Case Law Details
Dineshkumar R. Tulsyan (HUF) Vs ITO (ITAT Pune)
ITAT Pune held that disallowance of 1% is reasonable as admittedly the share transactions were manipulated through entry provider, stockbrokers in order to obtain fraudulent income by rigging share prices and selling them in order to justify the unaccounted income of the assessee.
Facts- The assessee has filed a return of income declaring a total income of Rs. 7,28,260/- on 02-08-2014. The A.O assessed the income of the assessee at Rs. 1,09,42,141/- after making an addition of Rs. 1,00,97,902/- on account of unexplained income in the garb of sale of shares u/s 68 and Rs. 1,00,979/- on account of unexplained expenditure and Rs. 15,000/- on account of unexplained investment.
The issue before A.O. was to examine the claim for exemption of Rs. 1,00,97,902/- u/s 10(38) of the Act on the sale of securities of M/s. Mishka Finance and Trading Pvt. Ltd. (hereinafter referred to as “Mishka”). The assessee had purchased shares of Pyramid Trading Ltd., in physical form which was subsequently changed to Mishka Finance Ltd. The shares were purchased by preferential mode @ Rs. 6 per share for an amount of Rs. 15,000/- on 15-06-2012 from Mr Vijay Kumar Jain.
The A.O. held that on obtaining accommodation entries, it is an accepted fact that the commission of about 1-2% of the transaction is paid to the broker who negotiates the deal. As the assessee had received an amount of Rs. 1,00,97,902/-, therefore, the A.O. disallowed the number of Rs. 1,00,979/- @ 1%.
The CIT(A) held that the share transactions were manipulated through entry providers, stockbrokers to obtain fraudulent income by rigging share prices and selling them to justify the unaccounted income of the assessee and for all these activities the broker is making all the negotiations and arrangements. Accordingly, CIT(A) upheld the order of A.O. as regards addition of Rs. 1,00,97,902/- u/s 68 of the Act and denial of exemption u/s 10(38) as claimed by the assessee.
Conclusion- We hold that the action of the assessee is nothing but pre-motivated and deliberate conduct done for converting the unaccounted money of the assessee under the guise of a long-term share transaction and that too without paying requisite tax on the same. This clearly amounts to tax evasion. It was beyond a preponderance of probabilities that the fantastic sale price of a little-known share i.e. Mishka without any economic or financial basis increased from Rs. 6/- to Rs. 50.25 per share, and likewise whereby the assessee manipulated the capital gain which was bogus and was done to claim exemption u/s 10(38) of the Act and therefore, we do not find any reason to interfere with the findings of CIT(A) and the same is upheld.
In the present case also, admittedly the share transactions were manipulated through entry provider, stockbrokers in order to obtain fraudulent income by rigging share prices and selling them in order to justify the unaccounted income of the assessee and for all these activities the broker is making all the negotiations and arrangements and therefore, there is no doubt that such transactions involves money, paid to entry provider for such fraudulent capital gains and hence disallowance @ 1% is held to be reasonable and we do not find any infirmity with the findings of the ld. CIT(A) on this issue also. The order of the ld. CIT(A) is accordingly upheld on this issue as well.
FULL TEXT OF THE ORDER OF ITAT PUNE
These appeals preferred by the respective assessees as appearing in the above captioned matter for A.Y. 2014-15 arises from separate orders passed by the ld. CIT(A)-1, Nashik both dated 21-03-2018 as per the grounds of appeal appearing hereinafter.
2. The hearing for these cases concluded on 01-09-2022 which was the last date of opportunity given to the assessee in respect of both these matters. There is a factual background as regards the prolonged process of litigation and from this background also, it can be seen that the matter h as been pending with the Pune Bench for several months together. We have perused the order sheet entry in respect of both these cases and similar facts emerges from the same. In the case of Dineshkumar R. Tulsiyan (HUF) in ITA No. 813/PUN/2018 for A.Y. 2014-15, as evident from the Order Sheet entry in this case, the matter was listed for hearing before Bench ‘A’ on 07-12-2021. The matter was adjourned at the request of ld. D.R. to 08-12-2021. Again on 08-12-2021 the matter got adjourned at the request of ld. D.R. to 06-1-2022. On 06-01-2022 Bench ‘A did not function and the matter was posted for hearing on 23-02-2022. On 23-02-2022 Bench ‘A’ did not function and the matter was posted for hearing on 08-04-2022. Again on 08-04-2022 Bench ‘A’ did not function and the matter got posted for hearing on 26-05-2022. On 26-05-2022 none appeared for the assessee and the case was adjourned to 29-07-2022. On 29-07-2022 the matter got adjourned to 30-8-2022 at the request of ld. A.R. On 30-8-2022 the ld. A.R again requested for adjournment. The Bench having observed that this matter has been prolonged and several adjournments have been provided to the parties and the matter is still kept pending, therefore, keeping in mind the directions of the Hon’ble Supreme Court in the case of Ishwarlal Mali Rathod Vs. Gopal and Ors., in Special Leave Petition (Civil) Nos. 14117-14118 of 2021, order dated 20-092021, one last opportunity was given to the assessee and the case was posted for hearing on 01-09-2022. That again on 01-09-2022 the ld. A.R. of