prices of shares of very little-known companies with the insignificant business had arisen steeply within the period of little over a year. The department was not privy to such peculiar trading activities as they appeared to have been done through the various Stock Exchanges and it was only when the assesses claimed long-term capital gain or short-term capital loss that the investigation commenced. The Investigation did not commence from the assessee but commenced from the companies and the persons who were involved in the trading of the shares of these companies, which were all classified as penny-stock companies. The assessees were not named in the report and when the assessee claimed exemption the onus of proof was on the assessee to prove the genuinity. With due respect, it is submitted that one wonders when the assessee was not named in the report, how the onus could be on him to prove the genuinity. No doubt, the burden on the assessee to prove the genuineness of the share transactions carried out by him is not denied, and the assessee discharged this burden by producing direct documentary evidence in his possession. The assesses were lawfully bound to prove the huge long-term capital gain claims to be genuine. In other words, if there was information and data available of unreasonable rise in the price of these shares of these penny-stock companies over a short time of little more than one year, the genuinity of a such steep rise in the prices of these shares had to be established and the onus was on the assessee to do so has mandated in Sec. 68. It is submitted with due respect that the assesses who earned and offered long-term capital gains on penny stocks were certainly the beneficiaries of the unreasonable rise in the prices of penny stocks, but the assesses were not a party to, or responsible for, such unreasonable rise in prices nor was there any evidence to that effect the persons responsible for manipulations of such unreasonable rise in prices were the companies whose shares were being traded and the operators involved therein, not the assesses, who offered long term capital gains on the sale of such penny-stock shares. Therefore the burden was not on the assessee to prove the steep rise in prices of penny-stock shares. Once the assessee produced direct evidence in support of their transactions the onus on the assessee stands adequately discharged. It was observed by the Court that the assessee did not and could not dispute the fact that the shares of the companies with which it had dealt, were insignificant in value before the trading. It was the assessee who had to establish that the price rise was genuine. I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 13 of 74 It is humbly submitted that the burden on the assessee was to merely prove the genuineness of the share transactions, and not the genuineness of the price rise because the assessee had no say in, or control over, the companies whose share prices had risen sharply on the recognised Stock Exchanges. The assessee could not be saddled with the burden of proving the genuineness of the price rise of the scrips on the recognised Stock Exchanges. Therefore, it was entitled to claim long-term capital gains on the transaction. The court observed that until and unless the initial burden cast upon the assessee was discharged, the onus did not shift to the revenue to prove otherwise. Therefore, until and unless the assessee discharged such burden of proof, the addition made by ld. AO could not be faulted. With due respect, this reasoning of the Court is unconvincing in the light of the submissions made hereinabove. The initial burden cast upon the assessee stands adequately discharged the moment the assessee produces all the documentary evidence of the share transactions as stated above. The so-called initial burden on the assessee, it is submitted with due respect, does not include the burden to prove the genuineness of the rise in share prices on the Stock Exchanges especially when the Stock Exchanges are regulated by a statute (SEBI Act 1992), and a body constituted therein, namely, SEBI. The court observed that merely because the assessee had invested in other bluechip companies and earned profit or incurred loss, that would not validate the tainted transactions. It had been established by the Department that the rise of the prices of the shares was artificially done by adopting manipulative practices. Consequently, the resultant benefits accrued from such manipulated practices were also treated as tainted. However, the assessee had the opportunity to prove that there was no manipulation at the other end and that whatever gains the assessee had reaped were not tainted. This had not been proved or established by the assessee. Therefore ld. AO was well justified in concluding that the so-called explanation offered by the assessee was not to his satisfaction. Thus the assessee has not proved the genuineness of the claim, the creditworthiness of the companies in which it had invested and the identity of the persons to whom the transactions were done, had to necessarily proved. With due respect, it is submitted that the assessee was under no obligation to prove that there was no manipulation "at the other end" to establish that the capital gain earned by him on penny stocks was "not tainted". Both are different. The Hon'ble Court observed that in such a factual scenario ld. AOs as well as the Commissioners had adopted an inferential process that reasonable and prudent I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 14 of 74 person would follow. Ld. AOs and the Commissioners had culled out proximate facts in each of the cases, taken into consideration the surrounding circumstances which came to light after the investigation, assessed the conduct of the assesses, taken note of the proximity of the time between the purchase and sale operations and also the sudden and steep rise of the price of the shares of the companies when the general market trend was admittedly recessive and thereafter arrived at a conclusion which was a proper conclusion and in the absence of any satisfactory explanations by the assesses, ld. AOs were bound to make addition u/s 68. It is submitted with utmost humility and great respect that in the face of the direct documentary evidence submitted by the assessee in this case in support of his share transactions, this line of reasoning adopted by the Court appears to be unconvincing, looking at the settled rules of evidence in that jurisprudence. xii) The Hon'ble High Court at Calcutta in the case of Principal CIT Vs Swati Bajaj [2022] 446 ITR 56 (Cal) at Page 142 of the judgment in the second last paragraph has observed that where a witness has given directly incriminating statement and the addition in the assessment is based solely and mainly on the basis of such statement, in that eventuality it is incumbent on ld. AO to allow cross examination of the witness. Ld. AO at page-2 of his order has recorded the statement of Sri Jagadish Prasad Purohit during the search proceedings u/s 132(4) carried out at his residence on 21.01.2015 wherein in reply to Question No. 16 he stated that he was involved in providing accommodation entry in the form of long term capital gain to any entity. Further in reply to Question No. 17 he stated that he recommended Sri Bal Krishan Sikaria of 14, N.S. Road, Kolkata for providing accommodation entry in the form of long term capital gain. The statement have been utilised by ld. AO in holding that the short term capital loss incurred by the assessee from the transaction in shares of Blue Circle Services Ltd of Rs. 16,40,62,615/- as bogus. Therefore ld. AO was bound to supply those statements and allow the cross examination of the maker of the statements to the assessee according to the judgement of the Hon'ble Calcutta High Court in Swati Bajaj case as well as in view of the judgments of Hon'ble Supreme Court in the case of Andaman Timber Industries Vs Commissioner of Central Excise reported inn [2016] 38 GSTR 117 (SC), Principal Commissioner of Income Tax (Central) Vs Oriental Power Cables Ltd reported in [2022] 143 taxmann.com 371 (SC), Kishinchand Chellaram (AIR. 1980 14 SC 2117) and the Hon'ble Calcutta High Court in the case of Eastern Commercial Enterprise (1994) (Cal) [210 ITR 103]. I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 15 of 74 Further ld. AO at Page 13 of the assessment order has relied upon SEBI Order No. WTM/RKA/ISD/161/2014 Dated 19 December 2014 while treating the Long Term Capital Gain as bogus. The appellant relies on the order of the Hon'ble ITAT Delhi Bench in the case of Sri. Mukesh Mittal Vs. Income Tax Officer, Ward-41(1), New Delhi dated 26.03.2021 passed in SA No. 152/Del/2020 and ITA No. 761/Del/2020 for the Assessment Year 2014-15 where at Page -19 para-5 of the order the Tribunal has observed as under: However, it is now an admitted fact that interim orders of the SEBI have been later on revoked by the SEBI. The interim orders framed by SEBI dated 19.12.2014 and 26.8.2016 were revoked in respect of 82 entities including the assessee by final order dated 20.09.2017. It was held in Para 9 of the said order as under: "9. Upon completion of investigation by SEBI, investigation did not find any adverse evidence/adverse findings in respect of violation of provision of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities market) Regulations, 2003 (PFUTP Regulations) in respect of following 82 entities (against whom directions were issued vide the interim orders as confirmed vide the above said confirmatory orders) warranting continuation of action under section 11B r/w/11(4) of SEBI Act. However investigation has found adverse findings against Radford which warrants Adjudication proceedings". 5.1 The name of the assessee appears at item 77 of the list. Further it was held in Para 10 as under: "10 Considering the fact that there are no adverse findings against the aforementioned 82 entities with respect to their role in the manipulation of the script of Radford, I am of the considered view that the directions issued against them vide interim order dated December 19, 2014 and November 9, 2015, March 18, 2016 and August 26, 2016 are liable to be revoked." In this case, the above four cardinal principles have been ignored by the department. The appellant invested in the shares of the company but there is no reason to doubt the genuineness of the transaction. The addition made by the Ld. AO on account of alleged bogus short term capital loss of Rs. 16,40,62,615/- is not sustainable in law. In the assessment order, no adverse comment or statement was recorded against the share brokers of the appellant and the documents which have been furnished by the appellant have been set out by the AO in his order dated 29.12.2016 in paragraph 3, the AO has noted the explanation given by the appellant as to how the investment was made and going by the investment made by the appellant. Thus, it is submitted that the facts clearly show that the appellant, M/s Gateway Financial Services Ltd is a bona fide investor in stocks and shares. I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 16 of 74 Thus the statements relied upon by ld. AO in making the addition cannot be read against the appellant as they were not confronted by the appellant during the assessment as well not allowed to cross-examine the maker of the statement. If the statement is removed there is no material brought on record by the lower authority based on which addition can be made of Rs. 16,40,62,615/- by treating the short- term capital gain from the sale of shares as bogus. It is the submission that considering the above submissions the addition of Rs. 16,40,62,615/- be deleted in full and the grounds of appeal of the appellant are allowed.” 9.1. Further, as regards the remaining three assessee(s) the alleged LTCG is from sale of equity shares of Radford Global Ltd. Ld. Counsel for the assessee has made similar submissions as given in case of M/s. Gateway Financial Services Ltd. (supra). Further, at the time of hearing on 23.06.2023 (fixed for clarification), ld. Counsel for the assessee has made further submissions which reads as follows: “Further to the submissions made in the appeals we further submit as follows: The Securities and Exchange Board of India passed the final order in the investigation conducted into the trading and dealing in the scrip of Radford Global Ltd for the period February 27, 2012, to March 24, 2014, being the investigation period on August 29, 2019, in WTM/MPB/EFD1-DRA 3/62/2019. In the investigation conducted the SEBI found that majorly 5 sellers viz. Rajiv Garg, Sangita Pramod Harlalka, Shailesh Lalman Ojha, Arti ben S. Khansara and Manisha Jayesh Shah contributed singly or with connected entity more than 5% to increase in LTP. They placed sell orders for small quantities when large quantities of buy orders were pending and they were holding a sizeable number of tradable RGL shares. SEBI also observed that for transactions between 29.01.2013 - 23.07.2013 which was the post-split price rise batch the investigation revealed that a group of 24 connected entities 16 buyers and 8 sellers contributed Rs.23.35 of market positive LTP increase. Finally on Page 93 in Para-46 of the order, the SEBI observed that the allegation levelled in the show cause notice and the replies/submissions made by the notice in response to the show cause notice are considered and found that it refers to alleged violations against a total of 29 notices during 2 different patches of the I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 17 of 74 investigation. In respect of patch 1 i.e. from 27.02.2012 to 28.01.2013 allegations were levelled against 5 notices namely, Rajiv Garg, Sangita Pramod Harlalka, Shailesh Lalman Ojha, Artiben S. Khansara and Manisha Jayesh Shah, who are listed at SI. No.25 to 29 in the table on the first page. In respect of Patch-2 i.e. 29.01.2013 to 23.07.2013 allegations have been levelled against the remaining 24 notices. The Board observed that the following issues arise for consideration: A. Whether Notices No. 1- 24 (referred to in Table at page 1) acted collectively as a group and contributed 7.77% of the total market positive LTP increase during patch 2 thereby resulting in the false and misleading appearance of trading in the scrip of RGL and contributed to price rise in the scrip of RGL thereby violating the provisions of SEBI Act and PFUTP Regulations as alleged in the SCN? B. Whether Notices No. 25 to 29 (referred to in Table on page 1) sold shares in the market in very small quantities with a manipulative intent to increase the price of the scrip of RGL and thereby violated the provisions of SEBI Act and PFUTP Regulations as alleged in the SCN? C. If the answers to issues A and B are in the affirmative, what directions are required to be issued against the Notices? Thereafter SEBI concluded on Page 100 in Para 69 of the order as follows: “In the present case, the holistic consideration of the factors as discussed in earlier paragraphs does not lead, on the preponderance of probability basis, to the violations as alleged in the show cause notice qua Notices no. 1 to 24. Therefore, the charge of violation of Sections 12(a), (b) and (c) of the SEBI Act, 1992 read with regulations 3(a), (b), (c), (d) and 4(1), 4(2)(a) & (e) of SEBI (PFUTP) Regulations, 2003 is not established against the Notices no. 1 to 24.” It is submitted that the name of the assessees before the Hon’ble Tribunal -M/s. Nishit Agarwal Beneficiary Trust, Pinky Agarwal and Pratik Agarwal Beneficiary Trust appears at sl. No. 1 to 3 of the list of entities against whom the enquiry was conducted and also form part of a batch of 24 Notices referred to by SEBI. In respect of the batch of 24 Notices at SI. No.l to 24 SEBI found that the charge of violation of provisions of SEBI Act 1992 of price manipulation is not established. On identical facts the Ahmedabad Bench of the Tribunal in the case of ITO, Ward- 3(3)(2) Ahmedabad Versus M/s. Gokuldham Enterprise LLP in ITA No. 675/Ahd/2018 vide Order dated 11.01.2023 held as under: I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 18 of 74 14. We have also taken note of the decision of the ITAT Jaipur Bench in an identical case of addition made of bogus long term capital gains arising in trading of shares of the same scrip as in the present case, i.e. “MFTL”, wherein ITAT deleted the addition on the basis of the final order of the SEBI. The facts and circumstances of the case are identical to the present case. The Ld. DR was unable to point out any distinguishing fact, and therefore, the said decision is squarely applicable to the present case. The CIT (A)’s order deleting the addition of Rs.8,90,28,838/- in the present case is fortified by the said decision of the ITAT. As for the decision of the Hon’ble Calcutta High Court in the case of Swati Bajaj (supra), the Ld. Counsel for the assessee has rightly distinguished the same on facts pointing out that in those case there was no reference to any order of SEBI in the scrips traded in. That accordingly the Hon’ble High Court had dealt with the issue on merits referring to the financials of the scrips not supporting the high prices at which it were sold and accordingly holding that the assessee in such circumstances was required to establish the genuineness of the transaction. The Ld. DR was unable to controvert the factual distinction pointed out by the Ld. Counsel for the assessee as above. We agree therefore, in the light of the factual distinction, that the decision of the Hon’ble Calcutta High Court is not applicable in the present case. 15. In view of the above, we do not find any infirmity in the order of the Ld. CIT (A) deleting the addition made on account of alleged bogus long term capital gains of Rs.8,90,28,838/-. Accordingly, the grounds of the appeal of the Revenue are dismissed. It is prayed that facts being identical, following the precedent the addition made on account of alleged bogus long term capital gain be deleted in full and the appeals of the assessees are allowed.” 