2023 (6) TMI 921 - AT - Income Tax

Tribunal Upholds Addition of Bogus Capital Gains

Hemil Subhashbhai Shah “Samarpan” Versus DCIT, Ward-5 (3) (1) Ahmedabad.

The Tribunal upheld the addition under section 68 of the Income Tax Act for the assessment years 2014-15 and 2015-16, treating long-term capital gains as ... Addition u/s 68 - LTCG on sale of shares, being held to be bogus and mere accommodation entries -primary contention of assessee that the finding of the authorities below of the transaction of sale of shares being bogus was flawed since the assessee had discharged its onus of proving the genuineness of the transactions - HELD THAT:- As noted the decision of Swati Bajaj [2022 (6) TMI 670 - CALCUTTA HIGH COURT] having dealt with an identical issue of alleged bogus long term capital gain from transaction in penny stocks, dealing with all arguments as raised in the present case before us, is squarely applicable in the present cases before us. Applying the same therefore, the order of the Ld.CIT(A) confirming the addition made on account of bogus long term capital gains claimed by the assessee is upheld. Grounds raised by the assessee are dismissed. Issues Involved:1. Addition u/s 68 of the Income Tax Act.2. Genuineness of long-term capital gains.Summary:Issue 1: Addition u/s 68 of the Income Tax ActThe assessee contested the addition of Rs. 10,40,265 for AY 2014-15 and Rs. 58,10,231 for AY 2015-16 u/s 68 of the Act, arguing that the transactions were genuine. The Revenue authorities, based on the Investigation Directorate, Kolkata's report, identified the shares of KAPPAC PHARMA LTD as penny stocks, manipulated to provide accommodation entries. The AO treated the long-term capital gains as bogus, rejecting the assessee's documentary evidence.Issue 2: Genuineness of Long-Term Capital GainsThe assessee argued that the transactions were genuine, supported by documentary evidence, and that the adverse report was not confronted, nor was cross-examination allowed. The Revenue relied on the judgment of the Hon'ble Calcutta High Court in Pr.CIT Vs. Swati Bajaj, which held that mere filing of documentary evidence does not discharge the onus to prove genuineness, especially in cases of large-scale scams involving penny stocks.Tribunal Findings:1. Investigation Report's Validity: The Tribunal upheld the validity of the investigation report, stating it was prepared by an authority within the Income Tax Department and should be given due weightage. The report indicated a large-scale scam involving penny stocks, which justified the commencement of proceedings against the assessee.2. Principles of Natural Justice: The Tribunal held that non-furnishing of the investigation report and denial of cross-examination did not invalidate the proceedings as the assessee failed to show any prejudice caused by these actions. The report targeted the modus operandi of those dealing with penny stocks, and the assessee was not directly indicted.3. Onus of Proof: The Tribunal emphasized that the burden of proof in such cases is heavy and cannot be discharged merely by filing documentary evidence. The assessee needed to prove the genuineness of the transactions, which involved a phenomenal rise in share prices unsupported by the financials of the company.4. Application of Legal Principles: Referring to the Hon'ble Supreme Court's decisions in Durga Prasad More and Sumati Dayal, the Tribunal noted that the onus lies on the assessee to provide a satisfactory explanation for the sums credited in their books. The Tribunal found that the assessee failed to discharge this burden.5. Preponderance of Probabilities: The Tribunal applied the principle of preponderance of probabilities, noting that the transactions in question involved penny stocks with a significant rise and fall in prices, indicating a sham transaction designed to convert unaccounted money into accounted money.Conclusion:The Tribunal upheld the addition made by the AO and confirmed by the CIT(A) on account of bogus long-term capital gains. Both appeals filed by the assessee were dismissed. The order was pronounced on 12th June 2023 at Ahmedabad.