Megha Garg Vs ITO

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Judgment

2,323 paragraphs · 8,809 words

The present appeals are filed by the assessees against the orders of the ld CIT(A)-14, New Delhi dated 07.02.2019.

Since, the issues involved both the appeals are similar, they were heard together and being adjudicated by a common order.

The assessee has raised the following grounds of appeal:

“1. That the order of the CIT(Appeals) 14, New Delhi is arbitrary, biased and bad in law and in facts and circumstances of the case in so far as it confirms the order of the Assessing Officer.

That the CIT(Appeals) has grossly erred in confirming an addition of Rs. 2,04,07,951/- (where as the correct amount is Rs. 2,06,92,178/-) made by the Assessing Officer being the amount of sale proceeds of shares of M/s Kappac Pharma Limited under section 68 of the Act by denying the claim of exemption under section 10(38) of the Act and by treating the same as unexplained credit.

That the CIT(Appeals) has grossly erred in confirming the action of Assessing Officer in not accepting the claim of exempt capital gains under section 10(38) of the Act despite the appellant fulfilling the conditions enumerated in the section for availing exemption under section 10(38) of the Act.

That the CIT(Appeals) has grossly erred in confirming an addition of Rs.2,04,07,951//- (whereas the correct amount is 2,06,92,178) under section 68 read with section 115BBE for sale proceeds of equity shares on presumptions and assumptions and by quoting out of context the general modus operandi adopted by the operators with which the appellant had nothing to do nor did the same concern him.

That the CIT(Appeals) has grossly erred in confirming the addition made by the Assessing Officer of Rs. 6,12,238/- under section 69C read with section 115BBE of the Act for alleged unexplained expenditure on notional hypothetical basis for arranging the so called accommodation entry for long term capital gain.

That the Learned CIT(Appeals) has grossly erred in confirming the action of the Assessing Offer in not providing the copy of material, if any, relied upon by him.

That the Learned CIT(Appeals) has grossly erred in invoking the provision of section 251 of the Act, and in giving stereotyped show cause notice without affording a proper and meaningful opportunity to the appellant to represent her case and in summarily dismissing the contention of the appellant.

That the Learned CIT(Appeals) has grossly erred in unilaterally adjudicating the appeal on the hypothesis of, if the claim of the appellant is accepted that the income is not unexplained u/s 68 of the Act, by the higher authorities, the same may be treated as an adventure in the nature of trade and thus the resultant difference in the transaction of sale purchase be not entitled to exemption u/s 10(38) of the Act.

Without prejudice the above, the CIT(A) has grossly erred in passing a premeditated order by quoting out of context the observations of Ahmedabad Tribunal in the case of Mayurbhai Mangal das Patel which decision was rendered in a different context where the Tribunal did not follow the precedent on a technical issue, which could not made applicable the facts of the appellant case.”

The relevant facts are as under:

“4. The main issue involved in this appeal is an addition of accommodation entry of long term capital gain from the shares of M/s Kappac Pharma Ltd. The addition has been made u/s 68 with corresponding addition u/s 69C being estimated addition for taking the accommodation entry. During the course of appellate proceedings the appellant was asked to furnish the following information.

a) Trading history of the script on BSE and NSE I.e. trading volume, number of trades, trading turnover from A.Y. 2010-11 to A.Y. 2017-18. Daily, monthly and yearly charts.

b) Movement of Sensex of major exchange indices including sector index during the same period.

c) Summarised financials l.e. balance sheet and profit and loss account of the said company/script from A.Y. 2010-11 to 2017-18.

d) Share transaction history of the assessee from A.Y. 2010-11 to 2017-18 including Demat account, client ledger account with the brokers, investments in shares and statement of income.

e) Evidence for purchase of shares, corresponding payment, dematerialization and transfer with dates and the evidence of the said date.

f) Show cause u/s 251(2) as to why a claim of long term capital gain should not be rejected and why the corresponding income should not be taxed as the business income, without prejudice to the decision which may be taken in respect of the addition u/s 68/69C, as the script was purchased with the intention to earn phenomenal profits.

g) Details of transactions in the same script by associate persons/ family members of the assessee.

As regards information as per point 'a', 'b' and 'c' the said information is available in public domain also. Regarding item 'f' the assessee submitted that the investment was made for capital appreciation and therefore the profits should be assessed under the head long term capital gains only and should be treated as exempt u/s 10(38). The assessee claimed to have purchased shares in physical form in cash from a person located in Mumbai with no evidence of travel of assessee or seller for cash payment. The shares have been dematerialized just before the sale and the assessee does not have an exposure to the share transactions/markets to support assessee's claim of prudent Investment in a potential script which is claimed to have yielded unrealistic results. There are very few other investments in shares.

On the basis of the similar facts this office has already passed an order on 27.11.2018 in the case of Naresh Kumar, Appeal no. 259/16-17(10364). AY 14-15 which is reproduced here in under:

"APPELLATE ORDER

This appeal is against the order passed U/s 143(3) of the IT. Act 1961 on 27.12.2016 by I.T.O Ward 42(5), Delhi. In Form No. 35, the appellant has mentioned the date of service of demand notice as 31.12.2016.

In response to notice u/s 250, Shri R S Sharma, CA attended the hearing and the appeal was heard.

2.1 The AO was given an opportunity of hearing u/s 250(2)b and also asked to confirm the statutory validity of the appellant filed u/s 249(2) and 249(4) of the I.T. Act vide notice served on 24.10.18. However, no reply has been received from the AO. Therefore, it is presumed that AO does not wish to remain present in appellate proceedings. It is also presumed that he confirms the statutory validity of the appeal filed u/s 249(2) and 249(4) of the LT. Act, though there is considerable time gap between the date of order and date of service.

The appellant has raised the following grounds of appeal.

