IN INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER AND SHRI K.N. CHARY, JUDICIAL MEMBER ITA No.420/Del/2019 Assessment Year 2015-16 Shri Sandeep Bhargava, Vs. ACIT, Flat No. 97, Samrat Circle-60(1), New Delhi Apartments, Vasundhara, Enclave, New Delhi PAN AARPB2053P (Appellant) (Respondent) Appellant by S/shri B.L. Mittal & Ankur Mittal, Adv. Respondent by Shri N.K. Bansal, Sr. DR Date of hearing 18.07.2019 Date of pronouncement 20.08.2019 ORDER PER O.P. KANT, A.M. instant appeal by assessee is directed against order dated 30/11/2018 passed by Ld. Commissioner of Income- tax (Appeals)-19, New Delhi, [in short Ld. CIT(A) ] for assessment year 2015-16, raising following grounds: 1. On facts and in circumstances of case and Ld. CIT(A) is wrong, unjust and has erred in Law in confirming finding recorded by Assessing Officer that Long Term Capital Gain of Rs.58,89,195/- on sale of shares is not genuine allegedly on ground that purchase of those shares is sham transaction and thereby confirming addition to extent of Rs.58,59,195/- to income of appellant u/s 69 of I.T. Act, 1961 and denial of claim of exemption u/s 10(38) of Act on basis of suspicion and without any cogent material on record. 2 ITA No.420/Del/2019 2. That on facts and in circumstances of case, Ld. CIT(A) is not justified in confirming addition of Rs.1,76,675/- on account of alleged commission merely on basis of suspicion and without any material on record. 2. Briefly stated facts of case are that, assessee individual, was engaged in running proprietorship firm under name of M/s. S.R. Investment having commission income from various mutual funds and sub brokerage for trading in shares. For year under consideration, assessee filed return of income on 31/08/2015, declaring total income of Rs.16,62,370/-. In return of income, assessee also claimed long-term capital gain on sale of shares of HPC Bioscience Ltd. as exempt from Income-tax under provisions of section 10(38) of Income-tax Act, 1961 (in short Act ). case was selected for scrutiny. In course of scrutiny, on behalf of assessee, it was submitted that he purchased 5000 shares in physical form in private placement from company on 31/12/2012 for Rs. 50,000/- and company declared bonus in ratio of 1:1 on 31/03/2013 and assessee was allotted 5000 bonus shares and his holding became 10,000 shares. assessee then dematerialized shares in his demat account on 02/04/2013 and sold 9900 shares for consideration of Rs. 58,85,847/- between period of 15/04/2014 and 19/05/2014 through Broker M/s Adroit Financial Services Pvt. Ltd. having registered office at Ghaziabad (UP) and registered as broker at Bombay Stock Exchange, Mumbai. assessee submitted documentary evidences of purchase and sale, dematerialization of shares etc., but according to Assessing Officer, assessee failed to substantiate sharp rise in price of shares commensurate 3 ITA No.420/Del/2019 with financials i.e. profit declared of Company. AO also mentioned investigation carried out by Investigation Wing of Department, where in it was found that share price of HBC Bioscience Ltd. was manipulated by group of brokers, directors of company, entry operators, shell companies etc to generate bogus long term capital gain/loss for providing to entry seekers. In assessment completed under section 143(3) of Act, sale proceeds of Rs.58,89,195/- received from sale of shares of HPC bioscience Ltd. ( in short HPC bioscience ) were held to be accommodation entry only for converting unaccounted income of assessee. Assessing Officer also estimated unexplained commission expenses at rate of 3% for arranging accommodation entries and made corresponding addition. Assessing Officer made total addition of Rs.60,65,870/-. On further appeal, Ld. CIT(A) upheld additions relying on various decisions of coordinate benches of Tribunal. Aggrieved, assessee is in appeal before Tribunal raising grounds as reproduced above. 3. Before us, Ld. counsel of assessee filed paper book containing pages 1 to 13 and relied on submission made before lower authorities. Ld. counsel submitted that shares of HPC bioscience were purchased in physical form by way of bank payment by assessee to company Ld. counsel of assessee referred to copy of share certificates issued by company through letter dated 02/01/2013 (copy of which are placed on page 2 to 5 of paper book). Ld. counsel also referred to copy of request form for dematerialization of shares from physical share certificate (copy of which is placed on page 5 of paper book). Ld. 4 ITA No.420/Del/2019 counsel further submitted that shares have been sold on Bombay Stock Exchange by way of paying Security Transaction Tax (STT) through broker, namely, Adroit Financial Services Private Limited and thus assessee fulfilled all