Tax Tribunal Upholds Addition of Bogus LTCG, Dismisses Appeal

The ITAT upheld the CIT(A)'s decision, confirming the addition of Rs. 51,62,206 as bogus LTCG and dismissing the assessee's appeal. The judgment emphasized the assessee's failure to prove the genuineness of the transactions and the circumstantial evidence pointing to a sham transaction. The ITAT relied on judicial precedents to support its decision, highlighting the improbability of such high returns from penny stocks without any substantial company credentials.

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Issues Involved:
1. Ex-parte order passed by CIT(A).
2. Confirmation of addition of Rs. 51,62,206 as bogus LTCG.
3. Sham transaction involving shares of Kailash Auto Finance Ltd.
4. Non-appearance of the assessee before CIT(A) and ITAT.
5. Judicial precedents supporting the disallowance of LTCG exemption.

Detailed Analysis:

1. Ex-parte Order Passed by CIT(A):
The assessee contended that the CIT(A) erred in passing an ex-parte order without the appearance of the Authorized Representative (AR) despite several notices. The CIT(A) proceeded with the order based on the available records due to the assessee's non-cooperation.

2. Confirmation of Addition of Rs. 51,62,206 as Bogus LTCG:
The assessee purchased 1,50,000 shares of Kailash Auto Finance Ltd at Rs. 2 per share and sold them within 18 months at a total sale value of Rs. 51,62,206, claiming exemption on the LTCG. The AO disallowed the exemption, treating the transaction as bogus, citing the unusual 17-fold increase in share value and the suspension of share transactions of the company as a surveillance measure.

3. Sham Transaction Involving Shares of Kailash Auto Finance Ltd:
The AO and CIT(A) concluded that the transaction was a sham, designed to convert unaccounted money into accounted money under the guise of LTCG. The CIT(A) observed that the appellant engaged in a modus operandi involving penny stocks to claim bogus LTCG, highlighting the abnormal price increase despite the company's poor credentials and the rigging of share prices.

4. Non-appearance of the Assessee Before CIT(A) and ITAT:
Despite multiple opportunities and notices, the assessee failed to appear before the CIT(A) and ITAT. The ITAT noted the assessee's non-cooperation and proceeded to decide the appeal based on the merits and information available on record.

5. Judicial Precedents Supporting the Disallowance of LTCG Exemption:
The ITAT referenced several judicial precedents where courts and tribunals disallowed LTCG exemptions on similar grounds:
- PCIT v. Swati Bajaj [2022] 139 taxmann.com 352 (Calcutta): The Kolkata High Court held that unreasonable price rises in penny stocks need to be substantiated by the assessee.
- Smt. M.K. Rajeshwari v. ITO [2018] 99 taxmann.com 339 (Bangalore - Trib.): The Tribunal concluded that abnormal price rises in shares with meager financial worth indicated the introduction of unaccounted money.
- Sanjay Bimalchand Jain v. PCIT [2018] 89 taxmann.com 196 (Bombay): The Bombay High Court held that unexplained price jumps in penny stocks indicated an attempt to hedge undisclosed income.
- Satish Kishore v. ITO (2019) 110 Taxman.com 307 (Delhi Tribunal): The Tribunal held that the assessee failed to prove the genuineness of transactions involving penny stocks, leading to the disallowance of LTCG exemption.

Conclusion:
The ITAT upheld the CIT(A)'s decision, confirming the addition of Rs. 51,62,206 as bogus LTCG and dismissing the assessee's appeal. The judgment emphasized the assessee's failure to prove the genuineness of the transactions and the circumstantial evidence pointing to a sham transaction. The ITAT relied on judicial precedents to support its decision, highlighting the improbability of such high returns from penny stocks without any substantial company credentials.

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