Case Law Details
Suman Poddar Vs ITO (Supreme Court of India)
The case concerned an assessee who claimed exemption under Section 10(38) of the Income-tax Act on Long-Term Capital Gains (LTCG) of ₹73.77 lakh arising from the sale of shares of Smartchamps IT and Infra Ltd., which later merged with Cressanda Solutions Ltd. The assessee had declared total income of ₹4.96 lakh for Assessment Year 2014-15 and claimed that the gains were genuine share-market transactions supported by documentary evidence such as DMAT records, contract notes, and cheque payments.
Also Read Delhi HC Judgment in this case: Delhi HC Upholds LTCG Addition on Extraordinary 4910% Returns from Penny Stock
The Assessing Officer denied the exemption and treated the transaction as bogus, holding that Cressanda Solutions Ltd. was a penny stock used for generating artificial LTCG. The addition of ₹73.77 lakh was made to the assessee’s income. The Commissioner (Appeals) upheld the assessment, and the Income Tax Appellate Tribunal (ITAT) also affirmed the findings, concluding that the transaction lacked genuineness.
Before the Delhi High Court, the assessee argued that the findings were perverse because the purchase of shares had been made through banking channels and all relevant records relating to purchase, demat account, and sale transactions had been furnished. It was contended that the investment had been accepted by the department in earlier years and there was no basis for treating the subsequent gains as bogus.
The High Court rejected these arguments and observed that the Assessing Officer, Commissioner (Appeals), and ITAT had concurrently recorded findings of fact after appreciating the evidence. The Court held that such findings could not be described as perverse and therefore no substantial question of law arose for consideration.
The ITAT had noted several circumstances indicating that the transaction was not genuine. The assessee claimed returns of about 4910% within a short period despite there being no evidence regarding the company’s financial strength, growth, or business operations. The Tribunal found that the company’s financial statements did not justify the extraordinary rise in share prices. Revenue from operations was negligible, earnings per share were either insignificant or negative, and the company’s overall financial condition did not support the valuation at which the shares were allegedly sold.
The Tribunal further observed that despite earning substantial profits, the assessee had not engaged in any other significant share transactions. It found that the assessee lacked knowledge of the company’s financial position and even the brokers involved in the transactions. According to the Tribunal, these circumstances undermined the credibility of the claim that the gains arose from genuine investment activity.
The Tribunal also relied upon evidence gathered by the Revenue indicating that the assessee was a beneficiary of accommodation entries in the form of LTCG. It held that mere production of contract notes, cheque payments, and bank records was insufficient in the face of overwhelming evidence suggesting a larger scheme designed to generate bogus capital gains. Applying the principle of human probabilities, the Tribunal concluded that returns of such magnitude within a short period defied commercial logic and could not be accepted as the result of ordinary investment activity.
Another significant factor noted by the Tribunal was that Cressanda Solutions Ltd. had been identified by the Bombay Stock Exchange as a penny stock used for generating bogus LTCG. The Tribunal considered this, along with the investigation conducted by the Revenue, as supporting the conclusion that the transaction formed part of a broader accommodation entry operation.
The Delhi High Court endorsed the Tribunal’s analysis, noting that the financial parameters of the company could not justify the extraordinary increase in share prices. The Court observed that no satisfactory explanation had been offered as to why investors would purchase shares of such a company at extremely high prices. It also noted that no evidence of actual sale transactions had been produced apart from broker-issued contract notes. Given the evidence on record and the concurrent factual findings of the authorities, the Court concluded that no question of law arose and dismissed the appeal.
The assessee thereafter approached the Supreme Court through a Special Leave Petition. The Supreme Court dismissed the petition. As a result, the findings of the tax authorities, the ITAT, and the Delhi High Court remained undisturbed, and the addition made by denying the LTCG exemption stood sustained.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
The special leave petition is dismissed.
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