2023 (5) TMI 876 - AT - Income Tax

Bogus LTCG - Disallowance on claim of exemption u/s. 10(38) of LTCG - penny stock transactions - HELD THAT - AO stated that though the transaction undertaken by the assessee may seen to fulfil the legal requirement of section 10(38) same are sham transactions as the share prices of M/s. HPC Biosciences Limited were manipulated to raise the same exponentially. The price rise of the penny stock scrip was abrupt, sudden and unrealistic. No cogent material has been brought by the assessee on record to rebut the above finding of the AO. We may refer the observations of SEBI vs. Kishore Ajmera 2016 (2) TMI 723 - SUPREME COURT that it is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to be reasonable conclusion therefrom. No hesitation at all in holding that the AO/CIT(A) were perfectly justified in treating the impugned transactions as sham and discarding the assessee s explanation as not satisfactory. We concur with their findings that the assessee failed to discharge the onus cast upon her u/s 68 - addition is sustained and the assessee s ground of disallowance of exemption u/s 10(38) on long term capital gain is hereby rejected. Addition u/s 69C - year of assessment - HELD THAT - The transaction pertained to AY 2013-14 and not AY 2015-16 which is the year under our consideration. We are, therefore, of the opinion that the impugned addition cannot be made u/s 69C of the Act in AY 2015-16. We, therefore, set aside the order of the Ld. AO/CIT(A) on the point and delete the addition - We decide ground in favour of the assessee.

Summary

Issues Involved:
1. Disallowance of exemption under section 10(38) of the Income Tax Act on Long Term Capital Gain of Rs. 1,17,34,753/-.
2. Addition of Rs. 2,11,226/- under section 69C of the Income Tax Act, 1961.

Summary:

Issue 1: Disallowance of exemption under section 10(38) of the Income Tax Act on Long Term Capital Gain of Rs. 1,17,34,753/-

The assessee, an individual deriving income from salary, other sources, and capital gain, claimed an exemption under section 10(38) of the Income Tax Act for the AY 2015-16. The case was selected for scrutiny due to "suspicious sale transaction in shares and exempt long term capital gain shown in return (Penny stock tab in ITS)". The AO found that the assessee earned a long-term capital gain of Rs. 1,17,14,346/- on the sale of shares of M/s. HPC Biosciences Limited, which was claimed as exempt. The AO noted a steep escalation in the value of shares and suspected the transaction to be part of a scheme for generating bogus long-term capital gains. Despite issuing notices and show cause notices, the assessee failed to provide satisfactory explanations or appear for examination. The AO, relying on the Investigation Report of Pr. DIT (Inv.) Kolkata, concluded that the assessee was a beneficiary of a scheme involving accommodation entries for long-term capital gains and denied the exemption, adding the amount to the income under section 68 r.w.s. 115BBE of the Act.

The CIT(A) upheld the AO's findings, noting that the financial results of M/s. HPC Biosciences Limited did not justify the steep escalation in share price, indicating a sham transaction. The CIT(A) referred to various judicial decisions supporting the view that the transactions were not genuine and were intended to evade tax. The Tribunal concurred with the CIT(A) and AO, emphasizing that the assessee failed to discharge the onus of proving the genuineness of the transaction. The Tribunal also noted the SEBI's findings and penalties against M/s. HPC Biosciences Limited, further supporting the conclusion that the transactions were sham.

Issue 2: Addition of Rs. 2,11,226/- under section 69C of the Income Tax Act, 1961

The AO added Rs. 2,11,226/- to the assessee's income, being the commission for providing accommodation entries, under section 69C of the Act. The CIT(A) confirmed this addition, relying on the Directorate of Investigation's report on the modus operandi of providing accommodation entries. However, the Tribunal noted that the transaction of purchasing shares occurred in the financial year 2012-13, relevant to AY 2013-14, and not AY 2015-16. Therefore, the addition under section 69C could not be made for AY 2015-16, and the Tribunal deleted the addition.

Conclusion:

The Tribunal upheld the disallowance of exemption under section 10(38) on long-term capital gain of Rs. 1,17,34,753/- but deleted the addition of Rs. 2,11,226/- under section 69C, partly allowing the appeal of the assessee.