the assessee through e-mail correspondence dated 01-09-2022 time 12.18 p.m. submitted that on morning of 01-09-2022 itself he got detected that he is suffering from Covid. However, the ld. A.R. has not furnished any evidence or medical certificate substantiating this plea. Since it was the last opportunity and as per the directions of the Hon’ble Supreme Court (supra), the ld. D.R’s submissions were recorded and the case was proceeded to be heard on merits based on the entire case records and the orders of the subordinate authorities. Within few minutes of the proceedings, the ld. A.R for the assessee connected virtually and submitted in the Open Court that he has withdrawn from these cases and since he is having Covid he is unable to hand over the case-papers to the assessee. There is an inherent contradiction in the statement given by the ld. A.R when on one hand, he is submitting through e-mail correspondence that on this very day itself he has been tested positive for Covid that too without any test report submitted, again he connects virtually and submits that he has withdrawn from these matters. Having withdrawn himself from these matters in the morning what interest still remains with the counsel that he sends via post, evidence of having Covid in the evening to the Registry when actually in the morning he did not had any evidence to show that he was suffering from Covid since his e-mail correspondence to the Bench where he states he has Covid, was without any certificate to the effect. Presumably, does it means that the Counsel’s Covid test result certificate came later and even before receiving the result, he knew he had Covid? Such incidents are unheard off in the entire Covid history where a person knows he is a Covid patient even before the Doctors certify him to be so. With these factual backdrop, we are of the considered view that this is nothing but dilatory tactics and as observed by the Hon’ble Supreme Court such tactics kills justice and break the back of the litigants. The emphasis is on providing timely justice and disposing the matter reducing the pendency of the appeals. Exactly similar facts regarding prolonged litigation and sufficient opportunities to the parties given also appear in the order sheet in ITA No. 814/PUN/2018 for A.Y. 2014-15 in the case of Smt. Sumandevi D. Tulsyan. At this moment, we observe that Hon’ble Supreme Court has further emphasised that as on today, the judiciary and justice delivery system is facing acute problem of delay which clearly affects the rights of the litigants to access to justice and speedy trial, arrears are mounting because of such delay and dilatory tactics asking for repeated adjournments by Advocates and mechanically and in a routine manner granted by the Courts. It cannot be disputed that due to delay in access to justice and not getting timely justice it may shake trust and confidence of the litigants in the justice delivery system. Therefore, Hon’ble Apex Court has directed that adjournments should not be granted in a routine manner and mechanically and such grant of adjournment by the Courts should not be a cause for delay in dispensing justice. We are of the considered view that sufficient opportunities were provided to the assessee and the Department in these prolonged litigations in respect of these cases and any further delay in disposing such matters would ultimately result in hindrance of justice and would act as a defiance to the directions given by the Hon’ble Supreme Court (supra) and we can never be a party to such an act and therefore, in this factual background and observations since on 01-09-2022 being the last opportunity given in this case, the submissions of the ld. D.R are recorded and both these cases are heard on merits.
ITA No. 813/PUN/2018 for A.Y. 2014-15 : Dineshkumar R. Tulsyan:
3. The grounds of appeal are as follows:
On facts and circumstances of the case and in law,
1. The learned Income Tax Officer, Ward 1(5), Nashik has erred in making aggregate additions of Rs. 1,02,13,881/- and the learned Commissioner of Income Tax(Appeals)-1, Nashik has erred in confirming the same.
2. The learned Income Tax Officer, Ward 1 (5), Nashik, has erred in not considering the fact that the Assessee has complied with the provisions of sub section (38) of section 10 and treating long term capital gain as taxable and the learned Commissioner of Income Tax (Appeals)-1, Nashik has erred in confirming the same.
3. The learned Income Tax Officer, Ward 1 (5), Nashik, has erred in making addition of Rs. 1,00,97,9021- under section 68 of the Act and the learned Commissioner of Income Tax(Appeals)-1, Nashik, Nashik has erred in confirming the same.
4. The learned Income Tax Officer, Ward 1 (5), Nashik, has erred in making addition of an amount of Rs. 1,00,9791- under section 69C on allegation of commission paid by the assessee and the learned Commissioner of Income Tax(Appeals)-1, Nashik has erred in confirming the same.
5. The learned Income Tax Officer, Ward 1 (5), Nashik, has erred in making addition of an amount of Rs. 15,0001- under section 69 on allegation of non-submission of proof as regards purchase of initial investment by the assessee and the learned Commissioner of Income Tax(Appeals)-1, Nashik has erred in confirming the same.
6. Additions made without any evidence should be deleted.
7. The Assessment Order under section 143(3) dated 28/12/2016 passed by the Assessing Officer is bad in law and the Commissioner of Income Tax(Appeals)-1, Nashik has erred in confirming the same.
