Since Assessee has not tendered cogent evidence to explain as to how the shares in an unknown company had jumped to an higher amount in no time – It needs to be treated as Bogus LTCG
short overview : Assessee has not tendered cogent evidence to explain as to how the shares in an unknown company had jumped to an higher amount in no time when the fantastic sale price was not at all possible as there was no economic or financial basis to justify the price rise. Also, assessee failed to provide details of persons who purchased the shares. clearly, assessee had indulged in a dubious share transaction, meant to account for undisclosed income in the garb of long-term capital gain therefore, such gain had to be assessed as undisclosed credit under section 68.
Assessee had purchased the shares of penny stocks companies purchased at lesser amount and within a year sold such shares at much higher amount and claimed resulting long-term capital gains as exempt under section 10(38). AO doubted hike in price of shares and accordingly treated long-term capital gains as bogus liable for addition under section 68.
it is held that Assessee has not tendered cogent evidence to explain as to how the shares in an unknown company had jumped to an higher amount in no time when the fantastic sale price was not at all possible as there was no economic or financial basis to justify the price rise. Also, assessee failed to provide details of persons who purchased the shares. Clearly, assessee had indulged in a dubious share transaction, meant to account for undisclsoed income in the garb of long-term capital gain, therefore, such gain had to be assessed as undisclosed credit under section 68.
Decision: Against the assessees.
Relied: Sanjay Bimalchand Jain v. Pr. CIT ITA No. 18/2017.
IN THE ITAT, CHENNAI BENCH
INTURI RAMA RAO, A.M. & DUVVURU RL REDDY, J.M.
Harish Kumar HUF v. ITO
I.T.A. No. 3009/Chny/2018
21 May, 2019
Appellant by: None
Respondent by: C. Yamuna, JCommissioner
Duvvuru RL Reddy, J.M.
This appeal filed by the assessee is directed against the order of the learned Commissioner (Appeals) 5, Chennai, dated 28-9-2018 relevant to the assessment year 2013-14. The only effective ground raised in the appeal of the assessee is that the learned Commissioner (Appeals) has erred in confirming the addition made under section 68 of the Income Tax Act, 1961 (“Act” in short).
- Brief facts of the case are that the assessee has filed return of income for the assessment year 2013-14 on 19-3-2014 declaring income of Rs. 4,96,580. The assessee has long term capital gain and has shown the same under Schedule E1 during the previous year and has shown security transaction tax claiming exemption under section 10(38) of the Act of Rs. 20,45,457. The return filed by the assessee was processed under section 143(1) of the Act. As per investigation carried out by the Investigation Wing of the Department in certain cases, it has come to light that large scale manipulation has been done in market price of shares of certain companies listed on the Bombay Stock Exchange by a group of persons acting as a syndicate for the purpose of providing entries of tax exempt bogus long term capital gains to large number of persons (beneficiaries) in lieu of unaccounted cash in order to convert black money into white without payment of income tax. On going through the details given by the investigation wing, the assessing officer noticed that the name of Harish Kumar HUF with PAN AADHH6741J is also mentioned in the statement list of clients to whom bogus long term capital gain has been facilitated for the sale of shares of scrip Blue Circle of M/s. Blue Circle Services Ltd. for Rs. 21,58,650 for the financial year 2012-13. Accordingly, the return income filed by the assessee was reopened under section 147 of the Act and notice under section 148 of the Act, dated 9-9-2016 was issued and served on the assessee. The case was reopened with the reason that the income of Rs. 20,45,457 for the assessment year 2013-14 has escaped assessment as assessee was one of the beneficiaries who was provided bogus long term capital gains through (P) Ltd. Shell companies/listed penny stock companies. Accordingly, notices under sections 143(2) and 142(1) of the Act were duly served on the assessee. After considering the submissions of the assessee, the report of the Investigation Wing of the Department, confession given on oath under section 131 of the Act by the brokers/promoters/operators, SEBI’s direction to BSE to suspend trading 331 shell companies stocks, the assessing officer concluded that the assessee has been facilitated accommodation entries to bring in his own unaccounted money in the guise of long term gain and thus, the amount of Rs. 20,45,457 claimed as exempt under section 10(38) of the Act has been withdrawn and the entire sale consideration of Rs. 21,58,650 was assessed under section 68 of the Act under the head “income from other sources”. On appeal, by following various case law, the learned Commissioner (Appeals) confirmed the unexplained income under section 68 of the Act.
- On being aggrieved, the assessee is in appeal before the Tribunal.
When the appeal was taken up for hearing, none appeared on behalf of the assessee or any adjournment petition filed by the assessee despite noting the next date of hearing by making endorsement in the order sheet. Hence, we proceed to decide the appeal on merits after hearing the learned Departmental Representative.
