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2023 (1) TMI 118 - AT - Income TaxBogus LTCG - unexplained credit u/s 68 - sale of shares sold on recognized stock exchange and, eligible for exemption u/s 10(38) denied - HELD THAT - We are in absolute agreement with the submission of Ld. DR that the issue of exempted capital gain arising from Turbotech Engineering Ltd. stands duly examined and concluded in the case of Shri Abhishek Gupta 2022 (8) TMI 1333 - ITAT INDORE - We note that the although the present appeal concerns the shares of Lifeline Drugs and Pharma Ltd., but the position is pari materia similar to the share of Turbotech Engineering Ltd. We do not find any material change which could suggest non-applicability of the decision of Shri Abhishek Gupta in present appeal. Hence, we find no valid reason to deviate. Accordingly, we uphold the additions made by revenue-authorities and dismiss the Grounds raised by assessee.
Issues Involved:
1. Denial of exemption of long-term capital gain under Section 10(38) of the Income-tax Act, 1961. 2. Addition of sale consideration as unexplained credit under Section 68 of the Act. 3. Addition of unexplained commission under Section 69C of the Act. Issue-wise Detailed Analysis: 1. Denial of Exemption of Long-Term Capital Gain under Section 10(38): The assessee declared a long-term capital gain of Rs. 66,28,161/- from the sale of shares of Lifeline Drugs and Pharma Ltd., claiming exemption under Section 10(38) of the Income-tax Act, 1961. The Assessing Officer (AO) treated the capital gain as bogus, suspecting the transactions as part of a scheme to convert black money into white. The AO noted that the shares were purchased for a meager amount of Rs. 33,418/- and sold within 18 months for Rs. 66,61,579/-, a return deemed unrealistic. The AO concluded that the transactions were manipulated and not genuine, citing various judicial precedents and the principle of preponderance of human probability. The Commissioner of Income-Tax (Appeals) [CIT(A)] upheld the AO's decision, referencing investigations by SEBI and the Income-tax Department that identified Lifeline Drugs and Pharma Ltd. as a "penny stock" used for generating bogus long-term capital gains. The CIT(A) also noted that the assessee failed to produce substantial evidence to support the genuineness of the transactions. 2. Addition of Sale Consideration as Unexplained Credit under Section 68: The AO added the sale consideration of Rs. 66,28,161/- as unexplained credit under Section 68 of the Act, asserting that the assessee could not satisfactorily explain the nature and source of the credited amount. The AO emphasized that merely conducting transactions through the stock exchange and receiving payments by cheque do not ipso facto prove the genuineness of the transactions. The CIT(A) affirmed this addition, highlighting that the assessee's transactions were part of a broader scheme involving penny stocks, manipulated to provide tax-exempt gains. The CIT(A) relied on various judicial pronouncements to substantiate that the transactions were sham and aimed at converting unaccounted money into tax-exempt income. 3. Addition of Unexplained Commission under Section 69C: The AO estimated that the assessee incurred a brokerage cost of Rs. 1,99,847/- (3% of the total transaction value) from undisclosed sources for arranging the bogus capital gain. This addition was made under Section 69C of the Act. The CIT(A) upheld this addition, reasoning that it was a reasonable estimation given the nature of the transactions and the involvement of brokers and operators in providing accommodation entries. Conclusion: The Tribunal upheld the findings of the lower authorities, dismissing the appeal of the assessee. It was concluded that the transactions in question were not genuine and were part of a scheme to convert unaccounted money into tax-exempt income using manipulated penny stocks. The Tribunal relied on the principle of preponderance of human probability and various judicial precedents to affirm the additions made under Sections 68 and 69C of the Act. The appeal was dismissed, and the additions made by the revenue authorities were upheld.
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