Smt. Neha Salwan vs Income Tax Officer

“ 1. That the present appeal has been filed before this Hon'ble Tribunal on this date against the order no. ITBA/NFAC/S /250/2023-24/1060391939(1) dated 01.02.2024, passed by the Learned Commissioner of Income Tax (Appeal), Income Tax department. The facts and circumstances relevant for the purposes of the present application are set out in detail in the said Appeal and for the sake of brevity and to avoid repetition, the Appellant craves leave to refer to and rely thereupon without specifically incorporating the same hereinafter.

2.

That the Appellant has a good prima facie case on merits and there is every likelihood that the present appeal will succeed.

3.

That the aforementioned appeal has been filed against the impugned order dated 01.02.2024 and communicated on the same day. However, the Appeal has been filed on 04.06.2024 and therefore a delay of 72 days has occurred.

That the aforesaid delay of 72 days in filing the appeal is not intentional or deliberate. The reason of the delay is that the Appellant's counsel had moved their office from House no. 437, Behind Bhogal Bus stop, NH-19, Jangpura, New Delhi-110014 to A-87, Defence Colony, New Delhi-110024. During the process of relocating the office, the file for the particular matter got mixed up with other working files. This mix-up caused the delay in filing the appeal.

5.

When the Appellant made the inquiry with the office then they realized the mistake and thereafter appeal has been prepared which has been taken some and thereafter the authorized person of the Appellant was out of station for the business purposes and not able to sign the documents promptly therefore, another delay of two weeks days has taken place.

6.

That under these circumstances, the appeal could not be filed by him during the stipulated period of limitation and due to the aforementioned reason, a delay of 72 days in filing the present appeal had occurred, as order received on 01.02.2024.

7.

That the Appellant will suffer irreparable losses, if the delay of 72 days in filing the present Appeal is not condoned. This is especially in the light of circumstances that the delay has occurred for the circumstances beyond the control of the Appellant and this delay was not foreseen by the Appellant.

8.

There has been no undue delay at any stage. It is, therefore, in the interest of justice that this Hon'ble Tribunal may kindly condone the delay of days in the filing of the present Appeal.”

“9.

Considering all the facts and circumstances mentioned above, Ms. Neha Salwan was also given opportunity during the recording of statement on oath to show cause as to why these share sale transactions might not be treated as sham ones and the total amount of capital gain received on sale of the shares of M/s Jackson Investment limited during the year should not be treated as its income being unexplained cash credit u/s 68 of the Income-tax Act, 1961 and added back to its returned income. Ms. Neha Salwan, in her statement she has stated that he has done all the transactions in shares of M/s. Jackson Investment limited in on the advice of her husband and relatives and information received by the expert, who invest in shares. Moreover, she was not having any information about the status of the company, only heard the name of the Company before investing. The contention of the assessee cannot be accepted as from the statement of Ms. Neha Sal wan, it is quite clear that alleged investment transaction made by her was made beyond any human probabilities. He is a person having capacity and ability to gather information about share markets before making any investment, yet he invested in insignificant scrip. It was no coincidence that he earned such huge capital gains from penny stock company scrip, rather it was part of a scheme in which he consciously took part to convert his black money into white. Thus, this entire scheme gets revealed after the above analysis.”

’11. Conclusion: On the basis of all these facts discussed above, it is clear that the huge capital gains earned by the assessee Ms. Neha Salwan within a very short period of time, by investing in a penny stock whose fundamentals/financials had no support, was neither the result of a coincidence nor of a genuine investment activity but were created through well planned and executed scheme in which the company, the brokers and the buyers and sellers of the scrip worked deliberately to achieve the predetermined objectives.

12.

In this regard here it is pertinent to mention the findings of the Hon'ble ITAT Delhi in the case of Hersh Win Chadha Vs DCIT (I.T.A.Nos. 3088 to 3098 & 3107/Del/2005). The ITAT held that "The admissibility of documents, evidence or material differs greatly in income tax proceedings and criminal proceedings respectively. In criminal proceedings, the charge is to be proved by the State against the accused, establishing it beyond doubt, whereas as per the settled proposition of law, the income tax liability is ascertained on the basis of the material available on record, the surrounding circumstances, human conduct and preponderance of probabilities.”

13 The Hon. Supreme Court in CIT v. Durga Prasad More [197 1] 82 ITR 540, at pages 545-547 made a reference to the test of human probabilities in the following fact situation:-"...It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self- serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide-open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal. Therefore, the Courts and Tribunals have to Judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But, in that sphere, the decision of the final fact-finding authority is made

14.