8. The Assessee appeals to grant any relief that may be due to the Assessee under the Income Tax Act, 1961
9. The appellant craves leave to add, amend or alter any of the grounds of appeal.
4. The relevant facts are that the assessee has filed a return of income declaring total income of Rs. 7,28,260/- on 02-08-2014. The A.O assessed the income of the assessee at Rs. 1,09,42,141/- after making an addition of Rs. 1,00,97,902/- on account of unexplained income in the garb of sale of shares u/s 68 and Rs. 1,00,979/- on account of unexplained expenditure and Rs. 15,000/-on account of unexplained investment. That, with regard to the addition of Rs. 1,00,97,902/- u/s 68 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) and denial of exemption u/s 10(38) claimed by the assessee, the relevant facts are that the case of the assessee was selected for scrutiny through CASS for the reason “Suspicious Transaction relating to Long Term Capital Gain on sale of shares” (Inputs from Investigation Wing). The issue before the A.O was to examine the claim for exemption of Rs. 1,00,97,902/- u/s 10(38) of the Act on sale of securities of M/s. Mishka Finance and Trading Pvt. Ltd. (hereinafter referred to as “Mishka”). The assessee had purchased shares of Pyramid Trading Ltd., in physical form which was subsequently changed to Mishka Finance Ltd. The shares were purchased by preferential mode @ Rs. 6 per share for an amount of Rs. 15,000/- on 15-06-2012 from Mr. Vijay Kumar Jain. The bogus shares in the ratio of 1:27 were issued on 05-02-2013 and in lieu of 2500 shares, 17500 bonus shares were issued resulting in total quantity of 20,000 equity shares. The stock was split on 16-01-2014 from face value of Rs. 10 to Rs. 1 and the total shares were converted to 2,00,000/-. These shares were sold between 19-02-2014 to 18-03-2014 at a price varying between Rs. 50.25 to 50.95 resulting in sale consideration of Rs. 1,01,12,902/-. In the return, the assessee has claimed exemption u/s 10(38) of Rs. 1,00,97,902/- (Rs. 1,01,12,902/- (-) Rs. 15,000/-) on account of capital gains. This fact is emerging at pages 11 and 12 of the assessment order. The purchase was off-line in the name of the assessee through Roongta Rising Stocks Pvt. Ltd. , the share broker of Surat. The shares were transferred to D-mat account on 28-12-2012 and sold through IIFL (India Info Line Ltd.) and the amount received in lieu of sale consideration was deposited in ICICI Bank a/c number 108801000190 on various dates. As is apparent from the assessment order, the A.O sought direction from the Jt. CIT u/s 144A who vide letter dated 26-12-2016 gave directions which have been reproduced by the A.O. On going through the directions given by the J. CIT it can be seen that the facts and evidences have been confronted to the assessee and moreover, all the replies of the assessee have been discussed and dismissed after examination. On going through para 4 clause (ii) of the directions of the J.CIT it is seen that Investigation Wing Kolkata had conducted search and seizure action at the premises of Entry Operators, Share Brokers and Money Launderers who were involved in providing accommodation entries of Long Term Capital Gains. It was found that the price of various listed companies including Mishka were manipulated and the unaccounted money of the investors was routed through share transactions, resulting in Long Term Capital Gains as the same were exempt. Investigation Wing, Kolkata passed on the information to Investigation Wing Nashik, who conducted survey u/s 133A on the business premises of the assessee on 02-09-2015. During survey proceedings, statement of Dinesh Kumar Tulsyan, was recorded and he was confronted with the evidences and details gathered by Investigation Wing Kolkata with respect to accommodation entries taken by him and his wife Smt. Suman Devi. The assessee admitted that he and his wife had purchased bogus long term capital gain through the sale of scrip of M/s. Mishka and disclosed an amount of Rs. 1,00,97,902/- in his hands and Rs. 99,63,145/- in the hands of his wife on account of bogus Long Term Capital gains for A.Y.2014-15. However, the statement was subsequently retracted by letter dated 04-09-2015 and it was contended that the long term capital gains are genuine and correct and legitimate exemption has been claimed us 10(38) on the purchase/sale of shares of Mishka. The A.O examined the balance-sheet of Mishka and concluded that the company has poor financial fundamentals. The company is doing the business of financing investing and investment in trading and incurred a loss of Rs. 12 lakhs during F.Y. 2011-12 and earned a profit of Rs. 12 lakhs during F.Y 2012-13. Further, from the annual report of Mishka for F.Y. 2012-13 it is observed that for financial year ended 2012 the earning per shares (‘EPS’) of Mishka was Rs. (-)2.4 and for the financial year ended on March 31, 2013, the EPS was Rs. 0.12. This company does not have any business and does not have fixed assets of plant and machinery. Most of the assets are either investments or loans and advances which have been given to entities existing on paper. That on page 17 of the assessment order, the A.O has discussed how the manipulation in the share prices is done to artificially jack up the price of Mishka by the entry operator. The A.O also made enquiries