- We have heard the learned Departmental Representative, perused the materials available on record and gone through the orders of authorities below. It was the submission before the assessing officer that the assessee purchased 2700 shares @ Rs. 39.10 per share of Blue Circle Services Ltd. on 20-4-2011 through M/s. Badri Prasad & Sons for Rs. 1,05,972. On 21-10-2011, the said shares of Blue Circle Services Ltd. @ Rs. 10 each have been subdivided into ten equity shares of Rs. 1/each and on 10-8-2012, the share broker M/s. Badri Prasad & Sons have transferred the subdivided share of 27000 equity shares of Rs. 1 each (due to split in 1:10 ratio) into assessee’s demated account. On 14-8-2012, the assessee sold 27000 equity shares of Blue Circle Services Ltd. through the share broking firm M/s. Sugal & Damani Shares Brokers Ltd. for Rs. 21,51,428.69. Accordingly, the assessee claimed exemption under section 10(38) of the Act towards long term capital gains of Rs. 20,45,457 and the same is reflected in Schedule E1 of assessee’s return of income.
With this backdrop, the assessee was requested through notice under section 142(1) of the Act to furnish the following details :–
- It is seen that you have sold shares of M/s. Blue Circle Services Ltd. which is a penny stock company resulting in bogus long term capital gain of Rs. 20,45,457.
- Details of shares purchased along with bills, cash receipt from the selling company, copy of share certificate, stock holding list and transaction statement, sales contracts, etc.
- Name and address of the broker through whom purchased and other details relating to the sale of shares.
- Profit and loss account and balance sheet, along with schedules, statement of income.
- Complete set of return of income as filed, VAT returns, Audit Report and sales books along with bills and receipts, etc.
- Copy of bank accounts and Analysis of bank statements.
- Name, address, PAN and loan confirmations from the loan creditors and sundry creditors, etc.
- Name and address of sundry debtors.
- Rate of interest received and paid
- Any other details.
The assessee was given final show-cause letter, dated 14-11-2017 as to why the amount of Rs. 20,45,457, which was claimed as exempt under section 10(38) of the Act should not be treated as not genuine and withdrawn and the entire sale consideration of Rs. 21,58,650 treated as income under the head ‘income from other sources’ being bogus long term capital gain under section 68 of the Act and taxed accordingly. The reply of the assessee to the show-cause notice reads as under :–
“The Assessee is a HUF bearing the PAN Number AADHH6741J.
The Assessee filed the return of the income for assessment year 2012-13 on 2-3-2013 admitting an income of Rs. 299,060 including Long Term Capital Gains on the sale of listed shares of Rs. 17,82,211 which was exempt by virtue of section 10(38) of the Income Tax Act.
The assessing officer, in the show cause notice, dated 14-11-2017, has wrongly alleged that the Assessee has indulged in bogus transactions and has colluded with share brokers to earn capital gains. The Assessee submits that this is pure conjecture and is facts and the established principles of law.
The Assessee had, based on advice received, purchased shares in Blue Circle Services Limited on 20-4-2011. Subsequently, the Assessee had sold the shares on 14-8-2012. As these shares had been held by the Assessee for over 12 months, it was a long term capital asset and had earned Long Term Capital Gains of Rs. 20,45,457. The transactions are complete in all aspects and have been executed through contract notes and are duly reflected in the demat account statement of the Assessee, confirming the shares are in its name. This is also duly reflected in the financial statements and the bank statements of the assessee (this has been made available to the ITO vide our letters, dated 10-10-2017 and 24-10-2017). It is also submitted that the share has been sold at the rate as traded on the registered stock exchange.
The Assessee further submits there exists no nexus between the Assessee end, either the broker or the company, other than that of a client of a broker and a shareholder of the company. The assessee is in no way concerned with the activity of the broker nor has any control over the same. It is submitted that the impugned information is opposed to facts, establishment principles of law and is pure conjecture. Additions cannot be made merely on the basis of presumption and suspicion, however strong it may appear, but needs to be corroborated by some evidence to establish a link that the assessee had brought back his unaccounted income in the form of LTCG.
The Assessee submits that all transactions are genuine transactions which were done on bona fide advice and belief. There were no mala fide or malicious or malicious intentions in any of the transactions of the Assessee.
In the light of the above facts stated, the proofs, submitted to you and explanations provided it is prayed that having sold the shares after holding them for 1 year and 4 months, Long Term Capital Gains from the aforesaid sale be allowed. “
- The Directorate of Investigation had undertaken the accommodation entry of Long Term Capital Gain (LTCG) investigation. A very large number of beneficiaries who have together taken huge amount bogus entries of L TCG were identified by the investigation wing. As a result of the investigation, 64811 beneficiaries involving bogus LTCG of nearly 38,000 crores have been identified.
- The assessing officer observed that the information which leads to the conclusion that the transaction of purchase/sale of shares is an accommodated entry to earn LTCG and to claim the same as exempt under section 10(38) of the Income tax Act, after holding period of 12 months. The observations made by the Investigation Wing and SEBI are reproduced as under :–
The Calcutta Stock Exchange Limited, is the biggest share broker in the list. It is clarified that Calcutta Stock Exchange as a broker is a set of many sub brokers. These sub brokers have taken BSE Terminal through Calcutta stock Exchange Ltd. Most of these sub brokers are involved in providing accommodation entry of L TCG, through floating Jamakharchi/bogus clients. It is further seen from the report that the Calcutta Stock Exchange as a broker, have traded in penny stocks/share of shell companies which include shares of M/s. Blue Circle Services Ltd. also.