documentary requirement of claiming exemption of long-term capital gain under section 10(38) of Act on sale of shares of HPC bioscience. He further submitted that assessee is not new to share trading and he is engaged in activity of share purchase and sales for last many years. Ld. counsel relied on following decisions of coordinate benches of Tribunal: 1. Chandder Prakash Vs. Income Tax Officer, ITA No.6880/Del/2017 (AY: 2014-15), dated 12.03.2018; 2. Shri Meghraj Singh Shekhawat Vs. DCIT, ITA No. 443 & 444/JP/2017 (AY: 2013-14 & 2014-15), dated 07.03.2018 3. Shri Deepak Nagar Vs. ACIT, ITA No. 3212/Del/2019 (AY: 2015-16), dated 12.06.2019 4. On contrary, learned DR relied on order of lower authorities and submitted that finding of lower authorities should be seen in light of human probabilities as held in decision of Hon ble Supreme Court in case of Sumati Dayal Vs. CIT 214 ITR 801 and CIT Vs. Durga Prasard More 82 ITR 540. In support of contention, learned DR also relied on decision of Hon ble Delhi High Court in case of Udit Kalra Vs. ITO 2019 TIOL-751-HC-DEL-IT. He also relied on other decisions as under: 1. Sh. Sanat Kumar Vs. ACIT, Hon. Delhi ITAT G Bench in ITA No.1881/Del/2018, order dated 14.06.2019; 2. Pooja Ajmani Vs. Income Tax Officer- Hon. Delhi ITAT in ITA No. 5714/Del/2018, order dated 25.04.2019; 3. Sanjay Bimalchand Jain L/H Shantidevi Bimalchand Jain Vs. PCIT, ITA No. 18/2017 Bombay High Court (Nagpur Bench); 4. Anip Rastogi Vs. Income Tax Officer (ITA No. 3809/Del/2018) 5 ITA No.420/Del/2019 5. Abhimanyu Soin Vs. Asstt. Commissioner of Income Tax, 2018- TIOL-733-ITAT-CHD; 6. Smt. M.K. Rajeshwari Vs. Income Tax Officer (ITA No.1723/Bang./2018); 7. Chandan Gupta Vs. CIT [2015] 54 taxmann.com 10 (Punjab & Haryana)/[2015] 229 Taxman 173; 8. Balbir Chand Maini Vs. CIT [2011] 12 taxmann.com 276 (Punjab & Haryana)/[2011] 201 Taxman 94 (Punjab & Haryana) (MAG.)/[2012] 340 ITR 161 (Punjab & Haryana)/[2012] 247 CTR 468 (Punjab & Haryana); 9. Usha Chandresh Shah Vs. Income Tax Officer [2014-TIOL-1459- ITAT-MUM]; 10. Ratnakar M Pujari Vs. Income Tax Officer [2016-TIOL-1746-ITAT- MUM]; 11. Arvind M Kariya Vs. Asstt. Commissioner of Income Tax (ITA No. 7024/Mum/2010); and 12. ITAT Mumbai in case of Income Tax Officer Vs. Shamim M. Bharwani (2016) (69 Taxmann.com 65) 5. We have heard submission of both parties and perused relevant material on record including decisions relied upon by parties. We find that issue in dispute is regarding benefit of section 10(38) of Act availed by assessee on sale of shares of HP Bioscience . For claiming exemption under section 10(38) of Act, assessee has to prove twin conditions, i.e., income arise from transfer of long- term capital asset being equity share in company where transfer of sale of such equity shares as entered into on or after date of which chapter-VII of Finance Act, 2004 comes into force and such transaction is chargeable to security transaction tax under that chapter. 5.1 According to assessee, both these conditions are satisfied. assessee has submitted that all documents including purchase of shares, dematerialization and thereafter sale of shares through recognized stock exchange have been placed before lower authorities. assessee has also filed 6 ITA No.420/Del/2019 copy of these documents, including bank statement at time of purchase of shares in paper book filed before us. 5.2 Whereas according to Department, documents are only in form of paper trail, and all circumstantial evidence establishes that transaction is routing of unaccounted money through accommodation entry provider and bogus claim of long-term capital gain for claiming benefit of exempted income. contentions of lower authorities are that transactions are against human probabilities. 5.3 We find that in case of Sumati Dayal (supra), assessee s own income from winning horse races, which according to Hon ble Supreme Court, was not genuine when seen from human probabilities as it was improbable for individual to win so many horse races. observations of Hon ble Supreme Court are reproduced as under: 8. During year 1970-71, (pertaining to asst. yr. 1971-72) between 6th April, 1970 to 20th March, 1971, appellant claims to have won in horse races total amount of Rs. 3,11,831 on 13 occasions out of which 10 winnings were from Jackpots and 3 were from Treble events. Similarly, in year 1971-72 appellant won races on 2 occasions and both times winnings were from Jackpot. In her sworn statement dt. 6th Jan., 1973, appellant had stated that she started going for races from end of 1969 and that she first won Jackpot on 12th Dec., 1969 on first day she went to races. appellant also stated that she worked out combination on basis of what her husband advised her but she used to add few horses of her