2023 (2) TMI 510 - AT - Income Tax

Addition u/s 68 - Bogus share transactions - penny stock purchases - HELD THAT - We find that both the authorities have recorded exhaustive finding of fact narrating the circumstances as to how investment made by the assessee in the shares of M/s. Unno Industries Limited was a bogus penny stock company, which has artificially enhanced the value of shares in a short span of time. This aspect is fully covered by the latest decision of the Hon'ble Calcutta High Court rendered in the case of Swati Bajaj Others 2022 (6) TMI 670 - CALCUTTA HIGH COURT . We respectfully following the decision of the Hon'ble Calcutta High Court, we do not find any merit in this ground of appeal, hence, it is rejected. Estimated payment of commission for getting bogus long-term capital gain @ 2.5% - Since we have confirmed the conclusions of the revenue authorities that the total claim of long-term capital gain was a bogus one, therefore, this commission payment is also to be disallowed and required to be added back. The ld. Assessing Officer has rightly made the addition, which has been confirmed by the ld. 1st Appellate Authority. We do not find any merit in this ground of appeal also. It is rejected. Appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Confirmation of addition under Section 68 of the Income Tax Act for unexplained cash credit.
2. Confirmation of addition under Section 69C for alleged payment of commission.
3. Charging of interest under Section 234A and 234B of the Income Tax Act.

Detailed Analysis:

Issue 1: Confirmation of Addition under Section 68
The primary issue revolves around the addition of Rs. 69,57,000/- under Section 68 of the Income Tax Act, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee had declared this amount as exempt income under Section 10(38) from the sale of shares of M/s. Unno Industries Limited. The Assessing Officer (AO) observed an abnormal increase in the share value and concluded that the transactions were stage-managed to claim bogus Long Term Capital Gains (LTCG). The AO's detailed analysis suggested that the share prices were artificially inflated, and the transactions were merely accommodation entries. The CIT(A) upheld this view, emphasizing that the transactions were suspicious and lacked genuine economic basis. The CIT(A) referenced several judicial precedents, including the Hon'ble Supreme Court's rulings in CIT vs. P. Mohankala and Sumati Dayal vs. CIT, to support the conclusion that the burden of proof lies on the assessee to justify the nature and source of the credited amount. The tribunal found no merit in the assessee's appeal, citing the Calcutta High Court's decision in Swati Bajaj & Others, which reinforced the view that such transactions are dubious.

Issue 2: Confirmation of Addition under Section 69C
The second issue pertains to the addition of Rs. 1,66,794/- under Section 69C of the Income Tax Act, which was estimated by the AO as commission paid for obtaining the bogus LTCG. The CIT(A) confirmed this addition, reasoning that since the LTCG claim was found to be bogus, any related commission payment must also be disallowed. The tribunal upheld this view, rejecting the assessee's ground of appeal.

Issue 3: Charging of Interest under Section 234A and 234B
The third issue involves the charging of interest under Sections 234A and 234B, which is consequential to the primary addition under Section 68. Since the tribunal upheld the addition of Rs. 69,57,000/- as unexplained cash credit, the interest charged under these sections was also deemed appropriate and consequential.

Conclusion:
The tribunal dismissed the appeal of the assessee, confirming the additions under Sections 68 and 69C and the consequential interest under Sections 234A and 234B. The tribunal's decision was based on a comprehensive evaluation of the facts, surrounding circumstances, and judicial precedents, concluding that the transactions in question were not genuine and were designed to evade tax.