2023 (9) TMI 1116 - AT - Income Tax

Addition u/s 68 - unexplained cash credit for alleged bogus long-term capital gain - Penny stock transactions - HELD THAT - Genuineness of the claim of exempt income u/s 10(38) of the Act in respect of long-term capital gain arising sale of equity shares from the listed companies, which were found to be the penny stock companies by both the lower authorities and the long-term capital gain so claimed found to be bogus in nature. We find that the said judgment of the Hon ble Jurisdictional High Court in the case of Swati Bajaj Others 2022 (6) TMI 670 - CALCUTTA HIGH COURT is completely applicable on the facts of the instant case. So far as the reliance placed by the ld. A.R. on the decision of this Tribunal in the case of M/s. Gateway Financial Services Limited 2023 (7) TMI 743 - ITAT KOLKATA we find that this Tribunal after considering the order of the Security Exchange Board of India, in which one of the parties was the assessee dealt by this Tribunal and the SEBI after detailed investigation and considering the facts of the case exonerated the assessee from the charges leveled in the show-cause notice, which means that SEBI which controls the platform on which transaction of purchase and sale of equity shares is carried out, has specifically carried out the detailed investigation and the preponderance of probability was ruled out and the assessee was not found to be engaged in the manipulation of price of the alleged penny stock companies. Thus the facts of the case before us in the case of M/s. Gateway Financial Services Limited are totally distinguishable and cannot be applied in the facts of the case of the assessee in the instant appeal as no such order of the SEBI exonerating the assessee has been placed before us. Therefore, since no other binding precedence in favour of assessee is placed before us, we respectfully following the decision of this Tribunal as well as the judgment of the Hon ble Jurisdictional High Court in the case of Swati Bajaj Others (supra) find no infirmity in the orders of the ld. CIT(Appeals) and, thus, dismiss all the grounds raised by the assessee for A.Y. 2015-16. Appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Justification for addition under Section 68 of the Income Tax Act.
2. Legitimacy of Long Term Capital Gains (LTCG) claim on sale of shares.

Summary:

Issue 1: Justification for Addition under Section 68:
The assessee, an HUF, filed a return declaring income and claimed exemption under Section 10(38) for long-term capital gain from the sale of equity shares of Sulabh Engineers & Services Limited. The Assessing Officer (AO) observed that the financial performance of Sulabh Engineers & Services Limited did not justify the steep increase in share price, categorizing it as a penny stock company involved in providing bogus accommodation entries. Consequently, the AO deemed the LTCG claim as bogus and added the sale consideration as unexplained cash credit under Section 68. The CIT(A) upheld this view, leading the assessee to appeal before the Tribunal.

Issue 2: Legitimacy of LTCG Claim on Sale of Shares:
The Tribunal examined whether the LTCG claim on the sale of shares was genuine. The assessee argued that the transaction was legitimate and not manipulated, citing a previous Tribunal decision in a similar case. However, the Revenue countered that the issue was covered by the jurisdictional High Court's judgment in Swati Bajaj & Others, which found such LTCG claims as bogus based on the preponderance of probabilities and surrounding circumstances, such as the steep rise in share prices not commensurate with the companies' financials.

Tribunal's Decision:
The Tribunal relied on the jurisdictional High Court's judgment in Swati Bajaj & Others, which held that LTCG claims from penny stock companies were bogus. The Tribunal noted that the assessee failed to provide evidence disproving manipulation or proving the genuineness of the share price increase. The Tribunal dismissed the assessee's reliance on the Gateway Financial Services Limited case, as it was factually distinguishable and lacked a SEBI order exonerating the assessee.

Conclusion:
Following the High Court's binding precedent, the Tribunal dismissed the appeal, upholding the AO's addition under Section 68 and rejecting the LTCG exemption claim. The Tribunal pronounced the order in open court on 21st September 2023.