own although she admitted that she did not know anything about performance of these horses before December, 1969. As regards her husband, appellant stated that he won once in Calcutta and once in Madras and he had similar wins also. appellant had also stated that she had not gone to races in 1972. appellant admitted that she had been buying jackpot tickets of value of Rs. 2,000, Rs. 1,400 and even tickets for Rs. 3,000 have been bought and that on first day she won jackpot she purchased jackpot combination ticket for approximately Rs. 2,500 and that on 8th Nov., 1970 she had bought two combinations, each for about Rs. 2,000. appellant also 7 ITA No.420/Del/2019 admitted that she had not claimed any loss in races and only winnings were shown and stated that she won similar amounts which were not accounted and losses were met out of said amounts. appellant further stated that she had no record of her expenditure at race course as against her claim of winnings. Having regard to said statement of appellant, two members, constituting majority on Settlement Commission, came to conclusion that apparent is not real and that appellant's claim about her winning in races is contrived and not genuine for following reasons : (i) appellant's knowledge of racing is very meagre. (ii) jackpot is stake of five events in single day and one can believe regular and experienced punter clearing Jackpot occasionally but claim of appellant to have won number of jackpots in three or four seasons not merely at one place but at three different centres, namely, Madras, Bangalore and Hyderabad appears, prima facie, to be wild and contrary to statistical theories and experience of frequencies and probabilities. (iii) appellant's books do not show any drawings on race days or on immediately preceding days for purchase of jackpot combination tickets, which entitled sizable amounts varying generally between Rs. 2,000 and Rs. 3,000. drawings recorded in books cannot be co-related to various racing events at which appellant made alleged winnings. (iv) While appellant's capital account was credited with gross amounts of race winnings, there were no debits either for expenses and purchase of tickets or for losses. (v) In view of exceptional luck claimed to have been enjoyed by appellant, her loss of interest in races from 1972 assumes significance. Winnings in racing became liable to income-tax from 1st April, 1972 but one would not give up activity yielding or likely to yield large income merely because income would suffer tax. position would be different, however, if claim of winnings in races was false and what were passed off as such winnings really represented appellant's taxable income from some undisclosed sources. majority opinion concludes that it would not be unreasonable to infer that appellant had not really participated in any of races except to extent of purchasing winning tickets after events presumably with unaccounted funds. Chairman of Settlement Commission, in his dissenting opinion, has laid emphasis on fact that appellant had 8 ITA No.420/Del/2019 produced evidence in support of credits in form of certificates from racing clubs giving particulars of crossed cheques for payment of amounts for winning of Jackpots, etc. Chairman has rejected contention regarding lack of expertise in respect of appellant and has observed that expertise is last thing that is necessary for game of chance and anybody has to go and call for five numbers in counter and obtain Jackpot ticket and that books containing information are available which are quite cheap. This, in our opinion, is superficial approach to problem. matter has to be considered in light of human probabilities : Chairman of Settlement Commission has emphasised that appellant did posses winning ticket which was surrendered to race club and in return crossed cheque was obtained. It is, in our view, neutral circumstance, because if appellant had purchased winning ticket after event she would be having winning ticket with her which she could surrender to race club. observation by Chairman of Settlement Commission that "fraudulent sale of winning ticket is not usual practice but is very much of unusual practice" ignores prevalent malpractice that was noticed by Direct Taxes Enquiry Committee and recommendations made by said Committee which led to amendment of Act by Finance Act of 1972 whereby exemption from tax that was available in respect of winnings from lotteries, crossword puzzles, races, etc., was withdrawn. Similarly observation by Chairman that if it is alleged that these tickets were obtained through fraudulent means, it is upon alleger to prove that it is so, ignores reality. transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available. inference about such purchase