u/s 133(6) and sent letter dated on 01-09-2016 to the Managing Director of Mishka but the same was returned back by the postal authorities with the remark “unclaimed, return to sender”. Another letter dated 06-10-2016 was again sent but no reply was received as is evident from page 29 of the assessment order. The A.O also made enquiries from Roongta rising Stock Pvt. Ltd. Surat since the bill of the broker was unsigned and amount was shown as due from the assessee. The broker was asked to submit the details of transactions. In reply, it was submitted by Roongta that it had received the amount in cash on 10-04-2012 and 16-04-2012. The A.O further opined that it is strange to note that the broker is based in Surat and assessee is in Nashik and in the bill the broker has not charged any commission and the bill also does not bear the mode of receipt and the bill mentions that the amount is due from the assessee. Therefore, it is evident that the bill has not been issued in a normal manner but has been a paper work to show the offline purchase of shares through a broker. The A,O then discussed statements of various persons including share brokers and entry operators, which were recorded during the course of investigations by the Investigation Wing, and they have admitted in their statements that they were dealing in penny stocks, including shares of Mishka, which was jacked up through cartel of interlinked companies controlled and managed by entry operators for the purpose of providing accommodation entries of bogus long term capital gain. The assessee was confronted with the statement of these entry operators who had admitted that they were engaged in providing accommodation entries and had also provided bogus long term capital gain in lieu of commission in Mishka. The assessee denied any knowledge of these persons and stated he has nothing to comment on these persons. The A.O also wrote to Bombay Stock Exchange and National Stock Exchange and called for the Trade Data with regard to purchase and sale of shares made by the assessee. On analysis of the trade data it was observed that there were 8 paper companies whose common Directors were Abhiset Basu and Pradip Dey who had purchased these shares from the assessee. During investigation it revealed that the aforesaid paper companies were managed by entry provider Shri Anil Kumar Khemka. The A.O also discussed the statement of Mr. Khemka of Devshyam Stock Broking Pvt. Ltd., who admitted in his statement recorded on 30-03-2015 by the Dy. DIT (Inv), that he has provided accommodation entry in respect of scrips as per list which included Mishka. He admitted that the companies controlled by him were paper companies, which were used for giving accommodation entries. The shares of Mishka which were sold after the price was manipulated, were purchased by Abhisit Basu and Pradip Dey who are dummy Directors of the paper company operated by Anil Kumar Khemka. The A.O analysed financial statements of these companies and noticed that these companies do not have any assets and have no net worth. It was also noticed that the above mentioned paper companies were operated by Khemka who had employed various dummy Directors namely Abhiset Basu, Pradip Dey, etc. who were persons of no means and were employees of Anil Kumar Khemka. The A.O proceeded to deny the claim of exemption u/s 10(38) on the basis of the following observations:-
The transaction of allotment of share is an off market transaction and not carried through a recognized Exchange. SEBI vide circular no. SMDRP/Policy/CIT-21/99, dated 14.09.1999 banned all negotiated deals including cross deals and all such deals are required to be executed only on the screens of exchanges in the price and order matching mechanism of the exchange just like any other normal trade. Thus the transactions are illegal and not in conformity with regulatory guidelines.
The assessee is not able to explain how the shares were given to him in Nashik and who had signed the transfer form.
The assessee had never purchased off market shares of a unlisted company before. He has admitted to not knowing anything about the company or the Directors. He does not know the broker from whom the shares were purchased.
The broker company is based in Surat and the assessee is in Nashik and has transacted with the broker before and after the transaction.
The broker has not charged any commission and the bill does not bear the mode of receipt.
The company Mishka has very poor financial credentials and do not have any regular business to justify the sharp increase in market prices.
The company does not have any standing in the trading circles or Stock Exchange.
There is no plausible explanation of how the price increased manifold in few months of trading. The statements of accommodation entry providers, brokers, corroborate that the price of the share was manipulated and bogus long term capital gains have been provided to beneficiaries through dummy companies.
Mishka is a penny stock company and has financial and trading pattern of providing accommodation entry by allotting shares to beneficiaries through preferential allotment, splitting the share, increasing the market price through paper companies.”
5. On the basis of these facts, the A.O added the amount of Rs. 1,00,97,902/- as income of the assessee u/s 68 of the Act.