It is further submitted 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 suspected scrips. These actions include passing interim direction, suspending the trade, reducing the price band etc. SEBI has taken the issue of penny stocks being traded for bogus LTCG, very seriously. They have already been intimated about the earlier actions of the Directorate of Investigations, Kolkata, where entry operators had accepted their involvement in price manipulation of scripts and providing accommodation entry of LTCG/STCL in lieu of cash commission. The SEBI has passed several orders where it has shown that how bogus entities in connivance with the share brokers, are involved in dubious trading, just to launder money.
In nutshell, the investigation carried out by the department has proved that a scheme was hatched by various players to obtain/provide accommodation entry of bogus LTCG through manipulation of stock market.
- As per the provisions of Act, any Capital Gain arising out of transfer of Long Term Capital Asset being an equity share in a company or a unit of an equity oriented fund, on which STT is paid, is exempt from taxation point of view. This means that if shares of any company are held for more than a period of 12 months and are then sold on any recognized Stock Exchange (on which STT is paid on the transactions), then the capital gain arising out of this transaction is exempt under section 10(38) of the Act. Since the minimum holding period is 12 months for becoming eligible for the definition of LTCG, the beneficiary with the help of the broker manipulates the date of purchase of shares. For such backdated purchases, the broker also issues backdated contract notes, bills, etc. to the assessee so as to give genuine colour to the otherwise bogus transactions. The back dating of purchases is done by the brokers by showing the purchases as off market deal. The crucial problem arises as to how to show payments for such back-dated purchase. This is done in either of the following two methods. The entire purchase price is paid in cash or, which is more subtle method. It may be mentioned that sometimes purchase price can also be paid by cheque, and yet the sale transactions of shares, resulting into LTCG, may be bogus. The reason being the rates of penny scrips are artificially hiked by the vested interests, said there are no real buyers for such scrips when rates are quoted very high in the market. Thus, even if the purchases are genuine in a given case, the sales of such penny scrips can be bogus because the market rates are manipulated. By the modus as stated above, the unaccounted money is laundered and brought into the books as capital gains on account of transactions in shares attracting either full tax exemption or concessional rates of taxation. For engineering such as bogus LTCG, the operator also charges–quite naturally-, a certain amount of commission/service charges, which may range from 4% to 8%, depending upon the bargaining power of the operator and the beneficiary. These type of transactions usually occurs in the penny stock of the shares. The term penny stock is defined by US authorities and by Indian authorities also and generally, the stock whose floating capital in the market are below Rs. 50 crores are being considered as a penny stock.
- To jack up the price of M/s. Blue Circle Services Ltd. and for easy manipulation of the share prices, the first step was splitting of the shares, by which one share was split into 10 shares. Then the price of the share was artificially rigged through ‘Circular Trading’ by ‘Operators’ and ‘Paper Companies’ and their associates. In this case, it is a direct evidence that share of M/s. Blue Circle Services Ltd. was artificially hiked to create non-genuine LTCG to the assessee along with other beneficiaries and therefore, SEBI has passed order under section 11(1), 11(4) & 11(e) of SEBI Act, 1992.
- The Investigation wing of the Income Tax Department, Kolkata conducted inquiries into these dubious transactions of accommodating bogus LTCG, by artificially hiking the price of the shares of certain companies by circular trading controlled by certain ‘Operators’ and some “Paper Companies’. Based on the information passed on, SEBI also conducted investigation on to these rigging of share prices and found correct, and action were initiated against the persons and companies responsible.
- The company, M/s. Blue Circle Services Ltd. is one of such companies which provided bogus LTCG to parties. The financials of the company also does not support to the abnormal sky-rocketing of the share price, without having any awesome Profit/EBDITA margin/EPS/Bonus/Dividend etc. From the financial of M/s. Blue Circle Services Ltd., the assessing officer noticed that there is a pre-arranged trade pattern and unrealistic boost in the shares figures. The share price increased multi fold even without any semblance of any positive factor, which clearly shows that there was artificial rigging by circular trading of shares forming cartel as could be evidenced from the trading details verified by SEBI on BSE Exchange.
- During the course of investigation, these ‘Operators’ and Directors of the ‘Paper Companies’ were questioned and statements were recorded on oath. In these statements, they have submitted that these companies were plotted with the intention of providing bogus LTCG to required parties on a ‘commission’. They have also submitted that parties were approached and the money (in cash) received from such parties were routed through various bank accounts managed by these operators and paper-companies. Finally the same was paid back to the parties through banking channels, through Stock Exchange, as the price paid to the shares purchased from these parties through Stock Exchange (i.e., in the guise of the sale consideration received by the parties for the shares sold through Stock Exchange). (It is also to be noted that the shares sold by the parties were purchased by none other than these operators and their associates. No public interest was not at all there in the shares of the company)
- Statements were also recorded from many of the brokers involved in these operations. Most of the persons have admitted that the scrip Blue Circle-508939 (also other scrips like Esaar India Ltd., Kailash Auto-511357, CCL-531900, TUNI TEXTILE··531411, NCL RESEARCH-530557, SURABHI-512311, UNNO-519273, KAPPAC-506938) were used for arranging bogus LTCG & they have relaxed the KYC norms required for opening of account & they have also admitted that their clients are paper companies which in some cases not found as existent given on their address. Thus it is found that there is a group of persons working in tandem to provide arranged capital gain by receiving cash in lieu of it. They have confessed that as a broker they were actively engaged in providing entries in the form of LTCG in collusion with other operators. The confession by brokers is also a circumstantial evidence against the assessee that LTCG is arranged one.