has to be drawn on basis of circumstances available on record. Having regard to conduct of appellant as disclosed in her sworn statement as well as other material on record inference could reasonably be drawn that winning tickets were purchased by appellant after event. We are, therefore, unable to agree with view of Chairman in his dissenting opinion. In our opinion, majority opinion after considering surrounding circumstances and applying test of human probabilities has rightly concluded that appellant's claim about amount being her winning from races is not genuine. It cannot be said that explanation offered by appellant in respect of said amounts has been rejected unreasonably and that finding that said amounts are income of appellant from other sources is not based on evidence. (Emphasis supplied by us) 9 ITA No.420/Del/2019 5.4 In assessment order, Assessing Officer referred to investigation carried out by Directorate of Income-tax (Investigation), Kolkatta, to unearth organized racket of generating bogus entries of long-term capital gain. Assessing Officer has referred to various modes of acquiring such shares or stocks (termed as Penny Stock ) including through merger of unlisted companies with listed companies , preferential share allotment , allotment of bonus shares and share split etc. Ld. Assessing Officer made diagrammatic depiction of transfer of unaccounted cash from beneficiary to entry operator and receipt of money by way of cheque from buyer of shares, which are shell companies . 5.4.1 After discussing modus operandi of such racket of generating bogus entries, Ld. Assessing Officer came to specifics of scrip of HPC bioscience and pointed out that very small number of total public shareholding was available in scrip HPC bioscience , which was 893 in December 2013, 921 in March 2014, 738 in September 2014, 669 in March 2015 and 664 in December 2015. According to Ld. Assessing Officer only small number of pre-decided people traded in scrip and thus there was high possibility of controlled pattern of trading, which was evident from price rigging and manipulation done by cartel of brokers, entry operators, promoters and exit providers. Assessing Officer pointed out that within period of 16 months from January 2013 , share price of HPC bioscience jumped 17 times whereas profit after taxes of company fallen from Rs. 2.98 crores in financial year 2012-13 to Rs. 71 lakhs in financial year 2014-15. According to Assessing Officer, increase in share price of HPC 10 ITA No.420/Del/2019 bioscience was not commensurate with financial result of company. Ld. Assessing Officer pointed out that while Sensex had shown almost no progress, price of scrip moved phenomenally. 5.4.2 Assessing Officer also brought to knowledge of assessee statement of share brokers, operators and exit providers including Sh Anil Kumar Khemka, Suman Choudhary etc. who admitted under oath that shares of HPC bioscience were manipulated for providing accommodation entry of bogus capital gain or loss. 5.4.3 learned Assessing Officer in assessment order has listed person who bought shares from assessee as under: Sl. SCRIP TRADE SCRIP Trade QTY Rate TRADE PAN of Buyer Name of Buyer No. CODE DATE NAME ID VALUE 1. 535217 15-Apr- HPC BALISHTH 14 BIO 43 12000 59 708000 AAECT4670L VINMAY TRADING PRIVATE LIMITED 2. 535217 16-Apr- HPC 27 12000 60.1 721200 AZHPK6978P 14 BIO RAJEEV KUMAR 3. 535217 21-Apr- 14 HPC 76 12000 62.1 745560 AAKFG7595A BIO GAJANAN ENTERPRISES 4. 535217 23-Apr- 14 HPC BEGORO BIO 44 12000 64.2 770700 AABCL3306N BUILDERS PRIVATE LIMITED 5. 535217 2 8-Apr- HPC 67 12000 63.6 762600 AAFCG2554B GAJGAMINI 14 BIO MERCHANDIS E PRIVATE LIMITED 6. 535217 05- May- HPC 134 9000 58.6 527580 AALCA7880J ANTARYAMI 14 BIO TRADERS PRIVATE LIMITED 7. 535217 07- May- HPC 20 3000 56.3 168915 AAACA7626H ATULI ALAN 14 BIO PORTFOLIO & FINANCE PRIVATE LIMITED 11 ITA No.420/Del/2019 8. 535217 07- May- HPC 21 6000 56.3 337830 AMEPK4853B RAJIV KUMAR 14 BIO 9. 535217 19- May- HPC 136 6000 54.6 327660 AATCS3687H SIDHIMAN 14 BIO VYAPAAR PRIVATE LIMITED 10. 535217 19- May- HPC 137 15000 54.6 819150 AATCS3687H SIDHIMAN 14 BIO VYAPAAR PRIVATE LIMITED 5.4.4 Ld. Assessing officer issued letter under section 133(6) of Act to buyers who purchased shares from assessee but none responded. According to Assessing Officer, entities who purchased shares from assessee are appearing in list of companies provided by entry operators as engaged in providing accommodation entry. Assessing Officer has specifically mentioned name of two such companies, namely, Gajgamini Merchandise Private Limited and Shidiman Vyapar Private Limited . 