SECTION 69A OF THE
INCOME-TAX ACT, 1961 - UNEXPLAINED MONEY
Sale
of shares: Where AO made addition to assessee's income under sec. 69A in
respect of exempted Long Term Capital Gain u/s 10(38) as claimed by assessee, arising
from sale of shares on basis of information received from Investigation Wing.
The
said company was engaged in providing bogus entries of capital gain on sale of
shares, since assessee had failed to discharge her burden of proof that
long-term capital gain arising from sale of shares was genuine, impugned
additions was confirmed.
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Details of Order:
IN THE INCOME TAX
APPELLATE TRIBUNAL DELHI BENCH:
'SMC' NEW DELHI
BEFORE SHRI H.S.
SIDHU, JUDICIAL MEMBER
I.T.A
.No.-5714/Del/2018
(ASSESSMENT YEAR-2014-15)
Pooja Ajmani A-6/20,
Triveni Apartments, Ward 20(4) Paschim Vihar, New Delhi. New Delhi. (PAN No.
ALZPA8149G) Vs ITO
Appellant by Shri
K.P. Gaunguli, Adv.
Respondent by Shri
S.L. Anuragi, Sr. DR
ORDER
This
appeal filed by the Assessee is directed against the order dated 23.07.2018 of
the Ld. CIT(Appeals)-40, Delhi relevant to assessment year 2014-15 on the
following grounds of appeal: -
1.
"That, on the facts and in the circumstances of the case and in law,
CIT(A)-40, New Delhi was not justified in confirming the addition of Rs.
23,68,313/- as income of the assessee due to the amount received from Kappac
Pharma Limited.
2.
That on the facts and in the circumstances of the case and in law, CIT(A)-40,
New Delhi has failed to appreciate that the Assessing Officer made the addition
mentioned above without confronting the appellant with the statement to Shri
Gupta given by him before the income tax authorities and alsodenying the
appellant an opportunity to cross examine Shri S.K. Gupta.
3.
That, on the facts and in the circumstances of the case and in law, CIT(A)-40,
New Delhi was not justified in confirming the addition of Rs. 23,68,313/-
specially when the same was done by copy pasting the information received from
different wings of IT department and without making any enquiry in the matter.
4.
That the appellant craves, leaves to add, to amend any of the grounds mentioned
above any time before or in the course of hearing of appeal before ITAT."
2.
The brief facts of the case are that assessee filed return of income was filed
on 19/12/2014 declaring total income at Rs. 1,21,740/-. The case of the
assessee was selected for scrutiny and notice under section 143(2) of the
Income Tax Act, 1961 (in short "Act") was issued on 18/09/2015.
During the year under consideration, the assessee has received remuneration
from Rahat Latex India Pvt. Ltd. income under the head salary. The assessee had
also disclosed long- term capital gain of Rs.23,22,498/- which was earned by sale
of equity shares of Kappac Pharma Ltd. AO observed that according assessee she
had acquired 4000 equity shares of M/s Kappac Pharma Ltd (Registered office
13/2014, Rerni Bizcourt Veera Desai Road, Andheri West Mumbai Mumbai City' MH
400053), from M/s Corporate Stock Broking Private Ltd (Registered office A/25,
Kalindi Apartment, Nr. Jaymala Bus Stop, Ishanpur, Ahemadabad -380050, Gujrat)
at a price of Rs.13.09 per share on 13.09.2012. The assessee sold 3500 shares
of Kappac Pharma Ltd Scrip No.506938 through her broker Shri Parasram Holdings
Pvt. Ltd. for a total consideration of Rs.23,76,500/- through Bombay Stock
Exchange and paid STT of Rs.2377/-. The Assessing Officer received a report
from the office of Principal DIT, Investigation, Kolkata, informing that an
organized racket of generating bogus entries of Long Term Capital Gains (LTCG)
which was exempt from tax had been unearthed in which price of the shares of
the penny stock companies were rigged and were raised through circular trading.