- These persons, who were investigated, have admitted on oath under section 131 of the Act that bogus entry for LTCG was given for various penny stocks by way of arranged purchases and sales through the entities/persons under their control. The modus operandi of the transactions was to accept cash and arrange for issuing cheques after charging certain commission. The confession given on oath under section 131 of the Act by the brokers/promoters/operators is also a circumstantial evidence against the assessee that the so called LTCG is arranged one. The SEBI has also asked various stock exchanges to suspend trading in many such scrips. In the instant case also SEBI has directed BSE to suspend trading in as much as 331 shell companies stocks, which includes the impugned scrips Blue Circle Services.
- Under the above facts and circumstances and by following various decision, the assessing officer withdrawn the exemption claimed by the assessee under section 10(38) of the Act and the entire sale consideration of Rs. 21,58,650 was assessed under section 68 of the Act and taxed.
- After considering the submissions of the assessee, the learned Commissioner (Appeals) observed that the shares of the assessee were purchased through off market and not through stock exchange. M/s. Blue Circle Services did not pay dividend or did not issue bonus shares during the period of holding of these shares by the assessee, corresponding to the increase in the price of the share of M/s. Blue Circle Services. During this period, there has been no corporate announcement by M/s. Blue Circle Services which suggests that the company is undertaking any substantial development activity and moreover, the assessee has not disputed the above facts. By following the decision of the Tribunal in the case ofITO v. Shamim M. Bharwani (2016) 69 taxmann.com 65 (Mumbai–Trib.) and by following the decision of the Hon’ble High Court of Bombay in the case of Sanjay Bimalchand Jain v. PCIT in (2018) 89 taxmann.com 196 (Bombay), the learned Commissioner (Appeals) confirmed the action of the assessing officer to treat the entire sale proceeds of the above mentioned penny stock as income under section 68 of the Act.
- In this case, as per assessee, 2700 shares at Rs. 39.20 of M/s. Blue Circle Services Limited were purchased from M/s. Badri Prasad & Sons on 20-4-2011 through off market, then the 27000 equity shares of Blue Circle (due to split in 1:10 ratio) is transferred into assessee’s account only on 10-8-2012 by M/s. Badri Prasad & Sons. There is no transfer certificate from M/s. Blue Circle Services Limited regarding the transfer but only a computer generated letter from M/s. Badri Prasad & Sons indicating the transfer of 27000 shares of Blue Circle into the assessee’s demat account.
The assessing officer issued a letter to the seller M/s. Badri Prasad & Sons from whom the assessee had purchased the above shares and called for the following details :–
(a) “The assessee had purchased 2700 shares of M/s. Blue Circle Services Ltd. on 20-4-2011 and he had paid cash of Rs. 1,05,840 for the same. The said shares were split in 1: 10 ratio and on 10-8-2012. 27000 shares were transferred by you to the assessee. You are requested to submit the details as to how the amount was given to you for the purchase of the said shares. Apart from your account copy, you are requested to submit the transaction statement, pool account and self account related to of M/s. Blue Circle Services Ltd.
(b) The client ID of the assessee.
(c) How many shares of the company has been purchased and sold by you during the period 2009-10 to 2015-16?
(d) When did the assessee become your client? Give a copy of the client application form
(e) Receipt of the same in your books of account.
(f) The share ledger page related to the aforesaid company.”
However, the aforementioned letter was returned by the postal authorities as unserved. It is onus on the part of the assessee to prove the genuineness of the transaction. But, the assessee has not proved the genuineness of the transaction.
- The assessee had sold a total of 27000 shares of M/s. Blue Circle Services Ltd. in this year and from the broker notes for sale of shares given by M/s. Sugal & Damani Share Brokers Ltd., the trade pattern adopted is as under :–
|Trade Date||Trade time||Rate||Quantity|
From the above it is seen that the trades have been executed with mutual understanding by placing simultaneous synchronized orders. Successful hitting of order placed for large volume of shares itself indicates that buyers are in collusion with the assessee. Otherwise placing of orders placed is not possible particularly when trade price is static for various trades executed. It may be noted that all the trades have been executed at a fraction of second.
All these trading patterns shows that your Long Term Capital Gain is arranged one. The assessee sold 27000 shares on 14-8-2012, i.e., on one single day claiming long term capital gains of Rs. 20,45,456 and these shares were purchased by the company which is also a jamakarachi company and exit providers.
