2019 (11) TMI 409 - AT - Income Tax

Long Term Capital Gain - denial exemption u/sec 10(38) - penny sock - HELD THAT - Foundation of doubt as laid by the AO which made him to enquire into the details of transactions of purchase and sale of shares of LD PL, finding the same as bogus led to denial of exemption u/s.10(38) of the Act. We find when there was no business operation of LD PL during the period of purchase and sale of shares and astronomical increase of share price of LD PL which led to returns at 350%, in our opinion, is unjustified. The assessee failed to controvert and put forth any evidence rebutting the investigation report DDIT, Kolkata showing the transactions of purchase and sale of shares are genuine. The suspension imposed by the Bombay Stock Exchange on trading of LD PL shares from 28-08-2015 is still in force. Therefore, we hold that the assessee is the beneficiary of bogus transactions by accommodation entries provided by the Jamakharchi companies i.e LD PL, DTPL and brokers KORP SL and GFSL through multiple layering of transactions, in view of the discussion made by us hereinabove, in the facts and circumstances of the case and the decisions relied upon, that the assessee is not entitled to claim exemption u/s.10(38) of the Act. We find no infirmity in the order of CIT(A) and it is justified - Decided against assessee Addition made on account of commission charged - AO on an examination found a commission @ 5% has was paid for arranging capital gain as payment of such a commission is a common practice - HELD THAT - In view of the fact that we have countenanced the conclusion of the authorities below in treating the long term capital gain from transfer of shares as bogus, the sequitur is that the assessee did pay commission for arranging the bogus capital gain. However, considering the totality of the facts and circumstances of the instant case, we are of the considered view that the rate of commission be reduced to 2% instead of 5%. Thus, ground No.8 raised by the assessee is partly allowed. Addition made on account of set off of interest against professional fee - HELD THAT - No evidence whatsoever put forth by the Ld. AR showing the said ₹ 24,00,000/- is a professional receipt from M/s. Sagar Paridhan Pvt. Ltd. Admittedly, the assessee is a Director of said M/s. Sagar Paridhan Pvt. Ltd. In the immediately preceding year also, similar amount was treated by the assessee as Salary and offered as such. In view of the same, we hold that the authorities below were right in treating the amount of receipt as chargeable to tax under the head Salaries and consequently, not allowing the set off of interest of ₹ 5,09,800/-. Thus, the ground No.9 raised by the assessee fails and it is dismissed.

Issues Involved:
1. Addition on account of Long Term Capital Gain (LTCG).
2. Confirmation of addition made on account of commission charged.
3. Set off of interest against professional fee.

Issue-wise Detailed Analysis:

1. Addition on account of Long Term Capital Gain (LTCG):

The primary issue in this case revolves around the addition made by the Assessing Officer (AO) on account of LTCG claimed by the assessee. The AO doubted the genuineness of the LTCG arising from the sale of shares of Lifeline Drugs and Pharma Limited (LD&PL). The AO's investigation revealed that the assessee purchased 25,000 shares of LD&PL for ?15,00,000, which later converted to 2,50,000 shares. The assessee sold 43,000 shares, resulting in a claimed LTCG of ?1,04,02,303. The AO found the LTCG to be unnatural and arranged, suspecting it to be a method to launder black money.

The AO's detailed examination included the financials of LD&PL, which showed no substantial corporate investment to justify the price rise of its scrip. The AO noted that the transactions were conducted in a circular fashion, involving related entities, and treated the LTCG as unexplained cash credit under Section 68 of the Income Tax Act. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, deeming the LTCG as manipulated and bogus.

The assessee contended that the AO's conclusions were based on presumptions and that all transactions were genuine and supported by documentary evidence. However, the Tribunal found that the scheme adopted by the assessee and related parties, including LD&PL, was predetermined to book LTCG by dubious methods. The Tribunal upheld the AO's view that the transactions were not genuine, considering the lack of business activity of LD&PL during the relevant period and the astronomical increase in share prices without any economic justification.

2. Confirmation of addition made on account of commission charged:

The AO also made an addition of ?5,20,115 as unexplained expenditure under Section 69 of the Income Tax Act, assuming a commission rate of 5% for arranging the bogus LTCG. The CIT(A) confirmed this addition. The Tribunal, while upholding the bogus nature of the LTCG, reduced the commission rate to 2%, considering the totality of the facts and circumstances, thereby partly allowing this ground of appeal.

3. Set off of interest against professional fee:

The assessee claimed a set-off of interest expenses amounting to ?5,09,800 against professional receipts from M/s. Sagar Paridhan Pvt. Ltd. The AO treated the receipt as salary, not professional fees, as the assessee was a Director in the said company. The CIT(A) upheld the AO's view, noting that the assessee had admitted the receipt as salary during the assessment proceedings. The Tribunal found no evidence to support the assessee's claim that the receipt was professional income and upheld the disallowance of the set-off of interest expenses.

Conclusion:

The Tribunal dismissed the assessee's grounds related to the LTCG and set-off of interest against professional fees, while partly allowing the ground related to the commission charged by reducing the rate from 5% to 2%. The appeal was thus partly allowed.

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