6. Before the ld. CIT(A) the case of the department was that the assessee had purchased 2500 shares of Pyramid Trading Ltd. @ Rs. 6/- per share, which was an off market purchase for an amount of Rs. 15,000/- on 15-062012, which were later on converted to 2,00,000 shares of Mishka Finance. These shares were sold on 19-03-2014 @ Rs. 50.36 per share (face value Re. 1/-) for an amount of Rs. 1,00,74,511/-. The CIT(A) observed that the A.O has discussed in detail that the stocks treaded by the assessee was a penny stock whose price was manipulated to claim exemption u/s 10(38) of the Act. On the other hand, the contention of the assessee was that he has fulfilled the requirement of section 10(38) as long term capital gain arisen from the sale of equity share of company and the transaction was charged to STT. He made investment as an investor and did not have any knowledge about the management and financials of the company and he did not have any role in price manipulation. Thereafter, the ld. CIT(A) observed that there is no doubt about the modus operandi of the penny stock in general and about the fact that the assessee is a beneficiary of bogus long term capital gain on penny stock. The CIT(A) further observed that the ld. A.O has dealt with all the relevant issues in the assessment order through necessary enquiry and investigation and thereafter, he referred to the investigation done by SEBI in its report No. WTM/RKA/ISD/30/2015 DATED 17-04-2015 which is also available on the website of SEBI. It was further stated that scrip of M/s. Mishka Finance and Trading Ltd. was investigated by SEBI pursuant to huge rise in the traded volume and price of the shares. On pursuant to stock split, the face value of the shares was reduced from Rs. 10 to Rs. 1 per share on 16-01-2014. From February 14, 2013 to February 14, 2014, the scrip price of Mishka opened at Rs. 5.50 and rose to Rs. 49.90 adjusted to share split with average volume of 390 shares. Thereafter, the ld. CIT(A) reproduced the investigation conducted by SEBI as follows:
17. The transactions wherein the entities of Exit Providers bought most of the shares sold by the Preferential allottees and Promoter related entities cannot be just a coincidence particularly when sellers are connected with Mishka / its promoters / directors by virtue of being Preferential allottees/ Promoter related entities and other factors mentioned in Annexure A. It is interesting to note that prior to Patch 1, the entire share capital of Mishika was with Preferential allottees, Promoters and the entities who received shares from the promoters. Hence, during patch 1 the entities related to Promoter Group sold the shares in very less quantity and certain entities pushed up the price of the scrip by buying these shares from them. It is also observed that during Patch 1 the shares of Mishka were not in demand by the general investors of the market and saw a very low volume on most of the trading days and hence could not have commanded the price as observed in Patch 2. In any market, a sudden supply, if not matched by similar demand, leads to price fall. Considering the same any rational investor would not have dumped a large number of shares without facing the risk of a significant price fall until and unless he was sure of the demand side’ absorbing the supply. In this peculiar case, the Exit Providers created the demand against the supply from the preferential all otters/Promoter related entities, In the whole process, the principle of price discovery was kept aside and the market lost its purpose. It is evident from the above analysis that Exit Providers ‘provided a hugely profitable exit to fhe Preferential allotteesl Promoter related entities. This could be possible only if the Preferential Allottees, Promoter related entities, Exit Providers, Mishka and its promoter/ directors were hand in glove with each other.”
7. At para 20 of the ld. CIT(A)’s order, he gives a categorical finding that from the entire facts and circumstances, it is observed that the entire modus operandi of allotting shares on a preferential basis at a premium, announcing a stock split and then bringing in connected entities to provide exit was a scheme devised to make ill-gotten gains. Further the modus operandi of pumping the share price artificially and then dumping the price so that the same cycle could be repeated, demonstrates the mala fide intention of the Mishka group. On further observation of the A.O’s order and the investigation by SEBI and facts in this case it was held by the ld. CIT(A) that in the entire modus operandi the companies with the help of brokers have given colour of genuineness to the sham transactions by first putting the shares on Dmat, then routing the transaction through stock exchange, paying STT and making payments by cheque at the time of sale. Only when the corporate veil is lifted, the modus operandi of how share price was manipulated by circular trading with the help of paper companies to bring in circulation of the unaccounted money in the form of long term capital gain without paying any taxes and claiming deduction u/s 10(38) was discovered and unearthed. The ld. CIT(A) has also referred to various judgments wherein the share transactions and corresponding Capital gains were considered to be bogus.
(i) Chandan Gupta Vs. CIT (2015) 54 com 10 ( P & H) :
(ii) Usha Chandresh Shah Vs. ITGO (2014-TIOL)-1459-ITAT-MUM)
(iii) Zakirullah Chaudhary ITA No. 669/PUN/2012 (Pune Tribunal) order dated 18-02-2014.
It is also pertinent to mention that in Zakirullah Chaudhary (supra)’s case the assessee has admitted the income arising from capital gains to buy peace of mind. Subsequently, he retracted from the statement. The A.O held that the shares were penny stock and purchased at a very low price and the history and pattern of share pricing showed that there was a steep rise in the price of the shares and the company was a paper company. The appeal of the assessee was dismissed on the ground that the assessee had dealt in penny stock which were manipulated and the assessee had surrendered the income during assessment proceedings after the modus operandi was confronted to the assessee.
