Genuineness of transaction is to be proved by person who substantially asserts the same
Facts- Assessee claimed capital gain of INR 2,72,85,500 as exempt under section 10(38). During search AO reached the conclusion that the entire funds have been received by assessee from the sale of penny stock and the actual source of credit was unaccounted cash of the assessee as held by investigation and thereby treated the credit in the bank account of the assessee as unexplained income u/s 68 of the Act and thereby added total amount of Rs.2,77,46,000/- to the income of the assessee u/s 68 of the Act and thereby framed the total assessment at Rs.3,27,82,030/-under section 143 (3) of the Act.
Conclusion- We are of the considered view that the entire transaction as to purchasing and selling of 40,000 shares of M/s. Kappac Pharma Limited is a colourable device to convert unaccounted money into fictitious exempt LTCG to evade taxes
A transaction needs to be proved to be genuine by the person who substantially asserts the same. Once the assessee has been called upon to prove the genuineness of the trading of the shares leading to LTCG gain, the onus lies upon him which he fails to discharge in the present matter.
FULL TEXT OF THE ORDER OF ITAT DELHI
Appellant, ACIT, Circle 8 (1), New Delhi (hereinafter referred to as ‘the Revenue’) by filing the present appeal sought to set aside the impugned order dated 28.05.2018 passed by the Commissioner of Income – tax (Appeals)-3, New Delhi qua the assessment year 2014-15 on the grounds inter alia that:-
“Ld. Commissioner of Income Tax (Appeals) erred on law and on the facts of the case in deleting the addition of Rs.2,77,46,000/- made by the AO u/s 68 of the I.T. Act, 1961 for the bogus LTCG claimed not eligible for exemption u/s 10(38) of the Act.”
2. Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee who is an individual taxpayer claimed “income from business & profession” and “income from other sources” i.e. interest income from bank, house property, capital gains & income from other sources. Assessee filed return of income declaring total income of Rs.50,36,026/-. During scrutiny proceedings, Assessing Officer (AO) noticed that the assessee has claimed “capital gains” of Rs.2,72,85,500/- as exempt under section 10(38) of the Income-tax Act, 1961 (for short ‘the Act’) from the sale of scrip of M/s. Kappac Pharma Limited.
3. Apart from the investigation conducted by the AO, he has taken note of country-wide investigation carried out by the Directorate of Investigation, Income-tax, Kolkata to unearth the organized racket for generating bogus entries of Long Term Capital Gains (LTCG) to be claimed as exempt from tax. Numerous cases have been unearthed and individuals have been identified who were beneficiaries of such bogus entries of LTCG amounting to several crores from 2010 to 2014.
4. AO noticed that assessee being the beneficiary of such bogus entries purchased and sold the shares of M/s. Kappac Pharma Limited, detailed as under :-
|Scrip Purchased||M/s. Kappac Pharma Ltd.|
|No. of shares purchased||40000|
|Date of purchase||At various dates|
|No. of shares sold||40000|
5. AO also noticed that during survey proceedings u/s 133A of the Act, Chairman & Managing Director and other Directors of M/s. Kappac Pharma Limited have got recorded their statement on oath that they have provided accommodation bogus LTCG. During investigation carried out by the Directorate of Income-tax (Inv.), Kolkata, statements of Shri Alok Harlalka, Shri Sanjay Vora, Shri Jai Kishan Poddar, Shri Rakesh Somani & Shri Anil Kedia were recorded. Their statements were provided to the assessee. It is also come on record that the assessee has purchased physical shares of M/s. Kappac Pharma Limited in AY 2013-14 for Rs.4,52,000/- through M/s. Girish Metals (P.) Ltd., Kolkta and not from a recognized stock exchange, initially by paying purchase consideration from unaccounted cash and subsequently declared the same under Income-tax Disclosure Scheme – 2016 (IDS).
