Case Law Details
Sanjay Bimalchand Jain L/H Shantidevi Bimalchand Jain Vs. Pr. CIT (Bombay High Court, Nagpur Bench)
The authorities have recorded a clear finding of fact that the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. While so observing, the authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth Rs. 5 had jumped to Rs. 485 in no time. The Income Tax Appellate Tribunal held that the fantastic sale price was not at all possible as there was no economic or financial basis as to how a share worth Rs. 5 of a little known company would jump from Rs. 5 to Rs. 485. AO was justified in denying exemption under section 10(38) to assessee, being fantastic sale price was not at all possible in such a short time.
FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:-
By this income tax appeal, the appellant- assessee challenges the orders of the Assessing Officer, the Commissioner as also the Income Tax Appellate Tribunal holding that the assessee had traded in shares and the income was liable to be taxed as ‘business’ income.
The assessee had on the advice of an income tax consultant purchased shares of two penny stock Kolkata based companies i.e., 8000 shares at the rate of Rs. 5.50 per share on 8-8-2003 and 4000 shares at the rate of Rs. 4 per share on 5-8-2003 from Syncom Marketing (P) Ltd. and of Sky zoom Distributors (P) Ltd. the payments were made by the assessee in cash for acquisition of shares of both the companies. The address of both the companies was interestingly, the same. The authorized signatory of both the companies was also the same person. The purchase of shares of both the companies was done by the assessee through Global Stock and Securities Ltd and the address of the said broker was incidently the address of the two companies. Both the companies intimated the assessee on 7-4-2004 regarding the merger of the companies with another company, viz. Khoobsurat Limited, Kolkata and the assessee received the shares of the new company in the ratio of 1:4 of the number of shares of the previous two companies held by the assessee. The assessee sold 2200 shares at an exorbitant rate of Rs. 486.55 per share on 7-6-2005 and 800 shares on 20-6-2005 at the rate of Rs. 485.65. The shares were sold through another broker, viz. Ashish Stock Broking Private Limited. The proceeds from the aforesaid sale transaction were directly credited by the broker in the Savings Bank Account of the assessee in the Union Bank of India. The assessing officer did not accept the case of the assessee that she was entitled to exemption under section 10(38) of the Income Tax Act. The assessing officer held that the aforesaid transactions of purchase of two penny stock shares for Rs. 60,000, the merger of the companies with a new company and the sale of the shares for Rs. 11,58,930 fell within the ambit of adventure in the nature of trade and the assessee had profited by Rs. 13,98,930.
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