10. Though, ld. Counsel for the assessee has filed the written submissions both with regard to the merits of the case as well as the legal issue, however, the arguments were given on the legal issue in full force stating that the basis of the addition was the statement of third persons and the analogy adopted by ld. AO of disallowing the claim of short term capital loss as well as denying the benefit of exemption on long term capital gain was mainly on the basis of statements of various persons referred above in preceding paras. That as per the principles of natural I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 19 of 74 justice, ld. AO ought to have given an opportunity to the assessee to cross- examine these persons and failing which the action of ld. AO cannot be held to be legally sustainable. Ld. Counsel for the assessee has submitted that the statement of Sri Dhruva Narayan Jha was recorded in the course of survey operation u/s 133A at the business premises of M/s. Blue Circle Services Ltd on 21.01.2015 wherein he stated that Sri Jagadish Prasad Purohit is the Managing Director of the group companies and proprietor of BC Purohit & Co. and is an employee of the group companies managed by Sri Jagadish Prasad Purohit and was also the director of the companies, and as regards Sri Jagadish Prasad Purohit statements were recorded on oath in the course of search and seizure u/s. 132(4) at his residential premises on 21.01.2015. The Ld. Counsel for the appellant submitted that the appellants were not allowed to cross-examine the makers of the statement and hence these statements cannot be read against the appellant. To buttress his argument he relied on the judgment of the Hon'ble Supreme Court in the case of Andaman Timber Industries Vs Commissioner of Central Excise reported in (2016) 38 GSTR 117 (SC), Principal Commissioner of Income Tax (Central) Vs Oriental Power Cables Ltd reported in (2022) 143 taqxmann.com 371 (SC) and Kishinchand Chellaram (AIR 1980 14 SC 2117) wherein it has been held that adjudicating authority's denial of the assessee's claim to cross-examine the witnesses though the statements of those witnesses were made the basis of the order, was a serious flow which nullified the order since it was a violation of the principle of natural justice.” I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 20 of 74 11. On the other hand, ld. D/R vehemently argued supporting the orders of both the lower authorities, detailed finding of ld. CIT(A) and various decisions and judgments referred therein and further placed on record following written submission which inter alia includes all the four assessees in the bunch of appeals before us: “The above four appeals of the assessees were consolidated, being of common issues of capital gains claimed to have earned and also claimed as exempt u/s. 10(38) in A.Y.2014-15, and heard on 15.02.2023, and are as follows: S.N. Name of the assessee ITA No. PCIT Issue 1 M/s. Gateway Financial Services Ltd. (PAN: AABCG1634L) ITA No. 982/Kol/ 2018 PCIT (C)-2, Kol STCL of Rs. 16,40,62,615/- from script Blue Circle Services Ltd. 2 M/s. Nishit Agarwal Beneficiary Trust (PAN: AABTN3350K) ITA No.983/Kol/2018 PCIT (C)-2, Kol LTCG of Rs.7,54,31,166/-as claimed as exempt u/s.10(38) on script Rad Ford Global 3 Pinky Agarwal (PAN: ACGPA7438L) ITA No.984/Kol/2018 PCIT-9, Kol LTCG of Rs.7,89,94,398/- as claimed as exempt u/s.10(38) on script Rad Ford Global 4 Pratik Agarwal Beneficiary Trust (PAN: AABTP7516K) ITA No.2068/Kol/2018 PCIT (C)-2, Kol LTCG of 7,59,14,352/- as claimed as exempt u/s.10(38) on script Rad Ford Global The Ld. A/R of the assessee had argued on the issues of all the four cases advancing points in favour of grounds of appeal taken and thereafter the Hon'ble Bench asked the undersigned to counter argue. In the course of hearing, the undersigned heavily relied on the orders of the A.O. and the Ld. CIT(A) in all the cases with a special and resounding mention of judgment of PCIT vs. Swati Bajaj and Ors. Reported in 446 ITR 56 (Cal) (2022), I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 21 of 74 dealing with issue of claim of bogus capital gain on penny stock, holding the judgment in favour of Revenue. It is pertinent to mention that the Ld. A/R neither brought up any mention of the said judgment nor could establish concretely any distinguishable point in respect of the above four cases. Under the said circumstances and in compliance with the direction of the Ld. Bench of the ITAT, the undersigned now begs to submit the following in order to fortify the stand of the Revenue and counter the arguments put forth by the Ld. A/R of the assessee, in the backdrop of the issues dealt by the Hon'ble High Court of Calcutta in the case of PCIT vs. Swati Bajaj and Ors. 1) The Ld. A/R raised the issue of allowing opportunity of cross examination of entry operators and/or persons deposing before various I.T. Authorities and also relied upon by the A.O. and Ld. CIT(A) in their respective orders and provisions of Sec. 142(3) of the Act, which again speaks of offer of opportunity. In the case of PCIT vs. Swati Bajaj and Ors. the Hon'ble High Court rejected this similar ground taken and held that "However, if a witness has given directly incriminating statement and the addition in the assessment is based solely or mainly on the basis of such statement, in that eventuality it is incumbent on ld. AO to allow cross-examination. Adverse evidence and material, relied upon in the order, to reach the finality, should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of collateral nature." (Highlighted portion in the part of Hon'ble High Court order of the Annexure-A) Hon'ble High Court further held that "In view of the above facts and circumstances and in law, we find that in the instant case addition in dispute is not solely on the basis of the statement of persons and ld. AO has relied on other materials. The statements of the persons who controlled the business of providing accommodation entry have been corroborated with the material, surround circumstances and preponderance of probability. We accordingly uphold the finding of the Commissioner of Income-tax (Appeals) on that issue in dispute. The relevant ground of the appeal of the assessee are accordingly rejected." (Highlighted portion in the part of Hon'ble High Court order of the Annexure-B) (2) The Ld. A/R of the assessee submitted that Sri Praveen Kr. Agarwal, the entry operator who had deposed before the I.T. Authorities of having arranged bogus share capital gain on penny stocks, has retracted from his statement at a later date. I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 22 of 74 Any retraction of statement does not resolutely vitiate the substance in the orders of the A.O. and Ld. CIT(A). Purportedly, Sri Praveen Kr. Agarwal was arrested by the CBI as appearing in a Section of Press Report the headlines of which in Hindi reads CBI arrests the jama-kharchi operator(s) involved in 60 thousand crore scam in Kolkata in connection with another case, and charge-sheeted on 7th April 2016. (Copy of the press report enclosed as Annexure-C) The action of the Agency clearly indicates his involvement in such malpractices and thus any retraction of statement from his side takes a back seat. (3) The Ld. A/R had also submitted that the Ld. CIT(A) had mistakenly stated that there was an amalgamation in the case of Rad Ford Global whereas the case was not so. It is submitted that this argument is too feeble to feature in the larger aspect of things. Accordingly, where the statement of affairs and modus operandi of the aforesaid four assessees squarely match that of the cases cited in the order of the Hon'ble High Court of Calcutta in the case of Swati Bajaj and Ors. in as much as arranging and booking fictitious capital gains/losses through price rigging of penny stocks and being a party to a multi crore financial misdeed in bringing unaccounted moneys to its books, the order of the Ld. CIT(A), confirming the order of the A.Os and prayed to be upheld. It will be pertinent to mention, that the Ld. A/R was directed by the Bench to make a point wise written submission by evening of 15/02/2023 and provide a copy of the same to the office of CIT(DR), ITAT, Kolkata. However, till this point of time, this office is not in receipt of the same and thus the above may be treated as interim report. The undersigned craves to make a final submission, in case the Ld A/R submits the above.” 11.1. On the date of hearing fixed for clarification on 23.06.2023 ld. D/R has made further submissions which reads as follows: “With reference to the Order of SEBI in the matter of Radford Global Ltd, the brief note and other papers filed by the Ld. A/R of the assessee on 21.06.2023, the following submissions are being made for kind consideration of the Hon’ble Bench: I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 23 of 74 1. It is crux of the Ld. A/R’s submission that in three (3) cases out of the above four (4) assessees, viz. M/s Nishit Agarwal Beneficiary Trust, Pinky Agarwal & Pratik Agarwal Beneficiary Trust, SEBI found after the conduct of enquiry that the charge of violation of the provisions of SEBI Act 1992 of price manipulation was not established. SEBI observed inter alia in Para-59 at page no. 100 of its order dated 29.08.2019 that- “ ...in cases of alleged price manipulation like the present one, it is not always possible to find direct evidence of price manipulation and only a holistic consideration of the relevant facts and circumstances such as trading patterns of the entities, previous trading behaviour, linkages/connections amongst the entities, prevailing conditions in the market, liquidity in the scrip, etc. can establish the violations. In the present case, the holistic consideration of the factors as discussed in earlier paragraphs does not lead, on the preponderance of probability basis, to the violations as alleged in the show cause notice qua Notice ...Therefore, the charges of violation of sections is not established' 1.1. Prior to this, in Para-57 of its order, SEBI has observed that no circumstances have been brought out which suggests that the intra-group buyers and sellers had a prior meeting of minds and in furtherance thereof they executed the trades. [Emphasis provided] 2. It may be pertinent to mention that out of the four cases under consideration, M/s Gateway Financial Services Ltd., in which the addition was on account of bogus short term capital loss and the share scrip involved was also different, is not covered by the above quoted order of SEBI. 3. The Ld. A/R also relied on the order of Hon’ble ITAT Ahmedabad dated 11-01- 2023 in the case of Ward-3(3)(2) Ahmedabad v. M/S Gokuldham Enterprises LLP where the ITAT deleted the addition on account of bogus LTCG by observing inter alia as under: Para 11. A perusal of this show cause notice reveals that except for mentioning the fact that the shares have been sold at a very high price, there is no discussion as to how the price was found to be unreasonable. There is no discussion of the financials of the scrip dealt with by the assessee; there is no absolutely no basis established on merits by the AO as to why sale of these shares were at suspiciously high price. In the assessment order, after the show cause, the only discussion is with regard to the interim order of the SEBI indicting the dealings in these shares with several fraudulent charges as reproduced above, and on the basis of this interim SEBI order alone, the AO has rejected all documentary evidences filed by the assessee, as not being of any assistance to the assessee to prove the genuineness of the transaction. I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 24 of 74 The Ld. DR was unable to point out how the AO had made out a case of unreasonably high price of sale of shares of MFTL. 12. It is abundantly clear therefore that the entire case of the AO rested on interim order of the SEBI. The argument of the Ld. DR to the contrary is therefore rejected. 13. Further, it is fact on record that in the final order, the SEBI had absolved this scrip of MFTL from all charges of its price being manipulated to enable exiting shareholders in introducing their illegitimate gains from being introduced without payment of taxes. The Revenue does not dispute the same. As rightly pointed out by the Ld. counsel for the assessee, the specific purpose of the investigation, and both the interim and final orders of the SEBI was regarding manipulation of the price this scrip for providing accommodation entries to illegitimate gains of the share holders dealing in these scrip and final order of the SEBI has found all these charges to be baseless. The case of the Revenue in the present case also is the illegitimate gains being introduced by the assessee by way of fraudulent and manipulated share trading transaction. SEBI is a statutory body and its orders therefore cannot be simply brushed aside. The finding of the SEBI, in this final order, that the scrip dealt by the assessee were not manipulated and not fraudulent, therefore carries a lot of weight.... 14. We have also taken note of the decision of the ITAT Jaipur Bench in an identical case of addition made of bogus long term capital gains arising in trading of shares of the same scrip as in the present case, i.e. "MFTL", wherein ITAT deleted the addition on the basis of the final order of the SEBI. The facts and circumstances of the case are identical to the present case. The Ld. DR was unable to point out any distinguishing fact, and therefore, the said decision is squarely applicable to the present case. The CIT (A)'s order deleting the addition of Rs.8,90,28,838/- in the present case is fortified by the said decision of the ITAT. As for the decision of the Hon’ble Calcutta High Court in the case of Swati Bajaj (supra), the Ld. Counsel for the assessee has rightly distinguished the same on facts pointing out that in those case there was no reference to any order of SEBI in the scrips traded in. That accordingly the Hon’ble High Court had dealt with the issue on merits referring to the financials of the scrips not supporting the high prices at which it were sold and accordingly holding that the assessee in such circumstances was required to establish the genuineness of the transaction. The Ld. DR was unable to controvert the factual distinction pointed out by the Ld. Counsel for the assessee as above. We agree therefore, in the light of the factual distinction, that the decision of the Hon’ble Calcutta High Court is not applicable in the present case. I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 25 of 74 15. In view of the above, we do not find any infirmity in the order of the Ld. CIT (A) deleting the addition made on account of alleged bogus long term capital gains of Rs.8,90,28,838/-. Accordingly, the grounds of the appeal of the Revenue are dismissed. [ Emphasis provided] 3.1. In the light of the above decision, it is the argument of the Ld. A/R that the facts being identical, the additions made on account of alleged bogus LTCG in the 3 (out of 4) cases under consideration should be deleted. 4. In the context of the above submissions of the Ld. A/R, it submitted that in the facts and circumstances of the impugned appeals it would be incorrect to say that the AO’s orders in the three cases were based "only on the interim SEBI order alone' as noted by the Hon’ble Ahmedabad ITAT in M/s Gokuldham Enterprises(supra), on which heavy reliance was placed by the Ld. A/R. Primarily the orders of the AO were based on the results of exhaustive enquiries conducted by the Investigation wing of the Income Tax Department and the statements of various accommodation entry providers recorded during the course of investigation process. The AO made a comprehensive discussion in the assessment order regarding the modus operandi of share manipulators. He analysed the share price chart and the financial data of the company M/s Radford Global Ltd to conclusively establish with the help of flow charts and graphical representations the colourable nature of the transactions resulting in disproportionately high LTCG. After having done that he observed in P/10 of the order that not even a single condition was fulfilled by the said company which justifies the sudden sharp rise and fall of the share price. The AO also discussed the results of survey operation conducted by the Investigation wing of the department and to the statements of various accommodation entry providers to strengthen his case further. However, reference of the SEBI’s investigation was also made in the order, since SEBI is the regulatory authority for securities and commodity market in India where such price rigging and manipulations had taken place. Therefore, the findings of SEBI vide its order dated 19.12.2014, which had quite emphatically pronounced the acts and omissions of Radford Group & Suspected Entities and allottees as ‘fraudulent’, was considered to be relevant and rightly referred to by the AO as corroborative evidence to fortify his own findings, because SEBI, being the regulatory body had acknowledged at that point of time that there was a scam which resulted in price manipulation and generation of income by way of bogus LTCG/STCL. 5. The decision of Hon’ble Calcutta High Court in Swati Bajaj, [2022] 139 taxmann.com 352 (Calcutta) is in favour of revenue on identical facts as in the I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 26 of 74 present case. In the said decision, with regard to the prior meeting of minds before execution of the transactions leading to the generation of disproportionately high LTCG, the Hon’ble court observed in Para-73 as under: 73. It is very rare and difficult to get direct information or evidence with regard to the prior meeting of minds of the persons involved in the manipulative activities of price rigging and insider trading. We can draw a parallel in cases of adulteration of food stuff more than often action is initiated under the relevant Act after the adulteration takes place, the users of adulterated products get affected etc. Therefore, a holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, we cannot loose sight of the fact that the shares of very little known companies with in-significant business had a steep rise in the share prices within the period of little over a year. The Income- tax department was not privy to such peculiar trading activities as they appear to have been done through the various stock exchanges and it is only when the assessees made