2023 (2) TMI 307 - AT - Income Tax

Addition u/s 68 - bogus LTCG - Exemption of capital gains u/s 10(38) denied - HELD THAT - Appellant deliberately withheld the information from the AO as well as the ld. CIT(A) which is within exclusive knowledge of appellant to establish the genuineness of transactions of purchase of shares of that company. It is nothing but a fraud played by the appellant against the AO as well as the ld. CIT(A) who are quasi judicial authorities employed for execution of the provisions of the Income Tax Act. The principle of fraud can be squarely applied to the facts of the present case and principles of natural justice have no application. Applying the said doctrine, we have no hesitation to hold that the transaction of purchase and sale of shares of M/s. Lifeline Drugs Pharma Ltd. under consideration before us is void ab-initio, this is nothing but sham, make believe and colourful device adopted with excellent paper work with intention bringing the undisclosed income into books of account. Accordingly, we confirm the orders of the Assessing Officer as well as the ld. CIT(A) and find no merits in the appeal preferred by the assessee before us. Appeal filed by the assessee stands dismissed.

Summary

Issues:
- Claim for exemption of capital gains u/s 10(38) of the Income Tax Act
- Genuineness of transactions of purchase and sales of shares

Analysis:

Issue 1: Claim for exemption of capital gains u/s 10(38) of the Income Tax Act
The appellant claimed exemption of capital gains u/s 10(38) of the Act amounting to Rs.2,17,47,109/- from the sale of shares of M/s. Sunrise Asian Ltd. The Assessing Officer denied the claim, considering the transactions as bogus based on investigation reports by the Investigation Wing and SEBI. The appellant failed to substantiate the genuineness of the transactions during assessment proceedings. The ld. CIT(A) upheld the Assessing Officer's decision, invoking the doctrine of human probability. The appellant challenged this decision, but the Tribunal, referring to judicial precedents, confirmed the denial of exemption. The Tribunal noted the modus operandi of fraudulent dealings and misuse of the stock exchange system, leading to the conclusion that the claim for exemption was not genuine.

Issue 2: Genuineness of transactions of purchase and sales of shares
The appellant purchased shares and claimed exemption u/s 10(38) of the Act. The Assessing Officer found the transactions suspicious, linking the appellant to accommodation entries for long term capital gains. Despite opportunities, the appellant failed to rebut the findings. The ld. CIT(A) confirmed the Assessing Officer's decision, relying on judicial precedents and the doctrine of human probabilities. The Tribunal upheld this decision, emphasizing that the appellant withheld crucial information to establish the transactions' genuineness. Citing legal principles, including the doctrine that fraud vitiates everything, the Tribunal deemed the transactions void ab initio, confirming the Assessing Officer's and ld. CIT(A)'s orders. The appellant's appeal was dismissed, emphasizing the fraudulent nature of the transactions and the lack of merit in challenging the authorities' decisions.

This comprehensive analysis of the judgment highlights the key issues, the assessment process, the appellant's challenges, and the Tribunal's decision based on legal principles and precedents.