Assessee sold the said shares in the month of March 2014 on different dates which were dematerialized in a few months prior to the date of sale and has shown credit of Rs.2,77,74,600/- in his bank accounts as sale proceeds of shares on various dates which include the cost of acquisition of Rs.4,52,000/-. AO reached the conclusion that the entire funds have been received by assessee from the sale of penny stock and the actual source of credit was unaccounted cash of the assessee as held by investigation and thereby treated the credit in the bank account of the assessee as unexplained income u/s 68 of the Act and thereby added total amount of Rs.2,77,46,000/- to the income of the assessee u/s 68 of the Act and thereby framed the total assessment at Rs.3,27,82,030/-under section 143 (3) of the Act.
6. Assessee carried the matter before the ld. CIT (A) by way of filing appeal who has deleted the addition by accepting the appeal. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal.
7. 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.
8. Undisputedly, assessee purchased 40,000 shares of M/s. Kappac Pharma Limited on 25.06.2012 from M/s. Girish Metals (P) Ltd. @ Rs.11.30 per share against cash from undisclosed sources for a total consideration of Rs.4,52,000/-. It is also not in dispute that aforesaid 40,000 shares were credited to the DEMAT account of assessee on 30.12.2013. It is also not in dispute that assessee has declared said amount of Rs.4,52,000/- under Income-tax Disclosure Scheme (IDS), 2016, which was accepted by the Principal Commissioner of Income-tax. It is also not in dispute that the assesses sold aforesaid shares in AY 2014-15 during the period 09.01.2014 to 23.03.2014 for a total sale consideration of Rs.2,77,37,500/- and claimed to have earned Long Term Capital Gain (LTCG) of Rs.2,72,85,500/-. It is also not in dispute that aforesaid shares were sold through stock exchange by way of contract note. It is also not in dispute that SEBI has temporarily suspended dealings in M/s. Kappac Pharma Limited shares and has taken action against its promoters and stock brokers. It is also not in dispute that Directorate of Investigation, Income-tax, Kolkata conducted thorough investigation and found that shares of M/s. Kappac Pharma Limited are nothing but penny stocks which are traded to provide fictitious LTCG exemption from tax u/s 10(38) of the Act.
9. On the basis of undisputed facts, AO reached the conclusion inter alia that the assessee is a beneficiary of taking entry of LTCG from some unscrupulous operators in the capital market in order to convert his unaccounted cash equal to the sale proceeds of shares into white in the guise of exemption u/s 10(38) of the Act; that transactions undertaken by the assessee qua the shares in question were not genuine rather a colourable device to convert the black money into white; that financials of the penny stock of M/s. Kappac Pharma Limited and movement of the price is abrupt and unrealistic and not based on any parameters as the purchase of these shares were through off-market deals and not through stock exchange and consequently made addition of Rs.2,77,46,000/-under section 68 of the Act.
10. However, on the other hand, ld.CIT (A) admitting the contentions raised by the assessee set aside the addition made by the AO and found the assessee eligible for deduction u/s 10(38) of the Act for LTCG of Rs.2,77,37,500/- and thereby deleted the addition.
11. Ld. DR for the Revenue challenging the impugned order passed by the ld. CIT (A) contended inter alia that this is a case where assessee purchased 40,000 shares of M/s. Kappac Pharma Limited in physical form against cash payment from undisclosed sources and thereafter declared the undisclosed cash of Rs.4,52,000/- under IDS, 2016, then got the shares dematerialized; that shares of M/s. Kappac Pharma Limited have been held to be penny stocks by the Directorate of Investigation, Income-tax, Kolkata which are traded to provide fictitious LTCG exemption u/s 10(38) of the Act; that in view of the negative gross/net income declared by M/s. Kappac Pharma Limited, no prudent person would invest in its shares unless there are other considerations; and that entire transactions entered into by the assessee qua purchase and sale of 40,000 shares of M/s. Kappac Pharma Limited is a colourable device just to convert the black money into white and relied upon the judgments cited as McDowell & Co. (1985) 154 ITR148 (SC), Suman Poddar vs. ITO in SLP (C) No.26864/2019 order dated 22.11.2019, Shri Sourabh Khandelwal vs. Pr.CIT WP Nos.1918/2018 & 1922/De018, CIT vs. Sanghamitra Bharali 361 ITR 481, Udit Kalra vs. ITO, Ward 50(1) in ITA 220/2019 judgment dated 08.03.2019, Manvi Khandelwal vs. ITO in ITA No.3212/Del/2018 for AY 2014-15 order dated 26.11.2019, Pooja Ajmani vs. ITO in ITA No.5714/Del/2018 order dated 25.04.2019 & Shri Abhimanyu Soin vs. ACIT in ITA No.951/Chd/2016 order dated 18.04.2018.
