Search Results For: 10(38)


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DATE: August 11, 2020 (Date of pronouncement)
DATE: August 14, 2020 (Date of publication)
AY: 2014-15
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S. 10(38)/68: Bogus Capital Gains from Penny Stocks: The AO has not discharged the onus of controverting the documentary evidences furnished by the assessee and by bringing on record any cogent material to sustain the addition. The allegation of price rigging / manipulation has been levied without establishing the vital link between the assessee and other entities. The whole basis of making additions is third party statement and no opportunity of cross-examination has been provided to the assessee to confront the said party. As against this, the assessee's position that that the transactions were genuine and duly supported by various documentary evidences, could not be disturbed by the revenue

As against the assessee’s position, the primary material to make additions in the hands of assessee is the statement of Shri Vipul Bhat and the outcome of search proceedings on his associated entities including M/s SAL. However, there is nothing on record to establish vital link between the assessee group and Shri Vipul Bhat or any of his group entities. The assessee, all along, denied having known Shri Vipul Bhat or any of his group entities. However, nothing has been brought on record to controvert the same and establish the link between Shri Vipul Bhat and the assessee. The opportunity to cross-examine Shri Vipul Bhat was never provided to the assessee which is contrary to the decision of Hon’ble Supreme Court in M/s Andaman Timber Industries V/s CCE (CA No.4228 of 2006) wherein it was held that not allowing the assessee to cross-examine the witnesses by the adjudicating authority though the statement of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounts to violation of principal of natural justice because of which the assessee was adversely affected

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DATE: March 11, 2020 (Date of pronouncement)
DATE: July 13, 2020 (Date of publication)
AY: 2012-13
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S. 147 Reopening for bogus capital gains from penny stocks: The Dept's argument that though the assessee disclosed details of the transactions pertaining to purchase and sale of shares, it did not disclose the real colour / true character of the transactions and, therefore, did not make a full and true disclosure of all material facts which was also overlooked by the AO, is not correct. The assessee disclosed the primary facts to the AO & also explained the queries put by the AO. It cannot be said that the assessee did not disclose fully and truly all material facts necessary for the assessment

In para 3.4 of the affidavit in reply it is stated that though the Petitioner had furnished details relating to purchase and sale of shares of Mittal Securities Ltd., (now Scan Steels Ltd.,), but that did not amount to full and true disclosure of all material facts unless true and real facts are disclosed before the Assessing Officer. Assessing Officer had not discussed in the assessment order about the genuineness or camouflage nature of the transactions of purchase and sale of shares of Mittal Securities Ltd. by the Petitioner

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DATE: June 29, 2020 (Date of pronouncement)
DATE: July 3, 2020 (Date of publication)
AY: 2011-12
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CITATION:
S. 10(38) Bogus capital gains from penny stocks: The assessee has produced contract notes, demat statements etc & discharged the onus of proving that he bought & sold the shares. The AO has only relied upon the report of the investigation wing alleging the transaction to be bogus. He ought to have examined a number of issues (which are enumerated in the order) and shown that the transaction is bogus. The capital gains are genuine and exempt from tax

All these information could have been obtained by the assessing officer by issue of 133 (6) notice to the depository as well as to the stock exchange and the respective broker. However, despite having the basic information available with the assessing officer he has chosen to sit and become a mute spectator. When the assessee has provided the complete information, which would have been available with the assessee in the documentary format, the role of the assessing officer starts as an investigator of the information furnished by the assessee, when he recorded the reason, he formed a prima facie reason to believe that there is an escapement of income. He should have converted his reason into the fact by making an investigation on the information provided by the assessee. For the reasons best known to the assessing officer, he did not do anything on the information provided by the assessee. He merely made the addition holding that assessee has not shown justification for purchase of shares at a very high price.

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DATE: February 14, 2020 (Date of pronouncement)
DATE: March 14, 2020 (Date of publication)
AY: 2015-16
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CITATION:
S. 10(38) Bogus capital gains from penny stocks: As the detailed explanation of the assessee does not sufficiently discharge the onus on proving the source of impugned deposits, the impugned addition should be restricted to 30% only with a rider that same shall not be treated as a precedent in any other assessment year

It emerges that from a perusal of these case files that although the assessee has produced her documentary evidence before the lower authorities about the impugned sums to be in the nature of income derived from the sales of shares, the fact remains that her detailed explanation tendered in the course of assessment till date does not sufficiently discharg her onus on proving the source of impugned deposits

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DATE: October 1, 2019 (Date of pronouncement)
DATE: October 19, 2019 (Date of publication)
AY: 2012-13
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CITATION:
S. 10(38)/ 68: Bogus LTCG from penny stocks: The fact that a scam has taken place in some penny stocks does not mean that all transactions in penny stocks can be regarded as bogus. In deciding whether the claim is genuine or not, the authorities have to be guided by the legal evidence and not on general observations based on statements, probabilities, human behavior, modus operandi etc. The AO has to show with evidence the chain of events and live link of the assessee's involvement in the scam including that he paid cash and in return received exempt LTCG gains (Sanjay Bimalchand Jain 89 TM 196 (Bom) distinguished)

An alleged scam might have taken place on LTCG etc. But it has to be established in each case, by the parry alleging so, that this assessee in question was part of this scam. The chain of events and the live link of the assessee’s action giving his involvement in the scam should be established. The allegation implies that cash was paid by the assessee and in return the assessee received LTCG, which is exempt from income tax, by way of cheque through banking channels. This allegation that cash had changed hands has to be proved with evidence, by the revenue.

