2020 (1) TMI 771 - AT - Income Tax

Bogus LTCG - Penny stock purchases - Exemption u/s 10(38) denied - HELD THAT - As decided in SUMAN PODDAR 2019 (9) TMI 1089 - DELHI HIGH COURT profits earned by assessee are part of major scheme of accommodation entries and keeping in view ratio of judgments quoted above, we, hereby decline to interfere in order of Ld. CIT(A). (emphasis supplied) It would be seen that Cressanda Solutions Ltd. was in fact identified by Bombay Stock Exchange as penny stock being used for obtaining bogus Long Term Capital Gain. No evidence of actual sale except contract notes issued by share broker were produced by assessee. No question of law, therefore arises in present case and consistent finding of fact returned against Appellant are based on evidence on record. Also referring to decision of Hon ble Supreme Court in the case of Sumati Dayal 1995 (3) TMI 3 - SUPREME COURT and Durga Prasad More 1971 (8) TMI 17 - SUPREME COURT we hereby sustained the orders of the authorities below and dismiss the appeal filed by assessee

Issues Involved:
1. Legality of the assessment order.
2. Violation of principles of natural justice.
3. Genuineness of the transactions in shares.
4. Basis for additions made by the Assessing Officer (AO).
5. Charging of interest under sections 234B, 234C, and 234D of the Income-tax Act, 1961.

Detailed Analysis:

1. Legality of the Assessment Order:
The assessee argued that the AO made additions without specifying the provisions of the Income-tax Act, 1961, under which these additions were made, rendering the assessment order legally invalid. However, the Tribunal upheld the assessment order, noting that the AO had conducted a thorough investigation and provided detailed reasons for the additions.

2. Violation of Principles of Natural Justice:
The assessee contended that the AO violated the principles of natural justice by not providing the statement of a third party and not allowing cross-examination of the person whose statement was relied upon. The Tribunal found that the AO had issued a show-cause notice and conducted independent inquiries. The Tribunal held that the AO's findings were based on substantial evidence and independent inquiries, not solely on third-party statements, thus dismissing the claim of violation of natural justice.

3. Genuineness of the Transactions in Shares:
The AO observed that the assessee claimed exemption under section 10(38) for long-term capital gains on the sale of shares of M/s. Turbotech Engineering Ltd., a company with no inherent value and manipulated share prices. The Tribunal noted that the assessee purchased the shares in cash and dematerialized them one and a half years later, which was unusual. The AO's investigation revealed that the share prices fluctuated significantly without any economic rationale, indicating manipulation. The Tribunal upheld the AO's conclusion that the transactions were bogus and aimed at converting unaccounted income into exempt income.

4. Basis for Additions Made by the AO:
The AO relied on the financial statements of M/s. Turbotech Engineering Ltd., which showed no revenue or significant expenses for several years, and the substantial fluctuation in share prices. The AO also referred to SEBI's suspension of trading in the company's shares and the involvement of Kolkata-based companies in manipulating share prices. The Tribunal agreed with the AO's findings and held that the assessee failed to provide any evidence to counter the AO's conclusions.

5. Charging of Interest Under Sections 234B, 234C, and 234D:
The assessee argued against the charging of interest under sections 234B, 234C, and 234D. The Tribunal, however, did not find merit in this argument and upheld the charging of interest, as it was consequential to the additions made to the income.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the assessment order and the additions made by the AO. The Tribunal found that the AO had conducted a thorough investigation, provided substantial evidence, and adhered to the principles of natural justice. The transactions in shares were found to be bogus, aimed at converting unaccounted income into exempt income, and the charging of interest was upheld. The appeal was dismissed in its entirety.

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