PRINCIPAL COMMISSIONER OF INCOME TAX Vs. SWATI BAJAJ

JUDGEMENT

(1.) These appeals filed by the revenue under Sec. 260 A of the Income Tax Act 1961 (the Act of brevity) are directed against the common order dtd. 26/6/2019 passed by the Income Tax Appellate Tribunal (Single Member Bench), Kolkata in a batch of 90 appeals. The respondents in these appeals are the assessees. The assessments were completed by the respective assessing officers by passing individual orders in respect of each of the assessees, and the assessees had filed individual appeals before the Commissioner of Income Tax (Appeals), [CIT(A)], who has also passed individual orders in each of the assessee's case affirming the order passed by the respective assessing officers disallowing the claim of the Long Term Capital Gains (LTCG), the assessees have filed appeals before the Tribunal which have been allowed by common order dtd. 26/6/2019 which is impugned in these appeals. The Learned Tribunal has not discussed the merits of each and every case of the assessee but though fit to follow its earlier decision in the case of Swati Bajaj Vs. ITO for the assessment year 2014-2015 in ITA NO.2623/Kol/2018. In certain other cases the Tribunal has followed other earlier orders of Coordinate Bench of the Tribunal which was also decided broadly on the same lines of Swati Bajaj. The revenue has preferred appeals against the common order passed by the Tribunal and the grounds raised are all identical and as against the lead case, the revenue has preferred ITAT No. 06 of 2022 .Thus, in absence of any separate findings rendered by the Tribunal in respect of each of the assessee's case, which is not disputed by the Learned Advocates appearing for the assessees, by consent of the Learned Advocates on either side ITAT No. 06 of 2022 is taken as the lead case where the assessee is Mrs. Swati Bajaj. Therefore, we propose to note the facts in the lead case and then proceed to discuss the issues canvassed before us and take a common decision in all the appeals.

(2.) The revenue in ITAT No. 6/2022 has raised the following substantial questions of law for consideration:-

(3.) The assessee in the lead case, Mrs. Swati Bajaj filed the return of income for the assessment year 2014-2015 declaring a total income of Rs.6,57,300.00.The return was selected for scrutiny and notice under Sec. 143 (2) of the Act and under Sec. 142 (1) of the Act were issued to the assessee. The assessee was represented by her advocate before the assessing officer who had submitted documents in compliance with the notice issued under Sec. 142 (1) of the Act. The assessee is stated to have produced the copy of the income tax returns, profit and loss account, balance sheet, computation of total income, statement of STCG/LTCG, D-Mat account, contract notes, bank statements and other details. The assessing officer after scrutiny of the documents produced, directed the assessee to submit the details of shares purchased and sold during the year under consideration and immediate three preceding years in respect of STT paid in LTCG/STCG and was directed to explain with evidence that the transactions were genuine as the assessee had earned LTCG. On verification of the computation of income the assessing officer noted that the assessee had shown long term capital gain of Rs.28,23,500.00 and claimed the same as exempt. The assessee was directed to file complete details as well as the evidence with respect to such claim of exempt income. The assessee filed copy of contract notes in support of purchase and sale of shares of Surabhi Chemicals on which the long-term capital gains was claimed. From the details furnished by the assessee, it was seen that the assessee had purchased 50,000 shares of the company for Rs.1,00,000.00 on 16/3/2012 and 14/8/2012. Soon after the expiry of the period to become eligible for long term capital gains, the assessee sold those shares for Rs.29,23,500.00and such sales were effected during the period from 4/12/2013 to 7/12/2013 and the long term capital gains (LTCG) was computed for the Rs.28,23,500.00. The assessing officer noted that within a short span to time of 17 to 21 months, the assessee managed to sell the shares with increased value of about 2823% that to when the general market trend was recessive. It appears that there were several such transactions which led to an investigation being commenced by the Directorate of Income Tax Investigation, Kolkata. A report in this regard was submitted by the Deputy Director of Income Tax Investigation, Unit - II (3), Kolkata dtd. 27/4/2015 which report was furnished to the Director General of Income Tax Investigation in Mumbai, Delhi, Ahmedabad, Bengaluru, Bhopal, Chandigarh, Chennai, Delhi, Hyderabad, Jaipur, Kochi, Kolkata, Lucknow, Patna, Pune and Director General (International Taxation) Mumbai. The investigation report dtd. 27/4/2015, which is available in the public domain narrates the modus operandi adopted for the purpose of claiming bogus LTCG. The stocks which were the subject matter of transaction were referred to as "penny stocks" and the companies whose shares were traded in the various stocks exchanges and it is reported that the figure of total transaction of the brokers is little more than Rs.15,970.00 crores as against the total trade in the scripts which is more than Rs.38,000.00 crores. The report further states that the cash trail has been established from the cash deposit accounts to the account of the beneficiary for a sum of more than Rs.1,575.00 crores. The broker wise split up have been furnished. The modus operandi has been set out in the report, the types of penny stocks companies, the entities involved in the transactions, the different stages of the transactions, the merger method which was adopted and also mentioning about that large number of non-resident Indians and many well known foreign investors are buying or selling these penny stocks and it appears to be a case of black money cash stashed abroad coming back to India (purchase) or money be sent out of the country (sale). Further the report states that while little over Rs.27.57 crores has gone out of the country while the amount which has come in is more than Rs.114.97 crores. The report further states that in the whole project total 84 BSE listed penny stocks have been identified after which several search and survey operations were conducted in office premises of more than 32 share broking entities who have accepted that they were actively involved in bogus LTCL/STCL scam. Surveys were also conducted in the office premises of many accommodation entry providers and their statements were recorded in which they have admitted their role in the scam. The beneficiaries of more than Rs.38,000.00 crores have been identified and segregated, totally 60,000 Pan Nos. of the beneficiaries have been identified which is in the process of being reported to the assessment wings through the DGITs. Further the report states that in numbers more than 5000 paper/shell companies are involved in providing bogus accommodation of various kinds. Statements from most of the Directors of the Companies have been recorded and were appended to the Report. The report also states that the massive cash trail of Rs.1,570.00 crores has been traced from the point it is being deposited to an undisclosed proprietorship bank accounts to the accounts of share brokers. This led to recording statements from the share brokers who have accepted that the said cash has been used for providing accommodation entries of bogus LTCG. The report further states that it is not full and final as they intend to update the data base on regular basis with new actions against entry operators. In Chapter 2 of the report, a detailed comment on the modus operandi has been set out. In Chapter 3, there is a brief discussion on all listed penny stocks scripts used in bogus LTCG scam. Chapter 4 furnishes the details of share brokers involved in the syndicate and their modus operandi. Chapter 5 furnishes the details of entry operators involved in the syndicate and their modus operandi. Chapter 6 furnishes the details of the penny stock companies/bogus clients used for purchasing shares of listed penny stocks for providing LTCG to beneficiaries. Chapter 7 sets out a sample cash trail of Rs.1,500.00 crores and Chapter 8 deals with the action initiated by the Securities and Stock Exchange Board of India (SEBI) and the beneficiaries who are covered under the search and survey operations.