2019 (9) TMI 257 - AT - Income Tax

Bogus LTCG - Addition u/s 68 - case was selected for scrutiny under CASS for examining suspicious long term capital gain on share on the basis of inputs from Investigation Wing, Kolkata - HELD THAT - Directorate of Investigation (Wing), Kolkata had carried out, the investigation in which the M/s. HPC Bio Ltd. was found indulging in the activity in contravention of SEBI Act and Rules. SEBI had suspended the trading in the securities of M/s. HPC Bio Ltd. The financial position of the company was not good while purchasing the shares whereas the company was at giving after the expiry of one years the amount in sum of ₹ 21,92,278/-. It also speaks that the said transaction is non-genuine. CIT(A) has relied upon the number of decision to arrive at this conclusion that the transaction was bogus. Each and every aspects of the transaction has been properly dealt with. The reason for declining the claim of the assessee has duly been discussed which nowhere required to discuss again. CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, we decided these issues in favour of the revenue against the assessee.

Issues Involved:
1. Addition of ?21,92,278/- under Section 68 of the Income Tax Act, 1961.
2. Denial of Long Term Capital Gains (LTCG) exemption under Section 10(38) of the Income Tax Act, 1961.
3. Allegation of bogus transactions and accommodation entries.
4. Reliance on findings from the Directorate of Investigation, Kolkata, and SEBI.

Issue-wise Detailed Analysis:

1. Addition of ?21,92,278/- under Section 68 of the Income Tax Act, 1961:
The assessee filed a return declaring an income of ?14,47,860/- for the assessment year 2015-16. The case was selected for scrutiny due to suspicious long-term capital gains on shares. The Assessing Officer (AO) added ?21,92,278/- under Section 68, treating it as unexplained cash credit. The AO's decision was based on the findings that the shares of M/s. HPC Bio Ltd. were part of a racket generating bogus LTCG entries. The shares were sold at a significantly inflated price after a year, which the AO deemed prearranged.

2. Denial of Long Term Capital Gains (LTCG) exemption under Section 10(38) of the Income Tax Act, 1961:
The assessee claimed LTCG exemption under Section 10(38) for the gains from the sale of shares of M/s. HPC Bio Ltd. The AO denied this exemption, citing the investigation by the Directorate of Investigation, Kolkata, which revealed that the shares were part of a scheme to generate bogus LTCG. The shares were purchased at a nominal price and sold at an inflated price to claim tax exemption fraudulently.

3. Allegation of bogus transactions and accommodation entries:
The investigation established that the shares of M/s. HPC Bio Ltd. were manipulated to inflate their price artificially. The modus operandi involved purchasing shares at a low price and selling them at a high price to claim LTCG exemption. The AO and the CIT(A) concluded that the transactions were not genuine and were merely accommodation entries to evade taxes.

4. Reliance on findings from the Directorate of Investigation, Kolkata, and SEBI:
The CIT(A) and the AO relied heavily on the findings from the Directorate of Investigation, Kolkata, and SEBI. The investigation revealed that M/s. HPC Bio Ltd. was involved in activities contravening SEBI regulations. SEBI had suspended trading in the securities of M/s. HPC Bio Ltd. due to these irregularities. The CIT(A) cited various judicial pronouncements, including those from the Hon'ble Supreme Court, to support the decision that the transactions were bogus.

Conclusion:
The Tribunal upheld the findings of the CIT(A) and the AO, concluding that the transactions were not genuine and were part of a scheme to generate bogus LTCG. The appeal filed by the assessee was dismissed, and the addition of ?21,92,278/- under Section 68 and the denial of LTCG exemption under Section 10(38) were upheld. The Tribunal emphasized that the evidence and findings from the Directorate of Investigation and SEBI were conclusive in proving the non-genuine nature of the transactions.

Result:
The appeals filed by the assessee were dismissed, and the decisions of the CIT(A) and the AO were upheld. The transactions were deemed bogus, and the addition under Section 68 and denial of LTCG exemption were confirmed.

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