Bogus LTCG from PennyStock after selling shares with profit of around 491% – Forget documentation andSee the observation of Delhi HC

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Bogus LTCG from PennyStock after selling shares with profit of around 491% – Forget documentation andSee the observation of Delhi HC

[Date of Order: 17.09.2019]

Key Observation:

The AO has worked out the glaring facts, which cannot be ignored and which are clear indicative of the non-genuine nature of the transactions. The assessee could not satisfactorily explain how the investments in the absence of any evidence as to the financials, growth and operations of the company could earn profit of 4910% over a short period of 5 months from the date of allotment of shares

IN HIGH COURT OF DELHI AT NEW DELHI
ITA 841/2019
SUMAN PODDAR Appellant

Through: Mr. Arvind Kumar and Ms. Devina Sharma, Advocates.

versus

INCOME TAX OFFICER Respondent

Through: None.

CORAM: HON’BLE MR. JUSTICE VIPIN SANGHI HON’BLE MR. JUSTICE SANJEEV NARULA

ORDER % 17.09.2019

C.M. No. 41505/2019 (exemption)

  1. Exemption allowed, subject to all just exceptions.
  2. application stands disposed of. ITA 841/2019
  3. present appeal is directed against order dated 25.07.2019 passed by Income Tax Appellate Tribunal (ITAT) Delhi Bench ‘G’, New Delhi, in ITA No.. 1006/Del/2019 for assessment year 2014-15 whereby tribunal had rejected appeal preferred by Appellant/Assessee. Appellant had filed return of income for assessment year 2014-15 declaring income of Rs. 4,96,650/-. return of Appellant was selected for scrutiny.

Appellant had booked Long Term Capital Gain (LTCG) of Rs. 73,77,806/- and sought exemption under Section 10 (38) of ITA 841/2019 Page 1 of 10 Income Tax Act, 1961.

Assessing Officer on consideration of replies and responses of assessee in pursuance of notices issued to assessee, computed net taxable income at Rs. 78,74,456/-. AO added amount of Rs. 73,77,806/- by denying exemption claimed under Section 10 (38) of Act on account of LTCG. Assessment Officer (AO) found transaction pertaining to purchase of shares by Appellant/Assessee of M/s Smartchamps IT and Infra Ltd., which was merged with M/s Cressanda Solutions Ltd., to be bogus transaction by holding that M/s Cressanda Solutions Ltd. was penny stock. appeal preferred by Appellant before learned CIT (Appeals) met same fate and findings of fact in relation to transaction being bogus were upheld by CIT (Appeals). further appeal preferred before ITAT has been dismissed and ITAT has once again found said transaction to be bogus..

  1. We have, therefore, at outset put it to learned counsel for Appellant that since there are consistent findings of fact and entire dispute raised by Appellant is factual, there is no reason for Court to entertain present appeal and no question of law arises for our determination.
  2. Counsel for Appellant has submitted that findings returned by Assessing Officer; CIT (Appeals), and; ITAT are perverse since, according to Appellant, there was no basis for concluding that transaction entered into by Appellant for purchase of shares of M/s Smartchamps IT and Infra Ltd. (which was later merged with M/s Cressanda ITA 841/2019 Page 2 of 10 Solutions Ltd.) was bogus. Counsel for Appellant submits that Appellant had made cheque payment for purchase of 1500 shares of M/s Smartchamps IT and Infra Ltd.. in assessment year 2012-13, and that investment was accepted by department. He further submits that Appellant had produced all relevant materials before Assessing Officer, namely, documentation relating to opening of DMAT account; purchase of shares of M/s Smartchamps IT and Infra Ltd., contract notes, and other relevant documents.
  3. Learned counsel for Appellant has taken us through impugned order. Having heard learned counsel and perused records including impugned order, we are of view that there is absolutely no merit in present appeal.