5.4.5 Assessing Officer also questioned assessee (page 19 of Assessment order) about mode of acquisition of shares, which assessee replied as 5000 share through IPO (initial public offer), and balance 5000 shares through splitting of shares (08/02/2013). This information provided by assessee under statement recorded under section 131 of Act, was found to be incorrect, because assessee acquired 5000 shares by way of preferential allotment or private placement and not under Initial Public Offer (IPO) of company and balance 5000 by way of bonus shares. In IPO public at large is invited for investment through advertisement in print or other media, which is not in private placement or preferential allotment. Further, assessee provided name of broker for purchase of shares 12 ITA No.420/Del/2019 as Adroit Financial, whereas actually shares were purchased directly from company without involving any broker. 5.4.6 Assessing Officer further observed that assessee appeared to be prudent investor in terms of number of shares bought and sold and also nature of shares held i.e. well- known public and private sector companies, however, with regard to purchase and sale of shares of HPC bioscience , assessee displayed behaviour which appeared to be outlier in comparison to his normal pattern of investment. According to Assessing Officer, number of shares bought, duration of holding, and date of sale all pointed out to fact that move to acquire shares of HPC bioscience, through physical transfer of shares, was predetermined move which had sole aim to bring back unaccounted money. Assessing Officer summarised his finding as under: financials of HPC Bioscience were very poor during period when preferential shares were allotted business profile shows that company was not engaged into any substantial activity. business profile shows that company was not having any future plans which could attract investors from all over India to invest in company. funds that were raised through preferential allotment have not been used for any business expansion and have been further advanced as loans and investments. whole process of preferential allotment was prearranged and managed process so as to allot preferential shares to beneficiaries of bogus LTCG which could later be sold by them for booking accommodation entry of bogus LTCG/STCG in garb of sale proceeds on sale of shares. shares were rigged on stock exchange by manipulation of stock exchange. Various share brokers have confirmed fact that shares of HPC Bioscience have been used for providing entry of bogus LTCG/STCG. Various Exit Providers have confirmed that they have purchased shares of HPC Bioscience to provide entry of bogus LTCG/STCG. 13 ITA No.420/Del/2019 5.4.7 Assessing Officer relied on various judicial decisions to support his contention and after elaborate discussion held sale proceeds of Rs.58,89,195/- as unexplained. 5.4.8 In instant case before us, assessee is habitual investor in sharemarket but as observed by Assessing Officer, assessee has purchased shares of established public and private limited companies in small amount through stock exchange as compared to purchase of 5,000 shares from off- market. Ld. counsel of assessee was asked whether assessee has made any purchases of shares (other than shares of HPC bioscience ) directly from company through preferential shares or otherwise, he could not provide any information. When assessee is regular investor, it is improbable that he will invest in shares of company having very weak financials. During statement recorded under section 131 of Act, in question No. 18, assessee was asked specifically that whether somebody contacted him for preferential allotment in company, assessee replied that nobody contacted. We do not understand as how assessee came to know about availability of preferential allotment in shares of HPC bioscience, without any contact with company. It could be possible only if assessee got information from entry operator(s), whose name, he was not interested in disclosing to Assessing Officer. It is highly improbable that person will invest in only one off market transaction (purchase directly from company) which result in gold mine or Jackpot to assessee. Here assessee has gained Rs. 58,85,847/- against investment of Rs. 50,000/- within period of around one year, which is more than 100 times gain. 14 ITA No.420/Del/2019 5.4.9 financials of company M/s HPC bioscience have been reproduced by Assessing Officer in assessment order. According to said financials, in financial year 2012-13, company was having gross turnover of Rs. 4.7 crores and shown profit after taxes of Rs. 2.9 crores. In financial year 2013- 14, turnover of company decreased to Rs.3.46 crore and profit decreased to Rs.1.24 crores. In financial year 2014-15, turnover further decreased to Rs.3.09 crores and profit to small amount of Rs.71 lakhs only. In contrast to these financial result as pointed by AO, share prices have gone up from Rs. 3.91 in January 2013 to Rs. 63 in month of April 2014 and thus there was increase of 17 times in share price. This phenomenal increase in price of shares without any extra ordinary increase in profit of company is against all human probabilities and no investor would buy shares at such higher price with decreasing turnover and profit of company and it could only be possible for purpose of providing long-term capital gain entry by entry providers against certain commission income. 