claim for a LTCG/STCL, the investigation commenced. As pointed out the investigation did not commence from the assessee but had commenced from the companies and the persons who were involved in the trading of the shares of these companies which are all classified as penny stocks companies. Therefore, the argument of the assessee that the copy of the investigation report has not been furnished, the persons from whom statements have been recorded have not been produced for cross examination are all contention which has to necessarily fail for several reasons which we have set out in the proceedings paragraphs. To reiterate, the assessee we not named in the report and when the assessee makes the claim for exemption the onus of proof is on the assessee to prove the genuinity. Unfortunately, the assessees have been harping upon the transactions done by them and by relying upon the documents in their hands to contend that the transactions done were genuine. Unfortunately, the test of genuinity needs to be established otherwise, the assessees are lawfully bound to prove the huge LTCG claims to be genuine. In other words if there is information and data available of unreasonable rise in the price of the shares of these penny stock companies over a short period of time of little more than one year, the genuinity of such steep rise in the prices of shares needs to be established and the onus is on the assessee to do so as mandated in Section 68 of the Act. Thus, the assessees cannot be permitted to contend that the assessments were based on surmises and conjectures or presumptions or assumptions. The assessee does not and cannot dispute the fact that the shares of the companies which they have dealt with were insignificant in value prior to their trading. If such is the situation, it is the assessee who has to establish that the price rise was genuine and consequently they are entitled to claim LTCG on their transaction. Until and unless the initial burden cast upon the assessee is I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 27 of 74 discharged, the onus does not shift to the revenue to prove otherwise. It is incorrect to argue that the assessees have been called upon to prove the negative in fact, it is the assessees duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. The assesses cannot be heard to say that their claim has to be examined only based upon the documents produced by them namely bank details, the purchase/sell documents, the details of the D-Mat Account etc. The assesses have lost sight of an important fact that when a claim is made for LTCG or STCL, the onus is on the assessee to prove that credit worthiness of the companies whose shares the assessee has dealt with, the genuineness of the price rise which is undoubtedly alarming that to within a short span of time. [Emphasis provided] 5.1. Thus, the Hon’ble court acknowledged the difficulties in getting direct proof of the prior meeting of minds of the persons involved in manipulative transactions and held that onus was cast on the each individual assessee, who has to establish that the price rise was genuine and consequently he/she/it is entitled to claim LTCG/STCL on such transaction. 6. As pointed out in Para-4 above, in the cases under consideration the AO had comprehensively dealt with each and every aspect of the case before concluding that the LTCG was bogus. He added back the sums u/s 68 of the Act in each case as the onus cast on the assessees could not be discharged by them. Even though he made a reference to the SEBI’s investigation and its order to strengthen his assessment order but evidently did not place sole reliance on the same. Therefore, the assessment orders in the cases under consideration are completely different from the one under consideration of Hon’ble Ahmedabad ITAT in the case of M/S Gokuldham Enterprises LLP (supra), where sole reliance was stated to have been placed in the SEBI order . Consequently, the ratio of the said decision is not applicable in these cases. 7. It may also be mentioned that the order of the AO has been confirmed by Ld. CIT(A) by passing a detailed and well reasoned order. He highlighted various decisions of the apex court on the test of human probabilities and also that the true nature of the transaction has to be ascertained in the light of surrounding circumstances before upholding the addition made by the AO. 8. In view of the facts and circumstances stated above, it is submitted that SEBI’s order 29.08.2019 should not have any significant impact in the outcome of the present proceedings. Income Tax Department is a law enforcing agency and it has its own investigation arm. The result of investigation conducted by it was the I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 28 of 74 fulcrum on which the AO based his assessment order. It is, therefore, prayed before the Hon’ble bench that the findings of the AO and the CIT(A) on the issue in dispute be upheld, the prayer of the Ld. A/R vide his latest submission dated 21.06.2023 be rejected and the assessees’ appeals be dismissed. 12. We have heard rival contentions and perused the records placed before us, carefully gone through all the written submissions and the judgments referred and relied by both the parties. In the instant bunch of four appeals, the one in the case of M/s. Gateway Financial Services Ltd. claim of short term capital loss has been denied and in the remaining three cases long term capital gain exemption u/s 10(38) of the Act has been denied. The basis of said action by the Revenue authorities has been mainly on the basis of the statements of various persons which are either directly connected to the group of assessees in appeal before us or they are third persons which were found by the Investigation Wing of the Income Tax Department to be engaged in providing accommodation entry in the form of bogus capital gain. Though in the written submissions filed by the assessee arguments have been placed both on the legal issue as well as merits of the case, we will first take up the legal ground raised in the instant bunch of appeals. 14. The legal issue raised is that principles of natural justice have been violated by ld. AO by not providing an opportunity to cross-examine those persons whose statements have been recorded at the back of the assessee and have been used against the assessee(s) and thus, the prayer has been made by the ld. Counsel for the assessee that due to the violation of principles of natural justice the assessment orders are illegal, invalid, bad in law and liable to be quashed. I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 29 of 74 15. We observe that in the case of assessee namely M/s. Gateway Financial Services Ltd., incurred short term capital loss from purchase and sale of equity shares of Blue Circle Services Ltd. during FY 2013-14. In the said transaction of short term capital loss (in short ‘STCL’)/long term capital gain (in short ‘LTCG) there is no merger or amalgamation issue. The transaction is shown to be very simple and established by direct evidence. Before going into the merits of the case, ld. AO firstly referred to the statement of Mr. Dhruva Narayan Jha which was recorded during the course of survey operation carried out at the business premises of Blue Circle Services Ltd. on 21.01.2015 which is much after the date of alleged transactions carried out on the recognised stock exchange platform and through banking channel. Secondly, ld. AO referred to the statement of another Mr. Jagdish Prasad Purohit recorded on oath during the course of search u/s 132 of the Act carried out on 21.01.2015 at his residential premises wherein he stated to have been controlling 246 companies engaged in providing accommodation entry. Third reference was made by ld. AO to the statement of Mr. Praveen Kumar Agarwal who is the director of M/s. Gateway Financial Services Ltd. which was recorded on 10.02.2015. All the above three statements were recorded much before the date of selecting the case of the assessee for scrutiny. However, in the assessment order firstly reference has been made to all the three statements of the persons named above and thereafter, the modus operandi of arranging bogus short term capital loss has been discussed and then the financials of Blue Circle Services Ltd. has been analyzed. The very basis of the addition made by ld. AO is on the statements of three persons I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 30 of 74 of which one is related to the assessee company and the two are third persons. 15.1. During the course of hearing, statement of Mr. Praveen Kumar Agarwal was again recorded on 21.01.2016 by ld. AOs of the other three assessee(s) before us namely M/s. Nishit Agarwal Beneficiary Trust, Pinky Agarwal and Pratik Agarwal Beneficiary Trust wherein he stated that the capital gain earned by him and his members were pre-arranged and bogus but the said statement was retracted through an affidavit filed before the Investigation Wing of Income Tax Department on 16.04.2016. Since Mr. Praveen Kumar Agarwal retracted his statement it lost its evidentiary value and the remaining two persons namely Mr. Dhruva Narayan Jha and Mr. Jagdish Prasad Purohit are, those, persons who were totally unknown to the assessee(s) but their statements have been used by ld. AO to make the addition in the hands of the assessee. So far as the remaining three assessees namely M/s. Nishit Agarwal Beneficiary Trust, Pinky Agarwal and Pratik Agarwal Beneficiary Trust apart from the statement of Mr. Praveen Kumar Agarwal taken on 21.01.2016 which stands retracted on 16.04.2016 by way of an affidavit, strong reliance was placed by ld. AO on the statement of Mr. Amit Singh (recorded on 22.12.2015), Mr. Bal Krishan Sikaria (recorded on 04.01.2016), Mr. Soumen Chaudhury, Mr. Ranjeet Gupta and Mr. Chiranjit Mahanta (recorded on 10.02.2015). After referring to these statements, some discussions have been made by ld. AO referring the scrip Radford Global Ltd. as a penny stock. However, now in the case of these three assessee(s) also no opportunity was provided for cross-examination of the persons whose I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 31 of 74 statements have been relied heavily by ld. AO for making the impugned addition. 16. Further, we note that ld. AO relied on the report of the Directorate of Investigation wing Kolkata which found that the broker and promoter through a racket were facilitating various individuals in covering the unaccounted money by providing long-term capital gain in quoted shares which was exempt u/s 10(38) of the Act without any tax implication. Ld. AO also discussed the modus operandi of the same. Considering the above statements and report of the Investigation Wing ld. AO concluded that the STCL/LTCG incurred/earned by the assessee(s) during the year of are bogus. 17. When the matter travelled before ld. CIT (Appeals) it was commonly observed placing reliance on various judgments of High Courts and Tribunals quoted in the impugned orders confirmed the finding of ld. AO and dismissed the appeal of the appellant. 18. Before us, Ld. Counsel for the assessee has submitted that the statement of Sri Ranjeet Gupta, Sri Chiranjit Mahanta and Sri Soumen Chaudhary recorded on 10.02.2015, the statement of Sri Amit Singh recorded on 22.12.2015 and the statement of Sri Bal Krishan Sikaria recorded on 04.01.2016 were not provided to the assessee by ld. AO before relying on the same. The Ld. Counsel for the appellant submitted that the appellant was not allowed to cross-examine the makers of the statement and hence these statements cannot be read against the appellant. To buttress his argument he relied on the judgment of the Hon'ble Supreme I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 32 of 74 Court in the case of Andaman Timber Industries Vs Commissioner of Central Excise reported in (2016) 38 GSTR 117 (SC), Principal Commissioner of Income Tax (Central) Vs Oriental Power Cables Ltd reported in (2022) 143 taqxmann.com 371 (SC) and Kishinchand Chellaram (AIR 1980 14 SC 2117) wherein it has been held that adjudicating authority's denial of the assessee's claim to cross-examine the witnesses whose statements of are made the basis of the additions in the hands of the assessee is a serious flow which nullifies the order since it was a violation of the principle of natural justice as provided under Article 21 of the Constitution of India. 19. We also observe that according to the provisions of Sec. 142(3) of the Income Tax Act 1961 the assessee shall, except where the assessment is made u/s 144, be given an opportunity of being heard in respect of any material gathered based on any enquiry under sub-sec. (2) and proposed to be utilised for the assessment. We note that ld. AO has relied on the report of the Directorate Investigation Kolkata and the statements of various persons for holding the long-term capital gain earned by the appellant as bogus without providing a copy of the same and allowing the appellant an opportunity of hearing to controvert the same. 20. We also note that ld. AO has relied on the statements of five persons and the Investigation report. In the instant case an adverse inference against the well documented claim made by the assessee was drawn only on the basis of the statement of five persons. The claim of the assessee that copies of statements of five persons which were relied upon by the Department was not provided to the assessee prior to the completion of assessment could not be controverted by the Revenue. In the above I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 33 of 74 circumstances it is a well settled law that the material which has been gathered behind the back of the assessee cannot be read against the assessee unless the assessee has been confronted with that material and was allowed a reasonable opportunity to rebut the same. 21. So far as the recent judgment of Hon'ble Jurisdictional High Court in the case of Principal CIT Vs Swati Bajaj reported in [2022] 446 ITR 56 (Cal) is concerned, we observe that the Hon'ble High Court at Calcutta in the case of Principal CIT Vs Swati Bajaj [2022] 446 ITR 56 (Cal) at Page 142 of the judgment in the second last paragraph has observed that where a witness has given directly incriminating statement and the addition in the assessment is based solely and mainly on the basis of such statement, in that eventuality it is incumbent on the Assessing Officer to allow cross examination of the witness. Adverse evidence and material, relied upon in the order, to reach the finality should be disclosed to the assessee. In the case of the appellant the Assessing Officer has noted at Page-2 of the assessment order dated 18.12.2016 that employee of Gateway Financial Sri Ranjeet Kumar Gupta, Sri Kiranjeet Mahanta in their statement on oath dated 10.02.2015 accepted that they are appointed as director in different zama kharchi companies. Further the employee of Gateway Financial Sri Soumen Chowdhury in his statement on oath dated 10.02.2015 accepted that the said company is engaged in buying and selling of different shares including jamakharchi companies for providing accommodation entry in different forms such bogus long term capital gain/loss etc. He also explained the modus operandi of pre-arranged bogus LTCG transactions. The AO further observed that statement of Sri Amit Singh was recorded I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 34 of 74 on oath on 22.12.2015 who in reply to Question No.5 accepted that he was working under the direction of Sri Bal Kishan Sikaria Director of Sikaria Share & Stock Broking Services Ltd. The AO further noted that statement of Sri Bal Kishan Sikaria was recorded on oath on 04.01.2016 who is a Director of Sikaria Share & Stock Broking Services Ltd which is the member of Calcutta Stock Exchange and 5 Other companies. Mr. Amit Singh of an employee of him, who in reply to Question No. 6 confirmed that he was indulging in providing accommodation entries to various parties and in reply to Question No. 12 he stated that he confirms that Sri Amit Singh was the Proprietor of M/s SS Enterprises which is controlled and managed by him have purchased 2,69,870 shares of Radford Global through Calcutta Stock Exchange which were sold by Pratik Agarwal Beneficiary Trust, Praveen Agarwal HUF, Pinky Agarwal and Nishit Agarwal Beneficiary Trust of approx. Rs.2,19,10,234/- through their seller-broker M/s. Gateway Financial Services Pvt. Ltd resulting in facilitation of pre-arranged accommodation entry of LTCG to them. This evidence was utilised by the Assessing Officer in treating their Long Term Capital Gains from transaction in shares of Radford Global Ltd as bogus and making addition u/s 68 of the Act. 22. Regarding the report of SEBI report dated 19.12.2014 we find that the said order was revoked by SEBI by the final order dated 20.09.2017 in SEBI/WTM/MPB/EFD-1-DRA-III/ 30 /2017 by observing as under: “Considering the fact that there are no adverse findings against the aforementioned 82 entities with respect to their role in the manipulation of the scrip of Radford, I am of the considered view that the directions issued against them vide interim orders dated December 19, 2014 and November 9, 2015 which were confirmed vide I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 35 of 74 Orders dated October 12, 2015, March 18, 2016 and August 26, 2016 are liable to be revoked. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11(4) and 11B of the SEBI Act, hereby revoke the Confirmatory Orders dated October 12, 2015, March 18, 2016 and August 26, 2016 qua aforesaid 82 entities (paragraph 9 above) with immediate effect.” 23. It is well settled that while acting in their quasi-judicial capacity the income tax authorities have to adhere to the principles of natural justice and in the instant cases Assessing Officers of respective assessee(s) ought to have given opportunity to assessee(s) to cross examine these five persons whose statements were the basis of alleged additions. 