The Assessing Officer discussed the modus operandi in detail in the assessment
order. As per the information available with the Assessing Officer, the shares
of Kappac Pharma Ltd. were found to be heavily traded through the top brokers
whose activities were being scrutinized by the Investigation Wing. The
Investigation Wing, Kolkata recorded the statement of such brokers and
sub-brokers who were involved in purchasing of the scrips. A detailed analysis
of the financials, price and volume of the shares of the company was also done
by the Assessing Officer who then concluded that the transactions showing long
term capital gain, which has been claimed by the assessee as exempted under
section 10(38), were sham transactions as the surrounding circumstances and the
statement of various share brokers prove these facts. After a detailed analysis
of the investigation report with the materials available on record in the case
of the assessee and on further examination of the financials of Kappac Pharma
Ltd., the Assessing Officer concluded that the modus operandi adopted by the
assessee followed the pattern discovered by the Investigation wing during
various search and survey operations. Since the assessee had sold the scrip
Kappac Pharma Ltd., which was included in the list of penny stock as provided
by the Investigation Wing, Kolkata, summons were issued to the assessee under
section 131 to prove the genuineness and creditworthiness of the transaction
and the statement of the assessee was also recorded. It was observed that apart
from the questions relating to questions and experience in dealing in
investment share, no proper answer/justification was given by the assessee with
regard to question relating to allotment of share, prove of purchase of shares
justification for purchase of the particular shares, justification for
dematerialization of share just before sale of information regards how the
assessee knew promoter of Kappac Pharma Ltd., mode of allotment etc. It was
also noted that the assessee did not have a demat account at the time of buying
the 4000 shares of Kappac Pharma Ltd. from Corporate Stock Broking Pvt. Ltd.
The Assessing Officer also called for the demat account statement of the
assessee from the broker Shri Parasram Holdings Pvt. Ltd. under section 133(6)
of the Act and it was noted that the assessee had never made investment in the
shares since opening of her demat account and only the transactions which were
done were the sale of the shares of Kappac Pharma Ltd. It was also noted that
even after making windfall profit, the assessee had not made any further
investment in any other stock, which as per the Assessing Officer was against
human probability. It was further, noted that the assessee opened her demat
account on 15/01/2014 with Shri Parasram Holdings Pvt. Ltd. and dematerialized
shares which, indicated that she had prior knowledge regarding increase in the
price of share since the shares were sold in the very next month. Thereafter, a
letter was also issued by the Assessing Officer to Corporate Stock Broking Pvt.
Ltd. through which the shares had been purchased but the letter was returned
back unserved and the status of the company under the MCA master data was
showing as "strike off". The Assessing Officer relied on the decision
of the Hon'ble Supreme Court in the case of CIT Vs. Durgaprasad More (82 ITR
540) wherein the Hon'ble Court have made reference to the test of human
probability. Reliance was also placed on the decision of the Hon'ble Supreme
Court in the case of Sumati Dayal Vs. CIT (214 ITR 801). It was held that
transactions showing exempt Long Term Capital Gain under section 10(38) though
appear to be real but as a fact were sham transactions. It was also noted that
it has been held by the Hon'ble Kolkata High Court in the case of CIT Vs.
Precison Finance Pvt. Ltd. (208 ITR 465) that payment through account payee is
not sacrosanct. It was held that it is apparent that the assessee has adopted a
colorable device of LTCG to avoid tax by relying on the decision of the Hon'ble
Supreme Court in the case of Mac Dowell & Co. Vs. CTO (154 ITR 148). Tire
assessee was required to show cause as to why the credit of Rs.20,23,990/- +
Rs.3,44,322/- amounting to Rs.23,68,313/- by way of Long Term Capital Gain
should not be treated as bogus and added to the income. It was submitted that
all the necessary documents in respect of the purchase and shares have been
submitted. It was held that the transaction is a bogus or sham transaction and
the amount of capital gain of Rs.23,68,313/- claimed as exempt Long Term Capital
Gain was not genuine and addition of Rs.23,68,313/- was made to the return
income of the assessee under section 69A. Provisions of section 115BBE were
applied and amount was taxed at the rate of 30%. It was also noted that the
said receipt was deposited in the bank account maintained with Kotak Mahindra
Bank, Pachim Vihar, Delhi and is deemed to be the income of the assessee under
section 69A of the Act and assessment was completed at an income of
Rs.24,90,053/- vide order dated 16.12.2016. Aggrieved by the assessment order,
assessee appealed before the Ld. CIT(A), who vide his impugned order dated
23.7.2018 has dismissed the appeal of the assessee. Against the impugned order,
assessee is in appeal before the Tribunal.
3.
Ld. Counsel for the assessee has stated that Ld. CIT(A) was not justified in
confirming the addition of Rs. 23,68,313/- as income of the assessee due to the
amount received from Kappac Pharma Limited. He further submitted that Ld.