5.4.10 Assessing Officer has referred to statement of various brokers, who admitted to have manipulated price of HPC bioscience . These statements support other evidences on record. 5.5 Before us, Ld. cousnel of assessee submitted that SEBI had not delisted share of HPC bioscience and thus following decision of Tribunal in case of Shri Deepak Nagar (supra), addition made by Assessing Officer deserve to be deleted. However, Ld. DR brought to knowledge of Bench that SEBI found unusual price and volume movement 15 ITA No.420/Del/2019 in shares of company and involvement of company and its directors and other brokers in price escalation. relevant part of SEBI enquiry having refrence no. WTM/RKA/ISD/54/2015 dated 29th June, 2015 in HPC bioscience alongwith other three shares, which was placed on record by Ld. DR, is reproduced as under: 36. It is matter of common knowledge that in private placement, wherein allotment is made to select persons or group of persons on one -to- one basis, issuer and their promoters/ directors have connection on account of acquaintance and familiarity. Such inference of connection becomes stronger in case of private placement by unlisted company whose share are not tradeable in market. Thus, it is safely inferred that in case of preferential allotment by aforesaid companies, companies and their promoters/ directors had prior understanding, arrangement and purpose. Further, off market transactions between preferential allottees and pre-IPO transferees in said company prior to their IPOs demonstrate connection between preferential allottees and pre-IPO transferees. 37. I further note that entities of Funding Group and Trading Group are inter se connected within respective group as well as , directly or indirectly , with entities across both groups, on basis of common directors, common address, common phone numbers, funding, off market transactions, etc. as discussed in above table 5 and table 11. In this regard, I note that Hon'ble SAT has, in many cases such as Classic Credit Ttd. vs. SEBI (SAT Appeal no. 68/2003, Order dated December 8, 2006), Classic Credit Etd. vs. SEBI (SAT Appeal no. 76/ 2003, Order dated January 9, 2007) and Veronica Financial Services Etd. vs. SEBI (SAT Order dated August 24, 2012), held that connection/relations can be established on basis of factors including common addresses, common directors/ shareholders, etc. 38. It is also relevant to mention that in screen based trading manipulative or fraudulent intent can be inferred from various factors such as conduct of party, pattern of transactions, etc. Such intention may be demonstrated from attending circumstances as observed by Hon'ble SAT in Ketan Parekh Vs. SEBI, Appeal no. 2/2004 decided on July 14, 2006 in following words- 16 ITA No.420/Del/2019 "The nature of transactions executed, frequency with which such transactions are undertaken, value of transactions, .., conditions then prevailing in market are some of factors which go to show intention of parties. This list of factors, in very nature of things, cannot he exhaustive. Any one factor may or may not be decisive and it is from cumulative effect of these that inference will have to be drawn." 39. In present matter, facts and circumstances as brought out hereinabove, when seen holistically, indicate high preponderance of probability of manipulative intention. From aforesaid observations of preliminary inquiry it is inter alia noted that a) All companies had very small share capital prior to year 2011. In year 2011 and 2012 companies increased their capital base by issuing shares to several entities by way of preferential allotment and later by issuing bonus shares. Certain preferential allottees transferred their shares in respective company to pre IP transferees. b) Thereafter, all companies came out with IPOs and entities belonging to Funding Group funded substantial portion of IPOs. IPO proceeds of respective IPO were immediately routed back to entities of Funding Group by concerned companies and thus they financed their own IPO and allotted shares without receipt of consideration to extent they returned subscription monies to Funding Group from IPO proceeds. c) respective companies had actively concealed deviation in utilisation of IPO proceeds as they deliberately did not make any disclosures as required under clause 46 of SME Listing Agreement. d) Once shares were listed at exchange, Trading Group entities started pushing up price of scrip through manipulative trades and increased prices of scrips astronomically. e) Trading Group entities consistently and repeatedly placed buy orders at higher prices than LTP in four fundamentally weak newly listed companies. After expiry of lock- in period, Trading Group entities further purchased shares from preferential allottees and pre IPO transferees at artificially increased prices. 