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TMI Blog2021 (6) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer) in making an addition of ₹ 1,20,11,807 under section 68 of the Act, holding the long-term capital gains on sale of shares of Shree Shaleen Textiles Limited to be bogus and thereby not allowing exemption under section 10(38) of the Act. The appellant contends that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer in considering the transaction of sale of shares of Shree Shaleen Textiles Limited as bogus inasmuch as the said shares have been purchased as investment during an earlier year; the same being sold during the year under reference shall necessarily give rise to capital gains and the shares being long-term capital asset, the capital gains ₹ 1,20,11,807 are long-term capital gains in respect of which the Assessing Officer ought to have allowed exemption of section 10(38) of the Act; accordingly, the impugned addition under section 68 of the Act is not justified. The appellant further, contends that the CIT(A) ought not to have upheld the action of the Assessing Officer in making the impugned addition inasmuch as the assessment order has been framed in violation and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner (Appeals) dismissed the appeal filed by the assessee by observing as under:- "6.0 Ground Nos.2,8,9,10,11.12,13,14 are directed against the addition of Rs.l,20,11,807/- treating the Long Term Capital Gain as unexplained cash credit and not allowing the claim of exemption u/s.10(38) of the Act, therefore, these grounds are taken up together for the sake of convenience. (i) The Directorate of Investigation(Wing), Kolkata had carried out search arid survey action, to unearth the o-ganized racket of generating bogus entries of Long Term Capital Gain(LTCG) and claiming exemption u/s.10(38) of the Act. In this racket, the operators make the beneficiary to buy shares of a pre-determined penny stock company controlled by them. These shares are transferred to beneficiary at a very nominal price through preferential allotment of off-line sale to save STT. The beneficiary holds the share for the statutory period and when the price reaches the desired level, the beneficiary who bought the shares at a low or normal price, is made to sell at an exorbitant profit and claimed LTCG exemption u/s.l0(38). The operators rig the price of the stock and gradually raise its price many times, often ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove context is crucial and has also established the modus operand carried out by the entry providers, and both SEBI as well as BSE, have banned trading in these penny stock securities. Based on information received from the IT department and also through its own surveillance systems, SEBI had passed orders under section 11(B) of the SEBI Act, 1992, in case of 13 such companies and debarred l,336 entities. Further, SEBI had suspended trading in the shares of 203 companies and reduced the price band of 168 companies to the lowest band. (v) In the instance case, regarding the purchase and sale of M/s.Shaleen Textiles Ltd scrip, the AO has elaborately discussed from Para 4, page 5 to Para 11, page 32, in the assessment order. Even in the appellate proceedings, the AR of the appellant has only explained what was explained before the AO and has also not rebutted the findings made by the Directorate or Income-Tax(lnvestigation) Kolkata, SEBI surveillance team, and else, BSE has suspended the trading in the securities of the following companies including M/s.Shree Shaleen Textiles Ltd. (505513) in pursuant to directions received from SEBI. (vi) As discussed from Para 4 in the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents and the matter has to be considered by applying the test of human probabilities. It was argued that the scrip in which investment was made by the appellant is admittedly a penny stock and the said stock by its very nature a functioning is mysterious. Normally, in the share market an investment always made only in good stock and the good stock is identified in the market where it has sound fundamentals with a good target record of giving dividend over a period of time. The share in question it was argued is definitely not a stock in that category. The penny stock it was argue basically always exhibit a cyclic pattern where both the buyer and seller see an advantage of an artificially' created market situation to exploit and avoid taxation. (vii) A reference may gainfully be made to the following judicial pronouncement of the Hon'ble Supreme Court. In the case of Mcdowell & Co. Ltd. v. CTO [1985] reported in 154 ITR 148, the Hon'ble Supreme Court held and observed as under: "Tax planning may be legitimate provided it is within the framework of law. ..... 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