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2024 (6) TMI 1200 - AT - Income TaxBogus LTCG - Denial of exemption u/s 10(38) - investment is to be treated as unreal - assessee has purchased 6,000 of equity shares of Sulabh Engineers Services Ltd. through the broker but as per AO Sulabh Engineers Services Ltd. is a paper entity and its stocks were manipulated by the experts for granting undue benefits to certain investors - As argued small profit is earned by the assessee THELD THAT - Hon ble High Court in the case of Swati Bajaj 2022 (6) TMI 670 - CALCUTTA HIGH COURT has examined a large number of companies, whose shares were manipulated by certain share brokers for granting undue benefit to the investors either in the shape of gain or loss whenever it is required to an investor. Therefore, the very credential of this company where investment was made is unreliable. The genuineness of an investee company is not dependent on the magnitude of profit earned by an investor. The assessee might have made investment when the shares of the company were already managed to a particular level and he sold his investment very early, but that small profit is earned by the assessee would not result into automatic genuineness of the transaction. It is an incorrect conception conceptualized by the assessee to segregate himself from the treatment of other such investors. It cannot be accepted as fact to distinguish the judgment of the Hon ble Jurisdictional High Court, simply for the reason that magnitude of profit is on the lower side to the assessee. The assessee s investment cannot become genuine because he earned a lesser amount of profit and at the cost of repetition, we again observe that magnitude of profit is not a decisive factor about genuineness of existence of an investee company, therefore, we do not find any error in the order of ld. CIT (Appeals), hence Assessee appeal is dismissed.
Issues involved:
Appeal against disallowance of long-term capital gain under section 10(38) of the Income Tax Act. Analysis: 1. Issue: Disallowance of long-term capital gain - The assessee contested the disallowance of long-term capital gain amounting to Rs.10,07,722 under section 10(38) of the Income Tax Act. - The assessee purchased shares of Sulabh Engineers & Services Ltd., which were later sold, resulting in a claimed long-term capital gain. - The Assessing Officer disallowed the claim, alleging that the company was a paper entity with manipulated stocks, leading to undue benefits for investors. - The CIT (Appeals) upheld the disallowance, prompting the appeal to the Tribunal. 2. Arguments by the assessee: - The assessee argued that the long-term capital gain was genuine, citing precedents from various ITAT benches supporting similar cases. - The assessee highlighted that the shares' sale price was not abnormally high compared to the purchase price, indicating innocent investment. - Emphasis was placed on the lack of evidence implicating the assessee or the broker in price manipulation activities. 3. Revenue's stance: - The revenue relied on a High Court judgment in a similar case to support disallowance, claiming no distinguishable features. 4. Tribunal's decision: - The Tribunal considered the High Court's judgment on manipulated shares and the unreliability of the investee company. - It rejected the argument that a lower profit indicated innocence, emphasizing that profit magnitude does not determine genuineness. - The Tribunal dismissed the appeal, stating that the assessee's investment could not be deemed genuine based on profit amount alone. 5. Conclusion: - The Tribunal upheld the disallowance of long-term capital gain, emphasizing the unreliability of the investee company and the lack of distinguishing features in the case. - The decision highlighted that profit magnitude does not establish the legitimacy of an investment, leading to the dismissal of the appeal.
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