ITAT has extensively discussed evidence and materials on basis of which Assessing Officer recorded his findings with regard to genuineness of transaction in question. findings returned by Assessing Officer, CIT (Appeals) and Tribunal are based on appreciation of evidence and there is ample justification for them. Thus, it cannot be said that findings of fact are perverse..

relevant discussion found in impugned order reads as follows:

  1. We have gone through the rationale given by both the parties pertaining to their arguments. In this case, it is an uncontroverted fact that the assessee has failed to prove the genuineness of the transaction. The AO has worked out the glaring facts, which cannot be ignored and which are clear indicative of the non-genuine nature of the transactions. The assessee could not satisfactorily explain how the investments in the absence of any evidence as to the financials, growth and operations of the company could earn profit of 4910% over a short period of 5 months from the date of allotment of shares (21.02.2013-date of allotment and 18.07.2013 to 12.09.2013 -date of sale) of Cressanda Solutions Ltd. against the purchase of 15,000 shares of Smarchamps IT and Infra Ltd. on 22.09.2011. Most importantly, in spite of earning so much of profit, the assessee has never embarked upon any transactions for investments with the broker or in any other dealing of shares. The revenue from operations of Cressanda Solutions Ltd. for the year March 2012 was Rs.00 and, for the year March 2013 is Rs. 0.99 Cr. The financials of the company proving that the entity is a penny stock company are as under:
    Suman Poddar Balance Sheet of Cressanda Solution ———- in Rs. Cr. ———–
    —–
    Mar 16 Mar 15 Mar 14 Mar 13 Mar 12
    ,.,.
    12 mths 12 rntns 12 mths 12 mths 12 mths

EQUITIES AND LIABILITIES
SHAREHOLDERFUNDS
Equity Share Capital 30.36 30.36 3036 30.36 9.00
Total Share Capital 30.36 30..36 30.36 30.36 9.00
Reserves and Surplus – -065 -0.82 0.63 -8.89
Total Reserves and Surplus 1.07- -0.65 -0.82 0.63 -8.89
Total Shareholders’ Funds 1.07
29.29 29.71 29.54 30.99 0.11
NON-CURRENT LIABILITIES
Long Term Borrowings 0.00 0.00 0.00 0.00 1.48
Other Long Term Liabilities 0.00 0.00 0.00 0.00 0.15
Long Term Provisions 0.00 0.00 0.00 0.00 0.05
Total Non-Current Liabilities 0.00 0.00 0.00 0.00 1.68
CURRENT LIABILITIES
Trade Payables 0.00 0.00 23.82 22.35 0.00
Other Current Liabilities 0.01 0.10 0.32 0.56 0.00
Short Term Provisions 0.00 0.00 0.00 0.08 0.00
Total Current Liabilities 0.01 0.10 24.14 22.99 0.00
Total Capital And Liabilities 29.30 29.81 53.68 53.98 1.79
ASSETS
NON-CURRENT ASSETS
Tangible Assets 0.03 0.04 0.05 0.06 0.00
Fixed Assets 0.03 0.04 0.05 0.06 0.00
Non-Current Investments 0.00 0.00 0.00 1.09 1.09
Long Term Loans And Advances 18.96 18.87 24.11 25.11 0.00
Other Non-Current Assets 10.21 10.60 0.15 0.77 0.65
Total Non-Current Assets 29.20 29.50 24.31 27.03 1.74
CURRENT ASSETS
Inventories 0.00 0.00 0..00 0..70 0.00
Trade Receivables 0.00 0.00 29.13 26.01 0.00
Cash And Cash Equivalents 0.10 0.23 0.18 0.18 0.04
Short Term Loans And Advances 0.00 0..00 0.00 0.00 0.01
Other Current Assets 0.00 0.08 0.05 0.05 0.00
Total Current Assets 0.10 0.31 29.37 26.95 0.05