It is well settled principle of law as declared by the Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT (214 ITR 801) (SC) that the true nature of transaction have to be ascertained in the light of surrounding circumstances. It needs to be emphasized that standard of proof beyond reasonable doubt has no applicability in determination of matters under taxing statutes. It is also well settled that tax authorities are entitled to look into surrounding circumstances to find out the reality of the transaction by applying the test of human probability. This was the principle laid down by the Hon hie Supreme Court in the case of CIT Vs. Durga Prasad More 82 ITR 540 (SC).

15.

It is seen that the assessee did not pay any tax on the alleged LTCG as declared by the assessee as the assessee had claimed deduction as the LTCG is claimed exempt u/s 10(38) of IT Act. It is apparent that the assessee has adopted a colorable device of LTCG to avoid the tax as held in the case of MC Dowell & Co. Ltd. Vs. CTO, 154 ITR 148 (SC) 1985.

15.1

Reliance is also placed on the recent judgment delivered by Hon’ble Bombay High Court in the case of Sanjay Bimalchand Jain Vs. Pr.CIT in ITA No. 18/2017 dated 10.04.2017, the Hon’ble Bombay High Court held that the assessee has not tendered cogent evidence to explain how the shares in an unknown company worth Rs. 5 had jumped to price above Rs. 485 in no time. The fantastic sale price was not at all possible as there was no economic or financial basis to justify the price rise. The assessee had indulged in a dubious share transaction meant to account for the undisclosed credit u/s 68 of the Income Tax Act, 1961.

16.

A show cause dated 01.12.2017 was issued to assessee. In response to the this show cause notice the assessee furnished his reply filed on 13.12.2017 and relevant portion of the same is reproduced here -in- below

17.

I have considered the submission made by the assessee and is not found tenable in the eyes of law as well as considering the income tax liability ascertained on the basis of the material available on record, the surrounding circumstances, human conduct and preponderance of probabilities.

18.

Thus in view of the elaborate discussion made above, the total amount of sale consideration of Rs. 61,66,900/- received by the assessee on sale of shares of penny stock company M/s. Jackson Investment limited and claimed exemption of Rs. 59,57,649/- u/s 10(38) of the Income-tax Act, 1961 during the financial year 2014-15 (relevant to the AY 2015-16) is considered as his income being unexplained cash credit u/s 68 of the Income-tax Act, 1961 (taxable at the rate of 30% as provided u/s 115BBE) and the same is added back to its returned income. The assessee has concealed the particulars of his income and accordingly. penalty proceedings u/s 271(1) (c) are being initiated separately.”

“19.

Further, considering the report of the directorate of Investigation about the modus operandi behind providing the accommodation entry for LTCG, the element of commission on account of getting accommodation entries cannot be ruled out. The payment of commission by the beneficiaries and the receipts of the same by the operator were affirmed in the statement recorded on oath of different entry providers, as recorded during the investigation carried out by the investigation wing Kolkata. Accordingly, an amount of Rs. 1,85,007/- (at the rate of 3% of Rs. 61,66,900/-) is also added to the total income in accordance with the deeming provisions of section 69C of the Act, 1961 as expenditure incurred out of the books to obtain such entry. Provision of section 155BBE of the Income Tax Act, 1961 is applied and this amount is taxed @ 30%. The assessee has concealed the particulars of his income and accordingly, penalty proceedings u/s 271(1) (c) are being initiated separately.”