- From the details submitted by the assessee, his broker M/s. Sugal & Damani Share Brokers Ltd. and the ITS details in the AST module, the Department came to know that all the 27000 shares of M/s. Blue Circle Services Ltd. pertaining to the assessee were purchased by M/s. Kingfisher Properties (P) Ltd., 95A, CR Avenue, 1st Floor, Kolkata-700073 with PAN AAECK3394G through M/s. Gateway Financial Services Ltd.
- In their sworn statement before the investigation wing, Shri Jagdish Purohit, Shri Bikash Sureka, Shri Devesh Upadhaya have clearly stated on oath that the directors of M/s. Blue Circle Services Ltd. were dummy directors and that they have provided accommodation entries of bogus LTCG to different beneficiaries of M/s. Blue Circle Services Ltd. by prearranging trading in shares of M/s. Blue Circle Services Ltd. and the relevant statements brought on record in the assessment order are reproduced as under for clarity :–
Statement of Shri Bikash Sureka :–
Q 10 Kindly state the names of the companies, by purchasing the shares of which in the above manner, you provided accommodation entries of bogus LTCG to different beneficiaries.
Ans. Sir such accommodation entries of bogus LTCG by pre-arranged trading in shares. However, I have traded the shares of M/s. Blue Circle Services Limited, M/s. Rander Corporation Ltd. and M/s. Radford Global Limited for different operators.
Q 11 Kindly state as to on whose instructions/intimations, you have made transaction in above mention companies which engaged in provided accommodation entries of bogus LTCG by prearranged trading in shares of the above companies.
Ans: As I stated earlier, I have provided such accommodation entries of bogus LTCG for earning commission income by pre-arranged trading in shares. However I have traded the shares of M/s. Blue Circle Services Limited, M/s. Randel Corporation Ltd. and M/s. Radford Global Limited on instruction of promoters of these companies through different operators for providing bogus LTCG.
Q 15 I am showing you the books impounded under section 133A, of Income Tax Act, 1961 during the course of survey operation under section 133A of Income Tax Act, 1961 at the office premise of Bikash Sureka, at 7, Lyons Range, 2nd Floor, Room No. 4E, Kolkata–700 001 on 30-12-2014 with the ID Mark BS/l to BS/7. Do you agree with this?
Ans: All these books belongs to me and they are having records of accommodation entries of Long Term Capital gain of M/s. Blue Circle Services Limited, M/s. Randel Corporation Ltd. and M/s. Radford Global Limited.
From the statement of Devesh Upadhaya
Q4. Please state as to what do you mean by “accommodation entry”, “entry operator”, “jama kharchi companies” and “nature of various accommodation entries”?
Ans. The above terminology is used frequently in the business of accommodation entries. Accommodation entry is a financial transaction between two parties where one party enters the financial transaction in its books for accommodating the other party. Here one party provides book entry of influx of funds to the other party (beneficiary) in a manner that this other party doesn’t have to pay any tax on such influx of funds. For this, such influx of funds in the books of beneficiary is done in the form of either some liability, which is never repaid by the beneficiary or in the form of some tax exempt income. These transactions are accommodated in lieu of cash of equal amount taken from the beneficiary. The entry operator earns some commission charged over and above this amount of accommodation entry, generally at certain fixed percentage for giving such accommodation entry. The purpose of such transactions is to accommodate one party (the beneficiary) by influx of money in its books through the other party, who take cash in unaccounted manner from such beneficiary.
An entry operator is a person who is in the business of giving such accommodation entries in lieu of cash after charging certain percentage of commission in cash.
Jama kharchi companies refer to the companies under the control of accommodation entry operator, and from the books of these companies, funds are transferred, in one form or the other, to the books of the beneficiary. There is no actual business activity in these companies and funds (to be transferred to beneficiary) in the books and bank accounts of these companies are brought by a complex rotation of funds through the accounts of various other entities under the control of accommodation entry provider.
Long term entry/Short term Entry: The Long Term (LT) entry beneficiary approaches an entry operator who is having a listed company through some agent/mediator or directly. Beneficiary then on the instruction of entry operator buys the shares of a listed paper company (generally not doing any business or with a miniscule business activity) at a very low price. The share price of the listed company are then jacked up to a desired level with the concerned and regular buying and selling of the shares by the other dummy persons or other paper companies/HUF (generally controlled and managed by some entry operator). Sometimes a cartel is formed by various entry operators for jacking up the price of the shares and thus paper companies of various entry operators are used for buying and selling of shares and raising the price of shares to a desired level. When finally the shares held by the beneficiary of the listed company each the desired level/price then the beneficiary is intimated by the operator or an agent of the operator to provide cash which can be routed to some other jama kharchi company/entry/entity to buy these shares from the beneficiary. The cash received from the beneficiary is then handed over to the operator through agents or directly. The entry operator then routs and layers back this cash so received, into various paper entities which are controlled and managed by him. These paper entities which have received layered money are then used as dummy buyers (Counter Parties) for buying the rigged/artificially jackedup shares from the beneficiary. When the buyers (counter parties) are ready, then the entry operator intimates the beneficiary to sell specific number of shares at a specific price and a specific time. This ensures that the shares of only the beneficiary as directed by the operator are bought through the dummy buyer. The transaction takes place through stock exchange and brokers and some nominal commission is charged in cash on the net prearranged bogus capital gain accruing to the beneficiary. This pre-arranged bogus capital gain income so earned through rigging of shares is claimed as exempt in the books of beneficiary.