On the facts and circumstances of the case and in law, the order passed by the Assessing Officer is contrary to the facts and bad in law. B. The Ld. AO has erred in completing the assessment at an income of Rs. 17,24,817/-as against Rs. 3,19,285/- declared by the assessee.

iii. The Ld. AO was not justified in making addition of Rs. 14,05,532/- as unexplained amount u/s 69A read with section 115BBE of the IT Act, 1961. iv. That the Ld. AO has grossly erred in denying the exemption u/d 10(38) of the I.T Act, 1961 in respect of long term capital gain of Rs. 14,05,532/-.

v. On the facts and circumstances of the case and in law, the additions made/remarks made/interference drawn by the assessing officer for making addition of Rs. 14,05,532/- u/s 69A of the Income Tax Act is erroneous and the same are not sustainable.

vi. On the facts and circumstances of the case and in law, the addition of Rs. 14,05,532/- made by the Ld. AO is arbitrary and against the principles of natural justice and therefore, the addition made is liable to be deleted.

vii. The Ld AO failed to appreciate that

That the assessee has filed the entire document in support of the purchase and sale of shares.

That by submitting the documents as mentioned above in point no. (i) and (ii) the assessee has discharged his onus as per section

The Ld. AO has not provided any copy of statement recorded by the department which was specifically demanded.

The Ld. AO has not afforded any opportunity to rebut the material used against him.

The Ld. AO has miserably failed to consider the provisions of section 10(38) of the IT Act for not allowing the exemption.

viii. The Ld. AO has grossly erred while making additions without providing the opportunity of cross-examination of the parties who were examined by the revenue on the back of the assessee. The addition made by the Ld. AO is unjustified and is unreasonable.

ix. The Ld. AO has simply made the addition only on the basis of information of Investigation Report of DGIT (Inv), Kolkata and has not applied his own mind.

x. The addition of Rs. 14,05,532/- has only been made on surmises and conjectures.

xi. That the order passed by the Ld. AO is contrary to the facts and law of the case."

In the multiple grounds of appeals raised, the appellant has challenged the rejection of assessee's claim of long term capital gain under section 10(38) of Rs. 14,05,532/- in respect of the shares of KAPPAC Pharma Ltd. The AO has invoked section 69A for making the addition and has also charged tax on the said amount under section 115BBE of the I.T Act. Ground no. 1,,x and xi are of general nature and therefore do not require separate adjudication. Ground no. iii to ix are related to the above referred addition. Out of the said grounds the assessee has raised the issue of cross-examination in ground no. vii and lack of application of mind in ground no. ix. In ground no. vii the assessee has raised sub grounds like not supplying of statements recorded by the department, principles of natural Justice and grounds of general nature. Ground no, vi also raises the issue of principles of natural justice. Therefore, to summarize, the assessee has raised the issue of principles of natural justice and merits of addition of Rs. 14,05,532/- made in the assessment order.

As evident from page 4 of the assessment order the assessee purchased 4,000 shares of M/s KAPPAC Pharma Ltd on 1" October 2012 for Rs. 56,000/- 1.e. the shares of face value of Rs. 10 were purchased at the rate of Rs. 14. On 12th March 2014, 2,000 shares out of the same were sold for which an amount of Rs. 14,33,532/- was received after deduction of STT, commission and other charges. The shares were sold through Intouch Securities Ltd, now known as Maashitla Securities Pvt. Ltd, a member of Bombay Stock Exchange. The remaining 2,000 shares were sold in May 2014 through the same broker. The shares are claimed to have been purchased in physical form against cash payment. The name of seller is mentioned as Northpole Finance Ltd., who got these shares on 30th November 2010. The share transfer form is dated 12 October 2012, signed in Delhi on behalf of assessee. However, the witness on the said share transfer form has an address in Baroda. On 9th October 2012, the shares were transferred in the names of assessee as per the endorsement on the backside of share certificate. The dematerialization was done on 24th February 2014 and 2,000 shares were sold on 12th March 2014, as already mentioned. The assessee received the money of Rs. 14,33,532/-in his account on 20th March 2014. No bill of purchase has been filed. The payment in cash is claimed to have been made on 1" October 2012 out of cash in hand claimed of Rs. 2,32,668/- on 31 March 2012. Though the address of Northpole Finance Ltd. and the purchase bill has not been furnished, there is a company with this name with CIN no. U65910GJ1996PLC029613 with address in Rajkot, Gujarat as per the information in public domain.

The demat account was opened only in January 2014 and does not have transactions related to any other script in assessment year 14-15 or 15-16 except the script of KAPPAC Pharma Ltd and one script of Ace Tours World Wide Ltd. 8,000 shares of Ace Tours World Wide Ltd were transferred on 24th February 2014 in the demat account, apparently by an off market transaction, and were transferred on 25th March 2014 to Alankit Assignments Ltd, again through an off-market transaction. The assessee has not done any other transactions in shares during the period from assessment year 10-11 to assessment year 15-16 as admitted on 26th November 2018 except day trading of the script of B.F Utilities Ltd. on 14th March 2014 for a small amount under Rs. 65,000/-in total.

The Assessing Officer discussed the report of Investigation Wing of Kolkata regarding survey/search on certain brokers. Some brokers confirmed having given accommodation entries in respect of the scripts of KAPPAC Pharma Ltd. The Assessing Officer also received one information from BSE, vide letter dated 25th October 2016 confirming that the trading in the shares of KAPPAC Pharma Ltd have been suspended with effect from 7th January 2015, as it satisfies certain parameters justifying the said suspension in view of nature of transactions in respect of the said some and other details related to the said script. The AO has also discussed the intrinsic strength of the said company and analyses its P & L account to hold that the company has no business and its share prices were artificially jacked through collusive transaction, resulting an accommodation entry of long term capital gains. 8. During the course of appellate proceedings the assessee was also asked to show cause why the corresponding income should not be treated as business Income? Without prejudice to the decision which may be taken in respect of the addition under section 69A. The said show cause was given by virtue of powers under section 251(2) on 22.11.2018 in respect of assessee's appeals for assessment year 14-15 and 15-16. The assessee filed a reply dated 26th November 2018 objected to the said show cause and submitted as under: "Dated: 26.11.2018

The CIT (Appeals)-XIV New Delhi

Civic Centre,

Dear Sir,

SUB: Reply of show cause dated 22.11.2018 in respect of Appeal no. 259/16-17 for the A.Y 2014-15 in case of Sh. Naresh Kumar

We strongly object to treat Long Term Capital Gain in Business Profit as the appellant has invested in shares of M/s Kappac Pharma Ltd to earn dividend and capital gain not the profit. The entire document in support of the claim of capital gain is already been placed on records. Assuring my full co-operation always.