12. However, on the other hand, ld. AR for the assessee to repel the arguments addressed by the ld. DR for the Revenue relied upon the impugned order passed by the ld. CIT (A) and contended inter alia that AO made addition merely on the basis of suspicion by relying upon borrowed investigation collected by the Directorate of Investigation, Income-tax, Kolkata; that assessee has entered into purchase and sale of shares at prevailing market price and mildness in the business for a particular period cannot be viewed adversely; that AO has recorded incorrect fact in the assessment order that assessee has not availed of the opportunity of cross examination to cross examine the persons who have confirmed on oath that they have provided bogus LTCG rather assessee has been supplied with the copy of statement of 4 persons but not the 5th person, namely, Anil Kedia recorded by the Directorate of Investigation, Income-tax, Kolkata; that temporary suspension of dealings in shares of M/s. Kappac Pharma Limited by SEBI was restored subsequently when nothing adverse has come on record against them; that the AO has based assessment upon general modus operandi but has failed to prove if said general modus operandi was used against the assessee; that the assessee has furnished all the documents viz. DEMAT account, bank statements and assessee’s statement was also recorded and as such duly discharged his onus and also relied upon plethora of judgments cited as Krishna Devi & Ors. in ITA 125/2020 judgment dated 15.01.2021, Arun Kumar vs. ACIT in ITA No.457/Del/2018 order dated 05.11.2018, Smt. Sunita Khemka vs. ACIT 67 ITR (Trib) 117 (Delhi), Puja Gupta vs. ITO in ITA No.6890/Del/2018 order dated 02.04.2019, Siddhartha Jain vs. ITO in ITA No.4459/Del/2017 order dated 28.01.2019, CIT vs. Smt. Pooja Agarwal in ITA 385/2011 order dated 11.09.2017 (Rajasthan HC), Pr. CIT vs. Shri Hitesh Gandhi ITA 18 of 2017 order dated 16.02.2017 (P&H High Court), Pr.CIT vs. Prempal Gandhi in ITA 95/2017 order dated 18.01.2018 (P&H High Court), etc.. Ld. AR for the assessee also filed written submissions which are made part of the judicial record.
13. From the undisputed facts, arguments addressed by the ld. Authorized Representatives to the parties, order passed by the lower 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 in law in deleing the disallowance of Long Term Capital Gain (LTCG) made by the AO, claimed by the assessee as exempt u/s 10(38) of the Act on the ground that the entire process of purchasing and selling of 40,000 shares of M/s. Kappac Pharma Limited is a colourable device to convert unaccounted money into fictitious exempt LTCG to evade tax?”
14. Before proceeding further, we would examine the overall financial health and credibility of M/s. Kappac Pharma Limited, a company whose 40,000 shares were purchased by the assessee through undisclosed cash. Gross income and net income declared by M/s. Kappac Pharma Limited from AYs 2012 to 2016, which is in the pubic domain, is tabulated as under :-
15. When we examine the arguments addressed by ld. DR for the Revenue challenging the impugned order passed by the ld. CIT (A) in the light of the financials of M/s. Kappac Pharma Limited, it leads to the irresistible conclusion that no man of ordinary prudence would ever invest in its share except for dubious reasons to convert the unaccounted money into white money.