CIT(A) has failed to appreciate that the Assessing Officer made the addition
mentioned above without confronting the assessee with the statement to Shri
Gupta given by him before the income tax authorities and also denying the
appellant an opportunity to cross examine Shri S.K. Gupta. It was further
submitted that Ld. CIT(A), New Delhi was not justified in confirming the
addition of Rs. 23,68,313/- specially when the same was done by copy pasting
the information received from different wings of IT department and without
making any enquiry in the matter. In support of his contention he filed 02
Paper Book one is containing pages 1-13 having details of purchases of 4000
equity shares of M/s Kappac Pharma Ltd. from M/s Corporate Stock Broking (P)
Ltd.; details of sales of 3500 share and another 500 shares through his broken
M/s Shri Parasram Holding and a certificate that the documents mentioned above
are true copies of the original to the file of the AO. In another Paper Book
which is containing pages 1- 101 having the copies of decisions in the case of
PCIT vs. Best Infrastructure (India) Pvt. ltd; PCIT vs. Laxman Industrial
Resources Ltd; Sabh Infrastructure Ltd. vs. ACIT; ITAT, SMC Bench, New Delhi
decision in the case of Shikha Dhawan vs. ITO in ITA No. 3035/Del/2018 (AY
2014-15); ITAT, SMC, Bench decision in the case ofMeenu Goel vs. ITO in ITA No.
6235/Del/2017 (AY 2014-15) and ITA No. 3387/Del/2018 (AY 2014-15) in Smt. Simi
Verma. vs. ITO.
4.
On the other hand, Ld. DR relied upon the orders of the authorities below. He
further stated that assessee has not substantiated his claim before the revenue
authorities. He further submitted that the documents submitted as evidences to
prove the genuineness of transaction are themselves found to serve as smoke
screen to cover up the true nature of the transactions in the facts and
circumstances of the case as it is revealed that purchase and sale of shares
are arranged transactions to create bogus profit in the garb of tax exempt long
term capital gain by well organized network of entry providers with the sole
motive to sell such entries to enable the beneficiary to account for the
undisclosed income for a consideration or commission. He further stated that
the case laws relied upon by the AO as well as Ld. CIT(A) may be read as his
arguments including the decision of the Hon'ble Supreme Court of India in the
case of Mc Dowell and Company Limited, 154 ITR 148.
5.
I have heard both the parties and perused the records especially the impugned
order. I find that AO after a detailed analysis of the investigation report
with the materials available on record in the case of the assessee and on
further examination of the financials of Kappac Pharma Ltd., price & volume
of the scrip of Kappac Pharma Ltd., concluded that the modus operandi adopted
by the assessee followed the pattern discovered by the Investigation wing
during various search and survey operations. It was held that that the
transactions showing long term capital gain, which had been claimed by the
assessee as exempt under section 10(38), were sham transactions. It was held
that it was a case of bogus long-term capital gain obtained through brokers and
that the assessee had used colourable device for avoidance of tax. The receipt
of Rs.23,68,313/- was deemed to be income under section 69A. The assessee has
contended that 4,000 shares of Kappac Pharma Ltd. purchased from Corporate
Stock Broking (P) Ltd. at a price of Rs.13.09 per share in physical form. It
has also been submitted that out of the 4,000 shares, 3000 shared were sold on
04/02/2014 for @Rs.677 per share and another 500 were sold on 18/02/2014 for a
sum of @Rs.691 per share. It has also been submitted that the assessee did not
indulge in any manipulation which may have been done by some broker and that
the appellant was not given opportunity for cross examination. It has also been
submitted that the Assessing Officer has made the addition without considering
the facts of the case and only on the basis of presumption and presuppositions.
It is noticed that prima facie, copies of all documents have been submitted to
substantiate the genuineness of transactions related to purchase and subsequent
sale of shares leading to long-term capital gain claim by the appellant. I find
that these documents were also placed before the Assessing Officer who, after
detailed examination and discussion and going beyond the said documents has
established that the said documents were a mere mask to hide the real nature of
transactions. By analysing the Balance Sheet, Profit &Loss account and the
trade pattern of Kappac Pharma Ltd. during the period March, 2010 to March
2014, the Assessing Officer has pointed out that the share price of this
company was neither affected by the movement of sensex nor the financials of
the company justified such extraordinary jump in the price of its shares. It is
noticed that apart from being based on evidences gathered during search and
survey operations, analysis of the material on record and analysis of
information from various sources, the findings of the Assessing Officer are
also based on strong surrounding circumstances, preponderance of probability
and human conduct in the light of detailed analysis of the modus operandi adopted
by brokers and operators engaged in the business of providing entries of long
term capital gains to the interested beneficiaries which has come to surface as
a result of deep and wide investigation. Initial investment in a company of
unknown credentials and subsequent jump in the share price of such a company
cannot be an accident or windfall but was possible, as clearly brought on
record by the Assessing Officer, because of the manipulations in the price of
shares in a pre-planned manner by the interested broker and entry operators.