(iv) Ratnakar M. Pujari Vs. SITO (ITA No. 995/MUM/2012 order dated 0905-2016). In this case, the assessee had purchased shares of Shiv Om Investment Consultancy quoted at Calcutta Stock Exchange, which was a penny stock and sold after holding for 12 months. It was held by the Tribunal that SEBI vide circular No. MSMDRP/Policy/CIT-21/99 dated 14-09-1999 banned all negotiated deals including cross deals and all such deals are required to be executed only on the screens of exchanges in the price and order matching mechanism of the exchange just like any other normal trade. Thus, the transactions are illegal and not in conformity with regulatory guidelines. Further, the assessee was not a regular investor in shares. The share was a penny stock and the purchase and sale of share was sham and bogus transaction. The sale in consequence thereof in stock exchange are of no help to the assessee for claiming the exemption as long term capital gain as the investigation of the revenue is that the assessee has in collusion with the brokers has manipulated and camouflaged the entire transactions of sale and purchase to earn tax free exempt long term capital gain on sales of shares u/s 10(38) of the Act whereby unaccounted cash of the assessee has been introduced in disguise in lieu of sale proceeds of shares. In view of examination of facts appearing in the assessment order and the various investigation reports of SEBI as well as the Investigation Wing and the case-laws referred hereinabove, the ld. CIT(A) upheld the order of the A.O as regards the addition of Rs. 1,00,97,902/- u/s 68 of the Act and denial of exemption u/s 10(38) as claimed by the assessee.
8. We observe that the ld. A.O and the ld. CIT(A) have made a detailed examination of the facts and circumstances in this case and it has been clearly brought out that the assessee has purchased shares investing Rs. 15,000/- and after manipulation and rigging of the price of the shares, the assessee has received total consideration of Rs. 1,00,97,902/-. It is also relevant that there is a report of the Investigation Wing, Kolkata who had conducted search and seizure action at the premises of the entry operators who were involved in providing entries for bogus long term capital gains and in this report itself, it was found that the prices of various listed companies including Mishka in which the assessee has traded the prices of shares were manipulated and the unaccounted money of the investors which were routed through the share transactions resulting in bogus long term capital gain and claiming exemption under the provisions of the Act. It is also noted that Investigation Wing, Kolkata had passed on the information to Investigation Wing, Nashik, who had conducted survey u/s 133A on the business premises of the assessee and during such survey he has admitted having bogus capital gain through sale of scrip of Mishka. However, he also retracted from this statement and has claimed exemption u/s 10(38) of the Act. The A.O in his order has also examined the balance-sheet of Mishka and has given a categorical finding that the company has poor financial fundamentals as per the details which we have already examined in the earlier part of our order. Similarly, we have also noted that the A.O has verified how the manipulation in the share prices is done artificially to rig up the prices of Mishka by other parameters. These facts have also been examined by us at the initial part of our order.
9. We also find that Hon’ble Supreme Court in the case of McDowell & Co. Vs. CTO (1985) 154 ITR 148 (SC) has given a strong verdict against any such arrangements by stating that “colourable devices cannot be a part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of taxes by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. In view of Hon’ble Apex Court’s verdict, and after examining the entire arrangement as appearing in the facts of this case, it is held that this is merely a colourable device for claiming bogus long term capital gain and exemption u/s 10(38) of the Act. The assessee has not filed any written submissions nor any evidences on record is there to show that whatever has been stated in the assessment order and in the order of the ld. CIT(A) is not true. The assessee has also not submitted any submissions as regarding the investigations conducted by the ld. A.O. We find that there is a direct investigation report of the Investigation Wing, Kolkata. There is the investigation report of the SEBI which is also on record and all these reports have clearly stated that there is an illegal racket going on where the prices of shares of lesser known company having no financial credentials are jacked up and the prices kept on raising till desired level and thereafter are routed through entry providers in order to obtain bogus long term capital gain and claiming exemption u/s 10(38) of the Act. This is nothing but tax evasion which is not permissible within the frame work of the Income-tax Act. It is further true that the A.O has recorded the statement of various entry providers which were recorded during the course of investigation by the Investigation Wing and they have admitted that they were dealing in penny stocks including shares of Mishka which were jacked up for the purposes of providing bogus long term capital gain. The assessee was even confronted with the statement of these entry providers who themselves have admitted that they were engaged in providing such accommodation entries for bogus long term capital gain in lieu of commission in the shares of Mishka in which the assessee has transacted. We also find that thorough investigation has been made by the A.O by even getting informations from the Bombay Stock Exchange and National Stock Exchange regarding purchases and sales of shares made by the assessee. We further find that the transactions of allotment of shares was an off-market transaction and not carried through the recognized exchange. The SEBI vide circular No.SMD/DRP/Policy/CIT(21-99 dated 14-09-1999) banned all negotiated deals including cross deals and all such deals are required to be executed only on the screens of exchanges in the price and order matching mechanism of the exchange just like any other normal trade. Thus, the transactions are illegal and not in conformity with regulatory guidelines. The assessee was also not able to explain how the shares were given to him in Nasik and who had signed the transfer form. The assessee has also admitted of not knowing anything about the company or the Director and neither he knows the broker from whom the shares were purchased. It is as per the record that the broker company was based in Surat and the assessee was in Nasik and has transacted with the broker. However, the broker has not charged any commission and the bill also does not bear the mode of receipt. The company Mishika has a very poor financial credentials and does not have any regular business to justify thereby increase in market price. The company does not have any standards in the trading circles or stock-exchange. There is no plausible explanation of how the price increased manifold in few months of trading. This is beyond human probabilities also. That the statement of accommodation entry providers, brokers corroborate that the price of the shares were manipulated and bogus long term capital gains have been provided to the beneficiaries through dummy companies. Mishka is a penny stock company and has financial and trading pattern of providing accommodation entry by allotting shares to beneficiaries through preferential allotment, splitting the share, increasing the market price through paper companies.