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DATE: September 17, 2019 (Date of pronouncement)
DATE: October 2, 2019 (Date of publication)
AY: 2014-15
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CITATION:
S. 10(38) Bogus LTCG from Penny Stock: The analysis of balance sheet & P&L account of the Co shows that astronomical increase in share price which led to returns of 491% for assesee was completely unjustified. The EPS & other financials parameters cannot justify price at which assessee claims to have sold shares to obtain Long Terms Capital Gains. It is not explained as to why anyone would purchase said shares at such high price

The AO has worked out the glaring facts, which cannot be ignored and which are clear indicative of the non-genuine nature of the transactions. The assessee could not satisfactorily explain how the investments in the absence of any evidence as to the financials, growth and operations of the company could earn profit of 4910% over a short period of 5 months from the date of allotment of shares

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DATE: July 1, 2019 (Date of pronouncement)
DATE: August 31, 2019 (Date of publication)
AY: 2013-14
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CITATION:
S. 10(38): The fact that "long-term capital gains" on listed shares are exempt from tax does not mean that "long-term capital loss" on such shares is not available for set-off against taxable income. While the gains are exempt, there is no bar against claiming set-off of the loss (J.H. Gotla 156 ITR 323 (SC) distinguished, CBDT Circular No.7/2013 dated 16.07.2013 referred, Raptakos Bret 69 SOT 383 (Mum) followed)

If one carefully analyzes various sub-sections of Section 10 then it is evident that each sub-section enlists specific specie of receipt to which exemption from tax is granted if certain conditions are fulfilled. We therefore find that Section 10 enlists various species of receipts which are otherwise revenue in nature but they are granted exemption from income-tax by the Legislature. The Legislature can grant exemption only when there is a positive income and not where there is a ‘loss’ or negative income on which admittedly there cannot be any charge of income-tax.

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DATE: August 9, 2019 (Date of pronouncement)
DATE: August 17, 2019 (Date of publication)
AY: 2014-15
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CITATION:
S. 50C + S. 10(38) Bogus Penny Stocks Capital Gains: (i) Though the 3rd Proviso to s. 50C, which provides a safe harbour of 5%, applies w.e.f. 01.04.2019, it must be interpreted to apply since the insertion of s. 50C (01.04.2003) because it is curative and removes an incongruity and avoids undue hardship to assesseess (ii) LTCG from penny stocks cannot be treated as bogus if the documentation is in order and no fault is found by the AO

The insertion of third proviso (noted above) to Section 50C of the Act is declaratory and curative in nature. That is, the third provisoto Section 50C of the Act relates to computation of value of property as explained by us above, hence it is not a substantive amendment, it is only a procedural amendment therefore the Coordinate Benches of the ITAT used to ignore the variation up to 10%, therefore, the said amendment should be retrospective.Quite clearly therefore, even when the statute does not specifically state so, such amendments, in the light of the detailed discussions above, can only be treated as retrospective and effective from the date related statutory provisions was introduced. Viewed thus, the third proviso to Section50C should be treated as curative in nature and with retrospective effect from 1st April 2003, i.e. the date effective from which Section 50C was introduced.

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DATE: June 14, 2019 (Date of pronouncement)
DATE: August 14, 2019 (Date of publication)
AY: 2014-15
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CITATION:
S. 10(38) Bogus Capital Gains from Penny Stocks (282x gain in 12 months): The meticulous paper work of routing the transaction through banking channel is futile because the results are altogether beyond human probabilities. Neither in the past nor in the subsequent years, assessee has indulged into any such investment having huge windfall. Had the assessee been so intelligent qua the intricacies of the share market, he would have definitely undertaken such risk taking activities in the past or future by making such investment in unknown stock. It is a sham transaction to convert undisclosed income into disclosed by evading tax under the garb of LTCG in connivance with entry providers (Pooja Ajmani & Udit Kalra 176 DTR 249 (Del) followed

The contention of the assessee that he has purchased the shares through banking channel and as such, when the purchase is genuine then sale cannot be questioned, is not tenable because the entire transaction of sale and purchase is to be seen in entirety in the light of the attending circumstances particularly when share of Rs.10 is sold after a period of one year at 282 times which is otherwise improbable in the ordinary course of business.

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DATE: April 25, 2019 (Date of pronouncement)
DATE: May 11, 2019 (Date of publication)
AY: 2014-15
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CITATION:
S. 10(38) Bogus Capital Gains From Penny Stocks: U/s 101 of Evidence Act, 1972, the onus is on the assessee to prove that the LTCG is genuine. The assessee cannot, on failure to establish a prima facie case, take advantage of the weakness in the AO's case. The jump in the share price of a company of unknown credentials cannot be an accident or windfall but is possible because of manipulations in a pre-planned manner by interested broker and entry operators. The LTCG transactions are a sham

Documents submitted as evidences to prove the genuineness of transaction are themselves found to serve as smoke screen to cover up the true nature of the transactions in the facts and circumstances of the case as it is revealed that purchase and sale of shares are arranged transactions to create bogus profit in the garb of tax exempt long terra capital gain by well organised network of entry providers with the sole motive to sell such entries to enable the beneficiary to account for the undisclosed income for a consideration or commission. I further find that the share transactions leading to long term capital gains by the assessee are sham transaction entered into for the purpose of evading tax.