2022 (8) TMI 1333 - AT - Income Tax

ITAT Confirms Additions for Bogus Capital Gains & Notional Commission

Shri Abhishek Gupta, Versus ITO –Ward-5 (5) Indore

The ITAT upheld the AO and CIT(A)'s findings, confirming the additions of Rs. 64,58,168/- as bogus capital gains and Rs. 1,29,162/- as notional ... Bogus LTCG - Addition u/s 68 - unexplained credit u/s 68 - sale of shares sold on recognized stock exchange and, eligible for exemption u/s 10(38) denied - DR argued that the transactions done by assessee are only paper-transactions and the capital gain declared by the assessee is not a real profit but a bogus income arranged by assessee - HELD THAT:- The transactions claimed to have been done by the assessee are surrounded by a thick cloud of glaring fallacies which demonstrate that the impugned transactions are not genuine. We also observe that the Hon’ble Chennai Bench of ITAT has also decided a case in Sudha Eashwar [2020 (1) TMI 771 - ITAT CHENNAI]on similar facts. The crucial facts of the case are such that the scrip involved was Turbotech Engineering Ltd.; the assessee purchased in cash on 22.11.2011; got transferred in her own demat A/c after about 1 and half year; subsequently sold and declared a hefty capital gain. On these facts which are analogous to the facts in present appeal, the Hon’ble Co-ordinate Bench upheld the action of revenue in holding the capital gain as bogus. We respectfully agree with the decision of Hon’ble Coordinate Bench which is very much applicable to present appeal before us. In view of foregoing discussions at length, we do not find any infirmity in the action of lower authorities in rejecting the capital gain declared by the assessee and treating the same as undisclosed income u/s 68. Hence we confirm the addition made by lower authorities. This issue of assessee, therefore, fails. Addition on the premise that the assessee must have certainly incurred expenditure @ 2% in paying commission / charges to the persons engaged for arranging bogus capital gain - We observe that the amount added by Ld. AO is reasonable and it does not call for any interference by us. Hence no relief is warranted to the assessee in that respect. The addition made by Ld. AO is therefore upheld. This issue of assessee also fails. Appeal of assessee is dismissed. Issues Involved:1. Taxability of long-term capital gains as income from other sources under Section 68 of the Income Tax Act.2. Validity of additions based on non-genuine transactions.3. Non-acceptance of evidence and documents by the CIT(A).4. Assessment based on general information from the Investigation Wing.5. Acceptance of long-term capital gains from a single scrip.6. Addition of notional commission on share transactions without evidence.Detailed Analysis:Issue 1: Taxability of Long-Term Capital Gains as Income from Other SourcesThe primary issue was whether the long-term capital gains of Rs. 64,58,168/- declared by the assessee from the sale of shares of Turbotech Engineering Ltd. were genuine or should be taxed as income from other sources under Section 68 of the Income Tax Act. The assessee claimed exemption under Section 10(38) for these gains. The Assessing Officer (AO) treated the capital gains as bogus, suspecting the transactions to be part of a scheme involving 'penny stocks' to convert black money into white. This suspicion was based on the unrealistic appreciation in the share price and the financial status of the company.Issue 2: Validity of Additions Based on Non-Genuine TransactionsThe AO made two additions: (i) Rs. 64,58,168/- as bogus capital gains, and (ii) Rs. 1,29,162/- as estimated brokerage cost incurred from undisclosed sources. The AO's observations included the fact that the shares were purchased in cash, held in the broker's pool account for 17 months, and then sold at an inflated price. The AO also noted the lack of response to summons and notices issued to the parties involved in the transactions.Issue 3: Non-Acceptance of Evidence and Documents by the CIT(A)The CIT(A) upheld the AO's findings, dismissing the appeal and not granting any relief to the assessee. The CIT(A) concluded that the transactions were sham and could not stand the test of human probability. The CIT(A) relied on several judicial precedents to support this conclusion.Issue 4: Assessment Based on General Information from the Investigation WingThe assessee argued that the assessment was based on general information from the Investigation Wing rather than specific information related to the assessee. However, the AO and CIT(A) relied on the Investigation Report, which identified Turbotech Engineering Ltd. as a 'penny stock' used for generating bogus long-term capital gains.Issue 5: Acceptance of Long-Term Capital Gains from a Single ScripThe assessee contended that the long-term capital gains were genuine and supported by documentary evidence such as contract notes, demat account statements, and bank statements. The AO and CIT(A) rejected these claims, noting the lack of financial fundamentals of Turbotech Engineering Ltd. and the artificial rigging of its share price.Issue 6: Addition of Notional Commission on Share Transactions Without EvidenceThe AO added Rs. 1,29,162/- as notional commission for arranging the bogus capital gains. The CIT(A) upheld this addition, stating that the expenses were incurred in respect of transactions with a penny stock company.Conclusion:The ITAT upheld the findings of the AO and CIT(A), confirming the additions made. The Tribunal observed several glaring fallacies in the transactions, including the purchase of shares in cash, the holding of shares in the broker's pool account, and the unrealistic appreciation in share price. The Tribunal also noted the lack of response to summons and the suspicious nature of the transactions. The appeal was dismissed, and the additions were confirmed, emphasizing that each case must be judged on its specific facts and evidence.