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2021 (10) TMI 1251 - AT - Income TaxBogus LTCG - Addition u/s 68 - unaccounted share transaction - not eligible for exemption u/s 10(38) - legalize the unaccounted money through dubious method into white money - CIT-A deleted the addition - HELD THAT - As the entire transaction as to purchasing and selling of 40,000 shares of M/s. Kappac Pharma Limited by the assessee company is genuine one routed through banking channel as well as SEBI, in the light of the fundamental facts that no man of ordinary prudence would invest in a company which is consistently in loss as per its annual report, the entire transaction is ingenuine. Transaction undertaken by the assessee for purchasing 40,000 shares were dubious from the very outset as assessee has purchased the shares with undisclosed money of ₹ 4,52,000/- by way of cash payment which he subsequently declared unaccounted in IDS, 2016 scheme and got the same legalized from Principal CIT. Thereafter, assessee took back the cash of ₹ 4,52,000/- from the seller and paid him cheque of the aforesaid amount on 31.12.2013 after getting the scrips dematerialized. During investigation when statement of assessee was recorded as to how he had paid the amount of ₹ 4,52,000/- and as to what is the name of the seller of the shares of M/s. Kappac Pharma Limited, he has given evasive reply making the entire transaction doubtful. Questions put to assessee during investigation and answers given thereto during his recording of statement u/s 131 Statement of the assessee recorded during investigation leads to the irresistible conclusion that the assessee has not discharged his onus to prove that the entire transaction was genuine because it is incomprehensible that a person, assessee in this case, who is constantly in touch with the person since 25.06.2012 when he has purchased the scrips by making payment through undisclosed cash, then got the scrips dematerialized on 30.12.2013 only after legalizing amount of ₹ 4,52,000/- through IDS, 2016, thereafter he got the amount of ₹ 4,52,000/- returned and paid him the amount through cheque on 31.12.2013, but strangely stated that, I do not particularly know the parties from whom or to whom he bought and sold the shares . Evasive reply coupled with undisputed fact narrated in the preceding para shows that the entire transactions as to purchasing and selling the shares of M/s. Kappac Pharma Limited by the assessee was not a genuine share trading transaction but has been given colour of share trading. Because the entire case is crystal clear from the undisputed facts brought on record by the assessee himself. And moreover assessee has failed to discharge the onus that the entire transaction was genuine even by suppressing the correct facts during recording of his statement u/s 131 of the Act. Entire transactions have to be examined in the light of the surrounding circumstances in order to unearth the bogus transactions of purchase and sale of shares. So, the assessee has failed to dispel all the suspicion raised by the AO to establish that the transactions in question were neither real nor beyond human probabilities. The case laws relied upon by the ld.AR for the assessee is not applicable to the facts and circumstances of the case. CIT (A) has erred in deleting the disallowance made by the AO on account of exempt LTCG claimed by the assessee u/s 10(38) of the Act, hence question decided in favour of revenue.
Issues Involved:
1. Deletion of addition made by AO under Section 68 for bogus Long Term Capital Gains (LTCG) claimed as exempt under Section 10(38) of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Deletion of Addition under Section 68 for Bogus LTCG: Facts and Background: The assessee, an individual taxpayer, declared income from various sources, including capital gains. During scrutiny, the Assessing Officer (AO) found that the assessee claimed LTCG of ?2,72,85,500 as exempt under Section 10(38) from the sale of shares of M/s. Kappac Pharma Limited. The AO, referencing a nationwide investigation by the Directorate of Investigation, Income-tax, Kolkata, suspected the LTCG to be bogus, part of an organized racket to generate fictitious LTCG entries. AO's Findings: The AO noted that the assessee purchased 40,000 shares of M/s. Kappac Pharma Limited for ?4,52,000 in cash from undisclosed sources, later declared under the Income-tax Disclosure Scheme (IDS), 2016. The shares were dematerialized and sold for ?2,77,74,600, and the AO concluded that the funds received were from the sale of penny stocks, treating the credit as unexplained income under Section 68, adding ?2,77,46,000 to the income of the assessee. CIT (A)'s Decision: The Commissioner of Income-tax (Appeals) [CIT (A)] deleted the addition made by the AO, accepting the assessee's appeal and finding the assessee eligible for exemption under Section 10(38). Tribunal's Analysis: The Tribunal examined the financial health of M/s. Kappac Pharma Limited, noting its consistent losses and lack of credible financials, making it improbable for any prudent investor to invest in its shares. The Tribunal referred to previous cases involving M/s. Kappac Pharma Limited, where similar transactions were found to be dubious, aimed at converting unaccounted money into white money. Key Points from Tribunal's Findings: - The Tribunal found the entire transaction dubious, starting from the purchase of shares with unaccounted cash, subsequently legalized under IDS, 2016, to the sale of shares at an inflated price. - The assessee's evasive responses during the investigation further cast doubt on the genuineness of the transactions. - The Tribunal relied on the principle that the burden of proof lies on the party asserting the genuineness of the transaction. The assessee failed to dispel the suspicion raised by the AO. - The Tribunal noted that the financials of M/s. Kappac Pharma Limited did not justify the astronomical increase in share prices, supporting the AO's conclusion that the transactions were a colorable device to evade taxes. Conclusion: The Tribunal concluded that the CIT (A) erred in deleting the disallowance made by the AO. The entire transaction was found to be a colorable device to convert unaccounted money into fictitious exempt LTCG. The Tribunal set aside the order of the CIT (A) and upheld the assessment order passed by the AO, allowing the appeal filed by the Revenue. Order Pronouncement: The Tribunal pronounced the order in open court, setting aside the CIT (A)'s order and upholding the AO's assessment, thereby allowing the Revenue's appeal.
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