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Sanat Kumar vs. ACIT (ITAT Delhi)

COURT:
CORAM: ,
SECTION(S):
GENRE:
CATCH WORDS: ,
COUNSEL:
DATE: June 14, 2019 (Date of pronouncement)
DATE: August 14, 2019 (Date of publication)
AY: 2014-15
FILE: Click here to download the file in pdf format
CITATION:
S. 10(38) Bogus Capital Gains from Penny Stocks (282x gain in 12 months): The meticulous paper work of routing the transaction through banking channel is futile because the results are altogether beyond human probabilities. Neither in the past nor in the subsequent years, assessee has indulged into any such investment having huge windfall. Had the assessee been so intelligent qua the intricacies of the share market, he would have definitely undertaken such risk taking activities in the past or future by making such investment in unknown stock. It is a sham transaction to convert undisclosed income into disclosed by evading tax under the garb of LTCG in connivance with entry providers (Pooja Ajmani & Udit Kalra 176 DTR 249 (Del) followed

IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH ‘E’ : NEW DELHI)
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER
and
SHRI KULDIP SINGH, JUDICIAL MEMBER
ITA No.1881/Del./2018
(ASSESSMENT YEAR : 2014-15)
AND
Stay No.233/Del/2019
(in ITA No.1881/Del./2018)
(ASSESSMENT YEAR : 2014-15)
Shri Sanat Kumar, vs. ACIT, Circle 36 (1),
210, Amber Tower, New Delhi.
Commercial Complex, Azadpur,
Delhi – 110 033.
(PAN : AAQPJ3291A)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri S.K. Gupta, Advocate
REVENUE BY : Shri N.K. Bansal, Senior DR
Date of Hearing : 06.06.2019
Date of Order : 14.06.2019
O R D E R
PER KULDIP SINGH, JUDICIAL MEMBER :
Appellant, Shri Sanat Kumar (hereinafter referred to as the
‘assessee’) by filing the present appeal sought to set aside the
impugned order dated 01.11.2017 passed by the Commissioner of
ITA No.1881/Del./2018
2
Income-tax (Appeals)-12, New Delhi qua the assessment year
2014-15 on the grounds inter alia that :-
“1. The order of Ld. Commissioner of Income tax (Appeals),
XII (‘Ld. CIT (A)/Ld.AO had grossly erred in facts and in law by
holding that the Long term capital gains earned by the assessee
and claimed as exempt u/s 10(38) of the Act, is an undisclosed
income which has been taxed u/s 68 read with section
115BBE(1) of the Act @30%.
2. That the Ld. CIT(A) / Ld. AO had grossly erred in facts
and in law by holding that the LTCG earned by the assessee is
bogus, by totally ignoring the robust documentation submitted by
the assessee during the course of assessment and appellate
proceedings.
3. That the Ld. CIT(A) / Ld. AO had grossly erred in facts
and in law by extrapolating the statements of third parties in the
present case without providing an opportunity for cross objection
by the assessee and also had grossly erred in not making any
individual efforts by issuing summons to record the statements of
any SEBI officer and any director of the company.
4. That the Ld. CIT(A) / Ld. AO had grossly erred in simply
taxing an exempt transaction of the assessee on the basis of a
‘borrowed satisfaction’.
5. That neither the Ld. CIT(A) nor the Ld. AO had been able
to prove by bringing any document on record in order to
establish their allegation that the assessee had purchased the
exempt LTCG from the share broker in question.
6. Without prejudice, the provisions of section 68 are not
applicable in the present case which has been applied by the Ld.
CIT(A) / Ld. AO.”
2. Briefly stated the facts necessary for adjudication of the
controversy at hand are : Assessee filed return of income declaring
total income of Rs.24,29,600/- after declaring deductions under
section 6A (vi) of the Income-tax Act, 1961 (for short ‘the Act’)
Rs.1,00,000/-. Assessee has also shown Long Term Capital Gain
ITA No.1881/Del./2018
3
(LTCG) of Rs.1,21,69,408/- and claimed the same as exempt
income u/s 10(38) of the Act on account of sales of shares of M/s.
Cressanda Solution Ltd..