Sir, I would like to apprise you that accommodation of LT and Short Term Gain/Loss might appear to be genuine prima facie as the payments while investing in shares or selling of the shares is in cheques through Stock Exchange brokers. But as I have told you that these LT and ST entries are minutely managed and supervised, controlled by the entry operators as explained earlier for earning commission income and thus are actually are in the nature of accommodation entries. When the shares are finally sold by the beneficiary, the cheque payments received by him are in fact for the equivalent amount of cash paid by him to the entry provider in unaccounted manner.
Q 9 Kindly state names of the companies, by purchasing the shares of which in the above manner, you provided accommodation entries of bogus LTCG to different beneficiaries.
Ans. Sir. I don’t remember all such companies at present. However, I have provided such accommodation entries of bogus LTCG by prearranged trading in shares of M/s. Blue Circle Services Limited, M/s. Rander Corporation Ltd. and M/s. Radford Global Limited.
Q 10 Kindly state as to on whose instructions/intimations, you provided accommodation entries of bogus LTCG by prearranged trading in shares of the above companies.
Ans: As I stated earlier, this accommodation entry of bogus LTCG is provided on the instructions of controller of share prices of these listed companies. In case of M/s. Blue Circle Services Ltd. and M/s. Radford Global Limited, I used to get communications from Sh Jagdish Purohit, an entry operator of Kolkata/Mumbai since he controls the prices of shares of this company. Share prices of M/s. Rander Corporation Ltd. are controlled by entry operator Shri Natwar Lal Daga of Mumbai, who communicated with me regarding bogus LTCG in case of M/s. Rander Corporation Ltd.
Q 13 Kindly state as to who provided you cash/other unaccounted funds to rotate and finally utilize the same to purchase the shares of the listed scrips In order to provide bogus, LTCG to various beneficiaries?
Ans: In the case of share trading for shares of M/s. Blue Circle Services Ltd. and M/s. Global Radford Limited, Sh Jagdish Purohit or his representatives availed me funds by arranging the same from the beneficiaries, to whom I provided accommodation entries of bogus LTCG. In case of Render Corporation, Sh Natwar Lal Daga of Mumbai or their representatives used to contact me for the purpose.
From the statement Shri Jagdish Prasad Purohit :–
Q 6 Please give the details of your family members and their income earning activities.
Ans: The name and address and other details of my family members are given below.
|Bal Chand Purohit||01329430||8-2-1930||Late Sher Mal Purohit||6/1, Bijoy Mukherjee Lane, Kolkata-25.|
|Sushil Kumar Purohit||00073684||19-7-1954||Bal Chand Purohit|
|Jagadish Prasad Purohit||00083125||24-2-1958||Bal Chand Purohit|
|Kailash Prasad Purohit||01319534||12-10-1960||Bal Chand Purohit|
|Anil Kumar Purohit||00082942||22-11-1980||Sushil Kumar Purohit|
|Pawan Kumar Purohit||00083020||6-6-1976||Sushil Kumar Purohit|
Q 9 In response to Question No. 6, you have provided DIN of all key family members. On verification of DIN of such persons, it is found that they are one of the directors in many companies. You are already one of the directors in so many companies and your family members are also directors in different companies. The number of companies against each of your family members are detailed below:–
|Name of the individual||DIN||No. of companies under directorship|
|Anil Kumar Purohit||00082942||49|
|Pawan Kumar Purohit||00083020||29|
|Jagadish Prasad Purohit||00083125||32|
|Sushil Kumar Purohit||00073684||41|
|Kailash Prasad Purohit||01319534||22|
|Rajendra Kumar Kothari||00083059||46|
Please explain the reason behind floating so many companies by you and your family members.
Ans: Sir, I again admit that all companies were incorporated for providing accommodation entry to ultimate beneficiaries.
- Further, on verification of the website to see the directors M/s. Blue Circle Services Ltd., the assessing officer noted that Shri Anil Kumar Purohit is one of the directors. Shri Anil Kumar Purohit, as can be seen from the statement of Shri Jagdish Prasad Purohit, is a relative of Shri Jagdish Prasad Purohit representing him in arranging accommodation entries of beneficiaries by providing bogus LTCG.
- The Investigation Wing, Kolkata, identified the 61 BSE listed penny stocks which have been used for generating bogus LTCG. One of which is M/s. Blue Circle Services Ltd. with scrip name of BLUE CIRCLE scrip code 508939 and total trade value was Rs. 1387,65,82,309. Beneficiaries of more than Rs. 38 thousand crores have been identified by the Investigation Wing, Kolkata and Total number of more than 60 thousand PAN numbers of the beneficiaries have been identified. The assessee, Harish Kumar HUF has been identified as one of the beneficiary. Finally, the payment of Security Transaction Tax was made to paint creditworthiness to the transaction and to claim exemption under section 10(38) of the Act.
