2022 (6) TMI 1484 - AT - Income Tax

Addition u/s 68 - bogus LTCG - scrips as of penny stock - HELD THAT - AO disallowed the claim of the assessee by holding these scrips as of penny stock and the modus operandi is nothing but to provide accommodation LTCG to beneficiaries relying upon the information received from the Directorate of Investigation Wing which was found to be general modus operandi employed by the various entry operators in most of the cases by the CIT(A). However, in none of the cases any evidence was available justifying the assessee involved in such scam. In the absence of any cogent material brought by the Revenue establishing the assessee earned or incurred bogus gain or losses only on the basis of suspicion or assumption addition made by the authorities below has been found to be not sustainable and, thus, deleted. See SMT. KRISHNA DEVI, HARDEV SAHAI GUPTA (GARG) , SMT. BINDU GARG 2021 (1) TMI 1008 - DELHI HIGH COURT and PREM PAL GANDHI 2018 (1) TMI 1080 - PUNJAB AND HARYANA HIGH COURT We allow the appeal preferred by the assessee by deleting the addition made by the authorities below. Hence, assessee s appeal is allowed.

Summary

Issues Involved:
1. Addition of Rs. 73,48,101/- u/s 68 of the Income Tax Act, 1961 as bogus long-term capital gain.

Summary:

The sole issue raised by the assessee was against the addition of Rs. 73,48,101/- u/s 68 of the Act as bogus long-term capital gain. The assessee argued that the issue was covered in their favor by a prior judgment of the Coordinate Bench in ITA No. 280/Ahd/2019 for A.Y. 2015-16. The Revenue relied on the order of the authorities below but could not controvert the assessee's submission.

The assessee filed its return of income on 14.12.2015 declaring a total income of Rs. 3,33,580/-. The case was selected for scrutiny, and notices u/s 143(2) and 142(1) were issued. The AO noticed that the assessee had indulged in bogus long-term capital gain of Rs. 73,48,101/- claimed u/s 10(38). A show-cause notice was issued to disallow the long-term capital gain treating it as unexplained income u/s 68 r.w.s. 115BBE, considering the shares of Lifeline Drugs & Pharma Ltd. as penny stocks.

The assessee provided various documents to support the claim, including purchase invoices, share transfer certificates, pool holding certificates, and bank statements. The AO, based on the Investigation Wing's report, concluded that the shares were used for providing bogus LTCG and disallowed the claim, treating it as bogus, which was confirmed by the CIT(A).

The Coordinate Bench in ITA No. 280/Ahd/2019 for A.Y. 2015-16 had deleted a similar addition, noting that the AO's conclusion was based on suspicion and general modus operandi without specific evidence against the assessee. The Bench emphasized that mere price rise and financial analysis without independent enquiry or evidence could not justify the addition. The absence of any specific finding against the assessee in the investigation report and the lack of opportunity for cross-examination were also highlighted.

The Tribunal, following the judgments of various High Courts, including the Delhi High Court in Pr. CIT vs. Smt. Krishna Devi and the Punjab and Haryana High Court in PCIT vs. Prem Pal Gandhi, held that the capital gain could not be treated as bogus without cogent material evidence. The Tribunal directed the AO to delete the addition, allowing the assessee's appeal.

In the result, the appeal preferred by the assessee was allowed.