2022 (11) TMI 189 - AT - Income Tax

Tribunal upholds disallowance of exemption claim for capital gains, adds as unexplained cash credit.

Sri Kailash Prasad Agarwal, Rajat Pandya Versus Income Tax Officer Ward-22 (2), Kolkata

The Tribunal dismissed both appeals, upholding the disallowance of the exemption claim under section 10(38) of the Income Tax Act for long-term capital ... Bogus LTCG - Disallowance of claim of exemption u/s. 10(38) - long-term capital gains (LTCG) arising from sale of shares - genuineness of the claim of exempt income under section 10(38) of the Act in respect of long-term capital gain arising sale of equity shares from the listed companies, which were found to be the penny stock companies and the long-term capital gain so claimed found to be bogus in nature - HELD THAT:- We find that recently this Tribunal has adjudicated the similar issue under identical in the case of Shyam Sunder Bajaj [2022 (10) TMI 728 - ITAT KOLKATA] and after placing reliance on the judgment of Swati Bajaj & Others [2022 (6) TMI 670 - CALCUTTA HIGH COURT] wherein held as well as the Commissioner (Appeals) have adopted an inferential process which is found to be a process which would be followed by a reasonable and prudent person. AO and the Commissioner (Appeals) have culled out proximate facts in each of the cases, took into consideration the surrounding circumstances which came to light after the investigation, assessed the conduct of the assessee, took note of the proximity of the time between the buy and sale operations and also the sudden and steep rise of the price of the shares of the companies when the general market trend was admittedly recessive and thereafter arrived at a conclusion which is a proper conclusion - Decided against assessee. Issues Involved:1. Disallowance of claim of exemption under section 10(38) of the Income Tax Act in respect of long-term capital gains (LTCG) from the sale of shares.2. Addition of unexplained cash credit under section 68 of the Income Tax Act.3. Addition of unexplained commission expenditure related to the alleged bogus LTCG.Issue-Wise Detailed Analysis:1. Disallowance of Claim of Exemption under Section 10(38):The primary issue in both appeals was the disallowance of the exemption claim under section 10(38) of the Income Tax Act for LTCG arising from the sale of shares. The Assessing Officer (AO) based the disallowance on information from the Directorate of Income Tax (Investigation), Kolkata, which identified 84 companies as penny stock companies involved in providing bogus LTCG entries. In ITA No. 509/KOL/2019, the assessee claimed exempt income of Rs. 2,26,86,516/- from the sale of shares of CCL International Limited, which was one of the penny stock companies. Similarly, in ITA No. 1365/KOL/2019, the assessee claimed LTCG of Rs. 52,83,100/- from the sale of shares of Parag Shilpa Investments Limited, another penny stock company. The AO concluded that the LTCG was bogus and added it as unexplained cash credit under section 68.2. Addition of Unexplained Cash Credit under Section 68:The AO added the LTCG as unexplained cash credit under section 68 of the Income Tax Act due to the suspicious nature of the transactions. The AO's decision was based on the sudden and steep rise in the share prices of insignificant companies, which did not align with their financial performance. The Tribunal referenced the judgment of the Hon'ble Jurisdictional High Court in Swati Bajaj & Others (2022) 139 taxmann.com 352 (Cal.), which upheld similar additions, emphasizing the test of preponderance of probabilities and the burden on the assessee to prove the genuineness of the transactions.3. Addition of Unexplained Commission Expenditure:In both cases, the AO made an additional disallowance for unexplained commission expenditure, calculated at 0.5% of the LTCG. This was based on the assumption that the assessee had paid a commission to arrange the bogus LTCG. The Tribunal upheld this addition, finding no credible evidence from the assessee to refute the AO's findings.Conclusion:The Tribunal dismissed both appeals, finding no infirmity in the orders of the CIT(Appeals). The Tribunal's decision was heavily influenced by the binding precedent set by the Hon'ble Jurisdictional High Court in Swati Bajaj & Others, which supported the AO's methodology and conclusions. The Tribunal emphasized that the burden of proof lay with the assessee to demonstrate the genuineness of the transactions, which was not satisfactorily met.Order Pronouncement:The Tribunal pronounced the order dismissing both appeals on October 31, 2022.