SEBI Order is not the sole basis for treating capital gains on penny shares as sham- ITAT Ahmedabad

SEBI Order is not the sole basis for treating capital gains on penny shares as bogus- ITAT Ahmedabad

The assessee sold the shares of M/s Kushal Tradelink Pvt. Ltd. on account of transfer of shares at Rs.1,35,72,928/- as claimed as LTCG and the same was claimed as exempt income under Section 10(38) of the Act. The assessing officer made an addition under section 69A of the Act as unexplained money vide assessment order u/s 147 read with section 144B. The Assessing Officer has categorically mentioned that there was SEBI order from which modus operandi of price manipulation in the scrip of M/s Kushal Tradelink Pvt. Ltd. for the period was categorically mentioned by the Assessing Officer. In fact, the said scrip was defunct in case of Ketan Parikh dated 14.07.2013 and there was manipulation prior to purchase of the scrip of M/s Kushal Tradelink Pvt. Ltd. and after the scrip was sold at that time also the pricing of this share was manipulated. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.

Contention of the Revenue

The Ld. DR submitted that the CIT(A) was not right in deleting this entire addition without any reference to the SEBI proceedings in the said order.

Submissions of the Assessee

The Ld. AR submitted that the CIT(A) has rightly taken into account that the reasons recorded was mainly on the basis that the assessee has received accommodation entries from Kushal Group amounting to Rs.1,47,12,954/- but in fact during the year under consideration the assessee has purchased and sold shares of M/s Kushal Tradelink Pvt. Ltd. for which the assessee has received payment amounting to Rs.1,46,79,424.85 during the year under consideration through Bank. Both purchase and sale of shares was carried out by SEBI registered stock brokers Sharekhan Limited through DMAT account was properly recorded in books of the assessee. The CIT(A) has rightly taken cognisance of the evidences and, therefore, has rightly deleted this addition.

Observations of Tribunal

• The assessee during the assessment proceedings has given copy of bills of stock broker, Trading chart comparison, Bank statement reflecting receipts of the share/scrip, D-mat holding and transaction statement reflecting purchase and sale of shares of Kushal Tradelink.

• From the perusal of the records, it appears that the assessee has very well transacted thereby purchasing and selling of the scrip of M/s Kushal Tradelink Pvt. Ltd.

• From the perusal of the records, the transaction was properly established by the assessee and there was no doubt expressed by the Assessing Officer in the Assessment Order that the transaction of purchase and sale is bogus.

• The order of the SEBI related to the scrip of M/s Kushal Tradelink Pvt. Ltd. will not be the sole and whole criteria for making addition under Section 69A read with Section 115BBE of the Act as the assessee whether actually has given the accommodation entries through its regular books of accounts or outside the books of account, this case was not established by the Assessing Officer/revenue.

Verdict of Tribunal

The CIT(A) has rightly held that the assessee has explained his transaction through the evidences and, therefore, it cannot be treated as unexplained money. The base of the Assessment Order was solely on the SEBI report and the SEBI orders which does not deal with the assessee’s linkage with this scrip malpractice, therefore, the CIT(A) has rightly deleted this addition. In the result, appeal filed by the Revenue is dismissed.

Disclaimer: 

The above article is based upon the ruling of the Hon'ble ITAT, Ahmedabad and is meant for educational purposes only. Readers are requested to act diligently and under consultation with a professional before applying the information contained in this article. For any support, mail at: support@taxwink.com