- On verification of the details submitted by the assessee along with the supporting documents produced by him and in comparison with the details of the investigation wing, Kolkata, the details gathered from the various websites in the internet after affording adequate opportunity of being heard to the assessee, to establish clearly in this entire penny stock transaction, the assessing officer brought out the following details in the assessment order and are reproduced hereunder :–
(i) Blue Circle Services Ltd. is one of the BSE listed penny stocks which has been used for generating bogus LTCG. On going through the entity’s history of M/s. Blue Circle Services Ltd. in the website ‘watchoutinvestors.com’, it is seen that M/s. Blue Circle Services Ltd. has time and again been suspended/debarred/restrained either by the BSE or the SEBI for indulging in creation of artificial market and price manipulation.
(ii) M/s. Badri Prasad & Sons the broker/seller through whom the shares of BLUE CIRCLE SERVICES Ltd. have been purchased by the assessee, has been identified as the one of the entry providers of generating bogus LTCG. M/s. Badri Prasad & Sons is “one of the 11 brokers of the Calcutta Stock Exchange (CSE) which had been barred by The Securities and Exchange Board of India (SEBI) from the capital markets. The reason given was “the brokers have followed a common modus operandi of artificially jacking up the price and creating false volumes through continuous self deals executed on the same terminal and cross deals among themselves. In the process, they have not only enriched themselves but have also aided and abetted the process of legitimising the gains.”(source Business Standard, dated 6-2-2013).
(iii) The purchase and sale of the shares is not made by the public but by the bogus entities managed and controlled by the promoter of the penny stock company or the operator which are referred to as “Exit Providers”. In order to make it look genuine, though the shares of Blue Circle scrip were sold by the assessee through M/s. Sugal Damani Share Brokers Ltd., in reality as seen from the trade pattern in point 18.2, all the 27000 shares were purchased by company, i.e., M/s. Kingfisher Properties (P) Ltd. on single day through the exit provider M/s. Gateway Financial Services Ltd.
(iii. a) M/s. Gateway Financial Services Ltd. is among the 22 brokers, which was involved in 84 BSE-listed penny stocks and through 5000 listed and unlisted firms. It is among top 5 brokers along with Calcutta Stock Exchange Ltd., SMC Global Securities Ltd., Anand Rathi Share and Stock Brokers Ltd. and Comfort Securities Ltd. which helped in trades worth Rs. 1,563 crores, which were bogus to generate fake LTCG or Short term capital Losses. M/s. Gateway Financial Services Ltd. has been penalised by SEBI time and again during the financial years 2013-14, 2015-16.
(iii. b) M/s. Kingfisher Properties (P) Ltd., the purchaser of the scrip Blue Circle from the assessee, is a Jamakarachi company for providing accommodation entries.
In a SEBI Circular No. MSEI/ID/4462/2016 29-8-2016, SEBI order in the matter of Radford Global Limited, SEBI had confirmed that M/s. Kingfisher Properties (P) Ltd. is an exit provider and is a suspected entity.
Exit Providers, i.e., Radford Group & Suspected Entities
|54.||Devatma Distributors (P) Ltd.||AADCD7140G|
|55.||Anjali Suppliers (P) Ltd.||AAJCA1784D|
|56.||Rangan Vincom (P) Ltd.||AAGCR1715E|
|57.||Katyani Commodities (P) Ltd.||AAECK6244R|
|58.||Ladios Trading (P) Ltd.||AACCL3868N|
|59.||Avlokan Deakorn (P) Ltd.||AALCA1583G|
|60.||Devakantha Trading (P) Ltd.||AADCD7044B|
|61.||Shelter Sales Agency (P) Ltd.||AASCS1797F|
|62.||Udbal Mercantile (P) Ltd.||AABCU2648C|
|63.||Amrusha Mercantile (P) Ltd.||AALCA0340D|
|64.||Runicha Merchants (P) Ltd.||AAECR0580M|
|65.||Signet Vinimay (P) Ltd.||AAMCS1712Q|
|66.||Winall Vinimay (P) Ltd.||AAACW8004B|
|67.||Sanklap Vincorn (P) Ltd.||AAMCS1711P|
|68.||SKM Travels (P) Ltd.||AAICS0688K|
|69.||Scope Vyapar (P) Ltd.||AAICS6023N|
|70.||Spice Merchants (P) Ltd.||AAPCS7492G|
|71.||Apex Commotrade (P) Ltd.||AAJCA4459K|
|72.||Kingfisher Properties (P) ltd.||AAECK3.394G|
|73.||Topwell Properties (P) Ltd.||AADCT8403C|
|74||Esquire Enclave (P) Ltd.||AACCE7065J|
(iv) Assessee, The beneficiary–The unaccounted money of the assessee is routed to these bogus entities “Exit Providers” and the shares held by the beneficiaries are bought by these bogus entities from the money which is the unaccounted money of the beneficiaries. All these transactions are done on the stock exchange and as the sale of shares are done after a holding of one year they fall into the category of Long Term Capital Gain which is an exempt income as per the Income Tax Act, 1961.