16. Coordinate Bench of the Tribunal examined the penny stock business of M/s. Kappac Pharma Limited in numerous cases and found the same to be an instrumentality to legalize the unaccounted money through dubious method into white money. Three such cases are Puja Ajmani, Udit Kalra and Manvi Khandelwal (supra).
17. Coordinate Bench of the Tribunal in case cited as Pooja Ajmani (supra) in the identical facts of cases where assessee had purchased 4,000 shares of M/s. Kappac Pharma Limited at the price of Rs.13.09 per share in physical form and subsequently sold 3,000 shares @ Rs.677/- per share on 04.02.2014 and another 500 shares were sold on 18.02.2014 @ Rs.691/- per share, held that M/s. Kappac Pharma Limited is one of such company whose scrips have been manipulated to provide bogus LTCG 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 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 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 Sumati Dayal Vs. CIT  214 1TR 801 = 2002-TIOL-885-SC-IT-LB is squarely applicable in this case. Though the assessee has received the amounts by the way of account payee cheques, the assessee could nowhere prove the purchase of shares as claimed to have been made on 02/72/2008 in cash and it urns also not proved about the availability of the funds with the assessee as on the date of purchase of shares. The assessee was not in India as per the passport details available as per the record. This, coupled with the fact that the transfer of money in cash from Ludhiana to Delhi and a person representing the broker operating at Kolkata has collected the money at Delhi cannot be accepted. The tax authorities are entitled to look into the surrounding circumstances to find out the realities and the matter has to be considered by applying test of human probabilities as enunciated by the Hon’ble Supreme Court. The fact that inspite of earning 3072% of profits, the assessee never ventured to involve himself in any other transactions with the broker which gave him even much lower profits during the period which cannot be a mere coincidence or lack of interest or absence of advice from the financial institutions as done earlier.
15. In view of the detailed discussion above, and keeping in view the entirety of the facts and circumstances and specific peculiarity of the instant case and the judgments quoted above, we decline to interfere in the order of the Ld. CIT (A).
16. In the result, appeal of the Assessee is dismissed.”
5.1 On the issue of circumstantial evidence and in the matters related to the discharge of ‘onus of proof’ and the relevance of surrounding circumstances of the case, the Hon’ble Supreme Court in the case of CIT Vs. Durga Prasad More [(1972) 82 ITR540], have observed as under:
“…that though an appellant’s statement must be considered real until it was 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 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.”
18. Similarly, coordinate Bench of the Tribunal in case cited as Udit Kalra (supra) dismissed the appeal filed by the assessee who has claimed deduction u/s 10(38) of the Act qua shares of M/s. Kappac Pharma Limited to the tune of Rs.27,20,457/- in the identical facts and circumstances, which has further been confirmed by 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 (M/s 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.”
19. Coordinate Bench of the Tribunal in case of Manvi Khandelwal (supra) also decided the issue as to claiming LTCG exemption u/s 10(38) of the Act on the basis of scrips of M/s. Kappac Pharma Limited on the basis of which assessee has earned a return of 6,300% over a period of 12 months and reached the conclusion that the entire transaction is a colourable device to avoid payment of taxes and upheld the addition made by the AO as well as ld. CIT (A) u/s 68 of the Act by disallowing the LTCG claim made by the assessee u/s 10(38) of the Act.
20. When we examine the contentions raised by the ld. AR for the assessee that the entire transaction as to purchasing and selling of 40,000 shares of M/s. Kappac Pharma Limited by the assessee company is genuine one routed through banking channel as well as SEBI, in the light of the fundamental facts that no man of ordinary prudence would invest in a company which is consistently in loss as per its annual report, the entire transaction is ingenuine.
