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2019 (6) TMI 162 - AT - Income TaxAddition u/s 68 - Bogus LTCG - penny stock purchases - exemption u/s 10(38) was denied - HELD THAT - In the assessment order, the Assessing Officer explained the entire working of the flow of conversion of black money into white using long term capital gains tax exemption and penny stock from the assessee in a circular pattern and back to him. Moreover, out of the list of beneficiaries submitted by the brokers/entry providers received from share brokers/directors/dummy directors of bogus companies before the investigation wing substantiates that the assessee is one of the beneficiary. the decision in the case of ITO v. Shamim M. Bharwani 2015 (4) TMI 257 - ITAT MUMBAI is squarely applicable against the assessee. In this case, the assessee had purchased the shares of penny stocks companies purchased at lesser amount and within a year sold such shares at much higher amount and the assessee had not tendered cogent evidence to explain as to how shares in an unknown company had jumped on higher amount in no time and also failed to provide details of persons who purchased the said shares, as the said transactions were attempt to hedge undisclosed income as long term capital gains. In the case of Sanjay Bimalchand Jain v. PCIT, 2017 (5) TMI 983 - BOMBAY HIGH COURT has laid down the law that if the assessee has not tendered cogent evidence to explain as to how the shares in an unknown company had jumped to such an higher amount in no time when the fantastic sale price was not at all possible as there was no economic or financial basis to justify the price rise and if the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain, such gain has to be assessed as undisclosed credit u/s 68 We find that the AO has rightly withdrawn the amount which has been claimed by the assessee as exempt u/s 10(38) and assessed the entire sale consideration u/s 68 - Decided against assessee.
Issues Involved:
1. Whether the addition made under section 68 of the Income Tax Act, 1961, was justified. 2. Whether the transactions claimed by the assessee were genuine or part of a scheme to provide bogus long-term capital gains. Issue-wise Detailed Analysis: 1. Addition under Section 68 of the Income Tax Act: The primary issue is whether the addition of ?20,45,457/- under section 68 of the Income Tax Act was justified. The assessee filed a return declaring income of ?4,96,580/- and claimed an exemption of ?20,45,457/- under section 10(38) for long-term capital gains from the sale of shares of Blue Circle Services Ltd. The Assessing Officer (AO) reopened the assessment under section 147, citing that the income had escaped assessment due to the assessee being a beneficiary of bogus long-term capital gains facilitated through shell companies. 2. Investigation and Findings: The Investigation Wing of the Department found that a syndicate manipulated the market prices of shares of certain companies, including Blue Circle Services Ltd., to provide tax-exempt bogus long-term capital gains. The AO noted that the assessee's name appeared in the list of beneficiaries who received such gains. The AO concluded that the assessee was facilitated accommodation entries to introduce unaccounted money as long-term capital gains. The entire sale consideration of ?21,58,650/- was assessed under section 68 as "income from other sources." 3. Assessee's Defense: The assessee argued that the transactions were genuine, executed through contract notes, and reflected in the demat account. The assessee claimed that the shares were sold at market rates on a recognized stock exchange. The assessee denied any collusion with brokers or promoters and submitted that the transactions were bona fide. 4. Evidence and Investigation Reports: The Directorate of Investigation identified 64,811 beneficiaries involving bogus LTCG of nearly ?38,000 crores. The AO observed that the transactions were accommodation entries to claim exemption under section 10(38). The SEBI and the Investigation Wing found that the shares of Blue Circle Services Ltd. were artificially rigged through circular trading by operators and paper companies. Statements from brokers and directors confirmed the involvement in providing bogus LTCG. 5. CIT(A) and Tribunal's Findings: The CIT(A) upheld the AO's decision, noting that the shares were purchased off-market and there was no corporate development to justify the price increase. The Tribunal found that the assessee failed to prove the genuineness of the transactions. The trading pattern indicated synchronized orders, suggesting collusion. The Tribunal relied on the findings from the Investigation Wing and SEBI, which identified Blue Circle Services Ltd. as a penny stock used for generating bogus LTCG. 6. Legal Precedents: The Tribunal referred to the case of ITO v. Shamim M. Bharwani, where the Mumbai Tribunal held that documentary evidence alone, without corroborative evidence, cannot be conclusive in unusual cases. The Nagpur Bench of the Bombay High Court in Sanjay Bimalchand Jain v. PCIT ruled that if shares in an unknown company jumped in value without economic basis, it indicated a dubious transaction to account for undisclosed income as LTCG. Conclusion: The Tribunal dismissed the appeal, confirming the addition under section 68. The assessee's transactions were found to be part of a scheme to provide bogus LTCG. The AO's decision to withdraw the exemption under section 10(38) and assess the entire sale consideration under section 68 was upheld. The Tribunal found no reason to interfere with the CIT(A)'s order.
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