24. Coordinate Bench Delhi in the case of Nokia India (P.) Ltd. vs. DCIT reported in [2015] 59 taxmann.com 212 (Delhi - Trib.) has held that “whether cross-examination is to be provided or not depends upon the facts of each case and there is no thumb rule or straight tight jacket formula for arriving at this conclusion. It all depends on facts of each case whether principles of natural justice have been complied with or not. If decision making authority has provided due opportunity to the person complaining of non-observance of principles of natural justice, then it is for the person so complaining to demonstrate the same and show the prejudice caused to him. Mere bald assertion of non-observance of the principles of natural justice is of no consequence. 25. Further, Supreme Court in the case of Andaman Timber Industries v. CCE reported in (2015) 281 CTR 241 (SC) has considered that “if there was no material with the Department on the basis of which it could justify its action, and if the statement of the two witnesses who were unknown to the appellant was the only basis of issuing the Show Cause Notice, right to cross examination has I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 36 of 74 to be given and held that we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause Notice.” 26. The Hon’ble Supreme Court of India in New India Assurance Company Ltd. v. Nusli Neville Wadia & Anr., AIR 2008 SC 876, while considering a case under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971, held that though the statute may not provide for cross- examination, the same being a part of Principles of Natural Justice should be held to be an indefeasible right. It was held as follows: “If some facts are to be proved by the landlord, indisputably the occupant should get an opportunity to cross-examine. The witness who intends to prove the said fact has the right to cross-examine the witness. This may not be provided by under the statute, but it being a part of the principle of natural justice should be held to be indefeasible right" 27. In the case of Rajiv Arora v. Union of India and Ors. AIR 2009 SC 1100 Hon'ble Supreme Court observed that “effective cross-examination could have been done as regards the correctness or otherwise of the report, if the contents of them were proved. The principles analogous to the provisions of the Indian Evidence Act as also the principles of natural justice demand that the maker of the report should be examined, save and except in cases where the facts are admitted or the witnesses are not available for cross-examination or similar situation. The High Court in its impugned judgment proceeded to consider the issue on a technical plea, namely, no prejudice has been caused to the Appellant by such non-examination. If the basic principles of law have not been complied I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 37 of 74 with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review.” 28. The aforesaid decision makes it evident that, not only should the opportunity of cross-examination be made available, but it should be an effective cross examination, so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity, it cannot be held that the matter has been decided in accordance with law, as cross- examination is an integral part and parcel of the principles of natural justice. Cross-examination is must where Assessing Officer relies upon only on the statement of the Third Party unconnected with the appellant 29. In the case of Krishna Chand Chela Ram v. CIT reported in (1980) 125 ITR 713 (SC) the Supreme Court has held that “cross-examination is must where Assessing Officer relies upon only on the statement of the Third Party unconnected with the appellant. Hon’ble Supreme Court has held that the letters, dated 14.02.1955 and 09.03.1959, did not constitute any material evidence which the Tribunal could legitimately taken into account for the purpose of arriving at the finding that the amount of Rs. 1,07,350 was remitted by the assessee from its Madras Office, and if these two letters were eliminated from consideration, there was no material evidence at all before the Tribunal which could support its finding. What the manager of the bank wrote in his letters could not possibly be based on his personal knowledge but was based on here say. The revenue authorities ought to have called upon the manager to produce the documents and papers on the basis of which he made the statement and confronted the assessee with those documents and papers.” I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 38 of 74 30. In the case of Dhakeswari Cotton Mills Ltd. v. CIT reported in (1954) 26 ITR 775 (SC) the Hon'ble Supreme Court has held that “the rule of law on this subject has been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh where it was stated that while proceeding under sub- section (3) of section 23, the Income-tax Officer, though not bound to rely on evidence produced by the assessee as he considers to be false, yet if he proposes to make an estimate in disregard of that evidence, he should in fairness disclose to the assessee the material on which he is going to find that estimate; and that in case he proposes to use against the assessee the result of any private inquiries made by him, he must communicate to the assessee the substance of the information so proposed to be utilized to such an extent as to put the assessee in possession of full particulars of the case he is expected to meet and that he should further give him ample opportunity to meet it." It was held in that case that "In this case we are of the opinion that the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing.” 31. In Suraj Mall Mohta and Co. v. A. V. Visvanatha Sastri reported in (1954) 26 ITR 1 (SC) the Supreme Court has held that “the assessment proceedings before the Income-tax Officer are judicial proceedings and all the incidents of such judicial proceedings have to be observed before any conclusion is arrived at. The assessee has a right to inspect the record and all relevant I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 39 of 74 documents before he is called upon to lead evidence in rebuttal. This right has not been taken away by any express provision of the Income Tax Act.” 32. In respect of the report of the Investigation Wing of the Department, the appellant pointed out the said report nowhere states the name of the appellant or the transaction of the appellant. The said investigation was carried out in case of any other person and not in case of the appellant. In the said investigation the transaction in question of the appellant was not commented upon by the Investigation Wing and therefore the said Investigation Wing report is not evidence to impeach the transaction of the appellant. We find that the Ld. Departmental Representative could not point out anything to show that the said Investigation report was relied upon by ld. AO in the order of assessment was related to the specific transaction of the appellant. In the circumstances, the said Investigation Report wherein some other persons were found to be involved in some manipulation does not establish that the appellant was also involved in any manipulation. 33. Recently, Hon'ble High Court of Orissa in the case of PCIT vs. Dipansu Mohapatra reported in [2023] 149 taxmann.com 99 (Orissa) adjudicating similar case of exemption claimed u/s 10(38) of the Act and the assessee was alleged to have taken accommodation entries from Kolkata based companies on the basis of the report of Investigation Wing of Income Tax Department. The relevant finding of the Hon'ble Court dealing with the issue of opportunity of cross-examination and principles of natural justice not given to the assessee held as follows: I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 40 of 74 “6. Another ground on which the ITAT found fault with the additions made by the AO was that reliance was placed on statement of 'so called entry operator' to justify the additions under sections 68 and 69 of the IT Act. These statements were recorded on various dates in some other proceedings not connected with the Assessee. Further, the statements were recorded much before the date of the survey conducted on the Assessee. It was unable to be disputed by the Department that the Assessee did not have an opportunity to challenge such statements and further, no opportunity to cross-examine the so-called entry providers was given to the Assessees. 7. Having heard learned Senior Standing Counsel for the Department (Appellant) and having perused the impugned orders of the AO, CIT(A) and the ITAT, the Court finds that both the grounds viz., the claim for benefit of section 10(38) of the Act and denial of an opportunity to cross examine the entry providers, turned on facts. The ITAT was justified in accepting the plea of the Assessee that the failure to adhere the principles of natural justice went to the root of the matter. Also, the CBDT circular that permitted to the Assessee to file revised returns if he omitted to make a claim was also not noticed by the AO.” Therefore the Assessing Officer was bound to supply those statements and allow the cross examination of the maker of the statements to the assessee according to the judgement of the Hon'ble Calcutta High Court in Swati Bajaj (supra) case as well as in view of the judgments of Hon'ble Supreme Court in the case of Andaman Timber Industries Vs Commissioner of Central Excise reported in [2016] 38 GSTR 117 (SC), Principal Commissioner of Income Tax (Central) Vs Oriental Power Cables Ltd reported in [2022] 143 taxmann.com 371 (SC), Kishinchand Chellaram (AIR 1980 14 SC 2117) and the Hon'ble Calcutta High Court in the case of Eastern Commercial Enterprise (1994) (Cal) [210 ITR 103].” 34. In view of the above discussion, we notice that so far as the statement of Mr. Praveen Kumar Agarwal is concerned who is the director of one of the group companies namely M/s. Gateway Financial I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 41 of 74 Services Ltd. already stands retracted by him by filing affidavit before the Investigation Wing of Income Tax Department and also as regards the submissions of ld. D/R that proceedings under other Acts were carried out in the case of Mr. Praveen Kumar Agarwal it was stated by ld. Counsel for the assessee as an officer of Court that as on date no proceedings are pending against Mr. Praveen Kumar Agarwal in regard to the alleged transactions before any authorities other than Income Tax Department. Even otherwise, we are not dealing with the case of Praveen Kumar Agarwal. So far as the statements of remaining persons which have been referred by ld. AOs in the assessment orders they have all either been taken during the course of search/survey in some other cases or during the course of any proceeding in the case of the company the shares of which have been traded by the assessee(s), however, there is no documentary evidence either placed by these persons during the course of recording the statement or at any other stage which could show that the assessee(s) were directly involved in the racket of providing accommodation entries or were aware of such activities being carried out. The claim of the assessee has always been that as a prudent investor it had made the investments and some investments did not give any return rather gave losses and, in some cases, profits were earned. It was incumbent upon ld. AO to provide the assessee(s) a proper opportunity of cross-examination with all those persons who stated to be either involved in accommodation entries or were having some connection with the alleged transactions. There was no opportunity with the assessee(s) to cross-examine those persons, that why they have referred these I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 42 of 74 transactions as bogus or accommodation in nature. No such exercises have been carried out at any stage by the Revenue authority. Though the assessee has placed material on record to show that on merits also the case of the assessee is strong and the alleged transactions have been carried out through banking channel as well as through recognised stock exchange and demat accounts and also it has been claimed that in one case there is a loss and there is no addition u/s 68 of the Act but without going into the merits of the case even on legal ground itself, we, in view settled judicial procedure referred hereinabove, are inclined to hold that there is a violation of principles of natural justice as opportunity of cross- examination of all those persons whose statements though not directly referred to the alleged transactions but the statements having been used by ld. AO to make additions in the hands of the assessee(s) in appeal before us, was not provided to the assessee(s) even though requested during the course of hearing before the AO well as ld. CIT(A). Based on these facts, we find merit in the contention of the ld. Counsel for the assessee that principles of natural justice have been violated in the case of all the four assessees namely M/s. Gateway Financial Services Ltd., M/s. Nishit Agarwal Beneficiary Trust, Pinky Agarwal and Pratik Agarwal Beneficiary Trust. 35. In the preceding paragraphs, we have dealt with the legal issue regarding the matter that since the assessee has not been provided sufficient opportunity to cross examine those persons who were directly related to the assessee company i.e., Gateway Financial Services Ltd., and other assessee(s) even when their statements have been relied heavily by I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 43 of 74 the Assessing Officers to deny the claim of short term capital loss /long- term capital gains as the case may be, we note that apart from placing reliance on the statements, the revenue authorities have also referred to the report of the investigation Wing which carried out search and survey in some other cases prior to the conclusion of assessment proceedings in the instant appeals and such investigation included the persons who have been alleged to be entry providers/operators, share brokers etc. 36. Now, before us in case of one of the assessee’s, namely, Gateway Financial Services Ltd., the issue relates to bogus short-term capital loss from sale of equity shares of Blue Circle Services Ltd. and in the remaining three cases the issue is regarding alleged bogus Long term capital gain from sale of scrip, namely, Radford Global Ltd.. 37. Since the facts relating to claim of loss and gain are different, we will first take up the issue regarding alleged bogus short-term capital alleged by the AO in the case of Gateway Financial Services Ltd.. Though we have discussed the facts of this issue in detail in the preceding paragraphs and have also discussed the finding of the Hon’ble Jurisdictional High Court in the case of Swati Bajaj (supra), wherein also there was a reference to the report of the investigation Wing but in that case the issues were relating to long-term capital gains and additions were made u/s 68 of the Act. But in case of Gateway Financial Services Ltd., which is a share broking firm as well as trader in equity shares and being assessed to tax for past many years has dealt in the equity share, namely, Blue Circle Services Ltd.. Since the AO has only disallowed the claim of bogus loss, it in itself means, that the genuineness of purchases of equity shares of Blue Circle Services Ltd., I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 44 of 74 has not been disputed by the revenue authorities. The assessee in this case has purchased 5232616 equity shares. The ld. AO has also referred to the equity shares price chart of Blue Circle Services Ltd., wherein there is a steep upward trend from 2011-12 onwards then a downward trend which goes up to the end of 2013 and again there is an increase in trend during 2013-14 but not to that extent of the past trend of steep increase. The claim of the assessee is that, looking at the trend of equity share, in the anticipation of earning good profits it made the investment in equity shares of Blue Circle Services Ltd., and there was some increase in the price but subsequently it started decreasing and since the assessee did not want to lose all its capital it sold the equity shares as and when it got the opportunity. Even though, the transactions have been carried out on the recognised stock exchange and well within the rules and regulations provided by the SEBI, we note that in all the alleged statements of the alleged third parties and the report of the investigation Wing there is specifically no indication that whether the assessee was directly involved with the promoters/directors of Blue Circle Services Ltd., for such a steep increase/decrease of the prices. It prima facie seems to be a case where the assessee has made an adventure in the business of trading in equity shares being in the business of share trading and investment and shares brokerage were given past many years. At this juncture when the purchase of equity shares has not been doubted by the revenue authorities, and the claim of the assessee is that it has entered into the purchase and sale transactions in the regular course of business and also considering the fact that it is not the case of earning long-term capital I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 45 of 74 gains for claiming exemption u/s 10(38) of the Act, but is a case where the assessee has lost its capital by incurring huge loss. This Tribunal in the case of Raigarh Jute & Textile Mills Ltd. vs. ACIT in ITA No. 2286/Kol/2019; AY 2014-15; order dt. 27/06/2023, wherein the same combination of Judicial and Accountant Member has dealt with the issue regarding the claim of short term capital loss/business loss from sale of equity shares which was alleged by the revenue authorities being arranged from penny stock companies has decided in favour of the assessee after dealing with the facts of the case, modus operandi of carrying out such transactions by the assessee and also dealing with the judgement of the Hon’ble jurisdictional High Court in the case of Principal CIT Vs Swati Bajaj 446 ITR 56 (Cal), and also examining that the facts of the case are different with that of Swati Bajaj (Supra) and the same being not applicable in the case and has held as follows:- “9. We have considered the rival contentions and gone through the record. The Hon’ble Supreme Court in the case of NRA Steelin the case of “PCIT v/s NRA Iron & Steel (P) Ltd.” reported in [2019] 103 taxmann.com 48(SC) has taken note of the observations made by the Supreme Court in the the land mark case of “Kale Khan Mohammed Hanif v. CIT”[1963] 50 ITR 1 (SC) and“Roshan Di Hatti v. CIT” [1977] 107 ITR 938 (SC) laying down the proposition that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source. Thereafter the hon’ble Supreme court summed up the principles, which emerged after deliberating upon various case laws, as under: “11. The principles which emerge where sums of money are credited as Share Capital/Premium are : In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act.” I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 46 of 74 9.1 The Hon’ble Supreme court, thus, has held that once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness of the subscribers, then the AO is duty bound conduct to conduct an independent enquiry to verify the same. Once the assessee having discharged initial burden upon him to furnish the evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction, the burden shifts upon the Assessing Officer to examine the evidences furnished and even make independent inquiries and thereafter to state that on what account he was not satisfied with the details and evidences furnished by the assessee and confronting with the same to the assessee. 