Bogus long-term capital gains through penny stock transactions assessed as undisclosed income under section 68

ITAT Pune upheld addition under section 68 for bogus long-term capital gains, denying exemption under section 10(38). The tribunal found the assessee obtained accommodation entries through penny stock transactions with no economic basis for price rise. Following precedent in Ravi Bhaskar Wattamwar and Delhi HC decision in Suman Poddar, the tribunal held the gains were rightfully assessed as undisclosed income rather than genuine capital gains. The assessee's appeal was dismissed.

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Issues Involved:
The judgment involves the denial of section 10(38) long term capital gains exemption by the lower authorities, leading to the addition of the sum as unexplained cash credits u/s 68 of the Income Tax Act, 1961.

Details of the Judgment:

Issue 1: Denial of Section 10(38) Exemption
The Assessing Officer declined the assessee's exemption gain on the sale of shares, deeming it as bogus due to abnormal price movement in the stock market and lack of genuine evidence. The lower authorities upheld the addition of Rs. 1,15,53,749 under section 68 of the Act, based on the sham transaction, as per the judgments in Sumati Dayal vs. CIT (1995) and CIT vs. Durga Prasad More (1971). The assessee argued for the exemption, citing the use of banking channels and registered brokers. However, the tribunal found no merit in the arguments, supporting the lower authorities' decision based on the lack of genuineness in the share market transactions.

Issue 2: Consistency in Disallowance/Addition
The tribunal referred to a recent co-ordinate bench decision to support the Revenue's stand on disallowance of exemption claimed u/s 10(38). The case involved suspicious sale transactions in shares, leading to the conclusion that the long term capital gain declared by the assessee was non-genuine. The tribunal upheld the addition of Rs. 19.32 lakh based on factors such as price increase without a financial basis, identification as a shell company, and involvement in providing accommodation entries. Citing legal precedents, the tribunal emphasized the need to consider surrounding circumstances and human probabilities to determine the reality of transactions.

In conclusion, the tribunal dismissed the assessee's appeal and upheld the lower authorities' decisions regarding the denial of section 10(38) exemption and the addition of unexplained cash credits under section 68 of the Income Tax Act, 1961.

(Order pronounced on 28th June, 2022)

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