Amit Jindal Vs ITO (ITAT Delhi)
Facts- The assessee is an individual and derives income as partner in the firm Jindal Aluminum Company, income from capital gains and income from other sources.
The assessee had purchased 5000 shares of Esteem Bio Organic Food Processing Ltd. on 15.06.2012 for a consideration of Rs.50,000/-. Subsequently, the assessee was allotted bonus shares in the ratio 1:3 which resulted into 15000 shares. The shares were de-mated on 17.11.2017. Out of above 15000 shares, the assessee sold 11000 shares for a consideration of Rs.46,91,079/-. After deducting the cost of acquisition of Rs.50,000/-, the assessee declared Long Term Capital Gain of Rs.46,41,079/- which was claimed as exempt u/s 10(30) of the Act. AO rejected the claim of LTCG and exemption on the ground that share transactions are not genuine and that the assessee is not a regular investor in the share market and has not done any transaction in the share market.
Conclusion- Held that the Revenue has failed to comply to the direction of the Bench in furnishing any report from the AO as to in what manner, the investigation carried out by the Directorate of Investigation, Kolkata and report of SEBI has any link with the transactions carried out by the assessee, we allow the claim of Long Term Capital Gain on account of sale of shares of M/s Esteem Bio Organic Food Processing Ltd. and consequently the exemption claimed u/s 10(38) of the Act.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal filed by the assessee is directed against the order dated 30.11.2018 of the learned CIT(A)-19, New Delhi, relating to Assessment Year 2015-16.
2. Facts of the case, in brief, are that the assessee is an individual and derives income as partner in the firm Jindal Aluminum Company, income from capital gains and income from other sources. He filed his return of income 17.03.2016, declaring taxable income of Rs.3,62,440/- and claimed exempt income Rs.46,41,079/-.
3. During the course of assessment proceedings, the AO asked the assessee to furnish certain documentary evidences to strengthen his claim of Long Term Capital Gain on account of sale of shares of M/s Easteem Bio (Scrip Code-534927) on which the assessee has claimed exemption u/s 10(38) of the Act. The assessee filed certain details which the AO examined and held that the events are not simple or lucid as explained by the assessee. The AO noted that the Directorate of Investigation, Kolkata carried out a county wide investigation to unearth the organized racket of generating bogus entries of Long Term Capital Gain which is exempt from tax. The modus operandi adopted by the operators was to make the beneficiary buy some shares of a pre-determined Penny stock company controlled by them. These shares are transferred to the beneficiary at a very nominal price mostly off-line through preferential allotment or off-line sale. The beneficiary (an individual) holds the shares for one year, the statutory period after which LTCG is exempt u/s 10(38) of the Income tax Act, 1961. In the meantime the operators rig the price of the stock and gradually raise its price many time, often 500 to 1000 times. This is done through low volume transaction indulged in by the dummies of the operator at a pre-determined price. When the price reaches the desired level the beneficiary who bought the shares at a nominal price, is made to sell it to a dummy paper company of the operator. For this, unaccounted cash is provided by the beneficiary which is routed a few layers of paper companies by the operator and finally is parked with the dummy paper company that will buy the shares.
3.1. He noted that the Directorate of Investigation, Kolkata Investigated transactions in 84 such penny stock shares quoted on BSE and examined on oath a larger number of brokers, directors of companies that finally purchased the shares, the promoters of Penny stock companies, the entry operators who managed the dummy companies involved in price rigging. The money trail of transaction was also examined and in a large number of transactions trail right from cash deposit account to the beneficiaries account was unearthed. As a result of investigation individuals who had taken such entry of bogus LTCG amounting to several crores have been identified. The AO summarized the result of the investigation in brief which is as under:-
Individuals throughout the country identified who have taken such bogus entries of LTCG amounting to several crores from 2010 to 2014.
i) Individuals throughout the country identified who have taken such bogus entries of LTCG amounting to several crores from 2010 to 2014.
ii) The result of the enquiry was also shared with SEBI and the SEBI after investigating 11 cases have found the allegation to be correct. The balance cases are still being investigated by SEBI.
iii) The TOP 25 groups under each investigation directorate of the country were confronted in course of further investigation. Almost all of them barring a few have accepted having taken the entries for a commission. A sum of crores has been voluntarily
surrendered by such assessees.
iv) In Kolkata, where this investigation was started some of the beneficiaries who had taken entries of nearly Rs. 40 crores have voluntarily surrendered it for taxation without any further enquiry.
v) Several assessees have filed revised return since the enquiry and have taken back their claim of exemption.
3.2. He further noted that the Securities and Exchange Board of India (SEBI) has in the recent past, passed some orders on the issue of manipulation of share market for providing accommodation entry of bogus LTCG. SEBI considering the inputs from Income Tax Department as well as from its own surveillance system and that of the stock exchanges has taken appropriate action in case of the suspect scripts. These actions include passing interim direction, suspending’ the trade, reducing the price band etc. Under this shadowed background the AO analyzed the circumstantial / direct evidences against the claim of LTCG.
3.3. He noted that the assessee has acquired shares of Esteem Bio (in Physical form) on 16.10.2012 by making payment through Avish Credit Capital Ltd. 25.06.2012 for 5000 shares. Assessee has furnished copy of bank statement showing debit entry on 18.10.2012 to this effect. This company was having market price of share at around Rs.1.62 for the share having face value of Re 1 in February, 2013. Thereafter, the price was jacked up to Rs. 52.49 from Rs 1.62 in 22 months that is till December, 2014. Thus, within 22 months the price was jacked up nearly 32 times. After that the price was maintained in the range of Rs. 36 to Rs. 52 so that the interested beneficiaries were able to book the long term gains. After that the price was made to fall freely so that interested beneficiaries who had booked at high market price can avail bogus short Term Capital Loss. Thereafter the prices have gone down to merely Rs.22.
3.4. The AO further noted that while LTCG is booked while the share price is going up, the downward journey is used by the operators for booking bogus losses. The LTCG beneficiary pays cash to exit entry provider or a person who wants to book a loss and in return gets the cheque. The operator deducts his commission from the cash. As prices crash the loss taking beneficiary sells these shares bought at high value for small value resulting in artificial loss.
3.5. He also analyzed the financial health of the company by taking it out from the data available in public domain and which is used by the investors which is as follows:-
(Amount in Crores)
