2023 (2) TMI 56 - AT - Income Tax

Bogus LTCG - Addition u/s 68 - treating the purchase of shares as non-genuine and consequently sale of shares and LTCG as unexplained income of the assessee - HELD THAT - The assessee,submitted before us that on 21.11.2014 the assessee sold 5000 shares in Bombay Stock Exchange at different dates and gained Rs.675 per share within 24 months. Thus, there was exorbitant scrip increase from 20.04.2012 to 27.12.2014. AO also made observations in the Assessment Order that the assessee bought shares at Rs.20./- when the market price was of Rs.17.45 on 02.04.2012 in fact. There was no basis from the analysis of the company that Kappac Pharma Limited scrip price shares. These objections are separate objections by the AO from the investigation report. The assessment order is not solely based on investigation but the AO has verified each aspect about increase in the share and how transaction took place in assessee s own case. Though the assessee has sold the scrip through Bombay Stock Exchange, it has not purchased from the stock exchange market and, therefore, the conclusion of the Assessing Officer was based on factual circumstances in assessee s own case. The purchase of Kappac Pharma Limited share is in fact appears bogus in nature as the scrip when having share price of Rs.17.45 was purchased by the assessee at Rs.20/- outside the regular stock exchange. The claim of the Ld. AR that the assessee has done the transaction and submitted his demat statement as well as transaction statement along with debit note and share certificate does not shun away the aspect that the assessee was very well aware about the brokers in respect of penny stock. Therefore, the contentions as well as the decision submitted by the assessee are not relevant in the present case. In fact, in case of Udit Kalra 2019 (4) TMI 834 - DELHI HIGH COURT decided has dealt with Kappac Pharma Limited scrip and held that the transaction in the said scrip was not genuine and bogus. Therefore, Assessing Officer and the CIT(A) has rightly denied LTCG exemption under Section 10(38) of the Act to the assessee. Appeal of the assessee is, therefore, dismissed.

Summary

Issues:
1. Disallowance of Long Term Capital Gain (LTCG) on sale of shares of Kappac Pharma Limited.
2. Addition of tuition income as unexplained income under Section 68 of the Act.

Issue 1: Disallowance of LTCG on sale of shares of Kappac Pharma Limited:
The appeal was against the order confirming the addition of LTCG on the sale of shares of Kappac Pharma Limited. The Assessing Officer observed that the LTCG claimed by the assessee was denied due to suspicions regarding the genuineness of the share transactions. The CIT(A) upheld the addition. The assessee contended that the purchase and sale of shares were genuine, supported by valid documents, and met the conditions for claiming exemption under Section 10(38) of the Act. The assessee argued that the AO failed to provide concrete evidence of the alleged bogus LTCG transactions. However, the tribunal found discrepancies in the share transactions, noting that the purchase price was higher than the market price, indicating a potentially non-genuine nature of the transactions. Referring to a Delhi High Court decision on Kappac Pharma Limited scrip, the tribunal upheld the denial of LTCG exemption, dismissing the appeal.

Issue 2: Addition of tuition income as unexplained income:
The Assessing Officer treated the tuition income shown by the assessee as unexplained income under Section 68 of the Act. The CIT(A) affirmed this addition. The assessee argued that the income was genuine and supported by evidence, urging that it should not be treated as unexplained income. However, the tribunal found that the Assessing Officer had valid reasons for treating the tuition income as unexplained, as the assessee failed to provide sufficient documentation to support the income. Consequently, the tribunal upheld the addition of tuition income as unexplained income under Section 68 of the Act.

In conclusion, the tribunal dismissed the appeal filed by the assessee, upholding the additions made by the Assessing Officer regarding the LTCG on the sale of shares of Kappac Pharma Limited and the tuition income treated as unexplained income. The decision was based on the discrepancies found in the share transactions and the lack of adequate documentation supporting the tuition income, as determined by the Assessing Officer.