Sincerely,

For RadheyShyam Sharma and Co. (CA R.S Sharma)

Counsel of the appellant"

The Assessing Officer has made an addition by rejecting the claim of capital gain by treating credits to be an accommodation entry. AO has also made an addition u/s 69A as unexplained money in the hands of the assessee. The Assessing Officer has demonstrated the company M/s KAPPAC Pharma Ltd did not have any revenue and practically NIL expenditure to establish that this company was not doing any business, which could justify the phenomenal rise in the price of shares within a short period. Even the balance sheet of the company shows no activity or investments in fixed assets and the share capital money has gone into loans and advances and investments. There are negligible debtors, creditors and current liabilities/assets except loans and advances and investments, where share capital is parked. The Director's reports on Page 9 of assessment order also reflect to business prospects. In this background the Assessing Officer concluded that the said company was a paper company with no real business activity and the phenomenal price rise of the shares was a manipulated activity for giving accommodation entries of fictitious capital gains. The corresponding addition has been made by relying on various case laws. The enquiry reports of SIT constituted constituted by Hon'ble Supreme Court, SEBI and Investigation wing have also been discussed by the Assessing Officer to justify the addition.

10.

The assessee has filed written submission relying on various case laws, the sum and substances of which is that the transaction of the assessee were executed on stock exchange, the payment was received, through banking channels and there is no evidence of price rigging and even if it was there the assessee was not involved in it. The assessee also submitted that the reports of investigation wing does not have any basis and the assessee has discharged its onus to establish that the claim of capital gain was genuine. The issues natural justice have also been raised.

11.

If we examine the annual reports of KAPPAC Pharma Ltd., available in public domain, we notice that the pattern remains the same in assessment year 2015-16, 2016-17, 2017-18 and 2018-19 as well i.e. no income or expenses and the shareholder funds have been invested in investments and loans and advances, mostly investments. There are practically no creditors, no debtors or any other activity. If we see the price movement chart of KAAPAC Pharma Ltd, we notice that the corresponding stock is not being traded now and the remark on the website of BSE is suspended-surveillance measures.

12.

The above background presents the scenario, which fails the test of evidence on the principles of preponderance of probabilities, which has to be tested on the basis of the prudence of a common man. No person would invest in the shares of a company which has no business, no projects in hand, no activity and no profits. There is no reason for the phenomenal rise of the shares of such company, unless its prices are rigged by way of collusive transactions involving owners/shareholders, brokers and the middle men. From the assessment order and facts on records it is apparent that this is a solitary such transaction with the said seller, broker and in demat account. No man of ordinary prudence would enter into such transactions unless the person has certain prior information of the future price rise or price rigging. Else it has be a case of accommodation entry with ante-dating of cash purchases. It is highly improbable for a Delhi assessee to make a direct purchase from a Gujrat seller and pay in cash for such purchase. Moreover, no evidence of travel to Gujrat on purchase date has been furnished.

13.

Without prejudice to the above circumstantial evidence, and findings regarding the genuineness of above transactions, even if the transactions are treated as genuine, in the sense that the assessee himself was not directly involved in the collusive transaction and has not taken accommodation entry against cash,, even then the transactions cannot result in long term capital gain. The profile of KAPPAC Pharma Ltd cannot attract any prudent person with an intention of investment for earning dividend and capital appreciation over a period of time due to performance of the company. So, even if it was not a case of accommodation entry, the asssessee was aware that abnormal and unreasonable price rise was going to take place in respect of the corresponding scripts and such information could only be based on insider's information regarding price manipulations and rigging of price. In such a situation, even if the transaction was not an accommodation entry, it was with the sole Intention to earn profits, within short period of time, with specific Information and absolute certainty of phenomenal profits in short run. That brings the corresponding income under the head business income as this is an adventure in the nature of trade and in that case also the claim of long term capital gain and exemption under section 10(38) cannot be allowed.

14.

Considering the same Irrespective of whether it was case of accommodation entry or not the assessee's appeal falls as far as claim of exemption u/s 10(38) is claimed.

14.1 Reliance is also placed on following decisions to suppost the view that even an isolated transaction can result in business income.

(A) 180 ITR 208 (Calcutta)-JAIPURIA BROS LTD

(B) 100 ITR 706 (SC)-Sutlej Cotton Mills Supply Agency Ltd

(D) 26 CCH 193 ISCC-G Venkataswami Naidu and Co.

(E) 106 DTR 269 (P and H) Pooja Investment Pvt. Ltd

14.2 The combined ratio of all these decisions is that a single transaction in an investment, which is not freely tradable, can also fall in the category of an adventure in the nature of trade l.e. the frequency and volume of transaction do not necessarily decide whether the corresponding Income is business income or capital gains. It is the intention of the assessee which is to be inferred from circumstantial evidence. If an activity is guided by an intention to earn dividend and capital appreciation on the basis the intrinsic strength of an asset, It amounts to capital gains. However if the Intention is to make profits in a short period of time and the guiding force behind the decision is an information regarding almost certain phenomenal profits in a short period of time, it amounts to business income.

14.3 It may not be out of place to mention that during the period from June 2012 to March 2014, the price of the script. KAPPAC Pharma Ltd increased from Rs. 72 per share to Rs. 717. However, the increase in Sensex and other incidices during this period was as under:

31-May-2012

31-Mar-2014

(a) Sensex

16218.53

22386.27

(b) BSE 100

4942.13

6707.28

2003.10

2681.35

(d) BSE 500

6280.04

8295.26

(e) BSE Mid Cap

5907.95

7082.86

(f) BSE Small Cap

6271.00

7071.96

So the movement of scripts of KAPPAC Pharma Ltd, was at variance with all major indices, which reflect general market movement.

15.

If we examine yearly pattern of trade of the script Kappac Pharma Ltd, available on the web site of BSE from 2001 to 2018, we get the following data

Year

Open Price

Close Price

No.of Shares

No. of Trades

Total Turnover

(Rs.)