10. It is pertinent to mention here also that this case has been going on for a long period of time and on none of the dates of hearing before the Tribunal, the assessee has submitted any submissions neither has brought any material on record or evidences to refute the facts brought out as abovementioned by the department. The assessee has also not placed on record any material to prove that the claim of exemption u/s 10(38) of the Act was genuine. We find that Hon’ble High Court Kolkata in a recent judgment delivered on 14-06-2022 in the case of Pr. CIT Vs. Swati Bajaj and others in ITA No. 06 of 2022 came heavily upon fraudulent transactions being carried out in the form of shell companies and has strongly held against the assessee and in favour of the revenue observing that this modus operandi in taking undue advantage of the legal procedure and provisions of the Act should not be permitted in the greater interest of the country as a whole. The Hon’ble High Court on analyzing the facts on the issue regarding the entire process adopted by these assessees in order to fraudulently gain and take advantage for non-payment of the taxes has been specifically held to be unwarranted, illegal and bad in law by the Hon’ble High Court. The facts and circumstances in the cases before us are absolutely identical and similar with the cases adjudicated upon by the Hon’ble High Court of Kolkata. The Pune Tribunal in ITA No. 77/PUN/2019 for A.Y. 2015-16 order dated 16-08-2022 in the case of Sarika A. Sanap Vs. ACIT has held in favour of the revenue and against the assessee also taking the guidance from the aforesaid decision of Hon’ble Kolkata High Court (supra) with the same parity of reasoning and in same set of facts and circumstances.
11. Having gone through the entire case records and the decisions of the subordinate authorities on the issue we hold that the action of the assessee is nothing but pre-motivated and deliberate conduct done for converting the unaccounted money of the assessee under the guise of long term share transaction and that too without paying requisite tax on the same. This clearly amounts to tax evasion. It is also beyond preponderance of probabilities that the fantastic sale price of a little known shares i.e. Mishka without any economic or financial basis to increase from Rs. 6/- to Rs. 50.25 per share, and likewise whereby the assessee manipulated the capital gain which was bogus and was done to claim exemption u/s 10(38) of the Act, and therefore, we do not find any reason to interfere with the findings of the ld. CIT(A) and the same is upheld. Therefore, the addition of Rs. 1,00,97,902/- u/s 68 of the Act and denial of exemption u/s 10(38) of the Act is upheld.
12. The next ground is with regard to addition of Rs. 1,00,979/- made u/s 69C of the Act. The A.O held that on obtaining accommodation entries, it is an accepted fact that the commission of about 1-2% of the transaction is paid to the broker who negotiates the deal. As the assessee had received an amount of Rs. 1,00,97,902/-, therefore, the A.O disallowed the amount of Rs. 1,00,979/- @ 1%. The assessee submitted that there is no basis regarding the addition made by the A.O. The ld. CIT(A) relied on the decision of Mumbai Tribunal in the case of Arvind M. Karia Vs. ACIT in ITA No. 7024/Mum/2010, order dated 30-10-2013, wherein it was held by the Tribunal that when there is no doubt that such transactions involve certain money paid to the operators/arrangers of such fraudulent capital gains, the revenue authorities have reasonably calculated 5% of the sale consideration and accordingly such addition was upheld. In the present case also, admittedly the share transactions were manipulated through entry provider, stockbrokers in order to obtain fraudulent income by rigging share prices and selling them in order to justify the unaccounted income of the assessee and for all these activities the broker is making all the negotiations and arrangements and therefore, there is no doubt that such transactions involves money, paid to entry provider for such fraudulent capital gains and hence disallowance @ 1% is held to be reasonable and we do not find any infirmity with the findings of the ld. CIT(A) on this issue also. The order of the ld. CIT(A) is accordingly upheld on this issue as well.