9.2 The Hon’ble Calcutta High Court, however, in the case of PCIT vs. Swati Bajaj &Ors (supra) has observed that to prove the allegations a logical process of reasoning from the totality of the attending facts and circumstances surrounding is to be adopted. That it is the duty of the Court to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded so as to reach a reasonable conclusion and the test would be what inferential process that a reasonable/prudent man would apply to arrive at a conclusion. Further proximity and time and prior meeting of minds is also a very important factor. A holistic approach is required to be made and the test of preponderance of probabilities has to be applied. The Hon’ble High Court observed that the assessees therein had failed to justify the rationale behind investment in the companies not having financial worth. They had failed to establish genuineness of steep rise in price of shares within a short period of time that too when general market trend was recessive. That the ld. Assessing Officer has pointed out that the assessee could not explain, why it invested in such script without knowing the financial performance of the company. That such cannot be case of intelligent investment or simple and straight case of tax planning to gain benefit of long term capital gains earnings @ 491% over period of 5 months which is beyond human probability and defies business logic of any business enterprises dealing with share transactions. Even brokers who coordinated transactions were also unknown to assessee. All these facts give credence to unreliability of entire transaction of shares giving rise to such capital gains ratio. That the Assessing officer was justified in making the additions on the basis of the material available on record, the surrounding circumstances, the human conduct and preponderance of probabilities. 10. Now, we have to examine the contentions of the assessee in the light of the ratio of law laid down by the hon’ble Supreme Court in the case of “NRA steels” ( Supra ) and by the Calcutta High Court in the case of “Swati Bajaj”(supra). 10.1 The plea of the assessee in this case is that the assessee was bona fide purchaser of the shares in question. That the assessee had duly taken note of the financials and share price movement of the companies before purchasing the shares.The ld. counsel in this respect has i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 47 of 74 referred to the financials of the said companies, the market trend and the reasons to exit as mentioned in the written submissions as reproduced above. firstly referred to the financial details and share price movement of Rutron International Ltd. It has been submitted that Rutron International Ltd. was a listed public company. The assessee company took note of the annual reports. The said company had reported total assets of 17.88 for F.Y 2012-13 and its turnover and proceeds had improved substantially from its previous years. Its income has also increased substantially. It reported net profit of Rs.0.50 Crores in FY 2012-13 as against Rs.0.11 Crores in FY 2011-12 implying an increment of 354.54%. The stock even started declaring dividends (Equity Dividend of Rs.0.18 Crores in FYE Mar’13 as against NIL in FYE Mar’12, Mar’11 and Mar’10 implying a trend reversal and a dividend payout of 36%). That having regard to these fundamentals of Rutron, the assessee company had purchased shares in a staggered manner in January 2014 in anticipation of trading profits. The purchase of the stock was motivated not only by the dividend but the anticipated price rise. However, since the stock of Rutron was in a sustained fall and therefore like any prudent trader, the company purchased the stock only when its price fell substantially. However, when it became apparently clear that the financials of Rutorn were not indicative of future financial performance of the stock, the assessee company, being a prudent trader switched gears and immediately cut short its losses by exiting its position in Rutron. The ld. AR, therefore, has demonstrated that the investments in these shares were governed on commercial prudence. 10.2 The Ld. Counsel has further demonstrated that the Trades in Comfort Fincap Ltd. (‘Comfort’) shares, were also based on the company’s own reading of the financial statements of the said company. That its stock parameters had improved from its previous reporting period. (Total Assets of Rs.25.23 Crores in FYE Mar’13 as against Rs.21.49 Crores in FYE Mar’12; Operating Profit of Rs.1.83 Crores in FYE Mar’13 as against Rs..86 Crore in FYE Mar’12; Reported Net Profit of Rs.0.99 Crore in FYE Mar’13 as against Rs.0.59 Crore in FYE Mar’12 implying an increment of 67.79% ) and the stock even started declaring dividends whose trend showed a marked upward trajectory (Equity Dividend of Rs.0.54 Crores in FYE Mar’13 as against Rs.0.22 Crore in FYE Mar’12 and NIL in FYE Mar’11 and Mar’10 implying a trend reversal and a dividend payout of 59.60%). The purchase of the stock was timed in anticipation of the expected price action that usually follows in such stocks showing a reversal in dividend payout trend. That the shares of Comfort (still Comfort Fincap Ltd 535267) were purchased in a staggered manner in January 2014 in anticipation of trading profits and the same were sold, again in a staggered manner, in March 2014 when the trade went awry. The stock of Comfort was also in a steep fall when the company purchased it. However, the company purchased the stocks only when the price fall was sustained over a period of time. It is notable that the company did not enter/exit at the highest/lowest price and the trades in shares of Comfort were entered into on the basis of the trend visible in the then latest financials of the stock available publicly. 10.3 Regarding the third company, it has been demonstrated that Luminaire Technologies Ltd. (‘Luminaire’), was a listed public company at the relevant time. That the shares of Luminaire were purchased in a staggered manner in January and February 2014 in anticipation of trading profits and the same were sold on the 5th of March 2014. The stock of Luminaire was also in a steep fall when the company purchased it. However, the company purchased the stocks only when the price fall was arrested and a trend reversal was visible. However, the favourable technical analysis of the stock, which prompted the company to purchase the stock, did not lead to the anticipated price rise owing to the weak market outlook regarding the stock. The company, having entered the trade to profit in the immediate short term, immediately chose to cut short its losses as the stock price deteriorated further. I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 48 of 74 10.4 Regarding the decision to trade in the stock of Unno Industries Ltd., the ld. Counsel has explained that the same was based on the company’s own reading of the financials of Unno, which was a listed public company at the relevant time. That the trade was undertaken based on the not only the fundamentals but also the technical aspects of the stock. The shares of Unno were purchased on 22nd January 2014 in anticipation of trading profits and the same were sold on 20th March 2014 when there was an indicator for a further decline in the prices of a stock. That the stock of Unno was in a steep fall and the company had purchased the stock only when its price fell substantially. That the company did not enter/exit at the highest/lowest price and the trades in Unno were entered into only after carefully considering both the technical and fundamental aspects of the stock. The trend visible in the then latest financials of the stock available publicly was upbeat. That Unno had reported Total Assets of Rs.42.55 Crores for FYE Mar’13 and its turnover and profit had remained stable over the years despite the falling prices in the market. Unno had a Turnover of Rs.0.65 Crore both in FYE Mar’13 and FYE Mar’12; Total Income of Rs.0.65 Crore in FYE Mar’13 as against Rs.0.67 Crore in FYE Mar’12; Reported Net Profit of Rs.0.07 Crore in both FYE Mar’13 and FYE Mar’12 implying a marked stability in financial performance in the recent years. However, the head and shoulders pattern on the stock charts implied an oncoming decline in the stock prices, therefore, the assessee company immediately sold the stock to avoid further loss. 10.5 In case of Global Infratech& Finance Ltd. (‘Global’) shares, it has been explained that the trade was undertaken based on the parameters which clearly set out both the logic and rationale behind the trades. The stock of Global was also in a steep fall when the company purchased it.The shares of Global were purchased in a staggered manner in February 2014 in anticipation of trading profits and the same were sold, again in a staggered manner, in March 2014. However, the company purchased the stock only when the price fall was sustained over a period of time. That the stock parameters had improved from its previous reporting period (Total Assets of Rs.56.62 Crores in FYE Mar’13 as against Rs.20.90 Crores in FYE Mar’12; Operating Profit of Rs.1.49 Crores in FYE Mar’13 as against Rs.0.01 Crore in FYE Mar’12; Reported Net Profit of Rs.1.05 Crore in FYE Mar’13 as against Rs.0.08 Crore in FYE Mar’12 implying an increment of 1,212.50% and trend reversal). The company, being a prudent trader, did not only rely on the financials of Global to make its decisions in the market. It was also prone to keep tabs on the technical aspects of the stock to pre-empt market movements in it. Envisaging a further fall in the stock prices owing to its interpretation of the deteriorating technical parameters of Global even in the face of robust fundamentals, the company sought to exit its position in the stock completely for the time being. 10.6 It has been further explained that the SEBI has also investigated regarding the allegation of share trading in respect of two companies out of the above mentioned 5 companies. In the case of Rutron, only 14 persons were suspected to be involved in price rigging who were restrained from accessing the security market for a period of 6 months. Neither the assessee nor his share brokers were ever named for restrain from trading in the said scrip. Even, the company itself was not implicated of any wrong doing. Any other person, except the aforesaid 14 persons, was not restrained for trading in the shares in the said company. The second company investigated was Global Infratech&Finance Ltd, in respect of which, only 46 specific persons/entities were found guilty of price manipulation in shares of the said company after detailed investigation. That some of the entities had inter alia questioned the act of SEBI in not holding all persons/entities who had traded in the shares of Global Infratech and Finance Limited to be artificial or suspicious. However, the SEBI in their Order had specifically observed that only the promoters and/or their connected entities were found to be guilty of price manipulation and that the unrelated entities were not to be made party to these proceedings. It I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 49 of 74 has been further submitted that in respect of other three companies, the SEBI did not choose to make any investigation and there is no action taken by the SEBI against the other three companies namely Comfort Fincap Ltd, Luminaire Technologies Ltd and Unno Industries Ltd. It has been submitted that no adverse orders ever have been passed by the SEBI regarding price manipulation in respect of aforesaid three companies. The Ld. Counsel, therefore has submitted that the facts of the case of the assessee, when considered in the light of the proposition of law laid down by the Hon’ble supreme Court in the case of NRA Steel (supra) and of the hon’ble Calcutta High Court in the case of Swati Bajaj (supra), the evidence furnished by the assessee, the surrounding circumstances would show that the assessee’s decision to invest in those companies was based on business prudence and that there was no evidence, even circumstantial, that the assessee was involved in price rigging or otherwise instrumental to book bogus short term capital loss. 11. The Ld. Counsel has further submitted that the facts of the case of the assessee were quiet distinguishable from that of the cases of “Swati Bajaj & others”(supra). He has submitted that in most of the cases before the Hon’ble High Court, the purchases were off the Stock Exchange/private placements. That there were orders of SEBI suspending the scrip and/or wherein the concerned trader were found guilty of price manipulation. Further, that there were statements recorded from the brokers of the assessees, who had admitted to have indulged in price manipulation and therefore adverse view was taken. That in the specific facts before the hon’ble High Court, it was noted that the price of the scrips showed steep increase during recessive trends and therefore the movement in prices was held to be ingenuine. That the Hon’ble High Court had observed that the onus was on the assessee to establish that the price rise was genuine in light of the fundamentals of the scrip. However, in case of the assessee, the trades were made on the Stock Exchange. There was no adverse statement of assessee’s broker. Moreover the Director of the assessee was examined and confronted with the allegations u/s 131 of the Act and he had specifically denied the same. That the assessee has sufficiently demonstrated that the financial results and the fundamentals of the scripswas mirrored in their price movements and therefore it was not a case that the movement in prices was not explained.Evenas demonstrated above, in three (3) out of the five (5) scrips, there were no adverse orders of SEBI regarding any kind of price manipulation. Further in the remaining two scrips, the SEBI upon completion of investigation found specific entities/persons guilty of manipulation. The Ld. Counsel has further submitted that in the similar facts and circumstances, the coordinate benches of the Tribunal have opined in favour of the assessees therein. 12. We find force in the contentions raised by the ld. counsel for the assessee. Firstly, in this case, the assessee has not claimed long-term capital gains on account of unrealistic steep rise in the share prices of these scrips traded in as was in the case of PCIT vs. Swati Bajaj &Ors (supra). The Hon’ble High Court had held, under the circumstances, that the burden was upon the assessee to explain the business prudence of investment in these scrips of the companies having negligible financial worth and thereafter of steep rise in their share price resulting into huge capital gains within a short span of time. The case before us is of business loss in share trading. The assessee, as observed above, has duly explained the factors and considerations which prevailed for making decision by the assessee company of purchasing in the aforesaid five scrips, which included their financial worth, the market position, their income, dividends etc. Further, it was not a case that the shares shown to have been purchased off market/privately and thereafter they were put into demat account after sufficient lapse of time from the alleged date of physical purchase and then sale of the same within a short span of time after they were accounted in the demat account, gaining high monetary capital gains. In the case of the assessee, I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 50 of 74 the shares were traded on the stock exchange, the same were kept in the demat account of the assessee. There is no allegation of involvementof the assessee or even his share broker in any type of price rigging. There even does not seem any probability of meeting minds of the assessee and/or his share broker and the promoters of the companies. A very peculiar fact which is noted from the assessment order/investigation wing report is that in the list of the persons whose statement was allegedly recorded and who in their statement have admitted of price rigging, the names of share brokers, entry operators and exit providers have been mentioned. The facts on the file itself show that there was meeting of minds of the entry operators and the share brokers and exit providers. The price rigging was done by giving benefit to various subscribers with connivance of share brokers and the motive was to convert their unaccounted money into tax exempt long-term capital gains and for that purpose, there were certain persons chosen as exit providers who would buy shares when the share prices would be at its peak and those exit providers thereafter would suffer losses on account of fall in the price of the shares. This specific fact on the file shows that the exit providers were already chosen to execute the plan. The motive was to give the benefit of bogus long-term capital gains to various beneficiaries and to make that plan foolproof, the exit providers were already chosen with a pre-determined planning as to at what stage the beneficiaries of bogus long-term capital gains would be given exit. That perhaps was not dependent upon chance exit providers willing to book bogus short-term capital loss. Neither the name of the assessee nor of his share broker is mentioned in the list of exit providers. The circumstances of this case do not suggest of unnatural and unrealistic human conduct. The Assessing Officer in this case has not pointed out any adverse evidence against the assessee. He has simply relied upon the investigation report which is a general investigation report. The Hon’ble Calcutta High Court in the case of PCIT vs. Swati Bajaj &Ors (supra) has considered the said report and analysed the same vis-a-vis circumstantial evidences like the negligible financial worth of the companies whose shares were traded in, the unrealistic steep hike in the share prices as against the recessive market trend and the failure of the assessee to explain the commercial prudence for making such huge investments. The additions thus have been made on the basis of circumstantial evidences and considering the preponderance of probabilities. Hon'ble Supreme Court in PadmasundraRao v. State of T.N. 255 ITR 147 (SC) has held that circumstantial flexibility, e.g. one additional or different fact, may make a world of difference between conclusions in two cases: “Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morris in Herrington Vs. British Railways Board (1972) 2 WLR 537.Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases.” The Hon’ble Karnataka High Court in the case of “Flipkart India (P.) Ltd. v/s Assistant Commissioner of Income-tax”, [2017] 79 taxmann.com 159 (Karnataka) has observed that considering the fact that this blind appreciation of a precedent is a frequent occurrence, in catena of cases, the Hon'ble Supreme Court has clearly opined that a judgment should not be read as a provision of law. A judgment is confined to the facts and circumstances of its own case. It is only when the facts and circumstances in two cases are similar that the ratio of the former case becomes applicable to the latter case. As discussed above, in the absence of any direct incriminating evidence against the assessee, the distinguishable and weak circumstantial evidence, in our view, do not suggest the preponderance of probability of the assessee being involved in price rigging of the scrips or being I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 51 of 74 the predetermined and pre planned beneficiary of the devised scheme, therefore, the impugned additions are not warranted in this case, and the same are accordingly ordered to be deleted.” 38. Respectfully following the above decision of this Tribunal in the case of Raigarh Jute & Textile Mills Ltd. vs. ACIT (supra), which is squarely applicable on the facts of the instant case of assessee i.e., M/s. Gateway Financial Services Ltd., we find that the alleged loss has been incurred by the assessee in the regular course of its business. We also note that the statement of various persons recorded by the AO/investigation wing/search team in the course of other proceedings as well as the report of the Kolkata investigation wing, there is no reference to a direct evidence indicating that the transactions in question is in the nature of accommodation entry or for arranging bogus loss. Thus, the addition/disallowance made by the assessee is merely on the basis of preponderance of probabilities. Therefore, in the present case, when the statements and investigation report relied upon by the AO has not been given to the assessee for the purpose of cross-examination as well as rebuttal, we in view of the above decision are inclined to hold that the alleged loss being genuine loss from share trading incurred by the assessee in regular course of business, deserves to be allowed. Thus, impugned disallowance is uncalled for. 39. Now so far as the remaining three appeals are concerned, namely, M/s. Nishit Agarwal Beneficiary Trust, Pinky Agarwal and Pratik Agarwal Beneficiary Trust, the addition is only on account of alleged bogus Long term capital gain exempt u/s 10(38) of the Act from sale of the scrip, namely, Radford Global Ltd.. The ld. D/R in the details submissions filed on two occasions has contended that the company from I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 52 of 74 which the gains has arisen are penny stock company in which with the help of entry operators the prices are rigged high and low and they are not commensurate with the business activity of this company and these are sham transactions just to get accommodation entry in the form of Long term capital gain and claiming exemption u/s 10(38) of the Act. We are conscious of the fact that in the case of Swati Bajaj (supra), the issue was similar regarding the claim of bogus Long term capital gain and the addition was made for u/s 68 of the Act for the sum received from the sale of equity shares by the assessee. However, apart from the statement recorded by the third parties in the case of Swati Bajaj (supra), there was a detailed investigation report as per which the SEBI came across 84 companies which were primarily found to be engaged in providing accommodation entry and the SEBI barred the trading of equity shares of such companies on the stock exchange and accordingly SEBI started investigation in the matter. Based on such primary investigation by the SEBI, the investigation team of the income tax department took note of such report and carried out further investigation. The fact remains that based on the preliminary report framed by the SEBI, regarding the 84 companies all the further proceedings took its course including the search and surveys at various share brokers as well as offices of various companies. So far as the case in hand is concerned, there is a long term capital gain from sale of equity shares of Radford Global Ltd.. Before us, the ld. Counsel for the assessee has placed a copy of the final order by a whole time member of SEBI framed under sections 11(1), 11(4) and 11B of the SEBI Act, 1992 and the same is in regard to SEBIT (Prohibition of I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 53 of 74 Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, in the matter of Radford Global Limited and the same is in respect of 29 entities which includes the three assessees in appeal before us, namely, M/s. Nishit Agarwal Beneficiary Trust, Pinky Agarwal and Pratik Agarwal Beneficiary Trust. Though this order contains 111 pages, but the relevant part of the issue under consideration firstly starts from page number 1 to 9 of the said order, wherein brief facts are given about the said case regarding the investigation conducted to the trading and dealings of scrip of Radford Global Limited for the period 27/02/2012 to 24/03/2014 hereinafter referred to as the investigation period. This is the same period during which the assessees have earned long-term capital gains referred in the instant appeals. The para 1 to 9 of the said order of the Whole Time Member of SEBI, reads as follows:- “Under Sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 In Re: Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 In the matter of Radford Global Limited In respect of: S. No. Entity’s Name PAN 1 Nishit Agarwal Beneficiary Trust AABTN3350K 2 Pinky Agarwal AABTN3350K 3 Pratik Agarwal Beneficiary Trust AABTP7516K 4 Praveen Kumar Agarwal ACSPA4725A 5 Praveen Kumar Agarwal HUF AAIHP6229C 6 Apex Commotrade Private Limited AAJCA4459K 7 Avlokan Dealcom Private Limited AALCA1583G 8 Bazigar Trading Private Limited AABCB3052B 9 Devakantha Trading Private Limited AADCD7044B 10 Dhanleela Investments & Trading Company Limited AAACR1770P 11 Pine Animation Limited AAECM0267A I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 54 of 74 12 Pyramid Trading and Finance Ltd (presently known as Mishka Finance and Trading Ltd.) AAACP2548R 13 Runicha Merchants Private Limited AAECR0580M 14 Sanklap Vincom Private Limited AAMCS1711P 15 Signet Vinimay Private Limited AAMCS1712Q 16 SKM Travels Private Limited AAICS0688K 17 Udbal Mercantile Private Limited AABCU2648C 18 Vibgyor Financial Service Pvt Ltd AAACV8378B 19 Winall Vinimay Private Limited AAACW8004B 20 Daga Infocom Private Limited AABCD9604P 21 Amit Singh BABPS7447D 22 Shelter Sales Agency Private Limited AASCS1797F 23 Amrusha Mercantile Private Limited AALCA0340D 24 Spice Merchants Private Limited AAPCS7492G 25 Artiben S. Kansara ATWPK6701D 26 Manisha Jayesh Shah AOBPS1451C 27 Rajeev Garg ACJPG8162C 28 Sangita Pramod Harlalka AAAPH8161P 29 Shailesh Lalman Ojha AAJPO0625L 1. Securities and Exchange Board of India (“SEBI”) conducted an investigation into the trading and dealings in the scrip of Radford Global Ltd. (hereinafter referred to as 'RGL/the company') for the period February 27, 2012 to March 24, 2014 (hereinafter referred to as 'Investigation Period/IP'). 2. It was observed that the scrip of RGL, which was listed on Bombay Stock Exchange Ltd. (“BSE”) was suspended by BSE from January 14, 2003 till December 19, 2011 i.e. the day when the suspension was revoked. After revocation of the suspension, RGL made a preferential allotment of 91,00,000 equity shares on February 16, 2012 at the price of Rs 15 each to 48 allottees. After revocation of suspension, the scrip was traded only on December 20, 2011 before the investigation period. Subsequently, the RGL stock was split on January 28, 2013 in the ratio of 5:1. 3. Investigation revealed that during 27/02/2012 - 28/01/2013 (hereinafter referred to as Patch 1) the price of the scrip of RGL opened at Rs.3.2, reached a high of Rs. 241.35 and closed at Rs.241.35 i.e. an increase of 7442.19%. Further, during the period 29/01/2013 to 23/07/2013 (hereinafter referred to as Patch 2) the price of the scrip opened at Rs. 49.2, reached a high of Rs. 86 and closed at Rs. 75. 4. The financial results of the company during the period covering Patch 1 and Patch 2 are as follows: (Rs. in million) I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 55 of 74 FY 2011- 12 FY 2012- 13 FY 2013- 14 Net Profit 0.43 4.59 1.80 (Source: BSE Website and Annual Report of RGL) 5. The total shareholding of the company ending FY 2012-13 was 7,03,11,500 shares and the high price during Patch 1 was observed as Rs. 241.35/-. Accordingly, the market capitalization of RGL on the high price day was Rs. 16,96,96,80,525/- (1696.97 crores approx). Therefore, the profit of Rs 45.9 lakhs registered by the company during the FY ending March 31, 2013 did not justify the considerable rise in its scrip's price during patch 1. Further, it was also observed that the major corporate announcements during the period were pertaining only to announcements of preferential allotment, financial results, stock split and increase in share capital. 6. The Price Volume details of RGL scrip during the period (patch-wise) are as follows: Period Dates Opening Price & Vol. on first day of the period (Rs) Closing price & vol. on last day of the period (Rs.) Low price & vol. (date) during the period (Rs.) High price & vol. (date) during the period (Rs.) Avg. no. of (shares) traded daily during the period. Patch 1 (Pre Split price rise) (27/02/2012- 28/01/2013) Price 3.2 241.35 3.2 (27/02/2012) 241.35 (28/01/2013) 98.76 Vol 100 5 1 (1 share on 26 trading days) 4385 (10/01/2013) Patch 2 (Post Split price rise) (29/01/2013- 23/07/2013) Price 49.2 75 49.2 (29/01/2013) 86 (21/05/2013) 495063 Vol 10 180675 5 (30/01/2013) 1747580 (22/04/2013) Observations regarding Patch 1 - (27/02/2012-28/01/2013) (Pre-split price rise patch): 7. Investigation revealed that during Patch I, there were a total of 200 trades for 11,950 shares on 121 trading days with only one trade on 98 trading days. The price of the scrip opened at Rs.3.2, reached a high of Rs. 241.35 and closed at Rs. 241.35 i.e. an increase of 7442.919%. It was observed that 36 entities bought and 41 entities sold during the patch. The net LTP increase contribution by 41 sellers amounted to 238.15. 8. Analysis of trading pattern of sellers who singly or with connected entities contributed more than 5% to increase in LTP revealed that the price rise in Patch 1 was caused majorly by 5 sellers viz, Rajeev Garg, Sangita Pramod Harlalka, Shailesh Lalman Ojha, I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 56 of 74 Artiben S. Kansara and Manisha Jayesh Shah. These sellers were observed to have placed sell orders for small quantity when large quantity of buy orders were pending and they were holding sizeable number of tradable RGL shares. 9. Based on UCC database of BSE, MCA database, off-market data and bank statements (of entities contributing to more than 5%), sellers Artiben S. Kansara and Manisha Jayesh Shah were found to be connected to each other. As per KYC, Manisha Jayesh Shah has common address and phone number with her relative and independent director of RGL viz, Manish Nareshchandra Shah (Address - B-2, Vishwakarma Society, V.P. Road, Andheri West, Mumbai - 400058 and phone number - 26280622). 10. The summary of order log analysis of the 5 sellers contributing to more than 5% LTP increase, is as under: i. Rajeev Garg contributed Rs.102.95 (41.76%) of market positive LTP increase in 25 trades for 390 shares. He was a seller in 29 out of 200 trades. All his 25 positive LTP contributing trades were first trades. Further, out of the 25 first trades, there was trade of 1 share executed on 21 trading days. There were 4 trades of Rajeev Garg which did not contribute to positive LTP increase for 160 shares. (Date: 21/09/2012, 14/12/2012 and 2 trades on 10/01/2013). ii. Sangita Pramod Harlalka contributed Rs. 16 (6.49%) of market positive LTP increase in 6 trades for 35 shares. She was the only seller on the days on which she traded and contributed to significant positive LTP increase. iii. Shailesh Lalman Ojha contributed Rs. 15.3 (6.21%) of market positive LTP increase in 4 trades for 18 shares. He was the only seller on the 4 days he traded and contributed to significant positive LTP increase. iv. It was observed that Noticees - Artiben S. Kansara and Manisha Jayesh Shah are connected to each other. Artiben S. Kansara contributed Rs.7.84 (3.18%) of market positive LTP increase in 8 trades for 8 shares. All LTP increases were contributed by Artiben S. Kansara through executing first trades of the day. There are 2 non-first trades of Artiben S. Kansara for 1 share each with no LTP contribution. Further, Manisha Jayesh Shah contributed Rs.6.05 (2.45% of market positive LTP increase in 15 trades for 19 shares. All LTP increase was contributed by Manish Jayesh Shah through executing first trades of the day. Thus, Artiben S. Kansara and Manisha Jayesh Shah together contributed Rs. 13.89 (5.63%) of market positive LTP increase in 23 trades for 27 shares. Artiben S. Kansara executed 2 trades for 1 share each both on 16/06/2012 and 24/06/2012. However, she contributed to positive LTP in only first trades on each of these days. Manisha Jayesh executed 2 trades for 1 share each on 22/06/2012, 3 trades for 1 share each on 26/06/2012, 4 trades for 1 share each on 27/06/2012, 5 trades for 1 share each on 28/06/2012 and 6 trades for 1 share each on 29/06/2012. However, she contributed to positive LTP in only first trades on each of these days. I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 57 of 74 11. It is observed that the above named 5 Noticees placed sell orders for small quantity when large quantity of buy orders were pending and they were holding sizeable number of tradable RGL shares. Despite holding substantial number of shares and there being large buy demand for RGL shares, the above 5 sellers chose to sell only 470 shares during Patch 1 with each sale order ranging from 1-20 shares (with an exception of one trade of Rajeev Garg for 100 shares). 12. It was alleged in the SCN that such a trading pattern in illiquid scrip like RGL, indicates that the 5 sellers played a major role in manipulating the price of the scrip, thereby resulting in 60.09% increase in positive LTP of the RGL scrip during Patch 1. It was further alleged in the SCN that the 5 Noticees namely, Rajeev Garg, (Noticee no .27) Sangita Pramod Harlalka (Noticee no. 28), Shailesh Lalman Ojha (Noticee no 29), Artiben S. Kansara (Noticee no 25) and Manisha Jayesh Shah (Noticee no.26) sold shares in the market in very small quantities with a manipulative intent to increase the scrip price and thereby violated sections 12(a),(b) and (c) of the SEBI Act, 1992 read with regulations 3(a),(b),(c),(d) and 4(1), 4(2)(a) & (e) of SEBI (PFUTP) Regulations, 2003. Observations regarding Patch 2- (29/01/2013-23/07/2013) (Post-split price rise patch) 13. Investigation revealed that during Patch 2, there were total 85301 trades for 60397726 shares. The price of the scrip opened at Rs.49.2, reached a high of Rs. 86 and closed at Rs. 75 i.e., an increase of Rs 25.8 (52.44%) during Patch 2. 14. Investigation revealed that a group of 24 connected entities (16 buyers and 8 sellers hereinafter collectively referred to as ‘connected group entities’) have contributed Rs. 23.35 (7.77%) of market positive LTP increase during Patch 2. The details of the connections of the 24 entities are as follows: CONNECTION TABLE Sn. Client Name and PAN Basis of Connection 1 Dhanleela Investments & Trading Company Ltd. RGL {bank account No. 0311121500 with Kotak Mahindra Bank}, has fund transactions with Dhanleela Investments & Trading Company Ltd. and Pyramid Trading and Finance Ltd. (AAACR1770P) 2 Pyramid Trading and Finance Ltd. presently known as - Mishka Finance and Trading Ltd. (AAACP2548R) 1. RGL has fund transactions with Pyramid Trading and Finance Ltd. 2. Pyramid Trading and Finance Ltd. has fund transactions with Dhanleela Investments & Trading Company Ltd. and Pine Animation Ltd. 3 Pine Animation Ltd. (AAECM0267A) 1. Pine Animation Ltd. (A/c. No. 50103075412 - Allahabad Bank,) has fund transactions with Dhanleela Investment & I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 58 of 74 Trading Company Ltd. and Pyramid Trading and Finance Ltd. 4 Bazigar Trading Pvt. Ltd. (AABCB3052B) 1. One entity Amrit Sales Promotion Pvt. Ltd. bank account no. 00060340006382, has fund transactions with Blue Circle Services Ltd., Burlington Finance Ltd. and Symphony Merchant Pvt. Ltd. 2. As per MCA database, Hanuman Mal Tater, is common Director in Amrit Sales Promotion, Burlington Finance and Bazigar Trading. 