Spread Close- Open

Demat/Physical

2001

7.3

8000

6973(

-1.7

PHYSICAL

FORM

2003

8.5

100

850

DEMAT FORM

2004

6.81

27.6

14500

312445

20.79

DEMAT FORM

2005

26.25

34800

185

610330

-10.25

DEMAT FORM

2006

16.8

13.75

2900

45395

-3.05

DEMAT FORM

2007

13.1

2200

28871

1.9

DEMAT FORM

2008

8100

146048

DEMAT FORM

2009

16.2

8.26

2900

28293

-7.94

DEMAT FORM

2010

8.67

24.15

56800

389

2697155

15.48

DEMAT FORM

2011

25.35

26.15

10900

304105

0.8

DEMAT FORM

2012

24.85

12.12

14400

209827

-12.73

DEMAT FORM

2013

12.72

625

1670477

2167

904806938

612.28

DEMAT FORM

2014

635

138.4

20725944

54038

10310633247

-496.6

DEMAT FORM

2015

131.5

112.85

92503

102

11123134

-18.65

DEMAT FORM

It is evident from the above data that till the year 2001, the script was traded in physical form in small volumes and after that it was traded in demat form again in small volumes till 2012. This conveys that even after the shares started trading in demat form, the assessee chose to purchase those shares in physical form, got them transferred in his name in physical form but got them dematerialized just before the sale. The script has not been traded after 2015 as suspended by BSE. On 31-3-2013, the total assets (mainly loans & advances and investments) were Rs. 23.91Cr, while on 31-3.2014, the figure was Rs 38.6 Cr. But the trading volume was Rs. 90.48 Crores in 2013 and Rs. 1031 Crores in 2014. So the trade volume of shares in 2014 was almost 27 times the total assets of the company on 31- 3.2014. The number of trades increased abnormally in 2014 and also in 2013 to 54038 and 2167, from very small average number of trades in earlier years and suddenly dropping to only 102 trades in 2015.

17.

This needs to be again compared with movement of major indices from 1.1.2012 to 31.12.2015, to find out if something abnormal happened in the markets during this period.

Sr. No

Index/Script

2012

Closing

value

2013

Closing Value

Change over 2012

values

2014 Closing Value

% Change over 2013 values

Kappac Pharma

Ltd

12.12

625

5057

138.4

-82.2

S&P BSE

Healthcare

8132.35

9966.26

22.6

14692.95

47.43

S&P BSE SENSEX

19426.71

21170.68

27499.42

29.89

S&P BSE 100

5975.74

6326.72

5.9

8369.27

32.28

17.1 It is evident that the increase in value of script in 2013 is 5057 % against increase in other indices in the range of 5.9 % to 22.6 %. In 2014, the fall of 82.2 % is again against the general trend of increase of 29.89 % to 47.43 %. The Healthcare sector growth in these two years is also not compatible with the script movement of Kappac Pharma Lts, which by name conveys it to be in the same/related sector. The GDP of India in 2012 was approximately $ 1827.64 billion and In 2014 it was approximately $ 2039.1 billion i.e. an increase of only 11.57 %. So what was such an intrinsic strength in the script of Kappac Pharma Ltd, which led to this pattern when it never had any fixed assets, revenues, expenditure, profits or projects?

18.

As regards decisions relied upon by the assessee and some other decisions on the issue involved, most of those decisons are sub silientlo on the detailed analysis of factual matrix of market and script and discussion made in this order. Those decisions are mostly on the issue of onus of the department u/s 68 to establish that the assessee paid cash to take accomodation entry and have not laid down a law on the issues involved, as decision on in each case depends on facts of that case, to the extent discussed in the order, and brought on record by lower authorities. It cannot be a proposition of law if new facts or arguments emerge. Each decision is based on legal and factutal matrix available before the concerned court or quasi judicial authority at the time of taking decision. The Hon'ble ITAT, CIT(A) and Assessing Officer are not courts and not bound by strict rules of procedural law.

Quasi judicial authorities are expected to do substantial justice and weigh evidence on the principles of preponderance of probabalities. In this regard I would like to quote from a decision of Ahmedabad ITAT, later confirmed by Hon'ble Gujrat High Court, in which the Hon'ble ITAT departed from several decisions of coordinate benches and High Courts, on the Issue of validity of notice u/s 148. The said observation in I.T.A. No.3451/Ahd/2014, assessment Year : 2005-06, order dated 30.11.2017, in the case of Mayurbhai Mangaldas Patel is as under

"It is extremely painful to us to depart from the views that the coordinate benches have taken in the earlier cases, or to distinguish the judgments of Hon'ble Courts above, but then, as complete facts having come to light, and duly evidenced, before us, we cannot knowingly perpetuate the errors in the name of reverence to binding judicial precedents. In the case of Mumbai Kamgar Sabha vs. Abdulbahi Faizullbhai AIR 1976 SC 1455, Their Lordships have, in their inimitable and felicitous words observed thus, "It is trite, going by anglophonic principles that a ruling of a superior Court is binding law. It is not of scriptural sanctity but of ratio- wise luminosity within the edifice of facts where the judicial lamp the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decisions, exalting the precedents Into a prison house of bigotry, regardless of the varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting the matters which may lurk in the dark". Lest we may be blamed for departing from, in the name of reverence to the judicial precedents, a judicial forum's unflinching commitment for cause of justice, once the factual motrix has admittedly shown a different shade of truth, we must not remain constrained by the judicial precedents which were given of the facts now glaring at us."

19.

At the cost of repetition, detailed trading pattern of the script, Kappac Pharma Ltd in financial year 13-14 is here in under, which again establishes the conclusions in earlier part of this order.

Date

Open Price

Close Price

No.of

No. of Trades

Total Turnover (Rs.)