Total Assets 29.30 29.81 53.68 53.98 1.79

Suman Poddar

Profit & Loss account of Cressanda Solution —————- in Rs. Cr. ————–

Mar 16 Mar 15 Mar 14 Mar 13 Mar12

12 mths 12mths 12 mths 12 mths 12 mths

INCOME
Revenue From Operations [Gross] 0.00 0.00 6.44 0.99 0.00
Revenue From Operations [Net] 0.00 0.00 6.44 0.99 0.00
Total Operating Revenues 0.00 0.00 6.44 0.99 0.00
Other Income 0.03 0.17 0.14 0.07 0.02
Total Revenue 0.03 0.17 6.58 1.06 0.02
EXPENSES
Operating And Direct Expenses 0.00 0.00 5.14 0,08 0,00
Changes In Inventories Of FG,WIP And
0.00 0.00 0.70 0.00 0.00
Stock-In Trade
Employee Benefit Expenses 0.05 0.04 0.03 0.06 0.00
Depreciation And Amortization Expenses 0.01 0.01 0.01 0.01 0.00
Other Expenses 0.14 0.28 2..14 0.41 0.04
Total Expense~ 0.20 0.32 8.02 0.57 0.04

Mar 16 Mar15 Mar 14 Mar13 Mar 12

12 mths 12 mths 12 mths 12 mths 12 mths

Profit/Loss Before Exceptional, Extra
0.17 -0.15 -1.44 0.49 -0.02
Ordinary Items And Tax

Profit/Loss Before Tax 0.17 -0.15 -1.44 )2..49 -0.02
…••
Tax Expenses-Continued Operations – —
Current Tax 0.00 0.00 0.00 0.09 0.00
Tax For Earlier Years 0.25 0.00 0.00 0.00 0.00
Total Tax Expenses 0.25 0.00 0.00 0..09 0.00
Profit/Loss After Tax And Before Extra
0.42 -0.15 -1.44 0.40 -0.02
Ordinary Items
Profit/ Loss From Continuing Operations 0.42 -0..15 -1.44 0.40 -0.02
,;-.,..”.-“.
Profit/Loss ,For The Period• 0.42 -0.15 -1.44 0.40 -0.02

Mar 16 Mar 15 Mar 14 Mar 13 Mar 12

12 mths 12 mths 12 mths 12 mths 12 mths

OTHER ADDITIONAL INFORMATION
EARNINGS PER SHARE

Basic EPS (Rs.) 0.01 -0.01 -0.48 0.13 -0.02
Diluted EPS (Rs.) 0.01 -0.01 -0.48 0.13 -0.02
(emphasis supplied)

  1. Thus, Tribunal has in depth analyzed balance sheets and profit and loss accounts of Cressanda Solutions Ltd. which shows that astronomical increase in share price of said company which led to returns of 491% for Appellant, was completely unjustified. Pertinently, EPS of said company was Rs. 0.01/- as in March 2016, it was Rs. – 0.01/- as in March 2015 and -0.48/- as in March 2014. Similarly, other financials parameters of said company cannot justify price in excess of Rs. 500/- at which Appellant claims to have sold said shares to obtain Long Terms Capital Gains. It is not explained as to why anyone would purchase said shares at such high price.

Tribunal goes on to observe in impugned order as follows:

