| COURT: | ITAT Ahmedabad |
| CORAM: | Mahavir Prasad (JM), N. K. Billaiya (AM) |
| SECTION(S): | 68 |
| GENRE: | Domestic Tax |
| CATCH WORDS: | bogus capital gains, Penny Stocks |
| COUNSEL: | Tushar P. Hemani |
| DATE: | March 9, 2017 (Date of pronouncement) |
| DATE: | April 7, 2017 (Date of publication) |
| AY: | 2008-09 |
| FILE: | Click here to download the file in pdf format |
| CITATION: | |
| Bogus penny stock capital gains: Failure to provide a copy of the statement relied upon and of cross-examination renders the assessment order void. The claim of capital gains from penny stocks cannot be denied on presumption and surmises by disregarding direct evidences relating to the sale/purchase transactions of shares supported by broker’s contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account | |
(i) The entire assessment is based upon the statement of Shri Mukesh Choksi. It is an undisputed fact that neither a copy of the statement was supplied to the assessee nor any opportunity of cross-examination was given by the Assessing Officer/CIT(A). On the strength of the decision of the Hon’ble Supreme Court in the case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006, the assessment order has to be quashed.
(ii) Even on facts of the case, the orders of the authorities below cannot be accepted. There is no denying that consideration was paid when the shares were purchased. The shares were thereafter sent to the company for the transfer of name. The company transferred the shares in the name of the assessee. There is nothing on record which could suggest that the shares were never transferred in the name of the assessee. There is also nothing on record to suggest that the shares were never with the assessee. On the contrary, the shares were thereafter transferred to demat account. The demat account was in the name of the assessee, from where the shares were sold. In our understanding of the facts, if the shares were of some fictitious company which was not listed in the Bombay Stock Exchange/National Stock Exchange, the shares could never have been transferred to demat account. Shri Mukesh Choksi may have been providing accommodation entries to various persons but so far as the facts of the case in hand suggest that the transactions were genuine and therefore, no adverse inference should be drawn.
(iii) In the light of the decisions of the Hon’ble Supreme Court in the case of Andaman Timber Industries (supra) and considering the facts in totality, the claim of the assessee cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences on record relating to the sale/purchase transactions in shares supported by broker’s contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account.
(iv) Accordingly, we direct the A.O. to treat the gains arising out of the sale of shares under the head capital gains- “Short Term” or “Long Term” as the case may be. The other grievance of the assessee becomes infructuous.
Unreasonable Order
Shri Mukesh Chokshi in his own appeal before Mumbai ITAT has said that all his transactions are bogus and in his business of providing Accomodation entries he earned a paltry sum and thus not liable for Tax Audit. He sought relief from 271B penalty, accordingly.
Another bench says, the transactions involving the accomodator Shi Mukesh Chokshi is genuine, unless cross examined.Mukesh Chokshi had provided bogus entries to 25000 culprits and how on earth does the ITAT expect that the the corresponding AOs can examine Mukesh Chokshi 25000 times. There has to be a tolerence level on procedural laxity and when it is a scam having Pan India repurcussions it has to be viewed pragmatically.
It is fascinating to note that in the case of Sudhir Balraj Humani HUF, ta Single Member Hon’ble Rajpal Yadav of the same ITAT at Ahmedabad,under similar circumstances involving Mukesh Chokshi has held that the claims of exemption u/s 10(38) are bogus.
Hence this order does not appear to be fair and reasonable.