Spread Close- Open

31-Mar-2014

702

688.7

94952

178

65799865

-13.3

28-Mar-2014

632

686.15

130453

344

89559330

54.15

27-Mar-2014

675

665.1

127816

195

85737202

-9.9

26-Mar-2014

700

695.9

205448

532

143815211

-4.1

25-Mar-2014

675

695.7-

206011

434

146736535

20.7

24-Mar-2014

689.9

702.6

189614

721

133746599

12.7

22-Mar-2014

708.5

697

65450

182

45698047

-11.5

21-Mar-2014

671.55

694.6

170126

363

118551508

23.05

20-Mar-2014

711.75

706.2

193275

471

137345194

-5.55

19-Mar-2014

666.7

699.8

177415

359

124606978

33.1

18~Mar-14

664.5

701.5

231542

392

163411861

14-Mar-2014

718

699.15

184715

335

130874507

-18.85

13-Mar-2014

686

712

161028

325

115321500

12-Mar-2014

688.05

720.45

2088C5

490

150810855

32.4

ll-Mar-14

718

723.8

189200

422

136314506

5.8

10-Mar-2014

658

692.6

203176

370

142816051

34.6

07-Mar-2014

716.95

688.2

160436

322

113187785

-28.75

06-Mar-2014

680

708.95

122787:

343

87787331

28.95

05-Mar-2014

690.5

715.3

158706

364

113801748

24.8

04-Mar-2014

680

726.45

131152;

353

94941674

46.45

03-Mar-2014

655.6

707.85

249036

560

175617674

52.25

28-Feb-2014

708.85

689.7

89899

431

62733860

-19.15

26-Feb-2014

670

722.8

135587

388

97603591

52.8

25-Feb-2014

686.1

702.75

99567

240

70639108

16.65

24-Feb-2014

724.95

720.5

168874

348

122282515

-4.45

21-Feb-2014

, 700

706.35

120704

457

86012384

6.35

20-Feb-2014

683.95

713.55

140459

437

99676690

29.6

19-Feb-2014

693.5

691.55

143782

368

99548866

-1.95

18~Feb-14

686.95

676.6

128114

388

87241256

-10.35

17-Feb-2014

680

679.3

159119

404

108892355

-0.7

14-Feb-2014

65.2

681.4

94906

205

65041669

29.4

13-Feb-2014

644

686.2

170737

448

117100191

42.2

12-Feb-2014

679.85

676.8

111224

241

75313395

-3,05

ll-Feb-14

648

680.25

122773

328

83448522

32.25

10-Feb-2014

679

652.7

145708

324

97212034

-26.3

07-Feb-2014

699

651.75

89853

141

60044606

-47.25

06-Feb-2014

684.6

686.05

113045

208

77854939

1.45

05-Feb-2014

699.5

672.1

131645

333

89964056

-27.4

04-Feb-2014

663.5

686.05

104765

456

72619750

22.55

03-Feb-2014

725

698.1

162665

455

115159599

-26,9

31-ian-14

679.65

590.95

110762

174

77863727

11.3

30-Jan-2014

729

715.4

73015

157

52625390

-13.6

29-Jan-2014

714

723.5

137942

251

100164085

9.5

28-Jart-14

720

725.2

109797

164

79884832

5.2

27-Jan-2014

700

716.9

138430

319

100143608

16.9

24-Jan-2014

698

713.55

128413

318

92082550

15.55

23-Jan-2014

700

692.2.

94205

214

66069933

-7.8

22-Jan-2014

710.15

681.85

132950

293

91905539

-28.3

21-Jan-2014

667

710.15

137221 1

271

96995539

43.15

20-Jan-2014

664.65

701.55

133630

263

95026929

36.9

17-Jan-2014

706

699.6

121640

211

85170815

-6.4

16-Jan-2014

660

673.95

112076

157

76553826

13.95

15-Jan-2014

630

663.1

68600

133

45897790

33.1

14-Jan-2014

685

658.65

59899

133

41373297

-26.35

13-Jan-2014

680

690.5

103287

223

70868235

10.5

10-Jan-2014

640

680

97054

64360560

09-Jan-2014

640

660

93800

62230000

08-Jan-2014

655

645

35951

23380900

-10

07-Jan-2014

603.3

650

33650

21847982

46.7

06-Jan-2014

650

635

56100 ;

36315000

-15

03-Jan-2014

650

63220

41093000

02-Jan-2014

650

635

750111

48232145

-15

01-Jan-14

31-Dec-13

635

635 \

630

625

67000!

