ORDER

1. This appeal is preferred on behalf of the assessee against the order of the CIT (A), inter alia, on following grounds:

1. The learned Assessing Officer had erred in passing the order in the manner passed by him and the learned Commissioner of Income tax (Appeals) has erred in confirming the same. The impugned orders being bad in law, void ab-initio are required to be quashed.

2.1 In any case the order passed in gross violation of the principles of natural justice and fair play, especially in the absence of the cross examinations of the persons whose averments are sought to be relied upon by the Assessing Officer while passing the order, makes the order totally bad in law and liable to be cancelled.

2.2 The learned Commissioner of Income tax (Appeals) has instead of quashing the impugned order, has just confirmed the order of Assessing Officer without properly considering the fact and circumstances of the case, arguments of the appellant and the law applicable.

2.3 In any case and without prejudice, the orders passed by the authorities below being contrary to binding dictum of the jurisdictional High Court are bad in law and are liable to be quashed.

3.1 The Assessing Officer had in any case, erred in assessing the Long-Term Capital Gain earned on sale of shares (exempt 10(38) of the Act) under the head income from Business on the ground that the appellant had dealt in penny stock and the learned Commissioner of Income tax (Appeals) has erred in dismissing the relevant ground without giving any finding. The action of authorities below has no support in law; is contrary to facts and evidence available and therefore deserves to be rejected.

3.2 The Assessing Officer had erred in holding that the provisions of Section 28 of Income-tax Act, 1961 are applicable. There being no adventure in the nature of trade and in fact the gain having been duly explained, makes the addition wholly erroneous and liable to be deleted.

3.3 In any case and without prejudice, the Authorities below have erred in not appreciating the facts that the shares were held capital asset for more than 12 months and not as stock-in-trade. On proper appreciation of facts and the law applicable, the action of Authorities below in assessing the capital gains under the head business being totally erroneous is to be negated.

4. The Authorities below have not properly appreciated the facts of the case and law applicable. On the other hand, have been guided with extraneous and non-relevant material in passing the impugned orders. On proper appreciation of the facts and law applicable, the addition as made/sustained has no basis to stand and is liable to be deleted in toto.

5. The several observations made and various conclusions drawn by the lower authorities in the course of order are without basis and evidence and are made/drawn on surmises, probabilities and conjectures. Such observations and conclusions by quasi-judicial authorities have no support in law and deserve to be rejected in toto.

6. The appellant had actually sold shares through demat account and had earned Capital Gain thereon and same needs to be accepted as such.

7. The appellant denies the liability to pay interest. The interest having been levied erroneously is to be deleted.

8. In view of the above and other grounds to be adduced at the time of hearing, it is requested that the impugned order be quashed or at least the income from Long-Term Capital Gain earned on sale of shares as returned by the appellant be accepted, the assessment of Long-Term Capital Gain on sale of shares as Income from Business be deleted and the interest levied be also deleted.

2. Though various grounds are raised but they all relate to claim of long-term capital gain earned on sale of shares on which exemption under section 10(38) was claimed and the same was denied by the AO on the ground that appellant had dealt in "Penny Stocks". The facts in brief relating to the controversies are that assessee has filed the return of income showing income of Rs. 13,46,720/-. On scrutiny, the AO suspected transaction in shares and he accordingly issued a notice under section 143(2) of the Act. From the statement of income, the AO noticed that main source of income of the assessee was from milling charges from the proprietary concern and the interest received from the family business concerns. During the year under consideration, assessee has also earned long-term capital gain on sale of shares and has claimed exemption on it under section 38 of the Income Tax Act. The AO has noticed that assessee has claimed long-term capital gain of Rs. 42,46,000/- on sale of shares of the scrip of Mahavir Advanced Remedies. It was also noticed that though the scrips were listed on the stock market and could be purchased through the stock market but the assessee did not purchase it directly from the stock market and has purchased off line through an intermediary. This quantum of huge long-term capital gain was found suspicious and detailed investigation was undertaken. The AO took cognizance of BSE websites, money control website, taxmann, internet as well as investigation wing report and the findings of the SEBI. Having made detailed study/examination of the explanations and evidences placed on record by the assessee, the AO came to the conclusion that the financial worth of the company is very meagre and not at all worth to be invested in. The company has no fixed assets nor sale or purchase to operate. Relying upon the report of the investigation wing, SEBI report and findings/observations of the SIT, the AO has concluded that exemption under section 10(38) claimed by the assessee is not acceptable and the act of the assessee in purchasing the penny stock shares and sale of it fall within the ambit of adventure in the nature of trade and the assessee as such had profited by Rs. 42,45,000/- and this amount is taxed under the head 'business income'. The relevant observation of the AO summarized by the CIT (A) in its order is extracted as under:

