2022 (11) TMI 881 - AT - Income Tax

Addition u/s 68 - Bogus share transactions - penny stock purchases - HELD THAT - Share prices of alleged company witnessed a drastic and sharp increase in a very short span of time without having sufficient reason for such increase of price of such share and findings of authorities below on this issue. In the case of Swati Bajaj 2022 (6) TMI 670 - CALCUTTA HIGH COURT under similar set of facts considering report of Directorate of Income Tax (Investigation), Kolkata and also poor financials of the penny stock companies but having sharp, drastic and abnormal increase in share price, held such long term capital gain from sale of such shares as bogus and confirmed the addition made by the ld. AO u/s. 68 and also confirmed the order passed by the AO thereby treating the assessment order is a valid one. Thus assessee having failed to controvert this finding by placing any other binding precedence of Hon ble Supreme Court in its favour therefore we fail to find any infirmity in the finding of the authorities below and the assessment order passed u/s 143(3) and order passed by the ld. CIT(A). Therefore, we dismiss the appeal filed by the assessee. Addition u/s 69C alleging commission paid by the assessee towards payment of brokerage - Same has been added under the head of income from other sources in the hands of assessee which was also affirmed by the ld. CIT(A). while passing the impugned order regarding this issue, assessee having failed to controvert the findings of the authorities below. Therefore, we failed to find any infirmity in respect of this issue and dismiss the appeal filed by the assessee.

Summary

Issues:
1. Disallowance of claim of exemption u/s 10(38) in respect of Long Term Capital Gain arising from the sale of shares.
2. Addition u/s 69C of the Act alleging commission paid towards payment of brokerage.

Issue 1: Disallowance of claim of exemption u/s 10(38) in respect of Long Term Capital Gain arising from the sale of shares:

The case involved an appeal by the assessee against the order of the Ld. Commissioner of Income Tax(Appeals) for the AY 2015-16. The assessee had shown income from Long Term Capital Gain from the sale of shares of a company and claimed exemption u/s 10(38) of the Act. The Assessing Officer added the entire amount of the gain in the hands of the assessee as unexplained cash credit u/s 68 of the Act, suspecting the transaction's motive to defraud the revenue. Additionally, an amount was added as unexplained expenditure towards payment of brokerage under the head 'Income from Other Sources'. The assessee's appeal before the Ld. CIT(A) was dismissed, leading to the present appeal before the Tribunal.

The Tribunal, after considering the facts and material available on record, observed a drastic and sharp increase in the share price of the company without sufficient reason, in line with findings from the Directorate of Income Tax (Investigation) uncovering market manipulation. Citing a precedent case, the Tribunal found the long term capital gain from the sale of such shares as bogus, confirming the additions made by the Assessing Officer. The Tribunal dismissed the appeal, upholding the orders of the authorities below and the assessment order passed u/s 143(3) of the Act.

Issue 2: Addition u/s 69C of the Act alleging commission paid towards payment of brokerage:

Apart from the disallowance of the claim of exemption u/s 10(38), an amount was added under u/s 69C of the Act as unexplained expenditure towards payment of brokerage under the head 'Income from Other Sources'. The Ld. CIT(A) affirmed this addition, and the assessee's failure to counter the findings led the Tribunal to find no infirmity in the decision. Consequently, the Tribunal dismissed the appeal filed by the assessee on this issue as well.

In conclusion, the Tribunal dismissed the appeal of the assessee, upholding the decisions of the authorities below regarding both the disallowance of exemption u/s 10(38) and the addition u/s 69C of the Act. The judgment was pronounced on 10th November 2022.