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May 17, 2022

ITAT upholds the addition of undeclared money as Long term capital gain.

by CA Shivam Jaiswal in Income Tax

ITAT upholds the addition of undeclared money as Long term capital gain.

Facts and Issue of the case

This appeal filed by the assessee is directed against the order dated 13.12.2017 of the learned CIT(A)-12, New Delhi, relating to AY 2014-15.
The assessee in the  grounds  of  appeal  has challenged the order of the Ld. CIT(A) in confirming the addition of Rs.52,31,521/- made by the AO by disallowing the claim of deduction 10(38) of the Act.
The assessee is an individual and filed her return of income on 17.12.2014 declaring total income of  Rs.9,24,420/-  after  claiming deduction  of  Rs.1,07,210/-under  chapter  VI-A.  The  return was selected for scrutiny under CASS and statutory notices u/s 143(2) and 142(1) of the Act were issued and served upon the assessee. During the course of assessment proceedings, the AO noted that the assessee has shown Long Term Capital Gain of Rs.50,63,521/-from sale of shares of M/s Lifeline Drugs & Pharma Ltd. and claimed the same as exempt u/s 10(38) of the Act. The AO noted that M/s Lifeline Drugs & Pharma Ltd. is a penny stock company. The AO referred to the Investigation report of the Investigation Wing, Kolkata and noted that certain stock brokers were involved in providing accommodation entries in the form of sale of shares against payment of commission. He noted that certain brokers had admitted that they had received cash from beneficiaries  including  the assessee and the same was returned in the form  of  sale proceeds of shares with STT payment to entitle them to claim benefit of exemption u/s 10(38) of the Act. The stock bought by the assessee i.e. M/s Lifeline Drugs & Pharma Ltd. was a penny stock as the company had a  small capital base. The  company had no profit earning apparatus and therefore vulnerable to price manipulation by the interested parties. He, therefore, confronted the same to the assessee and asked her to explain as to why the claim of deduction u/s 10(38) should not be disallowed. Rejecting the various explanation given by the assessee, the AO disallowed the claim of deduction u/s 10(38) of the Act. In appeal, the ld. CIT(A) upheld the action of the AO. Aggrieved with such order of the Ld. CIT(A), the assessee in appeal before the Tribunal.

Observation of the case

Court has heard the ld. DR and perused the record. Court finds the AO in the instant case has rejected the claim of deduction u/s 10(38) of the Act on  the  ground  that  the assessee failed to substantiate with evidence to his satisfaction regarding sale of shares of M/s Lifeline Drugs & Pharma Ltd. which increased from Rs.6 to Rs.186.84 in just 18 months. According to him, hike in price of the scrip is not supported by the fundamental of the company and the assessee could not substantiate with any supporting evidence to justify the transaction. We find the ld. CIT(A) in his elaborate order has decided the issue and dismissed the appeal  filed  by  the assessee on the ground that the AO  has  clearly  given  the modus operandi of money laundering by the stock broker of the agents and the beneficiaries are interested in having  their money laundered.   He has given detailed reasoning as to how the assessee has introduced her unaccounted  money  in  the garb of Long Term Capital Gain.  Nothing has been brought by the assessee before us to take a contrary view than the view taken by the ld. CIT(A) on this issue. Court, therefore, upheld the order of the Ld. CIT(A) and the ground raised by the assessee is dismissed.

Conclusion

The court dismissed the appeal filed by the assesse.

Shweta-Puneet-Kulthia-Vs-ITO-ITAT-Delhi-2

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