"It is seen from her statement of income that her main sources of income are milling charges from proprietor concern and interest receipts from her limilagr's business concerns. During the year under consideration the assessee also earned long-term capital gains on sale of shares and has claimed on this u/s. 10(38) of the Act, 1961. During the course of the assessment proceedings it is seen that the assessee has claimed the Long Capital Gain of Rs. 42,46,000/- on sale of shares of the scrip MAHAVIR ADVANCED REMEDIES (Scrip code: 531689). It is seen that though this scrip 'as listed on the stock market and hence could be purchased through the stock market, the assessee has not purchased it directly from the stock "market, but offline, and through an intermediary.

It is worthwhile to mention that the Department had done a detailed study on the bogus LTCG/STCL being claimed by many assessees by sale/purchase of shares of unknown companies which are hardly traded on the browses and which are called as "Penny Stocks". A Penny Stock is a stock that trades at a relatively low price and market capitalization. These types of stocks are generally considered to be highly speculative and hence high risk because of their lack of liquidity, large bid-ask spreads, small capitalization and limited following and disclosure. As per the SEBI Regulations, the shares that are allotted through private placements, have a lock-in period of 1 year and therefore these shares can be sold by the allottees only after a period of one year from the date of allotment hereby qualifying for the benefit exempt LTCG. Thus the fact the beneficiaries subscribe for these shares through private placement is in itself a suspicious thing. No sane person would invest in these penny stock companies. The shares of these stocks are closely held as the general public is not interested in these stocks due to the poor financials of the listed companies. It is these stocks which are selected to implement the bogus gain/loss. Based on this study it is seen that many beneficiaries have converted unaccounted money to accounted by resorting to this route.

The assessee earned long-term capital gain in the current year and claimed it as exempt u/s. 10(38) of the Act.

Data obtained from various sources was thoroughly verified and analysis was done as per share market fundamentals. After analysis and due examination of records, it is found that long-term capital gain of Rs. 42,46,000/-shown in the return as the sale of shares of MAHAVIR ADVANCED REMEDIES LTD (MARL for short) was a prearranged method employed by the assessee in connivance with operators to evade taxes.

The assessee in her statement of income has purported to have purchased 12,500 shares of MARL on 22/2/2013 a total purchase cost of Rs. 100000/- @ Rs. 8/-per share. The consideration for purchase of these shares was by transfer of funds from M/s. Sri Lakshminarayana Rice Mills to her account, in which entity the assessee has a stake. This purchase was through an entity M/s. Global Enterprises, Mumbai (10000 shares) and M/s. Eager Corporation, Mumbai (2500 shares). However, nowhere it has been made available as to how, though privately, the shares of MARL were ultimately purchased, as it can be seen that the assessee has paid to the above two entities and not to the owner of the shares of MARL. The assessee has submitted receipts in support of claim of purchase of shares issued by M/s. Eager Corporation, Mumbai who has given a receipt and an invoice dt: 27/2/2013. The invoice submitted indicates the share price at Rs. 8/- per share, whereas the face value of the scrip itself is Rs. 10/- per share. So, the purchase of a share of a company at a price below its face value gives raise to suspicious transactions. Further, the receipt states that the payment is for "sale of equity shares" and not for "purchase of equity shares". It is worthwhile to mention here company in its Extraordinary General Body Meeting held on 18/2/2013 had increased its share capital from Rs. 5.5 crores to Rs. 15.5 crores issue of 1,00,00,000 shares of Rs. 10/- each at a price of Rs. 11/- per equity share including premium of Rs. 1/- per share to the non-promoters.

