2022 (9) TMI 1328 - HC - Income Tax

Addition u/s 68 - bogus capital gain generated in penny stock - proceedings u/s143(3) and suspicious transanction in shares cannot be exempted u/s 10(38) - HELD THAT - It cannot be disputed that an identical issue was considered in a batch of cases in PCIT Vs. SWATI BAJAJ 2022 (6) TMI 670 - CALCUTTA HIGH COURT and the appeals filed by the revenue were allowed. There are no distinguishing features in the case on hand to take a different view.

Issues:
1. Condonation of delay in filing the appeal.
2. Interpretation of provisions under the Income Tax Act, 1961 regarding unexplained Long Term Capital Gains (LTCG) and suspicious transactions in shares.
3. Deletion of addition of undisclosed income related to bogus capital gains generated in penny stocks.
4. Direction to allow the claim of Long Term Capital Gain and deletion of additions under various sections of the Income Tax Act.
5. Scrutiny of the genuineness of transactions and creditworthiness to prove non-involvement in dubious share transactions.
6. Failure to consider investigations by the Assessing Officer, the Investigation Wing of the Income Tax Department, and SEBI on the rise in share prices.
7. Acceptance of transactions in penny stocks as genuine without delving into manipulative and fraudulent practices.

1. Condonation of Delay:
The Court considered a delay of 1081 days in filing the appeal, attributing a substantial part of the delay to the lockdown period. Referring to a Circular by the CBDT, the Court allowed the delay application based on a previous decision regarding the effect of the Circular on condonation of delay.

2. Interpretation of Provisions - LTCG and Suspicious Transactions:
The appeal raised questions on the treatment of unexplained LTCG under Section 68 of the Income Tax Act and the exemption under Section 10(38). The Court deliberated on whether suspicious transactions in shares could be exempted under Section 10(38) and whether the Tribunal erred in admitting such LTCG as genuine.

3. Deletion of Undisclosed Income:
The Tribunal's decision to delete additions related to undisclosed income from bogus capital gains in penny stocks was challenged. The Court analyzed whether the Tribunal overlooked a larger scam or organized tax evasion by allowing such deletions.

4. Direction to Allow LTCG Claim:
The Court examined the Tribunal's direction to allow the claim of LTCG, negating additions under various sections of the Income Tax Act. It scrutinized the authenticity of the claims and the involvement of fraudulent practices in availing exemptions.

5. Scrutiny of Transactions' Genuineness:
The Court assessed whether the Tribunal adequately scrutinized the genuineness and creditworthiness of transactions to ascertain the involvement in dubious share transactions for claiming exemptions under the Act.

6. Failure to Consider Investigations:
The Court reviewed the Tribunal's failure to consider investigations by tax authorities and SEBI on the rise in share prices, questioning the application of the test of human probability to determine the nature of transactions resulting in bogus LTCG.

7. Acceptance of Transactions in Penny Stocks:
The Court deliberated on the Tribunal's acceptance of transactions in penny stocks as genuine without delving into manipulative and fraudulent practices. It compared the case to a previous decision where similar appeals were allowed, leading to the allowance of the revenue's appeal in this case.

This comprehensive analysis covers the various legal issues addressed in the judgment, providing detailed insights into the Court's reasoning and decisions on each matter.

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