2023 (1) TMI 44 - HC - Income Tax

Bogus LTCG - exemption u/s 10(38) denied - HELD THAT - The genuineness of investment in the shares by the assessee was substantiated by him by producing copy of transaction statement for the period from 1.6.2001 to 1.10.2010. The investment was made in the year 2000-01. The shares were retained for more than ten years and were sold after such long time. These circumstances suggested that the investment was not bogus or investment made in penny stock. The shares were purchased in order to invest and not for the purpose of earning exempted income by frequent trading in short span. The finding recorded by the appellate authority and confirmed by the appellate tribunal is based on material before them. They are in the realm of findings of fact. No error could be noticed in the findings and conclusion that the investment was longstanding and genuine and was not penny stock on the basis of which the capital gain was wrongly claimed. No substantial question of law arises.

Summary

Issues Involved:
1. Whether the decision of the Appellate Tribunal in deleting the addition of Rs.2,10,474/- made on account of bogus long term capital gain was perverse?
2. Whether the shares in question were genuine investments or penny stocks?

Analysis:

Issue 1: Decision of the Appellate Tribunal
The Tax Appeal was filed against the judgment of the Income Tax Appellate Tribunal, Ahmedabad, in which the Appellant challenged the deletion of an addition of Rs.2,10,474/- made on account of alleged bogus long term capital gain. The Appellant contended that the Tribunal's decision was perverse as it failed to appreciate that the assessee transacted in penny stock, specifically shares of Devika Proteins Ltd., and claimed exempt income under Section 10(38) of the Income Tax Act. The Appellate Tribunal, after considering the submissions, confirmed the view of the appellate authority that the shares were purchased in 2001 and sold in 2010-11, indicating a long-term investment rather than a speculative penny stock transaction. The Tribunal's decision was based on the evidence presented, including transaction statements from 2001 to 2010, supporting the genuineness of the investment.

Issue 2: Nature of Shares - Genuine Investment or Penny Stock
The Assessing Officer initially treated the entire transaction as bogus and categorized it as penny stock, resulting in an addition of Rs.2,10,474/- to the total income under Section 68 of the Income Tax Act. However, the Commissioner of Income Tax (Appeals) re-examined the issue and found that the shares were genuine investments dating back to 2000-01, not meeting the criteria of penny stocks. The Appellate Tribunal upheld this finding, emphasizing that the shares were held for over ten years before being sold, indicating a long-standing and legitimate investment. The Tribunal concluded that the investment was not made with the intention of earning exempted income through frequent trading but rather as a genuine long-term investment.

In conclusion, the High Court dismissed the appeal, affirming the decisions of the lower authorities that the investment in shares was genuine and not a penny stock transaction. The Court found no error in the findings that the capital gain claimed was legitimate, based on the evidence provided and the nature of the investment.