21. Transaction undertaken by the assessee for purchasing 40,000 shares were dubious from the very outset as assessee has purchased the shares with undisclosed money of Rs.4,52,000/- by way of cash payment which he subsequently declared unaccounted in IDS, 2016 scheme and got the same legalized from Principal CIT. Thereafter, assessee took back the cash of Rs.4,52,000/- from the seller and paid him cheque of the aforesaid amount on 31.12.2013 after getting the scrips dematerialized.
22. During investigation when statement of assessee was recorded as to how he had paid the amount of Rs.4,52,000/- and as to what is the name of the seller of the shares of M/s. Kappac Pharma Limited, he has given evasive reply making the entire transaction doubtful. Questions put to assessee during investigation and answers given thereto during his recording of statement u/s 131 of the Act, available at page 154 of the paper book, are extracted for ready perusal as under :-
“28) How had you paid the amount of Rs.4.52 lakhs?
Ans. I had purchased these shares with cash of Rs.4.52 lakhs that was lying with me during FY 2012-13 because the person wanted cash before handing over physical papers. I have declared this cash under IDS Scheme 2016. I also want to mention that I had attempted to receive back my cash and replace it with a cheque immediately thereafter but it was only several months later that I could successfully issue and clear a cheque from my bank and receive back this cash from the seller. I have filed this information in Form 1 of IDS Scheme and received the acceptance in Form 2.
29) Please state the name of the seller for shares of Kappac Pharma Limited?
Ans. I do not particularly know the parties from whom or to whom I buy or sell shares. My records show that the shares were sold to me by some company named Girish Metals Pvt. Ltd.”
23. Perusal of the aforesaid statement of the assessee recorded during investigation leads to the irresistible conclusion that the assessee has not discharged his onus to prove that the entire transaction was genuine because it is incomprehensible that a person, assessee in this case, who is constantly in touch with the person since 25.06.2012 when he has purchased the scrips by making payment through undisclosed cash, then got the scrips dematerialized on 30.12.2013 only after legalizing amount of Rs.4,52,000/- through IDS, 2016, thereafter he got the amount of Rs.4,52,000/- returned and paid him the amount through cheque on 31.12.2013, but strangely stated that, “I do not particularly know the parties from whom or to whom he bought and sold the shares”. Evasive reply coupled with undisputed fact narrated in the preceding para shows that the entire transactions as to purchasing and selling the shares of M/s. Kappac Pharma Limited by the assessee was not a genuine share trading transaction but has been given colour of share trading.
24. The contention of the ld. AR for the assessee inter alia that the AO has provided only copies of statement of four persons, namely, Sanjay Vohra, Alok, Rakesh and Jaikishan Poddar but not supplied the statement of Anil Kedia and has also not been provided with opportunity to cross examine witnesses; that the AO has made the addition on the basis of borrowed investigation made by the Directorate of Investigation, Income-tax, Kolkata and that M/s. Kappac Pharma Limited was delisted by the SEBI temporarily is not tenable being hyper technical in nature. Because the entire case is crystal clear from the undisputed facts brought on record by the assessee himself. And moreover assessee has failed to discharge the onus that the entire transaction was genuine even by suppressing the correct facts during recording of his statement u/s 131 of the Act.
25. No doubt, Hon’ble Delhi High Court in case of Krishna Devi & Ors. (supra) relied upon by the ld. AR for the assessee held that, “in case of a capital gain from penny stock merely because of the fact that there was astronomical 4849.2% jump in the share price within 2 years, which is not supported by the financials does not justify the AO’s conclusion that assessee converted unaccounted money into fictitious exempt LTCG to evade taxes”, but the facts of the case at hand are distinguishable because in the case at hand from the very outset coloruable device has been put into operation by the assessee by purchasing shares with unaccounted cash from unknown person, evidently anti-dated, then got the unaccounted money legalized by making declaration under IDS, 2016 scheme, then getting the same dematerialized and claimed the bogus capital gains by selling the shares of a consistently loss making company at the whopping sale consideration of Rs.2,77,37,500/- purchased a year before for Rs.4,52,000/-.