50105

42492500

-5

•

30-Dec-2013

615

68500

42404500

-i

27-Dec-2013

623

102605

63973520

-2

26-Dec-2013

620

55718

35413770

24-Dec-2013

625

106844

66777500

23-Dec-2013

600

127900

106

76602860

53.7

20-Dec-2013

575

205

117185

3.5

19-Dec-2013

599

61500

36938500

-15

18-Dec-2013

609

45100

27485900

-1

17-Dec-2013

607

95100

57817400

-2

16-Dec-2013

600

98200

58920000

13-Dec-2013

600

74500

44462000

12-Dec-2013

579

53600

31093135

26.9

ll-Dec-13

580

45000

26100000

10-Dec-2013

560

30100

16844050

17.9

09-Dec-2013

569

41800

24180600

-11

06-Dec-2013

560

39200

21856350

05-Dec-2013

533.5

16700

8845750

46.5

04-Dec-2013

512

27700

14215800

03-Dec-2013

493

21400

11409400

-4.1

02-Dec-2013

512.1

46300

24414520

-52.9

29-Nov-2013

539

45000

24256900

28-Nov-2013

523

41400

21838600

-7

27-Nov-2013

526

36900

19480700

-3

26-Nov-2013

510

25200

13726400

-40

25-Nov-2013

535

26100

13963500

22-Nov-2013

515

33100

17042200

21-Nov-2013

495

21000

10395000

20-Nov-2013

476

41000

19570300\

-4 \

19-Nov-2013

462

5400

2494800

18-Nov-2013

468

2400

1123200

Ol-Nov-13

452

100

45200

31-Oct-2013

475.7

2000

951400

2 8-0 ct-13

501

500.7

700

350880

-0.3

25-Oct-2013

504

527

8200

4316745

24-Oct-2013

491

529.9

2100

1108900

38.9

23-Oct-2013

485

513.9

1200

610900

28.9

22-Oct-2013

508

1800

914400

18-Oct-2013

490

200

98000

17-Oct-2013

484.9

480

1000

482450

-4.9

15-Oct-2013

464

200

92800

14-Oct-2013

465

200

93000

ll-0ct-13

445

449.85

700

313925

4.85

10-0ct-13

430.5

600

258300

09-Oct-2013

410

600

246000

08-Oct-2013

425

200

85000

07-0ct-13

425

200

85000

04-0ct-13

405

407

700

284100

03-Oct-2013

388.5

388

1200

463150

-0.5

01-0ct-13

370

100

37000

30-Sep-2013

407.4

388

600

242500

-19.4

27-Sep-2013

388

1200

465600

26-Sep-2013

370

300

111000

25-Sep-2013

389

100

38900

24-Sep-2013

375

300

112500

23-Sep-2013

376.5

377

2400

904750

0.5

20-Sep-2013

396

3700

1470700

19-Sep-2013

418

416

1300

510200

-2

18-Sep-2013

404

403

400

161500

-1

17-Sep-2013

355

387.5

1900

699300

32.5

16-Sep-2013

355

371

700

253300

13-Sep-2013

355

353.95

500

177185

-1.05

12-Sep-2013

341

340

700

238200

-1

ll-Sep-13

325

900

292500

10-Sep-2013

320

310

500

159015

-10

06-Sep-2013

305.5

305

300

91550

-0.5

05-Sep-2013

291

100

29100

04-Sep-2013

286.85

200

57370

03-Sep-2013

281.25

700

196875

02-Seo-13

275.75

200

55150

30-Aug-2013

270.35

800

216280

29-Aug-2013

265.05

1100

291555

28-Aug-2013

249.8

4000

1038590

10.1

27-Aug-2013

259.9

1300

333880

-5.05

26-Aug-2013

260.2

300

78040

-0.2

23-Aug-2013

260.2

600

156120

22-Aug-2013

260.2

9900

2575980

21-Aug-2013

274.7

2000

550560

-9.2

19-Aug-2013

270.9

100

27090

16-Aug-2013

276.4

2400

663360

14-Aug-2013

282

4000

1128000

12-Aug-2013

286

700

200200

08-Aug-2013

287

4900

1400150

-1

07-Aug-2013

284.5

287

2200

627845

2.5

06-Aug-2013

286

282.05

1100

314205

-3.95

05-Aug-2013

275.9

286

1500

419940

10.1

02-Aug-2013

270.9

281.5

4300

1179710

10.6

Ol-Aug-13

276.4

1100

304040

3 l-Jul-13

282

600

169200

30-Jul-2013

282.1

287.65

700

200265

5.55

29-Jul-2013

271.1

282.1

3700

1042370

26-Jul-2013

276.6

1300

359570

25-Jul-2013

271.2

1700

461030

24-JUI-13

265.9

100

26590

23-Jul-2013

260

260.7

1300

338840

0.7

22-Jul-2013

255.6

1000

255590

19-Jul-2013

250.6

1300

325780

18-Jul-2013

245.7

500

122850

17-Jul-2013

240.9

9001

216810

16-Jul-2013

236.2

200!

47240

15-Jui-13

231.6

400!

92640

12-Jul-2013

227.1

700)

158970

ll-Jul-13

222.65

300

66795

10-Jul-2013

218.3

2183

1600

349280

09-Jul-2013

214.05

700;

149835

08-Jul-2013

209.9

700

146930

05-Jul-2013

205.8

1400!

288120

04-Jul-2013

201.8

1000

201800

03-Jul-2013

197.85

700!

138495

02-Jul-2013

194

400!

77600

Ol-Jul-13

190.2

200

38040

28-Jun-2013

186.5

600

111900

27-Jun-2013

182.85

300

54855

26-Jun-2013

179.3

300

53790

25-Jun-2013

175.8

1300

228540

24-Jun-2013

172.4

400

68960

21-Jun-2013

169.05

1600

270480

20-Jun-2013

165.75

100

16575

19-Jun-2013

162.5

1200

195000

18-Jun-2013

159.35

100

15935

17-Jun-2013

156.25

500

78125

14-Jun-2013

153.2

200

30640

13-Jun-2013

150.2

200

30040

12-Jun-2013

147.3

200

29460

ll-Jun-13

144.45

200

28890

10-Jun-2013

141.65

500

70825

07-Jun-2013

138.9

200

27780

06-Jun-2013

136.2

200

27240

05-Jun-2013

133.55

600

80130

04-Jun-2013

130.95

200

26190

03-Jun-2013

128.4

50Q

64200

31-May-2013

125.9

100

12590

30-May-2013

123.45

400

49380

29-May-2013

121.05

100

12105

28-May-2013

118.7

200

23740

27-May-2013

116.4

600

69840

24-May-2013

114.15

800

91320

23-May-2013

111.95

400

44780

22-May-2013

109.8

500

54900

21-May-2013

107.65

1100

118415

20-May-2013

105.55

400

42220

17-May-2013

103.5

200

20700

16-May-2013

101.5

800

81200

15-May-2013

99.55

100

9955

14-May-2013

97.6

700

68320

13-May-2013

95.7

700

66990

ll-May-13

93.85

100

9385

10-May-2013

92.05

300:

27615

09-May-2013

90.25

800

72200

08-Mav-13

88.5

200

17700

07-May-2013

86.8

800

69440

06-May-2013

85.1

100

8510

03-May-2013

83.45

300:

25035

02-May-2013

81.85

i50o;

122775

30-Apr-2013

80.25

400

32100

29-Apr-2013

78.7

1900

149530

26-Apr-2013

77.2

1600

123520

25-Apr-2013

75.7

7570

23-Apr-2013

74.25

44550

22-Apr-2013

72.8

1100

80080

18-Apr-2013

71.4

2400

171360

17-Apr-2013

230

163200

-1

16-Apr-2013

69.65

o 0

55720

15-Apr-2013

68.3

54615

12-Apr-2013

6700

ll-Apr-13

65.9

6590

10-Apr-2013

64.65

25860

08-Apr-2013

63.4

6340

05-Apr-2013

62.2

6220

04-Apr-2013

18300

03-Apr-2013

59.85

47880

02-Apr-2013

58.7

11740

Ol-Apr-13

57.55

11510

20.

An analysis of monthly trades from FY 2001-02 onwards, also reflects the same pattern.

Month

Open Price

Close Price

No.of Share s

No. of Trades

Total Turnover (Rs.)

