Sh. Mukesh Mittal Vs ITO (ITAT Delhi)
The assessment order clearly shows that the AO has merely reproduced the modus operandi of the entry providers who booked bogus long term capital gains through penny stock companies. The show cause notice dated 2.12.2016 issued by the AO during the assessment proceedings and the findings of the AO are based upon interim order of SEBI dated 19.12.2014. Even the Ld. CIT (A) has relied upon another interim order dated 26.8.2016 confirming the earlier interim order dated 19.12.2014. 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 20.9.2017.
We also find that the AO has held that many share brokers as well as many employees of these share broking companies in Kolkata, in their statements recorded under section 131 of the Act, have admitted to the fact that they have artificially inflated the prices of the shares of their dummy companies to deliberately provide bogus accommodation entries of the long term capital gain/loss, short term capital gain/loss to the beneficiaries. However, no such statement has been confronted or supplied to the assessee during the course of assessment proceedings. In fact no specific statement has even been referred by the AO in the order of assessment or in the show cause notice extracted in the order of On the contrary, the fact is that the assessee is a habitual investor.
It is also seen that the assessee has placed on record complete documents and evidences to support purchase and sale of shares of M/s Radford Global The sale was through screen based trading and STT and all charges were duly paid. The consideration was received through banking channels. In such circumstances, the AO ought to have conducted independent enquiries and verifications with due application of mind before drawing any adverse inference. Thus, the approach of the Assessing authority in making the addition is also contrary to section 142(1) of the Act which provides that for the purpose of obtaining full information in respect of income or loss of any person, the AO may make such enquiry as he considers necessary.
Much has been argued before us as to the astronomical increase in price of shares of M/s Radford Global However, isolated fact of increase in prices of a scrip, without evidence of any involvement of the assessee cannot be the basis to deny the claim made by the assessee, particularly when SEBI has specifically exonerated the assessee. The addition has, thus, been made on surmises, conjectures and suspicion. The transactions of the assessee are prior to any enquiry or order made by SEBI. Thus, when a person who has been absolved by SEBI and, when the revenue has not placed any material in the shape of statement or otherwise to prove any involvement of the assessee in alleged wrong doing, then there remains no justification to hold that the amount credited represented unexplained credits u/s 68 of the Act.
We are, thus, of the considered view that the assessee has successfully discharged the onus cast upon him by provisions of section 68 of the Act and such discharge is purely a question of fact. We, accordingly, direct the Assessing Officer to accept the long term capital gain of 5,76,90,819/- declared as such and allow exemption u/s 10(38) of the Act. In light of the above, we delete the impugned addition made of Rs. 5,76,90,819/- on account of unexplained cash credits u/s 68 of the Act. Since we have deleted the addition on account of unexplained cash credits u/s 68 of the Act, we do not find any merit in the consequential addition of Rs. 17,98,225/- and the same is also directed to be deleted.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeal is preferred by the assessee against the order dated 29.11.2019 passed by the Ld.Commissioner of Income Tax (Appeals)- 14, New Delhi {CIT (A)} for Assessment Year 2014-15.
2.0 The brief facts of the case are that return declaring taxable income of 85,85,510/- was filed on 30.7.2014 through e-filing and was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The case was selected for scrutiny through CASS. During the year under consideration, the assessee has declared income from house property, short term capital gain and other sources. Besides this, the assessee has declared income from long term capital gains to the tune of Rs. 5,83,61,303/- which has been claimed exempt u/s 10(38) of the Act.
2.1 During the year under consideration, the assessee had sold 7,50,000 shares of M/s Radford Global for a total consideration of Rs. 5,99,40,819/- against the purchase of 1,50,000/- shares at Rs. 22,50,000/- resulting into long term capital gains of Rs. 5,76,90,819/-. The assessee was allotted 1,50,000/- preferential shares on 20.1.2012 at a price of Rs. 15/- per share which included premium of Rs. 5/- per share. Subsequently, these shares were split and the assessee was allotted 7,50,000 shares of M/s Radford Global Ltd., formerly known as M/s P.S. Global Ltd. These shares were sold through M/s Vivek Financial Focus Ltd. In addition to the above, the assessee also sold 55,000 shares of M/s V&K Software Ltd. (now known as USG Tech Ltd.) for a total consideration of Rs. 7,13,384/- whereas these shares were purchased at a price of Rs. 42,900/- resulting into long term capital gain of Rs. 6,70,484/-.