  1. With such financials and affairs of business, purchase of share of face value Rs. 10/- at rate of Rs.491/- by any person and assessee’s contention that such transaction is genuine and credible and arguing to accept such contention would only make decision of judicial authorities fallacy.
  2. evidences put forth by Revenue regarding entry operation fairly leads to conclusion that assessee is one of beneficiaries of accommodation entry receipts in form of long-term capital gains. assessee has failed to prove that share transactions are genuine and could not furnish evidences regarding sale of shares except copies of ITA 841/2019 Page 7 of 10 contract notes, cheques received against overwhelming evidences collected by Revenue regarding operation of entire affairs of assessee. This cannot be case of intelligent investment or simple and straight case of tax planning to gain benefit of long-term capital gains. earnings @ 491% over period of 5 months is beyond human probability and defies business logic of any business enterprise dealing with share transactions. net worth of company is not known to assessee. Even brokers who coordinated transactions were also unknown to assessee. All these facts give credence to unreliability of entire transaction of shares giving rise to such capital gains. ratio laid down by Hon’ble Supreme Court in case of Sumati Dayal vs. CIT, 214 ITR 801 is squarely applicable to case. Though assessee has received amounts by way of account payee cheques, transactions cannot be treated as genume in presence of overwhelming evidences put forward by Revenue. fact that in spite of earning such steep profits, assessee never ventured to involve himself in any other transaction with broker cannot be mere coincidence of lack of interest. Reliance is placed on judgment in case of Nipun Builders and Developers Pvt. Ltd. (supra), where it was held that it is duty of Tribunal to scratch surface and probe documentary evidence in depth, in light of conduct of assessee and other surrounding circumstances in order to see whether assessee is liable to provisions of section 68 or not. In case of NR Portfolio, it was held that genuineness and credibility are deeper and obtrusive. Similarly, bank statements provided by assessee to prove genuineness of transactions cannot be considered in view of judgment of Hon’ble court in case of Pratham Telecom India Pvt. Ltd., wherein, it was stated that bank statement is not sufficient enough to discharge burden. Regarding failure to accord opportunity of cross examination, we rely on judgment of Prem Castings Pvt. Ltd. Similarly, Tribunal in case of Udit Kalra, ITA No. 6717/Del/2017 for assessment year 2014-15 has categorically held that when there was specific confirmation with Revenue that assessee has indulged in ITA 841/2019 Page 8 of 10 non-genuine and bogus capital gains obtained from transactions of purchase and sale of shares, it can be good reason to treat transactions as bogus. differences of case of Udit kalra attempted by Ld. AR does not add any credence to justify transactions. Investigation Wing has also conducted enquiries which proved that assessee is also one of beneficiaries of transactions entered by Companies through multiple layering of transactions and entries provided. Even BSE listed this company as being used for generating bogus LTCG. On facts of case and judicial pronouncements will give rise to only conclusion that entire activities of assessee is colourable device to obtain bogus capital gains. Hon’ble High Court of Delhi in case of Udit Kalra, ITA No. 220/2009 held that company had meager resources and astronomical growth of value of company’s shares only excited suspicion of Revenue and hence, treated receipts of sale of shares to be bogus. Hon ‘ble High Court has also dealt with arguments of assessee that he was denied right of cross examination of individuals whose statements led to enquiry. ld. AR argument that no question of law has been framed in case of Udit Kalra also does not make any tangible difference to decision of this case. Since additions have been confirmed based on enquiries by Revenue, taking into consideration ratio laid down by various High Courts and Hon’ble Supreme Court, our decision is equally applicable to receipts obtained from all three entities. Further, reliance is also placed on orders of various Courts and Tribunals listed below. MK. Rajeshwari vs. ITO in ITA No.17231Bangl2018, order dated 12.10..2018. Abhimanyu Soin vs. ACIT in ITA No. 9511Chdl2016, order dated 18.04.2018. Sanjay Bimalchand Jain vs. ITO 89taxmann.com196. Dinesh Kumar Khandelwal, HUF vs. ITO in ITA No. 58 & 591Nagl2015, order dated 24.08.2016. Ratnakar M Pujari vs. ITO in IT No. 9951Muml2012, order dated 03.08.2016. ITA 841/2019 Page 9 of 10 Disha N. Lalwani vs. ITO in ITA No. 6398 I Mum I 2012, order dated 22.03.2017. ITO vs. Shamim. M Bharwoni [20 16] 69 taxmann.com 65. Usha Chandresh Shah Vs ITO in ITA No. 6858 I Mum I 2011, order dated 26.09.2014. CIT vs. Smt. Jasvinder Kaur 357 ITR 638.
  3. facts as well as rationale given by Hon ‘ble High Court are squarely applicable to case before us. Hence, keeping in view overall facts and circumstances of case that profits earned by assessee are part of major scheme of accommodation entries and keeping in view ratio of judgments quoted above, we, hereby decline to interfere in order of Ld. CIT(A). (emphasis supplied)
  4. From above extract, it would be seen that Cressanda Solutions Ltd. was in fact identified by Bombay Stock Exchange as penny stock being used for obtaining bogus Long Term Capital Gain. NO evidence of actual sale except contract notes issued by share broker were produced by assessee. No question of law, therefore arises in present case and consistent finding of fact returned against Appellant are based on evidence on record.
  5. In aforesaid facts and circumstances, we do not find any merit in present appeal and same is dismissed.

VIPIN SANGHI, J SANJEEV NARULA, J

SEPTEMBER 17, 2019

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