3. The Directorate of Investigation, Calcutta unearthed an
organized racket of generating bogus entries for LTCG which is
exempt from tax. The modus operandi of the operators was to
make the beneficiary to purchase some shares of pre-determined
penny stock company controlled by them, then these shares are
transferred to the beneficiary at a nominal price mostly off-line
through preferential allotment or off-line sale to save STT,
beneficiary used to hold the shares for one year and then claimed
the LTCG u/s 10(38) of the Act. The operators used to rig the
prices of the stock and gradually enhanced its price many times,
oftenly 500 to 1000 times.
4. AO noticed that the assessee is one of such beneficiaries
who has taken entry of Rs.1,21,69,408/- during the year under
assessment. Initially, assessee purchased 25,000 shares for an
amount of Rs.2,50,000/- on 31.10.2011 and sold the same during
the period 27.06.2013 to 23.09.2013 for sale consideration of
Rs.1,21,69,408/-. AO from the details supplied by the assessee
noticed that the assessee indulged in bogus LTCG and claimed the
amount of Rs.1,21,69,408/- as exempt u/s 10(38) of the Act by way
ITA No.1881/Del./2018
4
of purchase and sale of shares of Cressanda Solution Ltd. through
its broker, Indo Jatalia Securities Pvt. Ltd. After issuing the notice
to the assessee, AO investigated the matter and called necessary
information u/s 133 (6) of the Act from Principal Officer, Bombay
Stock Exchange. AO examined the genuineness of the transaction
and reached the conclusion that though the transaction qua the
LTCG claimed by the assessee appears real but in fact are sham
transactions as the assessee has adopted a colourable device to
evade the tax and found the transaction bogus, sham and nothing
but a racket of accommodation entry and thereby made an addition
of Rs.1,21,69,408/-, and thereby assessed the total income of the
assessee at Rs.1,45,99,000/-.
5. Assessee carried the matter by way of an appeal before the
ld. CIT (A) who has confirmed the addition by dismissing the
appeal. Feeling aggrieved, the assessee has come up before the
Tribunal by way of filing the present appeal.
6. We have heard the ld. Authorized Representatives of the
parties to the appeal, gone through the documents relied upon and
orders passed by the revenue authorities below in the light of the
facts and circumstances of the case.
7. Ld. AR for the assessee challenging the impugned order
contended inter alia that the AO as well as CIT (A) have
ITA No.1881/Del./2018
5
made/confirmed the addition without verifying the purchase and
sale of the transaction of shares without verifying from the third
party; that none of the statement recorded by the Investigating
Wing of the Department contains name of the assessee as
beneficiary of the transaction entered in the documents and its
brokers through whom the assessee had sold the shares in question;
that the assessee has not been provided with opportunity to cross
examine various individuals whose statements have been relied
upon; that the entire allegation made by the AO are based upon his
(AO) imagination; that the AO has wrongly made the addition u/s
68 of the Act which is not attracted; that when the purchase of
shares is genuine then sale cannot be questioned; that the addition
has been made by the AO/CIT (A) on the basis of wild allegation
without any evidence; that movement in prices of shares is based
on supply and demand factor of a particular script and relied upon
the decisions of CIT vs. Vishal Holding & Capital Pvt. Ltd. in ITA
1031/2010 and CIT vs. Med Shave Health Care Ltd..
8. However, on the other hand, ld. DR for the Revenue to repel
the arguments addressed by the ld. AR for the assessee contended
that Cressanda Solution Ltd. has been duly investigated by
Department of Revenue Intelligence (DRI) and found that the same
is a bogus company engaged in arranging for bogus LTCG; that
ITA No.1881/Del./2018
6
since certain amounts out of sale of shares is credited in the books
of account by the assessee, section 68 is applicable and relied upon
decisions of Pooja Ajamni vs. ITO – ITA No.5714/Del/2018 order
dated 25.04.2019 and Udit Kalra vs. ITO – ITA No.6717/Del/2017
order dated 08.01.2019.
9. Undisputedly, assessee has purchased 25,000 shares on
24.11.2011 by way of allotment for Rs.2,50,000/-, which were
dematerialized on 12.06.2013 and thereafter assessee sold the
shares on 25.06.2013 to 19.09.2013 for Rs.1,24,61,944/- after
deducting STT of Rs.12,461/- and other charges of Rs.17,426/- and
thereby claimed the same as exempt u/s 10(38) of the Act.
