Case Law Details
Smt. R. Shobha Lodha Vs ITO (ITAT Chennai)
In the case of Smt. R. Shobha Lodha vs. ITO (ITAT Chennai), the issue revolves around the assessment of Long Term Capital Gain (LTCG) arising from the purchase and sale of shares, particularly focusing on the applicability of Section 68 of the Income Tax Act, 1961. The appeal arises from the order of the Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 24.03.2023, concerning the assessment year 2016-17, framed by the Income Tax Officer, Non-Corporate Ward 9(1), Chennai.
The crux of the matter lies in the treatment of the LTCG claimed by the assessee under Section 10(38) of the Act, which provides for exemption of such gains. The assessing officer (AO) reopened the assessment based on information received regarding the trading of a penny stock, Rekvina Laboratories Ltd., by the assessee. It was alleged that the assessee engaged in transactions aimed at evading tax by showing LTCG as exempt income. The AO, after thorough investigation, concluded that the assessee had merely routed her own money through the sale of shares, treating the entire sale consideration as income from other sources under Section 68 of the Act.
Upon appeal to the Commissioner of Income-Tax (Appeals) [CIT(A)], the action of the AO was confirmed. The CIT(A) observed various factors indicating suspicious activity, such as the absence of broker notes, the non-disclosure of transactions in the return of income, and the lack of trading activity in shares apart from this isolated transaction. Additionally, the appellant’s investment in a penny stock without adequate knowledge or research raised further suspicions of involvement in a cartel for managing accommodation entries.
The ITAT Chennai, upon hearing the appeals, upheld the decisions of the AO and CIT(A). The tribunal noted the failure of the assessee to provide substantial evidence supporting the genuineness of the transactions. Despite the appellant’s assertions, no concrete evidence was presented to refute the AO’s findings. Consequently, the entire sale proceeds were treated as unexplained cash credit under Section 68 of the Act.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the assessee is arising out of the order of the Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in Order No.ITBA/NFAC/S/250/2022-23/1051232494 (1) dated 24.03.2023. The assessment was framed by the Income Tax Officer, Non-Corporate Ward 9(1), Chennai for the assessment year 2016-17 u/s.147 r.w.s.144 of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 30.09.2021.
2. At the outset, it is noticed that this appeal is barred by limitation by 125 days. The assessee has filed condonation petition for condoning the delay along with affidavit. The order of CIT(A) is dated 24.03.2023 and as per Form No.36, the date of communication of order is also mentioned as 24.03.2023. The appeal was filed by assessee in Tribunal on 25.09.2023, thereby there is a delay of 125 days. The assessee contended in her petition for condonation of delay that the last date for filing of appeal before Tribunal fell on 24.05.2023 however, this could not be filed and hence, there was a delay of 125 days for the reason that the CIT(A) order got misplaced and the orders from website were not available due to technical errors or due to the assessee not well conversant with the technology. The ld.counsel for the assessee contended that the cause is reasonable and the delay of 125 days may be condoned. On the other hand, the ld.Senior DR opposed condonation of delay.
2.1 After hearing rival contentions and going through the reasons stated in the petition and arguments made by ld.counsel, we are inclined to accept the cause as reasonable and hence, condone the delay and admit the appeal.
3. The only issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of the AO in assessing the Long Term Capital Gain arising out of purchase and sale of shares as unexplained credit u/s.68 of the Act and disallowed the claim of exemption u/s.10(38) of the Act as claimed by assessee. For this, assessee has raised various grounds, which are argumentative, exhaustive and factual, hence need not be reproduced.
4. Brief facts are that the assessee an individual filed her return of income for the relevant assessment year 2016-17 on 24.03.2018. The ITO received information from DDIT(Inv), Unit-I(I), Vadodara that the assessee has traded in one penny scrip namely Rekvina Laboratories Ltd., and sold the shares at a value of Rs.9,51,795/-. On verification of ITR-1 filed by assessee, the AO noted from the investigation report of the investigation wing that this company is engaged in providing entry i.e., profit on sale of shares in the shape of Long Term Capital Gain, which is claimed to have been exempt u/s.10(38) of the Act, hence the AO reopened the assessment by issuing notice u/s.148 of the Act dated 06.03.2020. The AO after analyzing the financials of Rekvina Laboratories Ltd., Vadodara and also considering the report of DDIV (Inv), Unit I(I), Vadodara, detailed out the jump in scrip and also the SEBI report and BSE enquiry conducted in this scrip and held that the assessee has routed her own money by way of sale of shares and hence entire sale consideration of Rs. 9,51,795/- relating to this assessment year 2016-17 was assessed u/s.68 of the Act under the head ‘income from other sources’. Aggrieved, assessee preferred appeal before CIT(A).
5. The CIT(A) after going through the entire facts upheld the action of AO by observing in para 4.3.13 & 4.3.14 as under:-
4.3.13 On the basis of above discussion, following facts emerge:
(i) The appellant had purchased these shares in cash and there are no broker notes available with the appellant.
(ii) The appellant had not shown these transactions in the Return of Income filed by the appellant and had claimed it to be exempted u/s 10(38) without claiming it in the Return of Income. This raises suspicion that the appellant wanted to conceal these transactions on the pretext of being exempted, so that she avoids the scrutiny of this transaction from the Income Tax Department.
(iii) The appellant had not traded in any shares except the shares of Ms RRL in FY 2014-15. 2015-16 & 2016-17, thereby, indicating that this was an isolated transaction in three years and appellant is not well-versed with the stock market.
(iv) The appellant had invested in huge number of shares of penny stock M’s RLL without any knowledge of individual scrips and ignoring the financials of this company, leading to huge profits in this scrip, thereby, raising the suspicion that the appellant was part of cartel managing the accommodation entries of exempted LTCG in this Scrip.
(v) The whole amount of Rs. 951795/- on sale of this scrip had been credited to the bank account of the appellant. Since, the appellant had managed this profit on sale of this scrip, the nature of this amount is unexplained cash credit and not the exempted LTCG.
(vi) The AO has clearly established that the credit of the sum entered into the books of account and claimed as long term capital gains has not been satisfactorily explained by the appellant and the credit falls within the meaning of section 68 of the Income Tax Act.
4.3.14 In these facts & circumstances of the case, it is held that the appellant had managed the bogus accommodation entries of Rs. 951795/-of LTCG and the purchase price is not ascertainable in the absence of broker notes & source of cash purchases. Accordingly, the addition of Rs. 951795/- made by the AO u/s 68 of the Act without giving the benefit of purchase price is upheld and the ground nos. 1 to 4 of the appellant are “dismissed”.
Aggrieved, now assessee is in appeal before us.
6. We have heard rival contentions and gone through facts and circumstances of the case. Before us, the assessee could not produce any evidence that the transactions entered into by the assessee is a genuine transaction rather the assessee apart from bald stated that the transaction is genuine, could not produced any evidence. We noted that the AO has carried out enquiry and rightly reached to a conclusion that the assessee has routed here own money by way of sale of shares and hence, he has rightly considered the entire sale of Rs.9,51,795/- as ‘income from other sources’ and assessed u/s.68 of the Act. The CIT(A) has also rightly upheld the the appeal of the assessee is dismissed.
7. In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court at the time of hearing on 24th April, 2024 at Chennai.
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