2023 (8) TMI 1483 - HC - Income Tax

Bogus loss incurred in penny stock - transaction was part of an organised tax evasion scam, pre-arranged as well as sham and was carried out through penny scripts companies/papers companies - Principal CIT found that the assessee had shown full details of the transaction which was done in the normal course of business and payment or receipt of such transactions was done through banking channel and service tax and STT had been duly paid and found the share transactions genuine and the same cannot be considered as bogus - HELD THAT - ITAT held period for purchase and sale was mentioned by the Assessing Officer dealt with 10000 shares for which the trading data was taken into account by the CIT(A). The details filed by the assessee such as contract note of transactions in respect of Monarch Research And Brokerage Pvt. Ltd. which is a registered stock broker as well as copy of trading bills were also presented before the Assessing Officer as well as before the CIT(A). The assessee has paid Securities Transaction Tax i.e. STT and all the transaction was through banking channel. Besides the investigation report the Assessing Officer has not pointed out any discrepancy in the evidences produced by the assessee, therefore, the CIT(A) has rightly allowed the bill of the assessee and deleting the addition. Having gone through the two orders of the CIT(A) and the Tribunal, we are of the opinion that there are concurrent findings of fact before this court recording such findings based on factual details available on record - Decided in favour of assessee.

Summary

Issues:
Challenge to ITAT order on addition of bogus loss in penny stock for AY 2011-12.

Detailed Analysis:
The tax appeal challenged the ITAT order for AY 2011-12, raising the issue of deletion of an addition of Rs.3,33,466 made on account of disallowance of a bogus loss incurred in penny stock. The appellant contended that the transaction was part of an organized tax evasion scam involving penny stock companies. The case was reopened under section 147 of the IT Act based on information received regarding the use of VAS Infrastructure Ltd for accommodation entry of bogus LTCG/Loss. The AO added the amount to the total income, initiating penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income.

In response to the notice, the assessee filed the return of income but failed to provide clarifications regarding the penny stock transactions. The AO considered the loss as bogus, aimed at providing accommodation entries for inflated LTCG. However, on appeal before the Principal CIT, it was argued that the transactions were genuine, supported by contract notes, and conducted through the banking channel. The CIT(A) found the share transactions to be genuine, leading to the deletion of the addition.

The Tribunal affirmed the CIT(A)'s view, noting that the script VAS Infrastructure Ltd. was not blacklisted and was not classified as a penny stock by the SEBI. The details provided by the assessee, including contract notes and trading bills, along with payment of STT through banking channels, were considered genuine. The Tribunal found no discrepancies in the evidence produced by the assessee and dismissed the appeal of the Revenue.

The High Court, after reviewing the orders of the CIT(A) and the Tribunal, concluded that there were concurrent factual findings supporting the genuineness of the transactions. As no substantial question of law arose for adjudication, the appeal was dismissed with no order as to costs.