Bogus LTCG Addition Sustained as Tribunal Finds Evidence of Fabricated Share Purchase Records

Dinesh Kumar (HUF) Vs ITO (ITAT Delhi)

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) partly allowed the appeal filed by the assessee for Assessment Year 2015-16 against the order of the Commissioner of Income Tax (Appeals), Ghaziabad. The assessee had filed a return declaring income of Rs.2,52,060 and claimed exemption under Section 10(38) of the Income-tax Act on long-term capital gains (LTCG) amounting to Rs.28,59,645 arising from the sale of shares of M/s CCL International Ltd. The assessee had stated that 12,500 shares of the company were purchased in physical form on 17 August 2011 through M/s Narayan Securities for Rs.1,25,000 in cash. The shares were subsequently transferred in the assessee’s name, dematerialised, and 8,600 shares were sold during the relevant period for Rs.29,69,600 through stock exchange transactions.

During assessment proceedings, the Assessing Officer (AO) treated the share transactions as part of an accommodation entry scheme involving bogus LTCG generated through manipulation of penny stock prices. The AO observed that the original purchase had been made in physical form, payment had been made in cash, and the broker involved could not be traced at the address provided. The assessee was repeatedly asked to produce the Karta for examination, but the Karta did not appear. The AO also analysed the steep increase in the share price and concluded that it lacked support from the company’s financial fundamentals. Consequently, the exemption claimed under Section 10(38) was denied, and the sale proceeds of Rs.29,69,600 were added under Section 69 read with Section 115BBE of the Act. In addition, an amount of Rs.40,00,000 claimed as loans was added under Section 68 as unexplained cash credits.