26. Next contention raised by the ld. AR for the assessee that he has furnished all the documents viz. DEMAT account, bank statements, etc. during the assessment proceedings from which no adverse inference can be drawn and as such, genuineness of the transactions cannot be doubted is also not tenable because meticulous paper work by the assessee in making investment in an unknown stock and then selling the same as per convenience by rigging prices at astronomical rates shows that the entire transaction is a colourable device to evade the taxes.
27. 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.”
28. In these circumstances, the entire transactions have to be examined in the light of the surrounding circumstances in order to unearth the bogus transactions of purchase and sale of shares. So, the assessee has failed to dispel all the suspicion raised by the AO to establish that the transactions in question were neither real nor beyond human probabilities. The case laws relied upon by the ld.AR for the assessee is not applicable to the facts and circumstances of the case.
29. Following the decisions rendered by the coordinate Benches of the Tribunal in case of Puja Ajmani, Udit Kalra and Manvi Khandelwal (supra) and the decision rendered by Hon’ble Delhi High Court in case of Udit Kalra and in view of what has been discussed above, we are of the considered view that the entire transaction as to purchasing and selling of 40,000 shares of M/s. Kappac Pharma Limited is a colourable device to convert unaccounted money into fictitious exempt LTCG to evade taxes for the following reasons :-
(i) that right from the purchase of 40,000 shares of M/s. Kappac Pharma Limited by the assessee with undisclosed money of Rs.4,52,000/- from unknown persons; then subsequently declaring the said unaccounted money of Rs.4,52,000/- under IDS, 2016 scheme; then getting the same legalized from Principal CIT; then getting the unaccounted cash refunded and making payment of Rs.4,52,000/- by way of cheque on 31.12.2013; then got the shares dematerialized and sold the same in the market at the whopping price of Rs.2,77,37,500/- purchased a year before for Rs.4,52,000/- makes the entire transaction appears antedated and colourable;
(ii) that the transaction in question at the very outset fails to satisfy the test of human probabilities lay down by Hon’ble Supreme Court in case of Sumati Dayal vs. CIT 214 ITR 801 (SC) that, in such a circumstances, tax authorities are entitled to look into the surrounding circumstances to find out the reality and matter has to be considered by applying the test of human probabilities”. Because no man of ordinary prudence would invest huge amount of Rs.4,52,000/-in a consistently loss making company, namely, M/s. Kappac Pharma Limited, particularly when assessee is a novice being not into the share trading prior or after the transaction under consideration;
(iii) that the assessee has failed to dispel all the suspicion raised by the AO to establish the genuineness of the transaction in question which apparently does not satisfy the test of human probabilities rather suppressed the correct facts and withheld the name of real seller of shares in question during recording of his statement u/s 131 of the Act;
(iv) that business model of M/s. Kappac Pharma Limited, consistently a loss making company, has been examined and held to be a provider of bogus exempt LTCG by using colourable device in order to convert unaccounted money into fictitious exempt LTCG by the coordinate Benches of the Tribunal in numerous cases; and
(v) that a genuine transaction needs to be proved to be genuine by the person who substantially asserts the same and not by the Revenue as contended by the ld. AR for the assessee because once the assessee has been called upon to prove the genuineness of the trading of the shares leading to LTCG gain, the onus lies upon him which he fails to discharge.
30. So, we are of the considered view that the ld. CIT (A) has erred in deleting the disallowance made by the AO on account of exempt LTCG claimed by the assessee u/s 10(38) of the Act, hence question framed is decided affirmatively. Resultantly, impugned order passed by the ld. CIT (A) is set aside and assessment order passed by the AO is upheld by way of allowing the appeal filed by the Revenue.
Order pronounced in open court on this 27th day of October, 2021.