Spread Close- Open

Apr-01

8.2

8.4

400

3320

0.2

May-01

8.75

10.05

1000

10400

1J1

Aug-01

9.25

7.9

1200

9685

-1.35

Sep-01

7.75

100

775

Nov-01

5.85

100

585

Dec-01

7.3

730

Aug-03

8.5

100

850

Sep-04

6.81

100

681

Oct-04

5.55

7.99

300

2020

2.44

Nov-04

9.58

30.5

12400

262264

20;92

Dec-04

27.6

1700

47480

-1.4

Jan-05

26.25

24.95

200

5120

.-1.3

Feb-05

22.5

13.5

2600

50405

-9

Mar-05

14.8

4100

56392

-3.8

Apr-05

10.95

9.1

1700

17020

-1.85

May-05

9.9

15.12

2200

25441

5.22

Jun-05

16.6

15.7

7500

144700

-0.9

Jul-05

14.75

1900

29165

-2.25

Aug-05

22.37

7200

123022

6.37

Sep-05

23.45

20.5

6400

141810

-2.95

Nov-05

19.5

•re

900

15655

-3.5

Dec-05

IOC

1600

Jan-06

16.8

130C

20960

-0.8

Feb-06

70C

11275

Mar-06

15.25

IOC

1525

Nov-06

14.5

14.45

50C

7460

-0.05

Dec-06

13.75

30C

4175

-0.25

Feb-07

13.1

13.65

80C

10295

0.55

Mar-07

20C

2600

Aug-07

12.36

100

1236

0ct-07

11.76

14.96

iooc

13240

3.2

Nov-07

IOC

1500

Jan-08

23.16

570C

94903

8.16

Apr-08

24.3

21.95

70C

16655

-2.35

May-08

21.9

30C

6680

-1.1

Jul-08

20.85

30C

6255

Aug-08

21.8

20.7

60C

12440

-1.1

Sep-08

19.7

18.75

20C

3845

-0.95

0ct-08

17.85

IOC

1785

Nov-08

17.85

IOC

1785

Dec-08

IOC

1700

Jan-09

16.2

13.3

50C

7350

-2.9

Feb-09

12.64

IOC

1264

Mar-09

12.01

10.4

40C

4466

-1.61

Apr-09

9.89

6.95

120C

9922

-2.94

May-09

7.29

7.45

300

2184

0.16

Jun-09

7.5

100

750

0ct-09

7.5

100

750

Dec-09

7.87

8.26

200

1613

0.39

Jan-10

8.67

12.76

120C

12316

4.09

Feb-10

13.39

21.75

190C

33519

8.36

Mar-10

22,8

44.6

400G

132365

21.8

Apr-10

46.8

52.5

8700

488430

5.7

May-10

49.9

38.25

2700

108970

-11.65

Jun-10

38.3

38.2

2700

111755

-0.1

Jul-10

37.3

46.35

7300

259080

9.05

Aug-10

48.65

56.5

14300

953535

7.85

21.

The pattern of balance sheet of Kappac Pharma Ltd, discussed earller in part of this order, from AY 14-15 is also reproduced here in under. Pattern till A.Y 14-15 is there in the assessment order.

21.1 Therefore, the reliance of the assessee (in written submissions) on the IPO's of companies of Reliance Group to justify high price, is misplaced as thhere is strong standing of the group and companies of the group coming for for IPO have projects s and pllanned future business in specific termms.

22.

In the INCOME TAAX APPEAL NO. 18/2017 in the casse of SANJAY BIMALCHAND JAIN, L/H SHANTIDEVI BIMALCHAND JAIN, order dated APRIL 10, 2017, the Hon'ble Bombay High Court held has as under:-

"By this income tax appeal, the appellant-assessee challenges the orders of the Asseessing Officer, the Commissioner of Inncome Tax as also the Income Tax Appellate Tribunal holding that the assessee had traded in shhares and the income was liable to be taxed as "business" income.

The assessee had on the advice of an income tax consultant purchased shares of two penny stock Kolkata based companies i.e., 8000 shares at the rate of Rs. 5.50 per share on 08.08.2003 and 4000 shares at the rate of Rs. 4/- per share on 05.08.2003 from Syncom Marketing Pvt. Ltd. and of Skyzoom Distributors Pvt. Ltd. the payments were made by the assessee in cash for acquisition of shares of both the companies. The oddress of both the companies was interestingly, the same. The authorized signatory of both the companies was also the same person. The purchase of shares of both the companies was done by the assessee through Global Stock and Securities Ltd and the address of the said broker was incidently the address of the two companies. Both the companies intimoted the assessee on 07.04.2004 regarding the merger of the companies with another company, viz. Khoobsurat Limited, Kolkata and the assessee received the shares of the new company in the ratio of 1:4 of the number of shares of the previous two companies held by the assessee. The assessee sold 2200 shares at an exorbitant rate of Rs. 486.55 per share on 07.06.2005 and 800 shares on 20.06.2005 at the rate of Rs. 485.65. The shares were sold through another broker, viz. Ashish Stock Broking Private Limited. The proceeds from the aforesaid sale transaction were directly credited by the broker in the Savings Bank Account of the assessee in the Union Bank of Indio. The assessing officer did not accept the case of the assessee that she was entitled to exemption under section 10(38) of the Income Tax Act. The assessing officer held that the aforesaid transactions of purchase of two penny stock shares for Rs. 60,000/-the merger of the companies with a new company and the sale of the shares for Rs. 11,58,930/- fell within the ambit of adventure in the nature of trade and the assessee had profited by Rs. 13,98,930/- The assessing officer, therefore, brought the aforesaid amount to tax under the head 'business income'.

Being aggrieved by the order of the assessing officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The appeal filed by the assessee was dismissed and so was the subsequent appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals) before the Income Tax Appellate Tribunals.

