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2019 (9) TMI 1066 - AT - Income TaxBogus LTCG - Penny stock transaction - denying exemption u/s. 10(38) - HELD THAT - It is the claim of the assessee that he has earned the gain in this case where the share price off a little-known company has jumped 3800% in no time and that all documentary records are available. But there is no economic or financial justification for such astonishing jump. In identical situation wherein the enormous jump in share price in very little time without any economic or financial justification was confirmed by the ITA, the same was duly confirmed by the honourable jurisdictional High Court in the case of Sanjay B. Jain 2017 (5) TMI 983 - BOMBAY HIGH COURT This is a classic case of penny stock transaction. Such conversion of unaccounted money through dubious method is not permitted on the touchstone of Hon'ble Supreme Court decision in the case of CIT Vs. Durga Prasad More 1971 (8) TMI 17 - Supreme Court - Decided against assessee.
Issues Involved:
1. Rejection of the claim of long-term capital gain and denial of exemption under Section 10(38) of the Income Tax Act, 1961. 2. Disallowance of commission amounting to ? 1,92,770 under Section 69C. Issue-Wise Detailed Analysis: 1. Rejection of Long-Term Capital Gain Claim and Denial of Exemption under Section 10(38): Facts and Background: The assessee filed a return declaring a total income of ? 1,82,92,510, claiming long-term capital gain (LTCG) on the sale of shares of M/s. Kailash Auto Finance Ltd. amounting to ? 64,25,672. The Assessing Officer (AO) noted that the shares belonged to a penny stock company identified by the Directorate of Investigation as being used to provide accommodation entries for LTCG/business loss through manipulated share prices. Assessing Officer’s Findings: - The assessee’s primary business was trading and export of aluminum caps, with no substantial trading activity or investment in listed shares. - The purchase of 5,00,000 shares at ? 1 per share from M/s. Needful Vincom Pvt. Ltd. was considered a pre-arranged move to bring back unaccounted money. - The company where the shares were purchased did not exist at its registered office, and the notice sent under Section 133(6) was unserved. - The assessee could not provide credible details about the transaction or the acquaintance who advised the investment. - The return on investment was 3800%, which was unrealistic compared to normal market returns. CIT(A)’s Findings: - The CIT(A) found the transaction to be bogus, relying on the Hon’ble Jurisdictional High Court decision in the case of Sanjay Bimal Chand Jain. - The appellant purchased shares off-market at a nominal price and sold them at an inflated price, resulting in an unrealistic return. - Statements from various persons, including Shri Sunil Dholakia, confirmed that the shares were used to provide bogus LTCG. - The investigation revealed that the company was a penny stock used for providing accommodation entries. - The CIT(A) concluded that the transactions were devoid of commercial nature and were structured to evade taxes. ITAT’s Decision: - The ITAT upheld the CIT(A)’s order, noting that the share price of a little-known company jumped 3800% without any economic or financial justification. - The case was considered a classic example of a penny stock transaction used to convert unaccounted money through dubious methods. - The ITAT relied on precedents from the Hon’ble Supreme Court and the jurisdictional High Court, which emphasized that such transactions are not genuine and cannot be permitted. 2. Disallowance of Commission under Section 69C: Facts and Background: The AO noted that the statement of Shri Sunil Dholakia mentioned a commission of 3% for providing arranged capital gains. The AO assessed a commission amount of ? 1,92,770 (3% of ? 64,25,672) under Section 69C. CIT(A)’s Findings: - The CIT(A) upheld the AO’s finding, noting that the assessee failed to provide any plausible explanation for the commission. - The CIT(A) relied on judicial pronouncements that supported the view that such commissions are part of the bogus LTCG arrangement. ITAT’s Decision: - The ITAT confirmed the CIT(A)’s order, agreeing that the commission was part of the structured transactions designed to evade taxes. - The ITAT noted that the assessee did not provide any evidence to rebut the findings of the AO and CIT(A). Conclusion: The ITAT dismissed the appeal filed by the assessee, confirming the rejection of the long-term capital gain claim and the disallowance of the commission. The judgment emphasized that the transactions were not genuine and were structured to evade taxes, relying on established legal precedents.
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