The insistence of the assessee that the transactions leading to long-term
capital gains are supported by documents such as sale and purchase invoices,
bank statements etc. cannot be accepted in view of the fact and circumstances
of the case brought on record by the Assessing Officer after proper examination
of the material facts and after taking into account the findings of SEBI and
corroborating evidences gathered by the Directorate of Investigation, Kolkata
against a network of brokers and operators engaged in manipulation of market
price of shares of certain companies controlled and managed by such persons
with a purpose to provide accommodation entries in the form of long term
capital gains. Further, the contention of the assessee that long term capital
gains cannot be treated as bogus merely because some investigation with regard
to certain company and broker or investigation has been carried out by the
Directorate of Investigation, Kolkata only proves that the appellant wants to
take shelter under such documentary evidences which themselves have been
created as masks to cover up the true nature of transaction. A genuine
transaction must be proved to be genuine in all respect. The onus was on the
appellant to prove that the transaction leading to claim of long term capital
gains was distinctly genuine transaction and not bogus, premeditated
transaction arranged with a view to evade taxes. The onus was on the assessee
to contradict the findings that Kappac Pharma Ltd. was a company whose scrip
was capable of being traded at high price as it was the appellant who had
traded in the shares of the this company which resulted into claim of long term
capital gains which is exempt under section 10(38). Once the assessee was made
aware of the result of the investigation which proved that trading of shares
leading to long term capital gains was not genuine, as per section 101 of the
Indian Evidence Act, 1972, the onus was on the assessee to prove that she had
earned genuine long term capital gains as it was the assessee who has made a
claim that she was engaged in genuine share transactions. I find that in the
case of Shri Charan Singh vs. Chandra Bhan Singh (AIR 1988 SC 6370), the
Hon'ble Supreme Court have clarified that the burden of proof lies on the party
who substantially asserts the affirmative of the issue and not upon the party
who denies it. It has been further held that the party cannot, on failure to
establish a prima facie case, take advantage of the weakness of his adversary's
case. The party must succeed by the strength of his own right and the clearness
of his own proof. He cannot be heard to say that it was too difficult or
virtually impossible to prove the matter in question. In the case under
consideration, since it is the appellant who had made the claim that she had
earned genuine long term capital gain, all the facts were especially within her
knowledge. Section 102of Indian Evidence Act makes it clear that initial onus
is on person who substantially asserts a claim. If the onus is discharged by
him and a case is made out, the onus shifts on to deponent. It is pertinent to
mention here that the phrase "burden of proof" is used in two
distinct meanings in the law of evidence viz, 'the burden of establishing a case',
and 'the burden of introducing evidence'. The burden of establishing a case
remains throughout trial where it was originally placed, it never shifts. The
burden of evidence may shift constantly as evidence is introduced by one side
or the others. In this case, once the evidence that assessee has claimed bogus
long term capital gain was introduced by the Assessing Officer, the burden of
evidence shifted to the assessee. During the assessment proceeding and eveir
during the assessee proceeding, the assessee has failed to produce any evidence
to prove that the long term capital gain claimed by her was genuine. In the
present case, it is seen that the assessee has failed to discharge her burden
of proof and the Assessing Officer, on the other hand, has proved that the claim
of the appellant was incorrect. The enquiry conducted by SEBI was further
corroborated by the investigation carried out by the Directorate of
Investigation, has been thoroughly analysed by the Assessing Officer to prove
that the assessee has introduced bogus long term capital gains in her books of
account by routing her unaccounted income through a tax evasion scheme. The
statement of brokers engaged in providing bogus long term capital gains clearly
proves that Kappac Pharma Ltd. is one of such companies whose scrips have been
manipulated to provide bogus long term capital gains. It is noted that on
similar facts and circumstances, Hon'ble ITAT A-Bench, Chandigarh in the case
of Shri Abhimanyu Soin vs ACIT, Circle-7, Ludhiana in ITA No.951/Chd./2016 vide
order dated 18/04/2018, have expressed the view that the undisclosed income in
the garb of long term capital gain has to be assessed as unexplained. The
Hon'ble ITAT have held as under:-
"14.
The ratio laid down by the Hon'ble Supreme Court in the case of SumatiDayal Vs.
