INCOME TAX ACT, 1961

Section 45 Section 10(38) Section 69A

Capital gains - Long-term capital gains - Ingenuity of purchase and sale of shares - Colourable device to evade tax--Bogus long-term capital gains generated by entry operators

Assessee had disclosed long-term capital gain which was earned by sale of equity shares of KPL. Since the assessee had sold the scrip of KP Ltd., which was included in the list of penny stock as provided by the Investigation Wing, Kolkata, summons were issued to assessee under section 131 to prove the genuineness and creditworthiness of the transaction and the statement of the assessee was also recorded. It was also noted that the assessee did not have a demat account at the time of buying the 4,000 shares of KPL from C Stock Broking (P) Ltd. AO then concluded that the transactions showing long-term capital gain, which has been claimed by the assessee as exempted under section 10(38), were sham transactions as the surrounding circumstances and the statement of various share brokers prove these facts. Capital gain claimed as exempt long-term capital gain was not genuine and addition was made to the return income of the assessee under section 69A. CIT(A), vide his impugned Order, had dismissed the appeal of the assessee. Held: In the present case, it was seen that the assessee had failed to discharge her burden of proof and the AO, on the other hand, had proved that the claim of the assessee was incorrect. The enquiry conducted by SEBI was further corroborated by the investigation carried out by the Directorate of Investigation, had been thoroughly analysed by the AO to prove that the assessee had introduced bogus long-term capital gains in her books of account by routing her unaccounted income through a tax evasion scheme. The statement of brokers engaged in providing bogus long-term capital gains clearly proves that KPL. was one of such companies whose scrips have been manipulated to provide bogus long term capital gains. 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. Tax planning may be legitimate provided it is within the framework of the law and any colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by dubious methods. CIT(A) had rightly confirmed the addition in dispute, which does not need any interference.

Followed:Mc Dowell and Co. Ltd. (1985) 154 ITR 148 (SC) : 1985 TaxPub(DT) 1186 (SC) and Sumati Dayal v. CIT (1995) 214 ITR 801 (SC) : 1995 TaxPub(DT) 1173 (SC). Relied:Shri Charan Singh v. Chandra Bhan Singh AIR 1988 SC 6370, Shri Abhimanyu Soin v. Asstt. CIT ITA No. 951/Chd./2016 vide Order, dt. 18-4-2018 and CIT v. Durga Prasad More (1972) 82 ITR 540 (SC) : 1971 TaxPub(DT) 0375 (SC). Distinguished:Mc Dowell and Co. Ltd. (1985) 154 ITR 148 (SC) : 1985 TaxPub(DT) 1186 (SC).

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2014-15

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