17 ITA No.420/Del/2019 f) In whole process, entities of Trading Group provided hugely profitable exit to preferential allottees and pre IPO transferees. g) Consequently, all preferential allottees and pre IPO transferees have collectively made profit of Rs.614crore. h) funds required for purchase of shares by Trading Group entities had been provided to them through layering of fund transfers from several entities including entities of Funding Group. 40. I observe that, key to scheme of operations in this case lies in preferential allotment of shares of Eco, Esteem, CNE and HPC, and, thereafter getting those shares listed on stock exchange so as to avail exemption on LTCG tax gains. Such pre-IPO shares could be listed only by making IPO and listing them alongwith shares issued in IPOs which in this case were ostensibly made successful on account of financing by respective companies. profit could be maximised on account of manipulative trading by connected entities primafade acting in concert/ league. 41. Considering above facts and circumstances, I am of opinion that transactions in said scrips were with premeditated understanding, plan, device or artifice. In present matter, once shares of these companies got listed in SME segment of BSE, Trading Group entities manipulated price/volume of scrips and then provided profitable exit to preferential allottees and Pre IPO transferees. Moreover, in any market, sudden supply if not matched by similar demand leads to price fall. Considering same, any rational investor would not have dumped large number of shares without facing risk of significant price fall until and unless he was sure of demand side absorbing supply. In this case, entities of Trading Group created demand against supply from preferential allottees/pre IPO transferees. In whole process, principle of price discovery was kept aside and market lost its purpose. It is evident from above analysis that Trading Group entities provided hugely profitable exit to preferential allottees and pre IPO transferees. 42. analysis of trading during examination period shows uniform pattern of repeated placing of buy orders at price above LTP in four fundamentally weak newly listed companies to push price up significantly and provide hugely profitable exit to preferential allottees and pre-TPO transferees. Since all aforesaid companies did not have any financial standing in securities market, in my view, only way they could 18 ITA No.420/Del/2019 have increased their share value is by way of market manipulation. I further note that, Trading Group entities and preferential allottees/pre-IPO transferees traded amongst themselves as substantiated by their matching contribution to net buy and net sell. Further, as mentioned earlier Trading Group entities did not have financial capacity to buy shares at such high price and they are found to have been funded by several entities including entities of Funding Group. Such trading behaviour belies economic rationale and indicates existence of premeditated arrangement among preferential allottees, pre IPO transferees, Trading Group and Funding Group entities. 43. From above facts and circumstances, I prima fade find that preferential allottees, pre IPO transferees acting in concert with Funding Group and Trading Group have used stock exchange system to artificially increase volume and price of scrip for making illegal gains and to convert ill-gotten gains into genuine one. However, whole scheme could not have been possible without involvement/ connivance of companies and their promoters and directors. 44. acts and omissions were prima facie for generating fictitious LTCG so as to convert unaccounted income of preferential allottees and pre-IPO transferees into accounted one with no payment of taxes as LTCG is tax exempt under section 10(38) of Income Tax Act, 1961. I prima facie find that above modus operandi helped concerned entities to not pay income tax on account of LTCG and helped them to show source of this income to be from legitimate source i.e. stock market. 