2023 (2) TMI 1342 - AT - Income Tax

Bogus LTCG - disallowance u/s. 10(38) - sale of shares of penny scrip - CIT(A) deleted addition - HELD THAT - There was phenomenal price rise fall that occurred in the share of the M/s. Gemstone Investment Limited. The Assessing Officer has also quoted the investigation carried out by SEBI in respect of M/s. Gemstone Investment Limited and the order passed by the SEBI. These aspects were not considered by the AO but has only relied upon various decisions. CIT(A) simply stated that the assessee was not related to that company of which shares has been purchased and hence shares can be held in physical form and the payment of sale of shares have also been received through banking channels but in fact the contract note provided by the assessee the details of M/s. Gemstone Investment Limited except for few transactions that of 5000 scrip taken on 26.06.2009. Subsequent holding statement of M/s. Gemstone Investment Limited that of 50000 quantity dated 31.12.2010 has given description of the rate at Rs. 8.49. The broker statement from 01.03.2011 to 31.03.201 has quoted the same but from 01.03.2010 to 31.03.2010 the 5000 shares were credited and subsequently debited in the broker statement. The assessee thus has taken 55000 scrip of the said company but only details of 5000 shares completely has been given. CIT(A) has not taken cognisance of all these aspects and simplicitor allowed the appeal of the assessee. All these case laws as well as the Circulars mentioned by the assessee will be applicable when the assessee has given the foolproof evidence to the effect that the scrip was genuinely purchased and was properly moved and there was no collusion in respect of the price variations on behalf of the assessee. Assessee has not given each and every details about the same. Therefore, the CIT(A) was not right in deleting the addition. Decided in favour of revenue.

Summary

Issues:
Appeals filed by Revenue against CIT(A) orders for Assessment Year 2012-13 - Disallowance of Long Term Capital Gain under section 10(38) of the Income Tax Act.

Analysis:
In the case, the Revenue filed three appeals against CIT(A) orders dated 06.08.2020 for the Assessment Year 2012-13. The common grounds raised in all appeals relate to the disallowance of Long Term Capital Gain (LTCG) under section 10(38) of the Income Tax Act. The Revenue contended that the LTCG claimed by the assessee from the sale of shares of a penny stock company was non-genuine and bogus. The Assessing Officer made an addition of Rs. 6,76,623 based on the analysis of share price movement and other factors.

Upon appeal, the CIT(A) allowed the appeals of the assessee, leading to the Revenue filing further appeals. The assessee argued that the shares were purchased through a registered broker, and the transactions were legitimate. However, the Revenue contended that the scrip was associated with a company banned for trading in penny stocks by SEBI, indicating irregularities. The CIT(A) did not consider these aspects and allowed the appeals.

The Tribunal, after hearing both parties and examining the material on record, found discrepancies in the assessee's claims. The share price fluctuations of the penny stock in question were not in line with the company's financial health or activities. The Tribunal noted that the assessee failed to provide comprehensive evidence to support the legitimacy of the transactions. Citing various case laws and circulars, the Tribunal held that the CIT(A) erred in deleting the additions and allowed the Revenue's appeals.

Consequently, the Tribunal allowed all three appeals filed by the Revenue against the CIT(A) orders for the Assessment Year 2012-13. The judgments were pronounced on the 8th day of February 2023.