2022 (11) TMI 269 - AT - Income Tax

Bogus LTCG - claim of exemption u/s. 10(38) of the Act in respect of long-term capital gains (LTCG) arising from sale of shares denied - HELD THAT - As respectfully following the decision of this Tribunal dated 17.10.2022 2022 (10) TMI 728 - ITAT KOLKATA as well as in the light of ratio laid down in the case of Swati Bajaj Others 2022 (6) TMI 670 - CALCUTTA HIGH COURT find no infirmity in the orders of the ld. CIT(Appeals) holding the alleged LTCG for sale of equity shares as bogus and not eligible to exemptions under section 10(38) of the Act and also confirming the addition of commission expenditure incurred for arranging bogus LTCG and dismiss the appeals of the assesses.

Summary

Issues Involved:
1. Disallowance of claim of exemption under section 10(38) of the Income Tax Act, 1961.
2. Addition of commission expenditure for arranging Long-Term Capital Gains (LTCG).

Issue-wise Detailed Analysis:

1. Disallowance of Claim of Exemption under Section 10(38):
The primary issue in these appeals revolves around the disallowance of the claim of exemption under section 10(38) of the Income Tax Act, 1961, related to LTCG arising from the sale of shares. The Assessing Officer (AO) found that the shares involved were from penny stock companies, which were artificially rigged to show inflated prices. The AO concluded that the transactions were bogus, aimed at converting unaccounted money into tax-exempt income. The assessees failed to provide satisfactory explanations or evidence to justify the genuineness of the transactions. Consequently, the AO treated the LTCG as unexplained cash credit under section 68 of the Act. The CIT(A) upheld the AO's decision, noting that the transactions were sham and pre-conceived for tax evasion. The Tribunal, relying on the jurisdictional High Court's decision in the case of Swati Bajaj & Others, dismissed the appeals, affirming that the transactions were not genuine and the exemption under section 10(38) was rightly disallowed.

2. Addition of Commission Expenditure for Arranging LTCG:
In addition to disallowing the LTCG exemption, the AO also added amounts related to commission expenditure purportedly incurred for arranging the bogus LTCG. The AO observed that share brokers and entry operators charged a commission for facilitating these transactions. The assessees did not satisfactorily explain the commission expenditure, leading the AO to add these amounts to the total income as unexplained expenditure. The CIT(A) upheld these additions, and the Tribunal, following the precedent set by the High Court in Swati Bajaj & Others, confirmed the AO's and CIT(A)'s decisions, dismissing the appeals.

Conclusion:
The Tribunal, after considering the facts and the binding precedent from the jurisdictional High Court, dismissed all the appeals. The orders of the CIT(A) were upheld, confirming the disallowance of the LTCG exemption under section 10(38) and the addition of commission expenditure. The Tribunal emphasized that the transactions were not genuine and were aimed at tax evasion, thus justifying the additions made by the AO.