2023 (4) TMI 363 - AT - Income Tax

Addition u/s 68 - Penny stock transactions - bogus loss believing on report of investigation conducted by Investigation Wing, Kolkata - AO held that transaction relate to trading in these three scrips of Dhenu Buildcon Infra Ltd., Global Securities Ltd. and Turbotech Engineering Ltd. are bogus, coloured and not genuine - HELD THAT - We find that there are large number of assessees, who have transacted with equity shares of the above named three scrips and claimed benefits under the provisions of the Act. Apart from these scrips, there are other scrips also in Kolkata, who were found to be penny stock and transactions on papers only. Hon'ble Calcutta High Court has recently considered this aspect in its judgment in the case of Swati Bajaj Others 2022 (6) TMI 670 - CALCUTTA HIGH COURT - In a number of appeals, Coordinate bench of ITAT, Kolkata has rejected the claim of the assessees, where the assessee transacted in the shares of such companies. All these transactions have been held as bogus by the Hon'ble Jurisdictional High Court. We affirm the view taken by the Revenue Authorities who have rejected the claim of the assessee and made the additions. Decided against assessee.

Summary

Issues:
1. Treatment of alleged bogus loss on trading of specific scrips.
2. Disallowance of investment under section 14A.

Issue 1: Treatment of alleged bogus loss on trading of specific scrips:
The appeal pertains to the treatment of a loss claimed by the assessee on trading of three specific scrips - Dhenu Buildcon, Turbotech, and Global Securities. The AO disallowed the loss, amounting to Rs. 2,35,76,869, based on a report from the Investigation Wing, Kolkata, suggesting tax evasion through penny stocks. The AO concluded that the transactions were bogus and aimed at accommodating unaccounted money. The CIT(A) upheld the AO's decision, considering the transactions as colored and not genuine. The Tribunal noted that similar cases involving penny stocks in Kolkata had been deemed bogus by the Calcutta High Court and ITAT Kolkata. Therefore, the Tribunal affirmed the Revenue Authorities' decision to reject the claim of the assessee, dismissing the appeal.

Issue 2: Disallowance of investment under section 14A:
The assessee also challenged the disallowance of investment under section 14A of the Income-tax Act. The assessee argued that disallowance should not be made when no exempt income was earned during the relevant previous year. However, the Tribunal did not delve into this issue in detail in the judgment, as the primary focus was on the treatment of the alleged bogus loss on trading of specific scrips. Consequently, the appeal on this issue was not discussed further, and the Tribunal's decision to dismiss the appeal was based on the treatment of the trading loss.

In conclusion, the Tribunal upheld the Revenue Authorities' decision to treat the claimed loss on trading of specific scrips as bogus, based on the suspicion of tax evasion through penny stocks. The Tribunal's decision was influenced by the precedents set by the Calcutta High Court and ITAT Kolkata in similar cases involving penny stocks. The appeal was dismissed, and the disallowance of the loss was upheld.