10. From the undisputed facts, arguments addressed by the ld.
Authorized Representatives of the parties to the appeal, order
passed by the lower Revenue authorities and case laws relied upon,
the sole question arises for determination in this case is :-
“as to whether ld. CIT (A) has erred in facts and law in
confirming the disallowance of long term capital gains
made by the AO, claimed by the assessee u/s 10(38) of
the Act on the ground that shares were purchased by
the assessee by making payment through banking
channel?
11. Perusal of the assessment order framed by the AO apparently
shows that a thorough investigation has been made by calling
ITA No.1881/Del./2018
7
information u/s 133(6) of the Act from Bombay Stock Exchange as
to whether company, namely, Cressanda Solution Ltd. whose
shares have been purchased and sold by the assessee to claim the
LTCG was suspended for trade within last three years. AO
received specific reply from Bombay Stock Exchange that “as per
record available with the exchange, trading in the securities of the
company, Cressanda Solution Ltd. was suspended w.e.f. February
18, 2013 on account of reduction of capital and revoked w.e.f.
March 14, 2013”. When we examine this fact in the light of the
date of shares of sale by the assessee i.e. 25.06.2013 to 19.09.2013,
it becomes clear that working of the company was not above board
and it was merely providing accommodation entries in the form of
bogus LTCG and STCG in order to evade the taxes.
12. The contention of the assessee that he has purchased the
shares through banking channel and as such, when the purchase is
genuine then sale cannot be questioned, is not tenable because the
entire transaction of sale and purchase is to be seen in entirety in the
light of the attending circumstances particularly when share of Rs.10 is
sold after a period of one year at 282 times which is otherwise
improbable in the ordinary course of business. More particularly
when trading of the company was suspended by Bombay Stock
Exchange in February 2013 and revoked w.e.f. March 2013.
ITA No.1881/Del./2018
8
13. Furthermore, when during the course of argument, ld. AR
for the assessee was asked to explain the business of Cressanda
Solution Ltd., he feigns ignorance by stating that assessee is neither
promoter nor Director of the said company and he is unable to
disclose these facts. We are of the considered view that when
assessee is the beneficiary to the maximum extent, he cannot be
allowed to step aside the questions because in the ordinary course
of business, no one can be expected to invest the amount in a
company having no profile in public domain. First of all, anybody
who makes an investment in the company by way of purchase of
shares, he used to peruse the profile and go through the balance
sheet of the company.
14. But ld. AR for the assessee has also shown his helplessness
to bring on record the balance sheet of the company which further
strengthens the findings returned by the AO as well as ld. CIT (A)
that Cressanda Solution Ltd. was just providing accommodation
entries in form of fictitious LTCG claim to evade the taxes.
15. When we examine para 9.1 of the ld. CIT (A) he has given
factual matrix of the sale of the shares by recording the finding that
the prices of the shares of Cressanda Solution Ltd. were below Rs.1
per share till January 2013 but suddenly rose to Rs.45 per share in
May 2013 onwards. Assessee purchased the shares @ Rs.10 which
ITA No.1881/Del./2018
9
shot upto Rs.476/- to Rs.503.90 per share in June and July 2013.
This improbable appreciation in the price of the share when
examined in the light of the fact that the assessee was not aware of
profile of Cressanda Solution Ltd., its financial performance,
growth, risk factor, etc. and it makes the entire transaction bogus
and ingenuine.
16. The contention of the ld. AR for the assessee that he was not
provided an opportunity of cross examining the witnesses
examined by the DRI is not tenable because on the basis of
investigation, AO has further conducted the investigation and he
has confronted assessee with all the evidence collected by him
(AO).
17. Moreover, DRI, Calcutta has thoroughly investigated 84
penny stock shares quoted on BSE and examined on oath large
number of brokers, Directors of the Companies, promoters of
penny stock companies, the entry operators who managed the
dummy companies involving in price rigging. Investigation
conducted by DRI was further shared with SEBI who has
investigated 11 cases and found the allegations to be correct. So,
in these circumstances, merely because of the fact that the initial
purchase has been made through banking channel by the assessee,
the entire transactions which are apparently appeared to be bogus
ITA No.1881/Del./2018
10
providing 282 times of appreciation to the assessee by the company
whose balance sheet and profile is not available, cannot be held to
be valid one.
18. No doubt, shares of these penny stock companies are listed
on exchange but they are controlled by its promoters who used to
arrange for bogus LTCG by indulging into price rigging etc.