3. As per MCA database, Panna Lal Maloo, is common Director in Amrit Sales Promotion Pvt. Ltd., Manimudra Vincom and Symphony Merchant. 4. Blue Circle Services Ltd. (AAACB2131L) has fund transactions with Pint Animation Ltd. and Amrit Sales Promotion Pvt. Ltd. 5 Avlokan Dealcom Pvt. Ltd. (AALCA1583G) 1. One entity Rangan Vincom transferred shares in off- market to Devatma Distributors 2. As per MCA, Rangan Vincom, Ladios Trading and Avlokan Dealcom have common director viz. Debendra Das 3. As per the MCA, Rangan Vincom and Katyani Commodities have common address viz, 4, N.S Road, 1 st Floor, Kolkata -700001. Rangan Vincom transferred shares in off-market to Devatma Distributors 4. Devatma Distributors and Anjali Suppliers have common director viz. Raj Kumar Dabriwal, Annex G and common address viz. 2E, Cornfield Road, Ground Floor, Kolkata - 700 019. 5. From Anjali Suppliers A/c.6611227263, with Kotak Mahindra Bank, fund transactions with Sirpur Marketing Pvt. Ltd. was observed. Sirpur Marketing received Rs. 75 lakh from RGL through Scan Infrastructure Ltd on 13/02/2012. 6 Praveen Kumar Agarwal (ACSPA4725A) 1. As per MCA, Chiranjit Mahanta is the common director in Kingfisher Properties, Topwell Properties, Esquire Enclave, Shivkhori Construction, Limestone Properties and Natural Housing. 2. From Topwell Properties Axis Bank A/c. No.911020032366261, fund transactions with Kingfisher Properties, Esquire Enclave, Radison Properties, Shivkhori Construction, Limestone Properties, Natural Housing, Signet Vinimay and Sanklap Vincom were observed. 3. From Kingfisher Properties Axis Bank A/c. No.911020032345837, fund transactions with Esquire Enclave, Radison Properties Shivkhori Construction, Natural Housing, Topwell Properties, Apex Commotrade, Runicha Merchants, Spice Merchants and Divyadrishti Merchants were observed. 4. Praveen Kumar Agarwal and Pinky Agarwal are the authorised signatory in the bank account of Nishit Agarwal 7 Pinky Agarwal (ACGPA7438L) 8 Praveen Kumar Agarwal HUF (AAIHP6229C) 9 Nishit Agarwal Beneficiary Trust (AABTN3350K) 10 Pratik Agarwal Beneficiary Trust (AABTP7516K) I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 59 of 74 Beneficiary Trust, Pratik Agarwal Beneficiary Trust and Jupiter Brokerage Services Ltd. 5. Esquire Enclave Pvt. Ltd. bank A/c. No. 911020031723278 (Axis Bank) has fund transactions with Kingfisher Properties Pvt. Ltd. (AAECK3394G), Topwell Properties Pvt. Ltd. (AADCT8403C), Radison Properties Pvt. Ltd. (AAFCR2818B), Shivkhori Construction Private Limited (AAPCS7850L), Limestone Properties Pvt. Ltd. (AACCL0133G), Natural Housing Pvt. Ltd. (AADCN6251G), Praveen Kumar Agarwal (ACSPA4725A, Divyadrishti Traders Pvt. Ltd. (AABCD8146J), Apex Commotrade Pvt. Ltd. (AAJCA4459K) and Jupiter Brokerage Services Ltd. 6. Pinky Agarwal and Praveen Kumar Agarwal are directors in Jupiter Brokerage Services Ltd. Jupiter Brokerage Services (Axis Bank A/c. No.911020047397153,) had received Rs. 1.2 crore from Esquire Enclave on 07/02/2012 and further transferred Rs.30 lakh each to (sr. no. 6), (sr. no. 7), (sr. no. 9) and (sr. no. 10), to subscribe the preferential allotment of RGL. Jupiter Brokerage Services also has fund transactions with Praveen Kumar Agarwal HUF (sr. no. 8). Thus, sr. no. 6 to sr. no. 10 are related and connected to Esquire Enclave Pvt. Ltd. 7. As per Divyadrishti Merchants bank A/c. no. 000605010065 with ICICI Bank, fund transactions with Divyadrishti Traders, Dhanraksha Vincom, Ridhi Vincom and Kingfisher Properties were observed. 8. RGL had fund transfer with to Scan Infrastructure Ltd., Scan had fund transfer with Sirpur Marketing Pvt. Ltd., Sirpur had fund transfer with Gaungour Suppliers, which in turn had fund transfer with Divyadrishti Traders Pvt Ltd. (Bank A/c of Scan, Sirpur, Gaungour 9. Divyadrishti Trader Pvt Ltd. and Esquire Enclave Pvt. Ltd. Limited have fund transaction 11 Runicha Merchants Pvt. Ltd. (AAECR0580M) 1. As per MCA database, Abhiset Basu and Pradip Dey are the directors in Runicha Merchants, Signet Vinimay, Winall Vinimay, Sanklap Vincom, SKM Travels and Scope Vyapar. 2. Winall Vinimay (A/c.No.07920200006026 DCB Bank has fund transaction with Apex Commotrade , Spice Merchant, Signet Vinimay, Runicha Merchant, Sankalp Vincom. 3. Runicha Merchants has fund transaction with Kingfisher Properties, and fund transactions with Topwell Properties and Spice Merchants. 12 Signet Vinimay Pvt. Ltd. (AAMCS1712Q 13 Winall Vinimay Pvt. Ltd. (AAACW8004B) 14 Sanklap Vincom Pvt. Ltd. (AAMCS1711P) 15 SKM Travels Pvt. I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 60 of 74 Ltd. (Now Bitter Commercial Pvt. Ltd.) (AAICS0688K) 16 Amit Singh (BABPS7447D) Off-market transactions with Spice Merchant, Scope Vyapar, Sanklap Vincom, Runicha Merchants, Signet Vinimay in various scrips during the Investigation Period. 17 Vibgyor Financial Service Pvt Ltd (AAACV8378B) Vibgyor Financial Service has off market transfer of shares with Scope Vyapar 18 Spice Merchants Pvt. Ltd. (AAPCS7492G) 1. Shakuntala Sah and Aman Sah are the directors in Spice Merchants and Apex Commotrade. 2. From Apex Commotrade ICICI Bank A/c. No 62770550383 fund transactions with Runicha Merchants, Signet Vinimay, Sanklap Vincom, Spice Merchants, Daga Infocom, SKM Travels, Scope Vyapar and Winall Vinimay were observed. 9 Apex Commotrade Pvt. Ltd. (AAJCA4459K) 3. Spice Merchants (Kotak Mahindra A/c. 68011001873) has fund transaction with Sanklap Vincom and Rander Corporation 20 Daga Infocom Pvt. Ltd. (AABCD9604P) Krupa B. Mehta is the Director in Daga Infocom Pvt Ltd and Shefali Investments Pvt Ltd. Daga Infocom has fund transactions with Apex Commotrade & Apex Commotrade has fund transaction with Kingfisher Properties. 21 Devakantha Trading Pvt. Ltd. (AADCD7044B) 1. Devakantha Trading bank A/c. No. 36040200000553 (Bank of Baroda has fund transactions with Shelter Sales Agency, Udbal Mercantile and Amrusha Mercantile. 2. From Shelter Sales Agency Induslnd Bank A/c. No. 200999036626, fund transferred with Spice Merchants was observed 22 Shelter Sales Agency Pvt. Ltd. (AASCS1797F) 23 Udbal Mercantile Pvt. Ltd. (AABCU2648C) 24 Amrusha Mercantile Pvt. Ltd. (AALCA0340D) 15. It is observed that the 16 buyers of connected group entities contributed Rs.74.85 to net increase in LTP and Rs.116 of positive LTP increase (i.e.38.56% of the total market positive LTP) in 1420 trades for 11,83,458 shares. 16. Investigation revealed that out of the 1420 positive LTP trades of the 16 buyer mentioned above, in 379 trades for 2,24,612 shares, the counterparties were connected to the buyers. 17. The details of positive LTP increase contribution by the counterparties (8 sellers) are I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 61 of 74 given below: Buyer Name Sr. no. Connected group entities as seller LTP>0 Qty No. of Trades % of mkt. positive LTP 16 conne cted group entitle s 1 Nishit Agarwal Beneficiary Trust 6.15 58670 122 2.04 2 Praveen Kumar Agarwal HUF 5.40 56481 64 1.80 3 Pinky Agarwal 3.90 24346 55 1.30 4 Praveen Kumar Agarwal 3.80 18818 76 1.26 5 Pratik Agarwal Beneficiary Trust 3.70 61152 59 1.23 6 Dhanleela Investments & Trading Company Ltd. 0.20 100 1 0.07 7 Pine Animation Ltd. 0.15 50 1 0.05 8 Daga Infocom Pvt. Ltd. 0.05 4995 1 0.02 Grand Total 23.35 224612 379 7.77 “ 40. We further notice that since apart from the assessees’ appeal before us, there were other 26 entities, the facts relating to them as well as the issues have been dealt, the final finding starts from page 93 to 100, where the issues have been considered and the decision has been given and the same reads as under:- “CONSIDERATION OF ISSUES 46.1 have considered the allegations levelled in the SCN and the replies, oral / written submissions made by the Noticees in response to the SCN. I note that the SCN refers to alleged violations against a total of 29 Noticees during two different patches of the investigation. In respect of patch 1 (i.e. from 27/02/2012 to 28/01/2013) allegations have been levelled against 5 Noticees namely, Rajeev Garg, Sangita Pramod Harlalka, Shailesh Lalman Ojha, Artiben S. Kansara and Manisha Jayesh Shah who are listed at serial nos. 25 to 29 in the table on the first page of this order. In respect of patch 2 (i.e. from 29/01/2013 to 23/07/2013), allegations have been levelled against the remaining 24 Noticees. 47. Since the nature of violations alleged against the Noticees in these two patches is different, in my view, it would be appropriate to deal with the allegations separately. Taking the above into account and the replies/submissions of the Noticees in response to these allegations, the following issues arise for my consideration: A. Whether Noticees No. 1-24 (referred in Table at page 1) acted collectively as a group and contributed 7.77% of the total market positive LTP increase during patch 2 thereby resulting in false and misleading appearance of trading in the scrip I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 62 of 74 of RGL and contributed to price rise in the scrip of RGL thereby violating the provisions of SEBI Act and PFUTP Regulations as alleged in the SCN? B. Whether Noticees No. 25 to 29 (referred in Table at page 1) sold shares in the market in very small quantities with a manipulative intent to increase the price of the scrip of RGL and thereby violated the provisions of SEBI Act and PFUTP Regulations as alleged in the SCN? C. If the answers to issues A and B are in the affirmative, what directions are required to be issued against the Noticees? A. Whether Noticees No. 1-24 acted collectively as a group and contributed 7.77% of the total market positive LTP increase during patch 2 thereby resulting in false and misleading appearance of trading in the scrip of RGL and contributed to price rise in the scrip of RGL thereby violating the provisions of SEBI Act and PFUTP Regulations as alleged in the SCN? 48. As already noted, according to the SCN, the allegation is that a group of 24 connected entities (16 buyers and 8 sellers, connections amongst whom have been noted earlier in the order in the connection table) have contributed Rs. 23.35 (7.77%) of market positive LTP increase in the scrip of RGL during Patch 2. 49. The said 16 buyers contributed Rs.74.85 to net increase in LTP and Rs.116 of positive LTP increase (i.e.38.56% of the total market positive LTP) in 1420 trades for 11,83,458 shares. The relevant details are noted in the following table : Name All Trades LTP diff > 0 LTP diff < 0 LTP diff = 0 Sr. No LTP Imp act QTY traded No of trad es LTP Imp act QTY trade d No tra des LTP mpac t QTY trade d No of trad es QTY trade d No of trade s %of Positive LTP to Total Market Positive LTP 1 Amrusha Mercantile Pvt. Ltd. 17. 30 3374 465 83 45 25. 10 144 215 31 1 -7.80 604 65 87 3169 785 7947 8.34 2 Devakantha Trading Pvt. Ltd. 14. 70 2525 591 12 61 5 27. 75 727 76 33 4 13.0 5 130 23 84 2439 792 12197 9.23 3 Udbal Mercantile Pvt. Ltd. 12. 75 2905 451 71 73 17. 65 912 08 17 9 -4.90 398 67 51 2774 376 6943 5.87 I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 63 of 74 4 Shelter Sales Agency Pvt. Ltd. 12. 05 3156 896 77 62 20. 15 120 585 24 7 -8.10 473 54 94 2988 957 7421 6.70 5 Amit Singh 3.5 0 3193 625 10 24 5.1 5 204 350 63 -1.65 374 72 24 2951 803 937 1.71 6 Runicha Merchants Pvt Ltd. 3.4 5 1584 913 11 75 3.9 0 924 32 56 -0.45 602 6 6 1486 455 1113 1.30 7 Spice Merchants Pvt. Ltd. 3.1 0 3342 475 18 09 5.6 5 141 130 72 -2.55 542 16 32 3147 129 1705 1.88 8 Apex Commotrade Pvt. Ltd. 2.5 5 1223 735 77 7 2.9 0 464 87 44 -0.35 124 00 5 1164 848 728 0.96 9 Winall Vinimay Pvt. Ltd. 1.9 5 2189 989 11 00 2.9 5 735 72 40 -1.00 200 00 9 2096 417 1051 0.98 10 Signet Vinimay Pvt. Ltd. 1.3 5 9037 11 69 8 1.5 0 360 61 25 -0.15 234 8 3 8653 02 670 0.50 11 Sanklap Vincom Pvt. Ltd. 1.1 0 8926 00 23 3 1.4 0 644 08 18 -0.30 183 50 5 809 842 210 0.47 12 Pyramid Trading & Finance Ltd. 0.6 0 6481 75 49 4 1.0 0 273 08 15 -0.40 710 0 5 613 767 474 0.33 13 SKM Travels Pvt. Ltd. 0.2 5 4940 50 14 2 0.3 5 246 35 6 -0.10 550 0 2 463 915 134 0.12 14 Vibgyor Financial Service Pvt. Ltd. 0.1 0 8200 0 12 0.1 0 800 0 2 0.00 0 0 740 00 10 0.03 15 Bazigar Trading Pvt. Ltd. 0.0 5 3450 0 12 0.0 5 234 7 1 0.00 0 0 321 53 11 0.02 16 Avlokan Dealcom Pvt. Ltd. 0.0 5 3897 06 97 0.4 0 339 44 7 -0.35 155 80 7 340 182 83 0.13 16 Buyers net positive LTP 74. 85 26941 882 43 46 8 116. 00 1183 458 420 ■41.15 3397 01 41 4 25418 723 41634 38.56 Total Market 25. 80 60397 726 85 30 1 300 .8 3129 367 264 0 -275 3024 530 200 9 54243 829 80652 100 50. Out of the 1420 positive LTP trades of the 16 buyers mentioned in the table above, in 379 trades for 2,24,612 shares, the counterparties were allegedly connected to the buyers. The details of positive LTP increase contribution by the counterparties (8 I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 64 of 74 sellers) are given below: Buyer Name Sr. no. Connected group entities as seller LTP>0 Qty No. of Trade s %of mkt. positiv e LTP 16 conne cted group entitle s 1 Nishit Agarwal Beneficiary Trust 6.15 58670 122 2.04 2 Praveen Kumar Agarwal HUF 5.40 56481 64 1.80 3 Pinky Agarwal 3.90 24346 55 1.30 4 Praveen Kumar Agarwal 3.80 18818 76 1.26 5 Pratik Agarwal Beneficiary Trust 3.70 61152 59 1.23 6 Dhanleela Investments & Trading Company Ltd. 0.20 100 1 0.07 7 Pine Animation Ltd. 0.15 50 1 0.05 8 Daga Infocom Pvt. Ltd. 0.05 4995 1 0.02 Grand Total 23.35 224612 379 7.77 51. On the basis of the above trades, the allegation levelled is that 16 Buyers and 8 Sellers of the connected group entities together contributed Rs. 23.35 to positive LTP which is 7.77% of total market positive LTP. 52. On a perusal of the replies/ oral and written submissions of the 24 Noticees, I note that following common submissions have been made by them: i. The connections amongst the group have been established on the basis of common directorships, fund transfers or off-market transactions between Noticees, however, various entities through whom connections have been shown, are not parties to the show cause notice. These entities who have been let off by SEBI had also traded in the scrip and were debarred vide the interim order. ii. The alleged contribution to the LTP by the entire group is only 7.77 %, however no action has been taken against the other entities who have contributed 92.23%. iii. The individual contribution of the entities is miniscule. In certain cases, it is as less as 10 paise. iv. Not all trades were placed at prices above LTP. In fact majority of the Noticees have submitted that most of their trades were placed at prices equal to or less than LTP. v. Certain Noticees had also traded in other patches but the same has been ignored by SEBI. vi. There are two parties to a trade. If the transaction has been found to be fraudulent and the buyer or seller has been alleged to have violated the provisions of PFUTP I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 65 of 74 Regulations, then the counterparty also has to be proceeded against. vii. There is no charge of synchronized or circular trade. If the parties are connected to each other and have acted as a group, then why it is that there trades were not synchronized. viii. Several Noticees were also charged for prima facie involvement in other cases such as Pine Animation and Mishka Finance. Their trading pattern was similar in those scrips also, but no adverse finding has been recorded against them in those orders and the directions issued against them vide the interim order have been revoked. ix. It is also not a charge in the SCN that the Noticees have in any manner benefited from such manipulation. Without prejudice to the above, if it is held that all the alleged connected group entities were manipulating the price of the scrip then it is the preferential allottees who had benefited from such manipulation, however in the present case the order passed against most of the preferential allottees has been revoked by SEBI. x. Even if it is alleged that some allegedly connected entities / persons / group were a part of the trade executed in the shares of RGL, it is submitted that because of the anonymous stock exchange mechanism the Noticees could never have been aware of the buying or the selling entity, as the case may be, especially since no such allegation has also been made in the SCN. xi. Certain Noticees who were sellers in the group have submitted that as seen from the trade and order log as annexed to the SCN that the alleged manipulative trades specified in the SCN were sales of the scrip of the Company at a time when the price was already at its peak and there were volumes existing in the scrip. Therefore, on the basis of documents and records annexed to and relied on in SCN itself, it cannot be held that they have in any way contributed to price rice or volumes in the scrip. 53. Before dealing with the specific trades carried out by the Noticees, I find it pertinent to draw reference to the background in which the trades of the Noticees have been alleged to be fraudulent. On a plain reading of the SCN, the genesis of the allegations levelled against Noticees no 1 to 24 appears to be the intra-group trading i.e. trades wherein they acted as counterparties. The treatment of these 24 Noticees as one group is based on several factors which have been recorded in the “connection table” drawn earlier in the order. 54. The Noticees in their replies have denied the alleged connections with other entities and have also denied having acted in a group. In this regard, I find it important to mention that in the SCN, connection amongst the 24 Noticees has been established on the basis of fund transfers, off - market transactions and also common directorship in certain instances. The parties at the two ends of any fund transfer or off-market transfer of I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 66 of 74 securities or common directorship cannot deny that they do not know each other. However, drawing a connection on the basis that party at one end of a fund transfer / off-market transaction/ common directorship would also know a third person known to the party at the other end, may not hold correct in all situations. Thus, connection between two entities through a common known entities will have to be established with the aid of accompanying circumstances. One salient point in the present case which emerges from a reading of the SCN is that the correlation of the basis of connection such as fund transfer or off-market transaction with the trading in question has not been brought out. On a consideration of the connection table (noted earlier), I find that whilst several Noticees are directly connected to each other, connections amongst certain entities are notably remote. At this point, I find it pertinent to mention that in most of the cases pertaining to the securities market, the basis of connection amongst entities, whether direct or indirect, proximate or remote, would be sufficient to show the linkages amongst them. However, there are several other factors which need to be simultaneously considered before reaching any conclusion such as volume of the trade effected; the period of persistence in trading in the particular scrip; the particulars of the buy and sell orders, namely, the volume thereof; the proximity of time, etc. as have been referred by Hon’ble Supreme Court of India in the matter of SEBI v. Kishore P. Ajmera (Order dated February 23, 2016). 