Further, M/s. Purva (India) Pvt Ltd, has intimated the assessee vide letter dt: 24/8/2013, about the transfer of shares of MAHAVIR ADVANCED REMEDIES LTD, to the assessee. As per this letter 2500 shares of MARL have been transferred to the assessee from Mr. BVS Koteswar Rao and 10, 000 shares have been transferred to the assessee from Smt. VIJAYALAKSHMI B. It may be noted that Mr. BVS Koteeswara Rao is the Managing Director of the company and Smt. Vijayalakshmi B is related to him. As per the share transfer certificate, the shares of MARL have been transferred to the assessee only on 24/8/2013 and the price of each equity share is priced at Rs. 10/- whereas the assessee has paid only Rs. 8/-.

Sale of shares by BVS KOTEESWARA RAO and VIJAYALAKSHMI B :

It is seen that as per the report submitted by Mr. Koteeswara Rao and Ms. Vijayalakshmi B to the SEBI under the SEBI (Prohibition of Insider Trading), Regulations, 1992, both Mr. BVS Koteeswara Rao and Ms. Vijayalakshmi B, have sold 304500 shares and 315600 shares respectively, of MARL on 13/06/2013 for a total sale consideration of Rs. 1827000/'- and Rs. 1893600/-, respectively. Going by this the sale price of each share works out to Rs. 6/-per share, which is almost half the price fixed by the company at its Extraordinary General body Meeting held on 18/2/2013. It is worthwhile to note here that this sale has been done offline.

Hence, from the above it can be seen that the assessee has come to acquire the shares through a dubious means, lacking transparency which shows a mala fide intention.

Subsequently the assessee has opened demat account with M/s. Crosseas Capital Services Private Limited. It is seen that the assessee has sold the shares when it reached its peak and not before or after that, which goes to say that she (or any person acting on her behalf) knew beforehand about the movement of the share price of the company. Later the assessee sold these shares on various dates during the F. Y. 2014-15 relevant to the concerned A.Y 2015-16 for a sale consideration of Rs. 43,46,000/-. The sale of shares have been done through the stock broking firm, Anand Rathi Share and Stock Brokers Ltd, after obtaining the demat account and dematting of physical share certificates. The entire, sale consideration has been transferred to the account of M/s. Sri Lakshminarayana Rice Mill. Vide this office Notice u/s. 142(1) dt: 01/11/2017, the assessee was asked, apart from other details, the reasons for purchase of shares of MAHAVIR ADVANCED REMEDIES LTD and reasons for offline purchase. In response to this, the assessee vide letter dt: Nil, submitted on 15/11/2017, has just mentioned that she has purchased the shares of MAHAVIR ADVANCED REMEDIES LTD through cheque but has never given any reason as sought for in the said notice. In view of this, a letter dt; 21/11/2017 was addressed to the assessee reiterating the points raised in the earlier notice dt; 1/11/2017 was issued to the assessee proposing to disallow the claim of exemption u/s. 10(38) of the Act, 1961, and seeking a response by 08/12/2017. In response to this the assessee has replied vide letter dt: nil, submitted on 27/12/2017, that the shares were purchased on the premise that it would give a good return. Further, she has submitted that there was no mala fide intention, but only had an intention to make profits. However, the assessee has once again not given any valid reason for the purchase and the mode of purchase. Hence, the reply of the assessee cannot be considered favourably.

It is worth noting here that this office had written letter to the company, M/s. MAHAVIR ADVANCED REMEDIES LTD, vide dt: 02/11/2017, seeking details of shares sold/purchased offline by Mr. Koteeswara Rao and Smt. Vijayalakshmi B. Though letters were addressed to three different addresses as obtained from the company profile, the same were returned unserved. Also, emails sent to the email id- indoamerican-1234@,gmail.com were not responded to. Further, in respect of the company, it is gathered that it has changed its name from Indo American Advanced Pharmaceuticals Ltd to Mahavir Advanced Remedies Ltd, at its Extraordinary General Meeting held on 18/02/2013. The company in its 21st Annual Report 2012-13, at Sl. No. (j) of Page-21, under Shareholder's Information, has admitted that the trading of equity shares of the company was suspended by SEBI till Aug., 2012. Hence, it can be seen that the company, after the term of its suspension in trading changed its name only to enter the trading ring under a different name. This act of the Company raises more suspicion on the trading of the scrip during the period under consideration.

From the financials available, it can be seen that the financial worth of the company is very meagre and not at all worth to be invested in. Indeed, perusal of the financials indicates very poor financial condition and no profits on operations earned by the company. It can be seen that the company has no fixed assets nor sale or purchase to operate. When such is the condition of the condition, it is highly doubtful that any sane person would invest his/her money in it.

The analysis shows the phenomenal price rise that has occurred in the shares of MAHAVIR ADVANCED REMEDIES LTD.

(v) This abnormal price rise is also highlighted by the overall percentage increase in the SENSEX during the period when the shares saw phenomenal price rise. Normally, the SENSEX is a benchmark of the average price movement in any share. Most of the stocks which have good market capitalization and are majorly held by public tend to follow the price movement of the SENSEX. The deviation in price movement vis-a-vis SENSEX is usually guided by the fundamentals of the company and the behaviour of individual investors. When the price increase in the shares of M/s. MAHAVIR ADVANCED REMEDIES LTD is compared with the movement in the SENSEX, it is seen that there is no correlation. While SENSEX is deviating only marginally, the price of the MAHAVIR ADVANCED REMEDIES LTD are moving abnormally. Hence, it is clear that the Price of MAHAVIR ADVANCED REMEDIES LTD have moved in absolute disregard to the general market sentiments.

From the perusal of above chart as well as the trading data of the scrip which was collected from the BSE, it is evident that during the period of price rigging, the volume of the shares traded as well as number of trades on each trading day was very low. Now the interesting factor to be noted here is that on all these days, there has been a constant rise in the price of the shares. A close look reveals that on most trading day, the percentage increase in pirce is in the range of 3% to 4 %. This percentage price rise on each day was just short of 5% which was the circuit limit for price rise as per the exchange guidelines in respect T type scrips. On some trading days, the percentage increase in look reveals that on most trading day, the percentage increase in price is in the range of 1.90% to 1.99% which again was just short of percentage increase of 2% which was the circuit limit for price rise as per the exchange guidelines on those trading days.

Thus, it is seen that the price of these shares have seen phenomenal rise and have been constantly traded near the circuit limit so as to avail maximum price rise without hitting and triggering the circuit limit, and thereby avoid surveillance by the Stock Exchange Regulator. This continuous price rise has been achieved over a very thin volume and almost a single trade per day.

During this period of price rise, no corporate announcement has been made by M/s. MAHAVIR ADVANCED REMEDIES LTD which would have made a positive impact on the shares and which could support this phenomenal increase in price.

Thus, the sharp rise in the price of the scrip was not supported by its fundamentals or any other genuine factor. The above discussion clearly establishes the fact that the price of the shares of MAHAVIR ADVANCED REMEDIES LTD were rigged in a pre-planned systematic manner by conducting limited trades and with miniscule volume.

At this juncture, it is worthwhile and useful to mention that the M/s. MAHAVIR ADVANCED REMEDIES LTD have been found involved in fraudulent practices by the Securities and Exchange Board of India. It is the finding of SEBI that this syndicate of people acts as accommodation entry providers. They chose particular scrip and rig its prices to provide bogus capital gain and capital loss to various beneficiaries. Based upon its findings SEBI have restrained these persons from trading in market.

The submissions made by the assessee during assessment proceedings are considered. The facts of the case and investigations made by various directorates are considered. From the discussion in the preceding paras it is concluded that long-term capital gains booked by assessee in his books were pre-arranged method to evade taxes and launder money. Following are the findings and the reasons which substantiates the findings:—

A. Mode of acquisition of the shares: The assessee had purchased 12,500 shares of MAHAVIR ADVANCED REMEDIES LTD through Eager corporation, Mumbai, But as per the physical Share Certificates, the shares have been transferred to the assessee on 24/8/2013 from M/s. BVS Koteeswara Rao and Ms. Vijayalakshmi B, who happen to be the controller of the said company;

B. Sale of shares and unusual rise in the price: Further the assessee has sold these shares for sale consideration of Rs. 43 45,000/- which is 43.75 times the increase of the cost price, and as discussed the rise in share prices is not holding to any commercial principles and market factors;

C. Findings of Investigation wing: The findings of the Directorate of Investigation of Bangalore and Kolkata as discussed above have proved that the share prices of the shares held by the assessee in MAHAVIR ADVANCED REMEDIES LTD were rigged and then with the help of entity operators by routing the cash, shares were sold at high price to arrive at tax free capital gains.

D. Analysis of transactions: Facts revealed that such trading transactions of purchase and sale of shares are not been effected, for commercial purpose but to earn profits, with a mala fide intention to evade taxes, for the following reasons : —

The facts and circumstances of the case, as recorded above, clearly suggest that the revenue cannot take or accept such make-believe transactions, as presented by the assessee. Truth or genuineness of such transactions must prevail over the smokescreen, created by way of premeditated series of steps taken by the assessee, either directly or indirectly, with a view to imparting a colour of genuineness and character of commercial nature, to such share transactions. Needless to say, that one has to look at the whole transactions and series of steps taken to accomplish such share transactions, in an integrated manner, with a view to ascertaining the true nature and character of such purchase and sale of shares.

In view of the detailed discussion as above and based on data obtained from various sources and made available on record, the exemption u/s. 10(38) claimed by the assessee is not acceptable and the act of the assessee in purchasing the penny stock shares and sale of it, fell within the ambit of adventure in the nature of trade and the assessee 'as such had profited by Rs. 42,45,000/- and this amount is taxed under the head' Business income'."

3. Aggrieved, assessee has preferred an appeal before the CIT (A) and placed all necessary evidences in the form of receipts, invoices and contract notes before the AO with the submission that transaction in shares is sufficiently explained and the AO has come to the conclusion on the basis of various extravenous materials. He has not brought anything on record to prove that the transaction was sham transaction. In support of his contention he has placed reliance upon the CBDT's Circular No. 704 dated 24.08.1995 with the submission that the period of holding of physical share has to be calculated from the date of contract note issued by the stockbroker and not from the date of demat. Accordingly, the period of holding is more than 12 months.

4. The CIT (A) re-examined the claim of the assessee and analysed the facts brought on record by the AO, the references to SEBI, the financial analysis of the scrips, the movement of shares price-wise and also the judicial pronouncement quoted by the assessee in the light of judgment of the Bombay High Court in the case of Sanjay Bimalchand Jain v. Pr. CIT [2018] 89 taxmann.com 196 dated 10.04.2017 and has finally confirmed the additions made by the AO. The relevant observations of the CIT (A) are extracted hereunder for the sake of reference:

"Bogus LTCG from Penny stocks: "The assessee has not tendered cogent evidence to explain how the shares in an unknown company worth Rs. 5 had jumped to 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 income in the garb of long-term capital gain".

Relevant portion of judgment:

"The authorities have recorded a clear finding of fact that the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb 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 law

In the case on hand also the scrips were of unknown or lesser known company, sale price was fantastic, there was no economic or financial basis to justify the price rise (poor financials as analysed by AO), share transactions were dubious (as held by various departments including SEBI investigation wing etc), the company did not qualify for investment, the assessee was able to sell the shares at an abnormally high price as compared to purchase price and that too within a short period and the fantastic sale price was not at all possible as there was no economic or financial basis as held in the judgment of Mumbai High Court. "

5. Aggrieved, the assessee has preferred an appeal before the Tribunal and reiterated its submissions as raised before the lower authorities. The learned Counsel for the assessee has invited our attention to balance sheets as on 31.03.2013 and 31.03.2015 and the share certificates, demat account and the bank statements in order to establish the transaction in shares are genuine and the assessee has rightly claimed deduction under section 10(38) of the Act. The learned DR on the other hand has contended that a big scam in Kolkata has been surfaced during the course of investigation conducted by various agencies and it has been revealed that unaccounted money was converted into a long-term capital gain on which deduction under section 10(38) of the Act was claimed. The learned DR further contended that in such type of transactions, the decision should not be taken on the basis of contract notes and the rates quoted at the stock exchange. The financials of the company and its increase in the financial worth should also be examined. The reasons for the sharp increase in the share price should also be examined. In the instant case, the lower authorities have examined that no corporate announcement has been made by the Mahavir Advanced Remedies Ltd., which would have made a positive impact in the shares and which could support the phenomenal increase in the price. The sharp rise in the price of the scrip was not supported by its fundamentals or any other genuine factor. The learned DR has further invited our attention to the fact that Mahavir Advanced Remedies Ltd., have been found involved in fraudulent practices by the SEBI and in its finding, the SEBI stated that this syndicate of people acts as accommodation entry providers. They chose a particular scrip and rig its prices to provide bogus capital gain and capital loss to various beneficiaries. Based upon its findings SEBI have restrained these persons from trading in market. The learned DR further placed heavy reliance upon the investigation conducted by the AO and the findings of the CIT (A).

6. Having carefully examined the orders of the lower authorities in the light of rival submissions, I find that assessee has purchased 12500 shares of Mahavir Advanced Remedies Ltd., (MARL) on 22.02.2013 at a total purchase cost of Rs. 1,00,000/- at the rate of Rs. 8/- per share. The consideration for purchase of these shares was by transfer of funds from Lakshmi Narayana Rice Mills to her account in which the assessee has a stake. This purchase was through M/s. Global Enterprises and Eager Corporation, Mumbai. The assessee has made the payment to the aforesaid entity and not to the owner of the shares of MARL. As is evident from the receipts issued by M/s. Eager Corporation, Mumbai, the invoice indicates the share price at Rs. 8/- per share whereas the face value of the scrip itself is Rs. 10/- per share. It is also evident from the record that the MARL in its Extraordinary General Body Meeting held on 18.02.2013 has increased share capital from Rs. 5.5. crores to Rs. 15.5 crores by issue of 1,00,00,000 shares of Rs. 10/- each at a price of Rs. 11/- per equity share including premium of Rs. l/- per share to the non-promoters. The AO has also noted that 2500 shares of MARL have been transferred to the assessee from Mr. BVS Koteeswar Rao and 10,000 shares have been transferred to the assessee from Smt. Vijayalakshmi B and Mr. BVS Koteeswar Rao is the Managing Director of the company and Smt. Vijayalakshmi B. is related to him. As per share transfer certificate, the shares of MARL have been transferred to the assessee only on 24.08.2013 and price of each equity share is priced at Rs. 10/- whereas the assessee has paid only Rs. 8/-. The AO has also examined the report submitted by Mr. BVS Koteeswara Rao and Smt. Vijayalakshmi B. and noted that Mr. BVS Koteeswara Rao and Smt. Vijayalakshmi B. have sold 3,04,500 shares and 3,15,600 shares respectively of MARL on 13.06.2013 for a total sale consideration of Rs. 1827000/- and Rs. 1893600/- respectively. The AO further observed that on going by this sale price of each share works out to Rs. 6/- per share, which is almost half the price fixed by the company at its Extraordinary General Body Meeting held on 18.02.2013. It is also worthwhile to mention that sale has been done offline. The AO has also further observed in its order that there is a sharp rise in the price of the scrips which was not supported by its fundamentals or any other general factor. The AO carefully examined the findings of the investigation wing who has investigated the scam of penny stock and the dubious schemes through which unaccounted money of the beneficiaries moves into the books of account in the garb of long-term capital gain. This entry of long-term capital gain is taken by selling the shares on the exchange and registering the proceeds arising out of sale of shares into books as long-term capital gain (LTCG). For implementing this scheme, shares of penny stock companies were used. The same modus is adopted for providing accommodation entries of being bogus logs. It was further observed that in this scheme, shares of penny stock exchange are acquired by the beneficiaries of the LTCG at very low price through the root of preferential allotment (private placement) and offmarket transactions. These shares have a lock-in-period of one year as per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. Another route to acquire the shares is through Amalgamation or merger. In this route, the beneficiaries of LTCG are allotted shares of a private limited company which is subsequently amalgamated with a listed penny stock and the beneficiaries receive shares of the listed penny stock in exchange of the shares of private limited company. The modus operandi of conversion of unaccounted money in long-term capital gain was examined by the AO before coming to the conclusion. The AO has also examined the balance sheets of Mahavir Advanced Remedies Ltd., and the balalnce sheet and profit and loss account for the last 3 years was extracted in the assessment order. For the sake of reference, we extract the same hereunder:

Mahavir Advanced Remedies Ltd.

(Earlier known as Indo-American Advanced Pharmaceuticals Ltd.)