Meteoric rise in the prices of an unknown company whose trading
in securities was suspended on 18.02.2013 and subsequently
revoked on 14.03.2013 by the Bombay Stock Exchange shows that
the transaction itself is bogus having been purchased through the
brokers who are dealing in such dummy purchases. In the given
circumstances, the assessee has failed to prove that his transaction
was genuine and he has not indulged into any such bogus
purchases. Moreover, when some of the amount out of the sale of
shares is found to be credited in the books of account of the
assessee, section 68 is applicable.
19. Furthermore, investigation conducted by the DRI found that
one of the Directors of Cressanda Solution Ltd., namely, Shri Ajit
Kumar Tulsiyan confessed that scrip of Cressanda Solution Ltd.
has been controlled and managed by Deepak Patwari which fact
was duly brought to the notice of the assessee and he has not tried
to discredit that statement by producing Shri Ajit Kumar Tulsiyan
ITA No.1881/Del./2018
11
before the AO during assessment proceedings particularly when
the said statement was made part of the show-cause notice issued
to the assessee.
20. For argument sake, even if the purchase of the assessee is
assumed to be genuine, the sale of shares at astronomical price
with no real buyer in the market itself shows that the transaction
was bogus, sham and ingenuine one.
21. The contention of the ld. AR for the assessee that it has duly
satisfied the conditions laid down u/s 10(38) of the Act to claim the
LTCG of Rs.1,21,69,408/- from the sale of shares of Cressanda
Solution Ltd. is not tenable when this company, Cressanda
Solution Ltd., is proved to be in the air and assessee is not aware of
its profile, growth, risk, etc. Even meteoric rise in the prices of the
share in the given circumstances itself proves that it was merely a
bogus transaction to convert the black money into white money.
22. The contention of the ld. AR for the assessee that risk
appetite determines the profit in sale and purchase of shares and
when he has invested the money by purchasing the shares of
Cressanda Solution Ltd. through banking channel its sale cannot be
questioned, is not tenable because it is not a case of risk appetite to
determine the profit rather entire transaction is in the papers only
ITA No.1881/Del./2018
12
and Cressanda Solution Ltd. has no legs to stand to make 282 times
of return to its investors.
23. The contention of the ld. AR for the assessee that suspension
of trading activities of Cressanda Solution Ltd. by BSE is because
of reduction in capital and not on the allegation of price rigging is
also not tenable because the transaction has to be examined as a
whole and not on the basis of one or two single facts.
24. The contention of the ld. AR for the assessee that hike in the
prices of shares of Cressanda Solution Ltd. was because of the
amalgamation of M/s. Smartchamp IT and Infra Ltd. is also not
tenable because this is the common modus operandi of penny stock
companies in order to provide improbable capital gain to the
investors. Moreover, in the absence of profile and balance sheet of
Cressanda Solution Ltd., its financial performance cannot be
gauged. Assessee preferred not to throw any light on the profile
and financial performance of Cressanda Solution Ltd. to prove the
genuineness of the transactions.
25. We are further of the view that price rigging of the shares
can only be determine from the circumstances in which shares have
been purchased in physical form and then get dematerialized just
before the sale at astronomical price because direct evidence in
such circumstances is usually not available.
ITA No.1881/Del./2018
13
26. Coordinate Bench of the Tribunal in case cited as Pooja
Ajmani vs. ITO (supra) in the identical set of facts dismissed the
appeal of the assessee by returning following findings :-
“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
ITA No.1881/Del./2018
14
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 102 of 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
ITA No.1881/Del./2018
15
term capital gain was introduced by the Assessing Officer, the burden
of evidence shifted to the assessee. During the assessment proceeding
and even 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
ITA No.1881/Del./2018
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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
were 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
ITA No.1881/Del./2018
17
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.”
27. Similarly, coordinate Bench of the Tribunal in case cited as
Udit Kalra vs. ITO (supra) dismissed the appeal filed by the
assessee who has claimed deduction u/s 10(38) of the Act for
Rs.27,20,457/- in the identical facts which has been confirmed by
the Hon’ble Delhi High Court in ITA 220/2019 order dated
08.03.2019 by returning following findings :-
“This court has considered the submissions of the parties. Aside from
the fact that the findings in this case are entirely concurrent – A.O.,
CIT(A) and the ITAT have all consistently rendered adverse findings –
what is intriguing is that the company (Mis Kappac Pharma Ltd.) had
meagre resources and in fact reported consistent losses. In these
circumstances, the astronomical growth of the value of company’s
shares naturally excited the suspicions of the Revenue. The company
was even directed to be delisted from the stock exchange. Having
regard to these circumstances and principally on the ground that the
findings are entirely of fact, this court is of the opinion that no
substantial question of law arises in the present appeal.”