55. Apart from the above discussed basis of connection, I find it important to take note that the allegations in the SCN are based on the trades which have matched between the 16 buyers and 8 sellers. It is also a matter of fact that all these trades were carried out on the anonymous stock exchange platform. Further, there is no mention in the SCN about any of the trades amongst the 16 buyers and 8 sellers were in the nature of synchronized or circular or reversal trades, and during patch 2 when these 24 Noticees had trades, high volumes were recorded in the trading of the scrip of RGL. 1. .1 note that the SCN is silent on the point as to how the Noticees on the buyer side were able to match their trades with the Noticees on the sell side when they did not synchronize their trades. On an anonymous screen based platform, an entity is unable to know the identity of the other buyers or sellers. Thus, unless the buyers and sellers have a prior understanding of placing the orders at pre-decided price and time, they cannot be assured of matching each other’s’ order. The SCN does not contain any direct allegation regarding prior meeting of minds amongst the buyers and sellers of the group. In this regard, I find it pertinent to refer to the following observations of Hon’ble Supreme Court of India in the matter of SEBI v. Kishore P. Ajmera (Order dated February 23, 2016): “While the screen based trading system keeps the identity of the parties anonymous it will be too naive to rest the final conclusions on said basis which overlooks a meeting of minds elsewhere. Direct proof of such meeting of minds elsewhere would rarely be forthcoming. The test, in our considered view, is one of preponderance of probabilities so far as adjudication of civil liability arising out of violation of the Act or the provisions of the Regulations framed thereunder is concerned. I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 67 of 74 Prosecution under Section 24 of the Act for violation of the provisions of any of the Regulations, of course, has to be on the basis of proof beyond reasonable doubt. ... The conclusion has to be gathered from various circumstances like that volume of the trade effected; the period of persistence in trading in the particular scrip; the particulars of the buy and sell orders, namely, the volume thereof; the proximity of time between the two and such other relevant factors.” 57. In light of the above observations of the Hon’ble Court, in absence of any direct evidence to that effect, meeting of minds between the buyer and seller can be proved considering the preponderance of probabilities, which essentially would require assessment of the circumstances such as proximity of placement of orders, repetitive nature of trades, the volume of trades, etc. In the present case, however, no circumstances have been brought out in the SCN to suggest that the intra-group buyers and sellers had a prior meeting of minds and in furtherance thereof they executed the trades which resulted in the positive LTP contribution of 7.77%. 58. In addition to the above, the following facts and circumstances also emerge from the SCN: 58.1. Most of the Noticees have traded beyond the period / patch of examination but the allegations in the SCN have been levelled on a percentage of Noticees’ trading. In respect of certain Noticees, the majority of their trades have been noted to be below LTP or at LTP. 58.3. Individual LTP contribution by certain Noticees is miniscule and not blameworthy if they are not proved to be a part of the alleged group. 58.4. There is no allegation that the Noticees were funded by certain entities for the purpose of trading in the scrip of RGL or that they had borrowed funds for the purpose of trading. 58.5. There is no allegation that the Noticees (except the preferential allottees) had benefited from the alleged trading in the scrip of RGL. 59. I find that in cases of alleged price manipulation like the present one, it is not always possible to find direct evidence of price manipulation and only a holistic consideration of the relevant facts and circumstances such as trading patterns of the entities, previous trading behaviour, linkages I connections amongst the entities, direct or indirect benefits accrued to the entities, prevailing conditions in the market, liquidity in the scrip, etc. can establish the violations. In the present case, the holistic consideration of the factors as discussed in earlier paragraphs does not lead, on the preponderance of probability basis, to the violations as alleged in the show cause notice qua Notices no. 1 to 24. Therefore, the charge of violation of Sections 12(a),(b) and (c) of the SEBI Act, 1992 read with regulations 3(a),(b),(c),(d) and 4(1 ),4(2)(a) & (e) of SEBI (PFUTP) Regulations, 2003 is not established against the Notices no. 1 to 24. 58.2. I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 68 of 74 41. From going through the above decision, we find that the Whole Time Member, had given a categorical observation that the alleged price manipulation like the one in the case before the SEBI, direct evidence of such price manipulation is not always possible to be found and a holistic consideration of the relevant facts and circumstances such as trading patterns of the entities, trading behaviour, linkages/connections amongst the entities, prevailing conditions in the market, liquidity in the scrip, etc. can establish the violation. In the case of Radford Global Ltd., all the 29 entities referred in the said order, which includes the assessee(s) appeals before us, the directions given by SEBI in the interim order dt. 19/12/2014 which was confirmed by the order dt. 26/08/2016, were revoked and it has been further held that, the holistic consideration of the factors as discussed in earlier paragraphs does not lead, on the preponderance of probability basis, to the violations as alleged in the show cause notice qua Notices no. 1 to 24. It is also held that there in absence of any direct evidence to the effect meeting of minds between the buyer and seller can be proved considering the preponderance of probabilities, which essentially would require assessment of the circumstances such as proximity of placement of orders, repetitive nature of trades, the volume of trades, etc. It is also observed in the present case that no circumstances have been brought out to suggest that the intra-group buyer had a prior meeting of minds and in furtherance thereof they executed the trades of the alleged transactions. 42. On going through the said order of Whole Time Member of SEBI, we find that though the primary investigation was carried out by the SEBI I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 69 of 74 and show cause notices were issued to the assessee(s) in appeal before us, after detailed examination/investigation and after having considered all the relevant facts and circumstances, a Whole Time Member of SEBI has given a categorical finding of fact that the assessee(s) were not involved in the racket of arranging/providing bogus Long term capital gain and transactions which led to earning of alleged Long term capital gain have been carried out within the four corners of the rules and regulations provided by the SEBI and having been carried out on the stock exchange platform and transactions have been settled through banking channels. We thus, find that at the time of making the impugned additions, there were only third party statements and report of the investigation wing referring to some entry operators and share brokers but there was no direct evidence doubting the genuineness of the said transactions and the additions are made only on the basis of preponderance of probabilities theory. Similar type of additions were also made in the case of Swati Bajaj (supra) and Hon’ble Jurisdictional High Court decided in favour of the revenue. However, in the case of assessee(s) in appeal before us, facts are distinguishable because specific enquiry has been conducted by the SEBI regarding the facts of the case i.e., all the transactions carried out by the assessee(s) in appeal before us for the purchase and sale of equity shares of Radford Global Ltd.. These have been examined by an Authority which provides the platform for carrying out the share trading/purchase and sale of transactions and after extensive enquiry, assessee(s) in appeal before us have been exonerated from the alleged charges. It has been held that there is no direct evidence which could indicate that buyers and I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 70 of 74 sellers had pre-planned the said transactions and in other words, the complete theory of preponderance of probabilities adopted by assessing officer has attained oblivion. Therefore, under these given facts, the judgment of the Hon’ble Jurisdictional High Court in the case of Swati Bajaj (supra), are not applicable, as the facts of the case are distinguishable so far as the assesse(s) in appeal before us are concerned. 43. Further, the recent decision of the Ahmedabad Bench of the Tribunal in the case of ITO vs. M/s. Gokuldham Enterprise LLDP in ITA No. 675/Ahd/2018, order dt. 11/01/2023, has been cited by the assessee, wherein the issue is also related to bogus Long term capital gain from sale of equity shares of alleged penny stock companies. In this case, the Tribunal has discussed about the final order of the SEBI and has also distinguished the facts of the case referring to the judgement of the Hon’ble Jurisdictional High Court in the case of Swati Bajaj (supra) and has confirmed the order of the ld. CIT(A), deleting the addition made on account of alleged bogus Long term capital gains. The relevant finding of the Tribunal, reads as follows:- “Para 11. A perusal of this show cause notice reveals that except for mentioning the fact that the shares have been sold at a very high price, there is no discussion as to how the price was found to be unreasonable. There is no discussion of the financials of the scrip dealt with by the assessee; there is no absolutely no basis established on merits by the AO as to why sale of these shares were at suspiciously high price. In the assessment order, after the show cause, the only discussion is with regard to the interim order of the SEBI indicting the dealings in these shares with several fraudulent charges as reproduced above, and on the basis of this interim SEBI order alone, the AO has rejected all documentary evidences filed by the assessee, as not being of any assistance to the assessee to prove the genuineness of the transaction. The Ld. DR was unable to point out how the AO had made out a case of unreasonably high price of sale of shares of MFTL. I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 71 of 74 12. It is abundantly clear therefore that the entire case of the AO rested on interim order of the SEBI. The argument of the Ld. DR to the contrary is therefore rejected. 13. Further, it is fact on record that in the final order, the SEBI had absolved this scrip of MFTL from all charges of its price being manipulated to enable exiting shareholders in introducing their illegitimate gains from being introduced without payment of taxes. The Revenue does not dispute the same. As rightly pointed out by the Ld. counsel for the assessee, the specific purpose of the investigation, and both the interim and final orders of the SEBI was regarding manipulation of the price this scrip for providing accommodation entries to illegitimate gains of the share holders dealing in these scrip and final order of the SEBI has found all these charges to be baseless. The case of the Revenue in the present case also is the illegitimate gains being introduced by the assessee by way of fraudulent and manipulated share trading transaction. SEBI is a statutory body and its orders therefore cannot be simply brushed aside. The finding of the SEBI, in this final order, that the scrip dealt by the assessee were not manipulated and not fraudulent, therefore carries a lot of weight.... 14. We have also taken note of the decision of the ITAT Jaipur Bench in an identical case of addition made of bogus long term capital gains arising in trading of shares of the same scrip as in the present case, i.e. "MFTL", wherein ITAT deleted the addition on the basis of the final order of the SEBI. The facts and circumstances of the case are identical to the present case. The Ld. DR was unable to point out any distinguishing fact, and therefore, the said decision is squarely applicable to the present case. The CIT (A)'s order deleting the addition of Rs.8,90,28,838/- in the present case is fortified by the said decision of the ITAT. As for the decision of the Hon’ble Calcutta High Court in the case of Swati Bajaj (supra), the Ld. Counsel for the assessee has rightly distinguished the same on facts pointing out that in those case there was no reference to any order of SEBI in the scrips traded in. That accordingly the Hon’ble High Court had dealt with the issue on merits referring to the financials of the scrips not supporting the high prices at which it were sold and accordingly holding that the assessee in such circumstances was required to establish the genuineness of the transaction. The Ld. DR was unable to controvert the factual distinction pointed out by the Ld. Counsel for the assessee as above. We agree therefore, in the light of the factual distinction, that the decision of the Hon’ble Calcutta High Court is not applicable in the present case. 15. In view of the above, we do not find any infirmity in the order of the Ld. CIT (A) deleting the addition made on account of alleged bogus long term capital I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 72 of 74 gains of Rs.8,90,28,838/-. Accordingly, the grounds of the appeal of the Revenue are dismissed.” 44. Thus, to conclude we hold that firstly the principles of natural justice have been violated while carrying out the assessment proceedings in the case of the assessee(s) since no opportunity for cross-examination was provided for those persons whose statements have been relied upon by the assessing officer for making the alleged additions. Secondly, there is no direct evidence referred to by the assessing officer or in the report of the investigation Wing that the assessee(s) have made arrangements with the entry operators/company owners for carrying out the alleged transactions. Thirdly, additions made by the assessing officer are merely based on a theory called preponderance of probability that in same type of cases prices are rigged up and down by the entry operators in order to provide accommodation entry to various persons in the form of Long term capital gain and though, the assessing authority can apply preponderance of probabilities in some cases on account of surrounding circumstances but so far as the cases on hand are concerned, we notice that firstly some observations were made by the SEBI regarding some fishy transactions carried out in case of few companies. Based on such primary information, the income tax department has carried out extensive enquiries and search and surveys in the case of various entry operators and alleged companies and based on such statements, a theory was established regarding such accommodation/bogus entries in the form of capital gains. However, since in the case of the assessee, SEBI at a later stage has intensively carried out the investigation on the facts of the assessee(s) along with other persons as referred in the order of the SEBI I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 73 of 74 (extracted supra), and after a detailed investigation and examination of records exonerated, the assessee(s) from the charges levelled in the show cause notice issued to them. Therefore, when the assessee(s) have been exonerated and the charges against them have been waived and the transactions of purchase and sale of equity shares carried out by them have been found to be genuine, the theory of preponderance of probabilities is ruled out in the case of the present assessee(s). Thus, when the transactions giving rise to the long term capital gain have been found to be genuine, and as per rules and regulation of SEBI, the finding of the ld. CIT(A) deserves to be set aside and the impugned additions in case of assessee(s) in appeal before us are uncalled for. 45. In the result, all the appeals of the assessee(s) are allowed as per the terms indicated hereinabove. Kolkata, the 14 th July, 2023 Sd/- Sd/- [Sanjay Garg] [Manish Borad] Judicial Member Accountant Member Dated: 14.07.2023 SC (P.S.) I.T.A. Nos.: 982, 983, 984 & 2068/KOL/2018 Assessment Year: 2014-2015 M/s. Gateway Financial Services Ltd. M/s. Nishit Agarwal Beneficiary Trust Pinky Agarwal Pratik Agarwal Beneficiary Trust Page 74 of 74 Copy of the order forwarded to: 1. M/s. Gateway Financial Services Ltd., 156A, Lenin Sarani, Kolkata- 700 017. 2. M/s. Nishit Agarwal Beneficiary Trust, 2 nd Floor, Flat No.-2C/D, Dover Lane, Ballygunge, Kolkata-700 019. 3. Pinky Agarwal, Room No.114, 7 th Floor, 2B, Grant Lane, Kolkata- 700 019. 4. Pratik Agarwal Beneficiary Trust, 2C, Drover Road, Ballygunge, Kolkata-700 019. 5. ACIT, CC-3(1), Kolkata. 6. CIT(A)-21, Kolkata. 7. CIT- 8. CIT(D/R), Kolkata Benches, Kolkata. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata