2022 (9) TMI 871 - AT - Income Tax

Addition u/s 68 - denial of exemption u/s 10(38) - Bogus LTCG - unaccounted money of the assessee under the guise of long term share transaction - HELD THAT - The action of the assessee is nothing but pre-motivated and deliberate conduct done for converting the unaccounted money of the assessee under the guise of long term share transaction and that too without paying requisite tax on the same. This clearly amounts to tax evasion. It is also beyond preponderance of probabilities that the fantastic sale price of a little known shares i.e. Mishka without any economic or financial basis to increase from Rs. 6/- to Rs. 50.25 per share, and likewise whereby the assessee manipulated the capital gain which was bogus and was done to claim exemption u/s 10(38) therefore, we do not find any reason to interfere with the findings of the CIT(A) and the same is upheld. Therefore, the addition u/s 68 of the Act and denial of exemption u/s 10(38) of the Act is upheld. Addition u/s 69C - commission of about 1-2% of the transaction is paid to the broker who negotiates the deal - HELD THAT - When there is no doubt that such transactions involve certain money paid to the operators/arrangers of such fraudulent capital gains, the revenue authorities have reasonably calculated 5% of the sale consideration and accordingly such addition was upheld. In the present case also, admittedly the share transactions were manipulated through entry provider, stockbrokers in order to obtain fraudulent income by rigging share prices and selling them in order to justify the unaccounted income of the assessee and for all these activities the broker is making all the negotiations and arrangements and therefore, there is no doubt that such transactions involves money, paid to entry provider for such fraudulent capital gains and hence disallowance @ 1% is held to be reasonable and we do not find any infirmity with the findings of the ld. CIT(A) on this issue also. The order of the ld. CIT(A) is accordingly upheld on this issue as well. Addition of investment made by the assessee - AO held that the assessee has not been able to prove the source of investment - HELD THAT - As we do not find any reason to interfere with the findings since they have been arrived at by proper examination of facts and verification.It is strange to note that the broker is based in Surat and assessee is in Nashik and in the bill the broker has not charged any commission and the bill also does not bear the mode of receipt and the bill mentions that the amount is due from the assessee. It clearly shows that the bill has not been issued in a normal manner but has been a paper work to show the offline purchase of shares through a broker. As the amount is paid in cash, the A.O is right in holding that the investment is from unexplained sources. The ground of appeal is therefore, dismissed.

Issues Involved:
1. Prolonged litigation and adjournments.
2. Addition of Rs. 1,00,97,902/- under section 68 of the Income Tax Act.
3. Denial of exemption under section 10(38) of the Income Tax Act.
4. Addition of Rs. 1,00,979/- under section 69C of the Income Tax Act.
5. Addition of Rs. 15,000/- under section 69 of the Income Tax Act.

Detailed Analysis:

1. Prolonged Litigation and Adjournments:
The Tribunal noted that the cases had been pending for several months due to multiple adjournments requested by the parties, particularly the assessee's representative. Despite being given a final opportunity to present evidence, the assessee's representative failed to provide a valid reason for further delay. The Tribunal emphasized the importance of timely justice, referencing the Hon'ble Supreme Court's directions in Ishwarlal Mali Rathod Vs. Gopal and Ors., stressing that routine adjournments should not delay justice.

2. Addition of Rs. 1,00,97,902/- under Section 68 of the Income Tax Act:
The Income Tax Officer (ITO) made an addition of Rs. 1,00,97,902/- to the assessee's income on account of unexplained income in the guise of long-term capital gains from the sale of shares of Mishka Finance and Trading Pvt. Ltd. The assessee had purchased these shares offline and later sold them at significantly higher prices. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] found that the transactions were manipulated to create artificial long-term capital gains. The Tribunal upheld this view, emphasizing that the transactions were part of a scheme to evade taxes by manipulating share prices through a network of entry operators and brokers.

3. Denial of Exemption under Section 10(38) of the Income Tax Act:
The assessee claimed an exemption under section 10(38) for the long-term capital gains from the sale of shares. The AO and CIT(A) denied this exemption, citing evidence from the Investigation Wing and SEBI reports which indicated that the share prices were artificially inflated to create bogus long-term capital gains. The Tribunal supported this decision, noting that the assessee failed to provide any substantial evidence to prove the genuineness of the transactions.

4. Addition of Rs. 1,00,979/- under Section 69C of the Income Tax Act:
The AO added Rs. 1,00,979/- to the assessee's income, assuming it as commission paid for obtaining accommodation entries. The CIT(A) upheld this addition, referencing a similar decision by the Mumbai Tribunal, which accepted a reasonable commission rate for such transactions. The Tribunal also upheld this addition, agreeing with the CIT(A) that such transactions typically involve commission payments to brokers or entry providers.

5. Addition of Rs. 15,000/- under Section 69 of the Income Tax Act:
The AO added Rs. 15,000/- to the assessee's income, considering it as unexplained investment in the initial purchase of shares. The CIT(A) supported this addition, noting that the assessee failed to provide any proof of the source of this investment. The Tribunal upheld this decision, finding no reason to interfere with the CIT(A)'s findings.

Conclusion:
The Tribunal dismissed both appeals, affirming the decisions of the lower authorities. The additions under sections 68, 69C, and 69 were upheld, and the exemption under section 10(38) was denied. The Tribunal emphasized the need for timely justice and condemned the use of dilatory tactics by the assessee's representative.

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