“5.5

While going through the written submission furnished during the course of the present appellate proceedings, it is noticed that the contentions put forth by the appellant are general in nature. On perusal of the contents of the assessment order, statements recorded as well as submission made during the course of the present proceedings, it is surprising to note that the appellant invested in the company viz. M/s. Jackson Investments Ltd. without any idea about share markets, without enquiry or verification about the financial credentials of the said company. Further, it is noticed that the purchase of shares were made offline and the same were later on got dematized. Since the purchase of shares were made offline and the appellant did not furnish evidence that the same was purchased through banking channel, therefore, it cannot be conclusively said that the shares were actually held by the appellant for 37 months. It is prevalent practice that shares are purchased offline and date of purchases are manipulated to show that it has been held for longer period. The appellant has contended that sales were through banking channel and she has submitted contract notes, bank statements and demat a/c, and therefore, the same are verifiable. Here, it is important to mention that it is very naive to believe that the transactions entered into through banking channel proves creditworthiness, identity and genuineness of the transactions. Necessarily accommodation entries are an exercise of introducing unaccounted money or reducing profit by buying exempt LTC gain / loss to avoid the legitimate tax liability and therefore, to give it a colour of genuinity. The documentary and circumstantial evidences collected by the AO and the human conduct and probabilities in this case stare at the face of the appellant as to why it invested in the company which did not have a proven track record of financial soundness. Therefore, a higher burden lies on the appellant to establish the genuineness of the transaction under consideration. Here, the appellant has miserably failed to do so. The appellant has put forth contentions that the movement of share price is determined by market forces over which she had no control, that the conditions enumerated u/s.10(38) of the Act for exemption of long term capital gain are met and the observations of the Investigation Wing and the report of the SIT are general and vague and therefore, do not carry any legal sanctity. However, these contentions are found to be general in nature. The assessee does not and cannot dispute the fact that the shares of the company which she had dealt with were insignificant in value prior to their trading. If such was the situation, it is the appellant who had to establish that the price rise was genuine and consequently, they are entitled to claim LTCG on their transaction. Until and unless the initial burden cast upon the appellant is discharged, the onus does not shift to the revenue to prove otherwise. The appellant cannot be heard to say that their claim has to be examined only based upon the documents produced by it namely bank details/statements, the purchase/sell documents, the details of the D-mat Account, etc. The appellant has lost sight of an important fact that when a claim is made for LTCG, the onus was on her to prove that credit worthiness of the company whose shares she had dealt with, the genuineness of the price rise which is undoubtedly alarming that to within a short span of time. Therefore, unless and until the appellant discharges such burden of proof, the addition made by the assessing officer cannot be faulted. The appellant has, however, failed to provide any reasonable, cogent and valid evidences/arguments/contentions advanced by her even in the instant appeal so as to prove the creditworthiness of the company in which she dealt in and also to counter the AO's decision in respect of genuineness of the transaction to the satisfaction of a fact finding authority something which the material on record does not justify and something which is clearly missing. On the contrary, there is enough material on record to negate the claim of genuineness of the transaction. Genuineness of the transaction is to be examined in the light of ground realities and that is precisely what the AO has done. Therefore, it has been rightly held by the AO that the transaction of purchasing the shares of M/s. Jackson Investments Ltd. offline with a low price, getting it as dematerialized later on and further selling the shares within a short period at a very high price, over about 30 times higher than the purchase price, without having idea of the share market, without any enquiry and knowing the financial credentials of the company, the shares of which were being purchased offline and not providing details of purchases viz. copy of contract notes, details and evidences in respect of source of such purchases, was sham, bogus, not genuine and with an intention to buy an accommodation entry of exempt LTCG to evade the legitimate tax liability ultimately. It is held that the aforesaid transaction of purchase of penny stock shares for lesser amount and the sale of the shares for higher amount fell within the ambit of adventure in the nature of trade and the assessee had profited which comes under the ambit of business income. Further, the findings of the A.O. are in line with the modus operandi given in the Investigation report of the Investigation Wing and observed by the SIT of the Hon'ble Supreme Court.” …..

5.11

5.11 Hence, considering the facts of the assessee's case and the preponderance of probabilities is against the assessee and also in view of the reliance made on the above case laws, the entire capital gain has to be treated as fictitious and bogus more particularly when the appellant has not furnished cogent evidences to explain how the shares in an unknown company jumped up in no time and such fantastic sale price was not at all possible when there was no economic or financial basis to justify the price rise and therefore, affirms the order passed by the assessing officer in the present case. In view of the above facts and discussion, all the grounds of appeal raised in this regard are hereby dismissed.”

“6.

The next Ground no.7 is against addition of Rs.1,85,007/- made towards commission expenses @ 3% of the LTCG claimed of Rs.61,66,900/- treating the same as unexplained expenditure u/s.69C of the Act. The Assessing Officer has brought out the facts in detail in the assessment order dated 29.12.2017. On this issue, the appellant vide his submission dated 29.12.2023 has contended that the addition of Rs.61,66,900/-deserves to be deleted as she had discharged its onus envisaged under section 68, the addition of Rs. 1,85,007/- made is without any basis, justification or bringing on record any material or evidence to justify the same and in view of this, the addition deserves to be deleted.

6.1

The appellant's submission is general in nature. It is noticed that the AO has made the impugned addition of Rs.1,85,007/- on the basis of the outcome of the inquiries and investigation carried out by the Investigation Wing of the Department that commission has been charged for providing / arranging capital gain and in the instant case, the LTCG claimed has been treated as income of the appellant as unexplained cash credit u/s.68 of the Act. Further, as discussed in the foregoing paras, it is found that the appellant had made investment in unknown company of which the details were not known to her. The AO has found that though the shares were purchased by the assessee at much lesser amount, the assessee sold the shares at much higher amount within a short period. The appellant had not tendered cogent evidences to explain as to how the shares in an unknown company worth such less value had jumped to much higher amount in no time. Therefore, the AO has held that the transaction of sale and purchase of shares of penny stock company is mere an arrangement to claim LTCG/STCG. The AO has recorded a clear finding of fact that the appellant had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of LTCG/STCG. The findings recorded by the AO are pure findings of facts based on a proper appreciation of the material on record. In view of this, it cannot be said that the impugned addition made is merely on suspicion and surmises only. Therefore, I am unable to interfere with the action of the Assessing Officer. Therefore, this ground of appeal raised by the appellant in the present appeal is dismissed.”