BALANCE SHEET

7. The AO has also examined the price value statements quoted on the stock exchange and noticed that there was abnormal price rise by the overall percentage increase in sensex during the period when the shares stock phenomenal price rise and has made the following observation:

"(v) This abnormal price rise is also highlighted by the overall percentage increase in the SENSEX during the period when the shares saw phenomenal price rise. Normally, the SENSEX is a benchmark of the average price movement in any share. Most of the stocks which have good market capitalization and are majorly held by public tend to follow the price movement of the SENSEX. The deviation in price movement vis-a-vis SENSEX is usually guided by the fundamentals of the company and the behavior of individual investors. When the price increase in the shares of M/s. MAHAVIR ADVANCED REMEDIES LTD is compared with the movement in the SENSEX, it is seen that there is no correlation. While SENSEX is deviating only marginally, the price of the MAHAVIR ADVANCED REMEDIES LTD are moving abnormally. Hence, it is clear that the Price of MAHAVIR ADVANCED REMEDIES LTD have moved in absolute disregard to the general market sentiments.

From the perusal of above chart as well as the trading data of the scrip which was collected from the BSE, it is evident that during the period of price rigging, the volume of the shares traded as well as number of trades on each trading day was very low. Now the interesting factor to be noted here is that on all these days, there has been a constant rise in the price of the shares. A close look reveals that on most trading day, the percentage increase in price is in the range of 3% to 4 %. This percentage price rise on each day was just short of 5% which was the circuit limit for price rise as per the exchange guidelines in respect T type scrips. On some trading days, the percentage increase in price is in the range of 1.90% to 1.99% which again was just short of percentage increase of 2% which was the circuit limit for price rise as per the exchange guidelines in respect T type scrips. On some trading days, the percentage increase in price is in the range of 1.90% to 1.99% which again was just short of percentage increase of 2% which was the circuit limit for price rise as per the exchange guidelines on those trading days.

Thus, it is seen that the price of these shares have seen phenomenal rise and have been constantly traded near the circuit limit so as to avail maximum price rise without hitting and triggering the circuit limit, and thereby avoid surveillance by the Stock Exchange Regulator. This continuous price rise has been achieved over a very thin volume and almost a single trade per day.

During this period of price rise, no corporate announcement has been made by M/s. MAHAVIR ADVANCED REMEDIES LTD which would have made a positive impact on the shares and which could support this phenomenal increase in price.

Thus, the sharp rise in the price of the scrip was not supported by its fundamentals or any other genuine factor. The above discussion clearly establishes the fact that the price of the shares of MAHAVIR ADVANCED REMEDIES LTD were rigged in a pre-planned systematic manner by conducting limited trades and with miniscule volume."

8. The AO has also examined the SEBI's findings about the accommodation entry providers obtained on the basis of various investigations and has brought out sufficient material on record to demonstrate that the transactions are not genuine and he accordingly concluded that the long-term capital gain booked by the assessee in the books were prearranged method to evade taxes and laundered money. The findings and observations of the AO were not controverted by the assessee by placing any evidence. He placed reliance upon the various judicial pronouncements in support of his contention that once the assessee has placed the evidences with regard to payments and the identity of the persons and the creditworthiness of the creditors, no addition under section 68 is called for. Since the assessee has placed the contract note, payment through cheques identifying the company whose shares were transacted, the genuineness of claim of long-term capital gain should not have been doubted. We do not find merit in these contentions of the assessee in the light of the facts that there is prevalent practice in the country through which unaccounted money is converted into long-term capital gain by circuitous means. While dealing with the issue of long-term capital gain accrued to the assessee in short span, one has to examine the financials of the company whose shares were inflated within a short period and after the sharp rise in the price of shares it again comes down. In the instant case, financials were examined by us and we find that the financial worth of the company is meagre and not at all worth to be invested therein. With such financials, we are unable to understand how there can be manifold increase in the shares. In the light of the duration of transactions and the financials of the company whose shares were transacted, we find that the Revenue has brought sufficient material on record to demonstrate that unaccounted money was introduced in the books of account through long-term capital gain by adopting such method. Whatever judicial pronouncements are relied on, these are in those cases where the transactions are genuine. Under these circumstances, we are of the view that Revenue authorities have rightly adjudicated the issue and no interference is called for in the order of the CIT (A).

9. In the result, appeal of the assessee stands dismissed.

sunil