28. When we examine facts and circumstances of this case in the
light of the order passed by the coordinate Bench of the Tribunal,
affirmed by Hon’ble High Court discussed in the preceding para,
no doubt assessee has meticulously completed the paper work by
routing his entire investment through banking channel but the
results thereof are altogether beyond human probabilities. Because
ITA No.1881/Del./2018
18
neither in the past nor in the subsequent years, assessee has
indulged into any such investment having huge windfall. Had the
assessee been so intelligent qua the intricacies of the share market,
he would have definitely undertaken such risk taking activities in
the past or future by making such investment in the unknown
stock. So, we are of the considered view that what appears to be
apparent in making investment by the assessee in unknown stock is
not real when examined the whole transaction of sale and purchase
of the stock with huge windfall to the assessee.
29. Hon’ble Apex Court in CIT vs. Durga Prasad More 82 ITR
540 while deciding the identical issue whether apparent was not
real and in those circumstances, taxing authorities were held
entitled to look into the surrounding circumstances to find out the
reality of such recitals/transactions by returning following
findings:-
“ Held, reversing the decision of the High Court, (i) that it could
not be said that the finding of the Tribunal as to the unreality of the
trust put forward was not based on evidence or was otherwise vitiated;
(ii) that the Tribunal did not interpret the two deeds but merely
found itself unable to accept the correctness of the recitals in those
documents: to accept those recitals or not was within the province of
the Tribunal and the High Court could not interfere with its conclusion
unless it was perverse or not supported by evidence or was based on
irrelevant evidence;
(iii) that though an apparent statement mast be considered real
until it was shown that there were reasons to believe that the apparent
was not the real, in a case where a party relied on self-serving recitals
in documents, it was for that party to establish the truth of those
recitals: the taxing authorities were entitled to look into the
surrounding circumstances to find out the reality of such recitals.”
ITA No.1881/Del./2018
19
30. So, the irresistible conclusion in this case is meticulous
paper work by the assessee in making investment in unknown
stock by the assessee and then selling the same as per convenience
of the broker and entry operator by rigging prices at astronomical
rate shows that the tax authorities have been compelled to examine
the entire transactions in the light of the surrounding circumstances
and has unearthed the bogus transaction of purchase and sale of
shares which was not real and assessee has failed to dispel all the
quarries raised by the AO to establish that the transaction in
question was real and not beyond human probabilities.
31. In view of what has been discussed above and following the
decision rendered by the coordinate Bench of the Tribunal in cases
cited as Pooja Ajmani vs. ITO (supra) and Udit Kalra (supra)
subsequently affirmed by the Hon’ble jurisdictional High Court,
we are of the considered view that purchase and sale of shares of
unknown company, Cressanda Solution Ltd., having no profile,
financial growth, risk factor etc. available with the assessee, whose
shares were purchased @ Rs.10 per share by the assessee and sold
@ Rs.476 to Rs.503.90 per share, is merely a sham transaction
credited to get the bogus profit at astronomical rate under the garb
ITA No.1881/Del./2018
20
of LTCG in connivance with the entry providers to make
undisclosed income as disclosed one by evading the tax.
32. So, we are of the considered view that the ld. CIT (A) has
passed a valid and reasoned order on the basis of law applicable to
the facts and circumstances of the case. Case laws relied upon by
the ld. AR for the assessee are not applicable to the facts and
circumstances of the case. Consequently, the question framed is
answered in the negative, hence the appeal filed by the assessee is
hereby dismissed.
33. In view of the fact that appeal bearing ITA
No.1881/Del/2018, in which the present stay application was filed,
has since been disposed off vide this composite order, the present
stay application is hereby dismissed having been become
infructuous.
Order pronounced in open court on this 14th day of June, 2019.
Sd/- sd/-
(R.K. PANDA) (KULDIP SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated the 14th day of June, 2019/TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-12, New Delhi.
5.CIT(ITAT), New Delhi. AR, ITAT
NEW DELHI.

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