TaxTMI 
TaxTMI 
2021 (6) TMI 660
X X X X Extracts X X X X
X X X X Extracts X X X X
....s that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer in considering the transaction of sale of shares of Shree Shaleen Textiles Limited as bogus inasmuch as the said shares have been purchased as investment during an earlier year; the same being sold during the year under reference shall necessarily give rise to capital gains and the shares being long-term capital asset, the capital gains Rs. 1,20,11,807 are long-term capital gains in respect of which the Assessing Officer ought to have allowed exemption of section 10(38) of the Act; accordingly, the impugned addition under section 68 of the Act is not justified. The appellant further, contends that the CIT(A) ought not to have upheld the action of the Assessing Officer in making the impugned addition inasmuch as the assessment order has been framed in violation and utter disregard to the principles of natural justice inasmuch as, amongst others, the Assessing Officer has not given the documents/ statements on oath to the appellant for rebuttal, which are in his possession and on which he has relied upon and has not given an opportunity....
X X X X Extracts X X X X
X X X X Extracts X X X X
....10(38) of the Act, therefore, these grounds are taken up together for the sake of convenience. (i) The Directorate of Investigation(Wing), Kolkata had carried out search arid survey action, to unearth the o-ganized racket of generating bogus entries of Long Term Capital Gain(LTCG) and claiming exemption u/s.10(38) of the Act. In this racket, the operators make the beneficiary to buy shares of a pre-determined penny stock company controlled by them. These shares are transferred to beneficiary at a very nominal price through preferential allotment of off-line sale to save STT. The beneficiary holds the share for the statutory period and when the price reaches the desired level, the beneficiary who bought the shares at a low or normal price, is made to sell at an exorbitant profit and claimed LTCG exemption u/s.l0(38). The operators rig the price of the stock and gradually raise its price many times, often 500 to 1000 times. Accordingly. the AO denied the claim of lone term capital gain of Rs. 1,20,11,807/- and the same is added as unexplained cash credit u/s.68 of the Act. (ii) From the findings of the Directorate of Investigation, Kolkata, it cannot be denied that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt and also through its own surveillance systems, SEBI had passed orders under section 11(B) of the SEBI Act, 1992, in case of 13 such companies and debarred l,336 entities. Further, SEBI had suspended trading in the shares of 203 companies and reduced the price band of 168 companies to the lowest band. (v) In the instance case, regarding the purchase and sale of M/s.Shaleen Textiles Ltd scrip, the AO has elaborately discussed from Para 4, page 5 to Para 11, page 32, in the assessment order. Even in the appellate proceedings, the AR of the appellant has only explained what was explained before the AO and has also not rebutted the findings made by the Directorate or Income-Tax(lnvestigation) Kolkata, SEBI surveillance team, and else, BSE has suspended the trading in the securities of the following companies including M/s.Shree Shaleen Textiles Ltd. (505513) in pursuant to directions received from SEBI. (vi) As discussed from Para 4 in the assessment order, the details of purchase and sale of shares of M/s.Shree Shaleen Textiles Ltd. are as follows:- purchased 50000 shares for Rs. 5,75,000/- and later on split these shares at Rs. 2/- per share on 07.03.2013 and allo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gued that the scrip in which investment was made by the appellant is admittedly a penny stock and the said stock by its very nature a functioning is mysterious. Normally, in the share market an investment always made only in good stock and the good stock is identified in the market where it has sound fundamentals with a good target record of giving dividend over a period of time. The share in question it was argued is definitely not a stock in that category. The penny stock it was argue basically always exhibit a cyclic pattern where both the buyer and seller see an advantage of an artificially' created market situation to exploit and avoid taxation. (vii) A reference may gainfully be made to the following judicial pronouncement of the Hon'ble Supreme Court. In the case of Mcdowell & Co. Ltd. v. CTO [1985] reported in 154 ITR 148, the Hon'ble Supreme Court held and observed as under: "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the o....