CIT [1995] 214 1TR 801 = 2002-TIOL-885-SC-IT-LB is squarely applicable in this
case. Though the assessee has received the amounts by the way of account payee
cheques, the assessee could nowhere prove the purchase of shares as claimed to
have been made on 02/72/2008 in cash and it urns also not proved about the
availability of the funds with the assessee as on the date of purchase of
shares. The assessee was not in India as per the passport details available as
per the record. This, coupled with the fact that the transfer of money in cash
from Ludhiana to Delhi and a person representing the broker operating at
Kolkata has collected the money at Delhi cannot be accepted. The tax
authorities are entitled to look into the surrounding circumstances to find out
the realities and the matter has to be considered by applying test of human
probabilities as enunciated by the Hon'ble Supreme Court. The fact that inspite
of earning 3072% of profits, the assessee never ventured to involve himself in any
other transactions with the broker which gave him even much lower profits
during the period which cannot be a mere coincidence or lack of interest or
absence of advice from the financial institutions as done earlier.
15.
In view of the detailed discussion above, and keeping in view the entirety of
the facts and circumstances and specific peculiarity of the instant case and
the judgments quoted above, we decline to interfere in the order of the Ld. CIT
(A). 16. In the result, appeal of the Assessee is dismissed."
5.1
On the issue of circumstantial evidence and in the matters related to the
discharge of 'onus of proof' and the relevance of surrounding circumstances of
the case, the Hon'ble Supreme Court in the case of CIT Vs. Durga Prasad More [(1972)
82 ITR540], have observed as under:
"...that
though an appellant's statement must be considered real until it zvas shown
that there were reasons to believe that the appellant was not the real, in a
case where the party relied on self-sewing recitals in the documents, it was
for the party to establish the transfer of those recitals, the taxing
authorities zvere entitled to look into the surrounding circumstances to find
out the reality of such recitals. Science has not yet invented any instrument to
test the reliability of the evidence placed before a Court or Tribunal.
Therefore, the Courts and the Tribunals have to judge the evidence before them
by applying the test of human probability. Human minds may differ as to the
reliability of piece of evidence, but, in the sphere, the decision of the final
fact finding authority is made conclusive by law."
5.2
I further find that the above ratio as laid down by the Hon'ble Supreme Court
has been reiterated and applied by the Hon'ble Apex Court in the case of Sumati
Dayal vs. CIT (214 ITR 801). It is essential on the part of the Assessing
Officer to look into the real nature of transaction and what happens in the
real word and contextualize the same to such transactions in the real market
situation. Further, in the case of McDowell &: Co. Ltd.[(1985) 154 ITR 148
(SC)],the Hon'ble Supreme Court have observed as under:
"Tax
planning may be legitimate provided it is within the framework of law.
Colourable devices cannot be part of tax planning and it is wrong to encourage
or entertain the belief that it is honourable to avoid the payment of tax by
resorting to dubious methods. It is the obligation of every citizen to pay the
taxes honestly without resorting to subterfuges."
5.3
Every person is entitled to so arrange his affairs as to avoid taxation but the
arrangement- must be real and genuine and not a sham or make believe.
5.4
Keeping in view of the aforesaid discussions, I am of the view that documents
submitted as evidences to prove the genuineness of transaction are themselves
found to serve as smoke screen to cover up the true nature of the transactions
in the facts and circumstances of the case as it is revealed that purchase and
sale of shares are arranged transactions to create bogus profit in the garb of
tax exempt long terra capital gain by well organised network of entry providers
with the sole motive to sell such entries to enable the beneficiary to account
for the undisclosed income for a consideration or commission. I further find
that the share transactions leading to long term capital gains by the assessee
are sham transaction entered into for the purpose of evading tax. I note that
the landmark decision of the Hon'ble Supreme Court in the case of McDowell and
Company Limited, 154 ITR 148 is squarely applicable in this case wherein it has
been held that tax planning may be legitimate provided it is within the framework
of the law and any colourable devices cannot be part of tax planning and it is
wrong to encourage or entertain the belief that it is honourable to avoid the
payment of tax by dubious methods. However, the case laws cited by the Ld.
counsel for the assessee are on distinguished facts, hence, not applicable in
the instant case. The assessee has not raised any legal ground and argued only
on merit for which assessee has failed to substantiate his claim before the
lower revenue authorities as well as before this Bench. In view of above
discussions, I am of the considered opinion that Ld. CIT(A) has rightly
confirmed the addition in dispute, which does not need any interference on my
part, therefore, I uphold the action of the Ld. CIT(A) on the issue in dispute
and reject the grounds raised by the Assessee.
6.
In the result, the Appeal of the Assessee is dismissed.
Order
pronounced on 25-04-2019.
Sd/-
[H.S.
SIDHU] JUDICIAL MEMBER Date: 25/04/2019 SRBhatnagar Copy forwarded to: -
1.Appellant
2. Respondent 3. CIT 4.CIT (A) 5. DR, ITAT By Order, Assistant Registrar, ITAT,
Delhi Benches
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