On hearing the learned counsel for the assessee and on a perusal of the orders of the income tax authorities, it appears that there is no scope for interference with the said orders in this appeal. By referring to the aforesaid facts, which are narrated in the earlier part of this order, the authorities found that the assessee had made investment in two unknown companies of which the details were not known to her. It was held that the transaction of sale and purchase of shares of two penny stock companies, the merger of the two companies with another company, viz. Khoobsurat Limited did not qualify on investment and rather it was an adventure in the nature of trade. It was held by all the authorities that the motive of the investment made by the assessee was not to derive income but to earn profit. Both the brokers, i.e. the broker through whom the assessee purchased the shares and the broker through whom the shares were sold, were located in Kolkata and the assessee did not have an inkling as to what was going on in the whole transaction except paying a sum of Rs. 65,000/- in cash for the purchase of shares of the two penny stock companies. The authorities found that though the shares were purchased by the assessee at Rs. 5.50 Ps. Per share and Rs. 4 per share from the two companies in the year 2003, the assessee was able to sell the shares just within a years time at Rs. 486.55 Ps and Rs. 485.65 Ps per share. The broker through whom the shares were sold by the assessee did not respond to the assessing officer's letter seeking the names, addresses and the bank accounts of the persons that had purchased the shares sold by the assessee. The authorities have recorded a clear finding of fact that the assessee had indulged in a dusions share transaction meant to account for the undisclosed income in the grab of long term capital gain. While so observing, the authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth Rs. 5/- had jumped to Rs. 485/- in no time. The Income Tax Appellate Tribunal held that the fantastic sale price was not at all possible as there was no economic or financial basis as to how a share worth Rs. 5/- of a little known company would jump from Rs. 5/- to Rs. 485/- The findings recorded by the authorities are pure findings of facts based on a proper appreciation of the material on record. While recording the said findings, the authorities have followed the tests laid down by the Hon'ble Supreme Court and this Court in several decisions. The findings do not give rise to any substantial question of low. The judgments reported in (2012) 20 Taxman.com 529 (Bombay) (CIT Versus Jamnadevi Agrawal), (1957) 31 ITR 294 (Bombay) (Puranmal Radhakishan Versus CIT), (1970) 77 ITR 253 (SC) (Raja Bahadur Versus CIT) and (2015) 235 Taxman 1 (Bom) (CIT Versus Smt. Datta M. Shah) and relied on by the learned counsel for the assessee are distinguishable on facts and cannot be applied to the case in hand. Since no substantial question of law arises in this appeal, the appeal is dismissed with no order as to costs."

23.

Therefore, the view taken in the order is also supported by the above decision of Hon'ble High Court, that the transactions are in the nature of an adventure in the nature of trade, resulting in business income and not capital gains.

24.

The above discussion leads to a conclusion that the so called transactions, even if genuine l.e. no ante dating of purchases and cash payment for taking accommodation entry is Involved, would result in business profits and not long term capital gains and corresponding grounds would still be dismissed, though the section for addition/disallowance would change.

25.

However, and without prejudice to findings in Para 24, purchase by a Delhi person from a Gujarat seller in cash of physical shares, when trading was permitted only in demat form, and other factors discussed in this order establish that it was an accommodation entry only. So the addition is confirmed u/s 69A. There may be a view that this addition should have been made u/s 68. However, that does not change the fact that the claim of exemption u/s 10(38) was wrong and it was assessee's own unexplained money (section 69A), Introduced in book (section68).

26.

However, if at further appellate level, the decision on addition u/s 69A/68 is reversed, the profits shall be taken as business Income and not long term capital gains. It means that without prejudice to the reasoning given on section 69A/68, even if the above transaction are treated as genuine, it would result in business profits and not long term capital gains and therefore the exemption under section 10(38) would not be allowed. Therefore, if at further appellate level the above decision on section 69A/68 is reversed the assessee would still not be eligible to claim exemption under section 10(38), as in that case the corresponding income would be treated as business income.

27.

In the result the appeal is dismissed."

The script of Kappac Pharma Ltd. was investigated by Bombay Stock Exchange/SEBI and the trading was suspended due to surveillance reasons.

Considering the facts discussed in the above order, it is apparent that the script had no intrinsic value, no projects in hand, no financials to support movement of scripts as claimed and was practically trash of no value. Since the Revenue detected evidence of this script being used for giving accommodation entries the addition made under section 68/69C is confirmed. In the case of Naresh Kumar, the addition was made u/s 69A. However, that does not make any difference. Urexplained money in the hands of assessee is laxable u/s 69A. When the money credited in books as unsubstantiated capital gains, the amount also becomes deemed income U/s 68.

However as mentioned the assessee was also required to show cause why the corresponding should not be treated as business income. Assessee. claimed that the assessee had never done share transactions in past and has never shown such business income. However, as held in the case of Naresh Kumar (supra) a single transaction with profit motive can also be an adventure in the nature of trade if the intention is to make profits and not earn dividends and normal capital appreciation. Therefore without prejudice to the above decision, the corresponding income will be treated as business income, if at further appellate level, the decision on addition u/s 69C/68 is reversed. In that case, the profits shall be taken as business income and not long term capital gains by following the decision given in the case of Naresh Kumar (supra). It means that without prejudice to the reasoning given for addition u/s 69C/68, even if the above transaction are treated as genuine, it would result in business profits and not long term capital gains and therefore exemption under section 10(38) would not be allowed. Therefore, it is again clarified that if at further appellate level the above decision on section 69C/68 is reversed, the assessee would still not be eligible to claim exemption under section 10(38), as In that case the corresponding income would be treated as business income.

The assessee has also relied on certain decisions of Hon'ble ITAT to support the claim that the addition u/s 68/69C cannot be made. However those decisions are sub-silentio, the arguments and facts discussed in the order in the case of Naresh Kumar (supra).

10.

In view of the above, the appeal is dismissed. Since addition made has been confirmed, individual ground wise decision is not being reiterated.”

We have perused the order of the ld. CIT(A) and the details of the scrip involved. We have gone through the submissions given before the revenue authorities by the assessee. We have also gone through the rationale given by the ld. CIT(A) and also perused the analysis of monthly trades, judicial pronouncements, financials and the data from 2001 to 2015. The same issue has been covered by the orders of the ITAT New Delhi involving the same scrip. Hence, in the absence of any change in the material facts, we decline to interfere with the order of the ld. CIT(A).

In the result, the appeals of the assessees are dismissed.

Megha Garg vs ITO

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