13. The next ground is with regard to the addition of Rs. 15,000/- which was the initial investment made by the assessee. The A.O held that the assessee has not been able to prove the source of investment. The ld. CIT(A) on this issue observed and held as follows:
“I have gone through the rivlal contentions, it is true that the initial investment has to be deducted from the total sale consideration provided the assessee explains the source of this investment, howsoever small amount it may be. On going through the assessment order and submission of the assessee, it cannot be made out whether the amouynt paid in cash or by cheque. The AO made enquiry from broker Roongta Rising Stock Pvt. Ltd. Surat, as the bill issued by the broker was unsigned and amount was shown as due from the assessee. It was submitted by the broker that he had received the amount in cash on 10-04-2012 and 16-04-2012. It is strange to note that the broker is based in Surat and assessee is in Nashik and in the bill the broker has not charged any commission and the bill also does not bear the mode of receipt and the bill mentions that the amount is due from the assessee. It clearly shows that the bill has not been issued in a normal manner but has been a paper work to show the offline purchase of shares through a broker. As the amount is paid in cash,, the A.O is right in holding that the investment is from unexplained sources. The ground of appeal is therefore, dismissed.”
14. Having gone through the aforesaid findings of the subordinate authority, we do not find any reason to interfere with the findings since they have been arrived at by proper examination of facts and verification. The same is upheld.
15. In the result, all the grounds of appeal raised by the assessee in ITA No. 813/PUN/2018 for A.Y. 2014-15 are dismissed.
16. Now, we would adjudicate the appeal of the assessee Smt. Sumandevi D. Tulsyan, in I.T.A. No. 814/PUN/2018 for A.Y. 2014-15. We find that in this case also, the facts and circumstances are absolutely identical and similar and the issues are also common as in the case of other assessee i.e. Dineshkumar R. Tulsyan (HUF) in ITA No. 813/PUN/2018 for A.Y. 2014-15. In this case also, the case was selected under scrutiny through CASS for the reason “Suspicious Transaction relating to Long term Capital Gain on sale of shares” (inputs from Investigation Wing). The issue before the A.O was to examine the claim of exemption of Rs. 99.,63,145/- u/s 10(38) of the Act on sale of securities of Mishika Finance and Trading Pvt. Ltd. (‘Mishika’ for short). The assessee had purchased 2500 shares of Pyramid Trading Ltd. , which was subsequently changed to Mishka. The shares were purchased @ Rs. 6/- per share for an amount of Rs. 15,000/- on 15-06-2012 from Vijay Kumar Jain. Bonus shares in the ratio of 1:27 were issued on 05-02-2013 and in lieu of 2500 shares, 17500 bonus shares were issued resulting in total quantity of 20,000 equity shares. The stock was split on 16-01-2014 from face value of Rs. 10 to Rs. 1 and the total shares were converted to 2,00,000. Out of this, 1,00,000 shares were sold on 19-03-2014 at a price of Rs. 50.37 and remaining 1,00,000 shares were sold on 20-03-2014 at a price of Rs. 50.36, resulting in sale consideration of Rs. 1,00,74,511/-. After deducting transfer price of Rs. 96,636/- the net sale consideration of Rs. 99,78,1245/- was received resulting in capital gain of Rs. 99,63,145/- as appearing on page 11 and 12 of the assessment order, which was claimed as exempt u/s 10(38) of the Act. In this case also, the shares were purchased offline through Roongta Rising Stock Pvt. Ltd., share broker of Surat. In this case also, the Investigation wing, Kolkata conducted search and seizure action in the premises of entry operator involved in providing accommodation entry of long term capital gain and such report even included the shares of various companies including Mishka which were manipulated and the unaccounted money of the investors were routed through share transaction resulting in long term capital gain as the same were exempt. Same information was passed on to the Investigation Wing, Nashik, who conducted survey on the business premises of the assessee. During the course of survey, husband of the assessee Mr. Dineshkumar R. Tullsyan admitted that he and his wife had purchased bogus long term capital gain through sale of scrip of Mishka and disclosed the amount of Rs. 1,00,97,902/- in his hands and Rs. 99,63,145/- in the hands of the assessee on account of bogus long term capital gain for A.Y. 2014-15 and exemption u//s 10(38) of the Act. However, his statement was subsequently retracted by him and it was contended that the long term capital gain was genuine and the exemption claimed u/s 10(38) was legitimate on the purchase/sale of shares of Mishka. Thereafter, we find the same trail of investigation by the A.O. as was carried on in respect of husband of the assessee i.e. Dineshkumar R. Tulsyan. It was examined and verified as apparent from the orders of subordinate authorities that Mishka was a penny stock company whose prices of shares were rigged and manipulated by the entry provider and the share broker in order to achieve bogus long term capital gain and later on claim exemption u/s 10(38) of the Act in which the assessee and her husband was the beneficiary. Having examined the facts in this case being absolutely identical and similar with respect to I.T.A No. 813/PUN/2018 for A.Y. 2014-15 in the case of Dineshkumar R. Tulsyan, our decision already taken in ITA No. 813/PUN/2018 except for the amounts involved shall apply mutatis mutandis to ITA No. 814/PUN/2018 in respect of this assessee also. Therefore, all the grounds raised by the assessee in ITA No. 814/PUN/2018 for A.Y. 2014-15 are dismissed.
17. In the combined result, both the appeals of the assessees are dismissed.
Order pronounced in the open Court on this 12th September 2022.