5.6 In view of above facts and circumstances ratio in case of Deepak Nagar (supra), cannot be imported into facts of instant case. 5.7 In case of Maghraj Singh Shekhawat (supra) relied upon by Ld. counsel of assessee, also SEBI Inquiry was not found to be related to rigging of share prices and it was related to financial irregularities and use of fund belonging to clients by broker M/s Anand Rathi share and stock brokers Ltd. said case is distinguishable on facts. 19 ITA No.420/Del/2019 5.8 In case of Udit Kalra (supra), Hon ble Delhi High Court upheld addition in respect of long-term capital gain claimed as exempted under section 10(38) of Act on ground of impossibility of astronomical growth of value of company shares as against consistent losses of company. relevant finding of Hon ble High Court is reproduced as under: This court has considered submissions of parties. Aside from fact that findings in this case are entirely concurrent A.O., CIT(A) and ITAT have all consistently rendered adverse findings what is intriguing is that company (M/s Kappac Pharma Ltd.) had meagre resources and in fact reported consistent losses. In these circumstances, astronomical growth of value of company s shares naturally excited suspicions of Revenue. company was even directed to be delisted from stock exchange. Having regard to these circumstances and principally on ground that findings are entirely of fact, this court is of opinion that no substantial question of law arises in present appeal. 5.9 In case of Sanjay Bimal Chand Jain L/H of Shantidevi Bimal Chand Jain (supra), assessee had purchased shares of two penny stocks of Calcutta-based companies, i.e., 8000 shares at rate of Rs.5.50 per shares on 08/08/2003 and 4000 shares at rate of Rs.4 per share on 05/08/2003. assessee sold 2200 shares at exorbitant rate of Rs.486.55 per shares on 07/06/2005 and 800 shares on 20/06/2005 at rate of 485.65. authorities held that assessee had not tendered cogent evidence to explain as how shares in unknown company with worth Rs. 5 had jumped to Rs. 485 in no time. In view of facts, Hon ble Bombay High Court confirmed addition. 5.10 In case of M.K. Rajeshwari Vs. ITO (supra), coordinate bench of Tribunal has held that while dealing 20 ITA No.420/Del/2019 issue of long-term capital gain accrued to assessee, one has to examine financials of company whose shares were inflated within short period and after sharp rise in price of shares, it again comes down. 5.11 coordinate bench of Tribunal in case of Shamim M. Bharwani (supra) held that where assessee claimed income earned from sale of shares as exempt under section 10(38), in view of fact that purchase transaction of said shares was not recorded in stock exchange and moreover, selling rates were artificially high later on with no real buyers, Assessing Officer rightly rejected assessee s claim and added amount in question to his taxable income under section 68 of Act. 5.12 In light of ratio decidendi of cases cited above , contention of assessee that transaction leading to long-term capital gains are supported by documents such as sale and purchase invoices, bank statement etc., cannot be accepted in view of facts and circumstances of case brought on record by Assessing Officer after proper examination of material facts and taking into account corroborating evidences gathered by Directorate of Income-tax (Investigation), Kolkata, involving network of brokers and operators engaged in manipulation of market price of shares of shares of HBC bioscience controlled and managed by such person with purpose to provide accommodation entries in form of long- term capital gains. onus was on assessee to prove transaction leading to claim of long-term capital gain was genuine transaction. assessee failed to justify manifold increase in prices of share of HBC bioscience despite weak financials of company. Initial investment in 21 ITA No.420/Del/2019 company of unknown credential and subsequent jump in share prices of such company, cannot be accident or windfall but could be possible, because of manipulation in share prices in preplanned manner, as brought on record by Assessing Officer. In view of failure on part of assessee to discharge his burden of proof and explain nature and source of transaction, in our opinion, Ld. CIT(A) has rightly confirmed addition in dispute, which does not require any interference on our part. We accordingly, uphold action of Ld. CIT(A) on issue in dispute and dismiss grounds raised by assessee on this issue. 6. In result, appeal of assessee is dismissed. Order is pronounced in open court on 20th August, 2019. Sd/- Sd/- [K.N. CHARY] [O.P. KANT] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 20th August, 2019. RK/-[d.t.d.s] Copy forwarded to 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi Sandeep Bhargava v. ACIT, Circle-60(1), New Delhi