2023 (6) TMI 837 - HC - Income Tax

Disallowance of bogus loss incurred in penny stock - transaction was pre-arranged as well as sham and was carried out through penny script company/paper company - ITAT deleted the addition - HELD THAT - Tribunal has considered the order passed by the SEBI and has observed that for the particular period mentioned, the script of M/s. VAS Infrastructure is blacklisted or is penny stock or sham and bogus scripts/shares - the assessee has purchased shares online through various brokers and the payments were made to brokers are reflected in the Bank Account. Also observed that the assessee had transferred the shares through online platform of stock exchange that too through broker. The report of investigation wing is much later than the dates of purchase/sale of shares and the order of SEBI is also much later than the date of transaction and the order of SEBI nowhere stated that the transaction at earlier dates as void. The entire transaction of purchase and sale of the scripts was through National Stock Exchange or Bombay Stock Exchange and that also through the authorized brokers. Tribunal has therefore opined that merely on the conjecture and surmises, the Assessing Officer cannot make disallowance. No substantial question of law - Decided against revenue.

Summary

Issues Involved:
The Tax Appeal filed under Section 260A of the Income Tax Act, 1961 challenging the order of the Income Tax Appellate Tribunal dated 28.10.2022 regarding the deletion of an addition on account of disallowance of a bogus loss incurred in penny stock for the Assessment Year 2012-13.

Summary of Judgment:

Issue 1: Disallowance of Bogus Loss in Penny Stock
The appellant contended that the Income Tax Appellate Tribunal erred in deleting the addition of Rs. 18,57,032/- on account of disallowance of a bogus loss incurred in penny stock. The appellant argued that the transaction was pre-arranged and sham, carried out through a penny script company to launder money for long term capital gain and claim exemption under Section 10(38) of the Income Tax Act, 1961. However, the Tribunal noted that the assessee was actively engaged in share trading, the stock in question was not blacklisted by SEBI, and transactions were conducted through authorized brokers on recognized stock exchanges. The Tribunal found no evidence to support the claim of a bogus transaction, emphasizing that all transactions were legitimate and conducted through proper channels. Therefore, the Tribunal concluded that the Assessing Officer's disallowance was based on conjecture and surmises, lacking factual basis. As such, the Tribunal's decision was upheld, and the Tax Appeal was rejected at the admission stage.

Final Decision:
The High Court upheld the Tribunal's decision, ruling that the issue was purely a question of fact and no substantial question of law was found for consideration. The Tax Appeal was rejected, with no order as to costs.