Hema Ramesh Jain Vs ITO (ITAT Mumbai)
ITAT Mumbai held that addition u/s. 68 of the Income Tax Act by treating transaction of sale of shares of Sunrise Asian as a bogus penny stock unsustainable as material on records supports genuineness of the transactions.
Facts- The case of the assessee was selected for scrutiny. AO observed that the assessee had shown income from Capital Gains & other sources and claimed LTCG on sale of shares of the scrip Sunrise Asian.
According to the AO, the scrip M/s. Sunrise was a penny-stock. AO was of the opinion that the assessee’s LTCG was part of an organized scam/circular trading and by doing so, the assessee was evading tax, launder money by becoming beneficiary of that organized scam. And thus, he was of the opinion that LTCG claim of the assessee to the tune of Rs.23,88,825/- which was claimed as exempt income u/s 10(38) of the Act cannot be allowed. According to AO, entire transaction giving rise to the capital gains are merely fictitious bogus accommodation entries through which unaccounted money of the assessee has been converted into accounted money. Therefore, the entire sales consideration of shares of Rs.25,12,020/- was added by AO as income of the assessee.
CIT(A) dismissed the appeal of the assessee. Being aggrieved, the present appeal is filed.
Conclusion- CIT(A) has stated that the Appellant being very new to trading in penny stock and the earning of such huge income by a person not known to such type of trading is against human probabilities. This is factually incorrect as the Assessee has been registered as subbroker with SEBI and has been making personal investments since 2007.
Held that the material on record supports the case of the Assessee/Legal Heir that transactions of sale of shares of Sunrise Asian were genuine transactions undertaken during normal course by the Assessee who had knowledge of the stock-market and had been making investments in shares since many years. Accordingly, the claim of exemption under Section 10(38) of the Act is allowed in respect of capital gains arising from sale of shares of Sunrise Asian during the previous year relevant to the Assessment Year 2014-15.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)/(NFAC), Delhi dated 08.08.2023 for the assessment year 2014-15.
2. The main grievance of the assessee is against the action of the Ld. CIT(A) upholding the disallowance made by AO regarding the claim of Long Term Capital Gain (LTCG) of Rs.23,37,135/- and taxing the entire sale consideration of Rs.25,12,020/- on sale of shares of M/s. Sunrise Asian Ltd. (hereinafter “M/s. Sunrise”).
3. Brief facts are that the assessee an individual had filed her return of income for AY. 2014-15 on 28.02.2015 declaring total income of Rs.9,91,970/-. Later, the case of the assessee was selected for scrutiny. And the AO observed that the assessee’s source of income were from weaving of cloth by the aid of power looms for private parties, contract income; and had declared her income u/s 44AD of the Income Tax Act, 1961 (hereinafter “the Act”). Apart from the above source of income, the AO noted that the assessee had shown income from Capital Gains & other sources and claimed LTCG on sale of shares of the scrip Sunrise Asian as per the following summary: –
4. The AO noted from the details submitted by the assessee that assessee had purchased 5000 shares of M/s. Conart Trader’s Ltd. @ Rs.20/- per share from M/s. Santoshima Tradelinks Ltd and that payment of the same was made on 18.09.2011 through banking channels. And this company later on merged with M/s. Sunrise Asian Ltd. (hereinafter referred to as “Sunrise”) and as per the scheme of merger under section 391 to 394 of the Companies Act, 1956 and approved by Hon’ble Bombay High Court as notified by Bombay Stock Exchange (BSE) on 25.04.2013, the 20,000 shares were then sold on various dates in 2013 for total consideration of Rs.25,12,020/-. According to the AO, the scrip M/s. Sunrise was a penny-stock and for coming to such a conclusion he referred to the investigation report prepared by Investigation Wing of the Department (Kolkata) wherein the modus-operandi of persons like assessee had indulged in converting their unaccounted money by way of transacting in penny- stock (M/s. Sunrise in this case) and claimed bogus LTCG. The AO referred to the statement given by Shri Vipul Vidur Bhatt recorded u/s 132(4) of the Act wherein he admitted (during the course of search in his premise) that prices of acquisition and sale of M/s. Sunrise shares were manipulated. And thereafter, the AO was of the opinion that the assessee’s LTCG was part of an organized scam/circular trading and by doing so, the assessee was evading tax, launder money by becoming beneficiary of that organized scam. And thus, he was of the opinion that LTCG claim of the assessee to the tune of Rs.23,88,825/-which was claimed as exempt income u/s 10(38) of the Act cannot be allowed. According to him, the entire transaction giving rise to the capital gains are merely fictitious bogus accommodation entries through which unaccounted money of the assessee has been converted into accounted money in the garb of LTCG arising on account of purchase and sale of shares of M/s. Sunrise. Therefore, the entire sales consideration of shares of Rs.25,12,020/- was added by AO as income of the assessee. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to dismiss the appeal of the assessee. Aggrieved, the assessee is before us.
5. We have heard both the parties and perused the records. We note that the assessee is an individual contractor who derives income also from weaving of cloth by the aid of power looms for private parties and income from other source. It is noted that assessee is a regular investor in the share-market since year 2007 (refer page no. 4 of PB wherein list of holding of shares are given there from AY. 2012- 13 & 2013-14 and also refer to Page no. 12 -18C of PB. For the year under consideration, the assessee has filed her ROI on 28.02.2015 by declaring total income of Rs.9,91,970/- (Refer page no. 1-3 of PB). Assessee claimed LTCG of Rs.23,15,537/- (on sale of shares of M/s. Sunrise Asian Ltd. for a total consideration of Rs.24,59,000/- (Page no.4 of PB). Aggregate LTCG claim was to the tune of Rs.23,37,135/-. Regarding this claim of LTCG, it is noted that the assessee had purchased the shares of M/s. Conart Traders Ltd., on 18.09.2011 [which company was incorporated in the year 1994]; and the Ld. AR showed us that it had consistent track record of earning profit for recent past years. And book value of shares as per duly audited accounts as at 31.03.2011 works out to approx. Rs.22/- and corresponding EPS for FY. 2010-11 was Rs.1.90 and Rs.0.78 for FY. 2009-10. (Growth rate of 144% in EPS). [Refer Annual Audited Accounts F.Y. 2010-11 (Page no. 50-64 of PB)]. It was brought to our notice that the said company among other business was also in the same line of business in which assessee was familiar i.e. textile and fabric business (page no. 63 of PB) as well as trading in fabrics refer Notes on Accounts (Page no. 52-64 of PB). Later, M/s. Contart Traders amalgamated with M/s. Sunrise Asian Ltd. pursuant to Hon’ble High Court order dated 22.03.2013 w.e.f. 01.04.2012 (Refer page no. 67-97 & 153 to 183 of PB). The following chart would show the purchase date-wise, quantity wise:-
