Phenomenal LTCG in short period possible only through a colorable device

Phenomenal LTCG in short period possible only through a colorable device – ITAT upheld taxing LTCG as income from undisclosed income

ABCAUS Neutral Case Law Citation:
ABCAUS 3687 (2023) (03) ITAT

Important Case Laws relied upon by parties:
Sanjay Bimalchand Jain vs. CIT

Surya Prakash Toshniwal (HUF) vs ITO
CIT vs. Durga Prasad More 82 ITR 540
Sumati Dayal vs. CIT 214 ITR 801

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming Long Term Capital Gain transaction as an accommodation entry and addition to income u/s 68 of the Income Tax Act, 1961 (the Act).

The appellant assessee had shown large amount of Long Term Capital Gains (LTCG) as exempt income under section 10(38) of the Act. During the year under consideration, assessee claimed LTCG by way of sale of 14000 equity shares of a listed company. The sale price of per unit share was 200 times more than the cost price of the shares.

The Assessing Officer (AO) referring to the report received from the office of Pr. DIT, Investigation that various BSE listed penny stock companies have been used for providing LTCG and the judgments of Hon’ble Apex Court, held that it was a clear-cut case  of LTCG obtained through brokers and assessee had used colorable device for avoidance of tax and therefore, treated the LTCG as not genuine.

The CIT(A) observed that the Bombay High Court had approved the ITAT order that a fantastic sale price is not at all possible in the absence of no financial basis as how a share price of a little known company would  jump  to nearly 100 times.

The CIT(A) opined that share transactions leading to LTCG by the  appellant were sham transaction entered into for the purpose of  evading tax.

He held that the AO rightly added the amount of LTCG as unexplained income of the appellant.

The Tribunal opined that the assessee was engaged in penny stock transactions wherein a phenomenal return was obtained in a short time period and this is only possible through a colorable device.

In the result, the assessee’s appeal was dismissed.

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