(iv.a) It is not as simple and lucid, as claimed by the assessee in his reply to the show-cause issued to him. From the statement of Shri Devesh Upadhaya, it is seen that he has clearly explained how the assessee has been provided accommodation entry in lieu of cash through a Entry Provider and the same shares, though sold online (i) by way of demating the shares, (ii) through registered stock broker and (iii) receiving the payment for sale of shares through bank transaction, these shares have actually been sold by pre-arranging trading in shares of Blue Circle Services Ltd. and has been purchased by one Jamakarachi company, M/s. Kingfisher Properties (P) Ltd. through the exit provider M/s. Gateway Financial Services Ltd.
(iv.b) The role of each of these players in connection with the assessee beneficiary has been explained details in the order.
- In the assessment order, the assessing officer explained the entire working of the flow of conversion of black money into white using long term capital gains tax exemption and penny stock from the assessee in a circular pattern and back to him. Moreover, out of the list of beneficiaries submitted by the brokers/entry providers received from share brokers/directors/dummy directors of bogus companies before the investigation wing substantiates that the assessee is one of the beneficiary.
- The case law relied on by the assessee in the grounds of appeal in the consolidatedOrder, dt. 6-4-2018 in the cases of Vimalchand Gulabchand v. ITO in I.T.A. No. 2003/Chny/2017; Praveen Chand v. ITO in I.T.A. No. 1721/Chny/2017; Mahendra Kumar Bhandi v. ITO in I.T.A. No. 2748/Chny/2017 all relating to assessment year 2014-15 has no application to the facts of the present case, because, in the present case, the assessee was given reasonable opportunity to look into the details received from the investigation wing. Moreover, in a SEBI Circular No. MSEI/ID/4462/2016 29-8-2016, SEBI order in the matter of Radford Global Limited, SEBI had confirmed that M/s. Kingfisher Properties (P) Ltd. is an exist provider and is a suspected entity. Over and above, the assessee has not filed any counter reply to the statements recorded by the investigation wing of the Department either before the learned Commissioner (Appeals) or before the Tribunal. None of the findings of the authorities below have been controverted by the assessee.
- The findings recorded by the assessing officer are purely based on the test laid down by the Hon’ble Supreme Court and other Courts and the findings of facts are based on a proper appreciation of the material on record.
- Over and above the facts and circumstances, the decision in the case ofITO v. Shamim M. Bharwani vide ITA No. 4906/Mum/2011, dated 27-3-2015 is squarely applicable against the assessee. On similar set of facts in an identical issue, in the case law cited above, the Mumbai Benches of the Tribunal has held as under :–
Firstly, documentary evidences, in the face of unusual events, as prevailing in the instant case, and without any corroborative or circumstantial evidence/s, cannot be regarded as conclusive. Two, the preponderance of probabilities only denotes the simultaneous existence of several ‘facts’, each probable in itself, albeit low, so as to cast a serious doubt on the truth of the reported ‘facts’, which together make up for a bizarre statement, leading to the inference of collusiveness or a device set up to conceal the truth, i.e., in the absence of credible and independent evidences. For a scrip to trade at nearly 50 times its’ face value, only a few months after its issue, only implies, if not price manipulation, trail blazing performance and/or great business prospects (with of course proven management record, so as to be able to translate that into reality), while even as much as the company’s business or industry or future program (all of which would be in public domain), is conspicuous by its absence, i.e., even years after the transaction/s. The company is, by all counts, a paper company, and its share transactions, managed. We, accordingly, reversing the findings of the first appellate authority, confirm the assessment of the impugned sum under section 68 of the Act. We decide accordingly.”
In this case, the assessee had purchased the shares of penny stocks companies at lesser amount and within a year sold such shares at much higher amount and the assessee had not tendered cogent evidence to explain as to how shares in an unknown company had jumped on higher amount in no time and also failed to provide details of persons who purchased the said shares, as the said transactions were attempt to hedge undisclosed income as long term capital gains. In this connection, in the case of Sanjay Bimalchand Jain v. PCIT, in ITA No. 18/2017, the Nagpur Bench of the Hon’ble High Court of Judicature at Bombay has laid down the law that if the assessee has not tendered cogent evidence to explain as to how the shares in an unknown company had jumped to such an higher amount in no time when the fantastic sale price was not at all possible as there was no economic or financial basis to justify the price rise and if the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain, such gain has to be assessed as undisclosed credit under section 68 of the Act. In view of the law laid down by the Hon’ble High Court of Bombay, we find that the assessing officer has rightly withdrawn the amount of Rs. 20,45,457 which has been claimed by the assessee as exempt under section 10(38) of the Act and assessed the entire sale consideration of Rs. 21,58,650 under section 68 of the Act. We find no reason to interfere with the order passed by the learned Commissioner (Appeals). Accordingly, the ground raised by the assessee stands dismissed.
- In the result, the appeal filed by the assessee is dismissed.