2.2 In the assessment order, the Assessing Officer (AO) noted that as per the investigation report of DIT (Inv.) Kolkata, the assessee was one among the beneficiaries in the list by accepting bogus long term capital gain entries through stock brokers trading in circular and penny stocks. The name of the stock which was used for the purpose of providing accommodation entry has been stated to be M/s Radford Global Ltd. (old name P.S. Global Ltd.) in the form of capital gains. To verify the above transactions reported by the assessee for claiming long term capital gain of Rs. 5,76,90,819/- claimed as exempt u/s 10(38) of the Act, the assessee was asked to furnish all details including bank statement, share brokers note, ledger account copies, share certificates, and all other documentary evidences in support of purchase and sale of shares and the mode of payment and receipts of proceeds. Further, notices u/s 133(6) of the Act dated 27.9.2016 were issued to M/s Radford Global Ltd., Security Exchange Board of India (“SEBI”) and the broker M/s Vivek Financial Focus Ltd. It is stated that the investigation was also undertaken by SEBI and that SEBI in its interim report dated 19.12.2014, in exercise of the powers conferred in terms of section 19 read with section 11(1), section 11(4) and section 11B of the SEBI Act, 1992, restrained 108 persons/entities including the assessee from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner, till further directions. The name of Shri Mukesh Mittal is stated to appear at S.No 36 of the said list. In the said order it was held as under:
“26 Since prior to the trading in its scrip during the examination period. Radford did not have any significant financial standing in the securities market, in my view, the only way it could have increased its share value is by way of market manipulation. In this case, it is noted that the traded volume and price of the scrip increased substantially only after Radford Group & Suspected Entities and allottees started trading in the scrip. The average volume increased by 5,05,066% (5050 times) during the patch I, i.e., from 98 shares per day to 4,95,063 shares per day and the price increased by 74.8% during the same period, i.e. from Rs. 49.2 to Rs. 86. Radford Group & Suspected Entities were trading in the scrip above the LTP and their trades created artificial volumes and manipulated the price of the scrip during the examination period. It is further noted that on the days when Radford Group & Suspected Entities were not trading, the trading volumes in the scrip were very low and the substantial increase in traded volumes as observed in this case was mainly due to their trading. I further note that Radford Group & Suspected Entities and allottees traded amongst themselves as substantiated by their matching contribution to net buy and net sell in patch
I. there was no change in the beneficial ownership of the substantial number of traded shares as the buyers and sellers both were part of the common group and were acting in league/concert to provide LTCG benefits to the allottees. In view of the above, I prima facie find that Radford Group & Suspected Entities and allottees used securities market system to artificially increase volume and price of the scrip for making illegal gains to an to convert ill gotten gains into genuine one”.
2.3 A show cause notice dated 2.12.2016 u/s 142(1) of the Act was issued to the assessee and reply dated 12.12.2016 was filed wherein the assessee contended as under:
“a) That the said order only pertained to scrip Radford Globals Ltd. and not to scrip V&K Software;
b) That the said order is not final order but only an interim order and hence could not be considered as reliable to form any adverse inference in the matter;
c) That the said order is solely based on prima facie observation only of the SEBI and not on any final or concrete findings of the SEBI;
d) That the transactions so entered into by the assessee have not been cancelled or annulled by the SEBI, as empowered under section 9 of Securities Contract (Regulation) Act, 1956;
e) That all the transaction of sales had been done through screen based trading on recognized stock exchange. The assessee doesn’t have any details about the identity of the persons to whom he sold the shares;
f) That it is an undisputed fact in case of screen based trading, all trades are executed in the opaque screen wherein person do not get to choose counterpart to their The automated systems itself matches orders on a price time priority basis and hence is not possible for anybody to have access over the identity of counter party dealing in any transaction. Since the counter party identity is not displayed, one can never have any choice with whom it wants to deal or not to deal;
g) That assessee Mr. Mukesh Mittal is a regular investor in the stock market and all of his investments and income is duly assessed to tax;
h) That SEBI has not placed any material on record to show any culpable conduct on the part of the assessee even by discharge of the standard of preponderance of probabilities;
i) That all the documents, which SEBI had provided to the assessee during the course of proceedings do not prove at all that Mukesh Mittal was involved in fraudulent transaction. On the contrary, these evidences/documents so provided by SEBI has established that trade transaction of Mr. Mukesh Mittal is genuine;
j) That the summary of trade of Sh. Mukesh Mittal obtained from Extracts of order log and trade log drawn from the date provided to us in CD by SEBI is as under:
