2024 (12) TMI 637 - AT - Income Tax

Bogus LTCG - gain earned/arisen from transactions in penny stocks - HELD THAT - As from the last several occasions, the assessee is not appearing on the date of hearing, despite issue of notices, hence, we are disposing of this appeal ex-parte qua assessee, after hearing the Ld. DR and perusing the records. We find that this a classic case of penny stock transaction. We further find that Ld. CIT(A) has passed a well reasoned order by taking care of each and every argument of the assessee. Hence, in our considered opinion, there is no need to interfere in the order of the Ld. CIT(A), therefore, we affirm the action of the ld. CIT(A) and accordingly, reject the grounds raised by the Assessee.

Issues Involved:

1. Whether the addition of Rs. 1,49,14,984/- on account of Bogus Long Term Capital Gains (LTCG) from penny stock was justified.
2. Whether the transactions in penny stocks were genuine or sham transactions designed to evade taxes.
3. Whether the Assessing Officer (AO) was correct in lifting the veil to reveal the true nature of the transactions.
4. Whether the principles laid down in various judgments, including those by the Hon'ble Supreme Court, were applicable to the present case.

Issue-wise Detailed Analysis:

1. Bogus Long Term Capital Gains (LTCG):

The primary issue was the addition of Rs. 1,49,14,984/- made by the AO, which was claimed as LTCG from penny stock transactions. The AO determined that the gains were not genuine and were part of a scheme involving the rigging of share prices. The CIT(A) upheld this addition, noting that the appellant failed to provide credible evidence to counter the AO's findings. The CIT(A) emphasized that the shares involved were penny stocks and exhibited an implausible increase in value, unsupported by the financials of the company involved.

2. Genuineness of Transactions:

The CIT(A) concluded that the transactions were not genuine, citing the absence of economic rationale behind the astronomical rise in the share prices. The AO's investigation revealed that the transactions were pre-arranged and orchestrated to appear legitimate. The CIT(A) noted that despite the legal formalities being followed, the transactions lacked substance, as evidenced by the disproportionate share price increase and the lack of credible market forces to justify such a rise.

3. Lifting the Veil:

The CIT(A) and AO both engaged in lifting the corporate veil to uncover the true nature of the transactions. The AO demonstrated that the transactions were part of a broader scheme involving market operators, designed to create artificial gains. The CIT(A) supported this view, stating that the AO had successfully revealed the manipulation behind the transactions, which were aimed at evading taxes through fabricated capital gains.

4. Applicability of Legal Precedents:

The judgment referenced several legal precedents, including decisions by the Hon'ble Supreme Court, to support the findings. The CIT(A) cited cases such as CIT vs. Durga Prasad More and McDowell and Company Limited, emphasizing that tax planning must be within the framework of the law and that colorable devices cannot be part of legitimate tax planning. The principles from these cases were applied to affirm that the appellant's transactions were sham and aimed at tax evasion.

Conclusion:

The Tribunal, after reviewing the CIT(A)'s detailed order and the arguments presented, found no reason to interfere with the CIT(A)'s decision. The Tribunal concluded that the CIT(A) had addressed all relevant arguments and upheld the addition made by the AO. Consequently, the appeal by the assessee was dismissed, affirming the findings that the transactions were sham and designed to evade taxes. The decision was pronounced on 05/12/2024.

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