2022 (11) TMI 1254 - AT - Income Tax

Addition u/s 68 - bogus LTCG - Penny stock purchases - HELD THAT - Directorate of Income Tax (Investigation), Kolkata unearthed a racket of penny stock companies, which are managed by entry operators and brokers, wherein share prices are rigged, abnormally high so as to provide accommodation entries in the form of bogus long-term capital gain to various beneficiaries. The investigation report mentioned the list of 84 companies, which were found to be penny stock companies and all these companies have poor financial, no regular business activity was carried out and the share prices increased abnormally with the help of entry operators and brokers. Recently Hon ble Jurisdictional High Court in the case of Swati Bajaj Others 2022 (6) TMI 670 - CALCUTTA HIGH COURT dealing with the similar facts and the issue relating to the penny stock companies decided against the assessee thereby confirming the addition under section 68 of the Act as well as confirming the revisionary proceedings under section 263 - Appeal of the assessee is dismissed.

Issues Involved:
1. Validity and legality of the orders passed by the lower authorities.
2. Consideration of documentary evidence supporting the earning of Long Term Capital Gains (LTCG).
3. Dismissal of appeal based on surmises and conjectures.
4. Verification of information by the Assessing Officer (A.O.).
5. Opportunity to cross-examine persons whose statements were used in assessment.
6. Arbitrary nature of the assessment order.
7. Violation of principles of natural justice.

Detailed Analysis:

1. Validity and Legality of the Orders Passed by the Lower Authorities:
The assessee contended that the orders passed by the lower authorities were arbitrary, erroneous, without proper reasons, invalid, and bad-in-law to the extent they were prejudicial to the appellant's interests. The Tribunal, however, upheld the findings of the lower authorities, confirming the addition of Rs.1,27,71,907/- to the income of the assessee, thereby dismissing the appeal.

2. Consideration of Documentary Evidence Supporting the Earning of LTCG:
The assessee argued that the Ld. CIT (A) erred in dismissing the appeal without properly considering all relevant documentary evidence submitted in support of earning LTCG. The Tribunal noted that the transactions of LTCG were supported by the Contract Note of purchase of shares, transaction statements, and relevant bank accounts. However, the Tribunal found that the evidence was insufficient to counter the findings of the Directorate of Income Tax (Investigation), Kolkata, which unearthed a racket of penny stock companies providing bogus LTCG.

3. Dismissal of Appeal Based on Surmises and Conjectures:
The appellant claimed that the Ld. CIT (A) dismissed the appeal on surmises and conjectures despite the appellant having filed all relevant evidence. The Tribunal, however, found that the Ld. CIT (A) had rightly relied on various judicial pronouncements, including the Hon'ble Supreme Court's judgments in Sumati Dayal (214 ITR 801) and Durga Prasad More (82 ITR 540), confirming the A.O.'s findings.

4. Verification of Information by the A.O.:
The assessee contended that the A.O. proceeded on unverified information. The Tribunal upheld the A.O.'s findings, noting that the Directorate of Investigation's report listed Unno Industries among 84 penny stock companies involved in providing bogus LTCG. The A.O. found that the share prices of Unno Industries increased drastically without sufficient financial base or earnings per share, deeming the transactions as sham and bogus.

5. Opportunity to Cross-Examine Persons Whose Statements Were Used in Assessment:
The appellant argued that the A.O. did not afford an opportunity to cross-examine the persons whose statements were used in the assessment. The Tribunal referred to the Hon'ble Jurisdictional High Court's judgment in Swati Bajaj & Others (2022) 139 taxmann.com 352 (Cal.), which held that the burden of proof lies on the assessee to establish the genuineness of the transactions. The Tribunal found that the appellant failed to discharge this burden.

6. Arbitrary Nature of the Assessment Order:
The appellant claimed that the assessment order was arbitrary. The Tribunal, however, found that the A.O.'s decision was based on a detailed investigation report and was consistent with the findings of the Directorate of Investigation, Kolkata.

7. Violation of Principles of Natural Justice:
The appellant argued that the use of statements without an opportunity to cross-examine violated established law. The Tribunal, citing the Hon'ble Jurisdictional High Court's judgment, noted that the assessee had the opportunity to prove the genuineness of the transactions but failed to do so. The Tribunal concluded that the A.O. and CIT (A) followed a reasonable and prudent process in their assessments.

Conclusion:
The Tribunal dismissed the appeal, confirming the findings of the lower authorities and the addition of Rs.1,27,71,907/- to the income of the assessee. The Tribunal's decision was based on the investigation report and judicial precedents, emphasizing the burden of proof on the assessee to establish the genuineness of the LTCG transactions.

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