2019 (10) TMI 906 - AT - Income Tax

Reopening of assessment - Bogus LTCG - Disallowance of the claim of long term capital gain u/s. 10(38) - HELD THAT - We find that Hon'ble Apex Court in the case of Rajesh Jhaveri Stock Brokers Private Ltd. 2007 (5) TMI 197 - SUPREME COURT has held that intimation under section 143(1) is not an assessment order. Hence it cannot be said that there was any application of mind by the assessing officer in the original assessment. Moreover, at the time of reopening the escapement of income need not be conclusively proved. In this view of the matter in our considered opinion the reopening is valid We find that it is the claim of the assessee that he has earned the gain in this case where the share price of a little-known company has jumped many times in no time and that all documentary records are available. It is noted that the assessee purchased shares at cost of ₹ 8,342/- on 29/30.4.2003. They were sold at ₹ 3,19,288/- on 23.11.2004, registering astonishing jump in share price. But there is no economic or financial justification for such astonishing jump. Quantity, price and time and sale, parties being persistent in number of such trade transactions with huge price variations, it will be too na ve to hold that the transactions are through screen-based trading and hence anonymous. Such conclusion would be overlooking the prior meeting of minds involving synchronization of buy and sell order and not negotiated deals as per the board's circular. The impugned transactions are manipulative/deceptive device to create a desired loss and/or profit. Such synchronized trading is violative of transparent norms of trading in securities. If the findings of SAT are to be sustained, it would have serious repercussions undermining the integrity of the market and the impugned order of SAT is liable to be set aside. On the above additional reasoning also, agree with the conclusion allowing the appeal preferred by SEBI against the traders. We also agree with the conclusion dismissing the appeal preferred by the SEBI against the brokers - Decided against assessee.

Summary

Issues:
Validity of reopening and confirmation of disallowance of long term capital gain under section 10(38) of the Income Tax Act for A.Y. 2005-06.

Validity of Reopening:
The appeal challenged the validity of reopening and the disallowance of long term capital gain. The Assessing Officer made an addition on account of unexplained cash credit under section 68. The appellant claimed exempted LTCG under section 10(38) on the sale of shares. The CIT(A) confirmed the addition and rejected the challenge to the validity of jurisdiction for reopening. The ITAT noted that the intimation under section 143(1) is not an assessment order, as per the Supreme Court's decision in Rajesh Jhaveri Stock Brokers Private Ltd. The reopening was considered valid as the assessing officer did not apply his mind in the original assessment, and there were reasonable cogent materials for reopening, supported by the jurisdictional High Court decision in Export Credit Guarantee Corporation of India Ltd.

Merits of the Case - Long Term Capital Gain Disallowance:
The appellant claimed to have earned gain from a share transaction with an astonishing jump in share price, but there was no economic or financial justification for the increase. The ITAT cited the case of Sanjay Bimalchand Jain Vs. Pr. CIT, where the High Court confirmed a similar situation of an enormous jump in share price without justification. The departmental examination corroborated the transaction as a sham, indicating a classic case of penny stock transaction. The ITAT referred to various Supreme Court decisions, including CIT Vs. Durga Prasad More and Securities and Exchange Board of India Vs. Rakhi Trading Pvt. Ltd., to support the disallowance of the long term capital gain claim. The ITAT upheld the CIT(A)'s order based on the applicable case laws and dismissed the appeal filed by the assessee.

Conclusion:
The ITAT dismissed the appeal, confirming the disallowance of long term capital gain and upholding the validity of the reopening based on the lack of application of mind in the original assessment and the presence of reasonable materials for reopening. The decision was pronounced on 12.9.2019.