INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Bogus long-term capital gain on sale of shares - Assessee failed to justify manifold increase in prices of shares, despite weak financials of investee companies

AO received information from investigation wing as regards provisioning of accommodation entry of exempted long-term capital gain on 'Penny stocks' by a cartel of share brokers, entry operators, beneficiaries and proprietors in the scrip 'Suchak Trading', which was appearing in list of shares sold by assessee during the year under consideration. AO required assessee as to explain as to why long-term capital gain on sale of concerned shares shown by assessee as exempted under section 10(38) could not be held as bogus. Assessee contended that he fulfilled all the requirements of section 10(38) as shares were purchased in cash and converted from physical to de-mat prior to sale and sales had been made through stock exchange by paying STT. Also, assessee filed documentary evidences like details of purchase of shares, broker's debit note and receipt for purchase of shares, statement of Holding in Demat Account, broker's transaction summary statement and statement of account, contract note for sale of securities indicating levy of security transaction tax and statement of banks through which sale proceeds had been realized. AO rejected this and made addition under section 68 on the ground that in normal course it was not possible to have huge profit in view of the fact that assessee was a casual investor and all the shares were purchased in cash and dematerialized only prior to sale. Assessee was not even aware of location of companies and their directors. And transactions were carried out to give shares a colour of long-term asset. Held: Against availability of listed share/securities for purchase through stock exchange, assessee purchased unknown and unlisted shares/securities, that too through few brokers. It as not clear as to how and from which sources, assessee identified potential of those shares. When assessee himself claimed to be not a regular investor in shares and securities. Purchase of all the shares had been shown to be made in cash, without any supporting cash receipts from sellers of those shares and shares claimed to have been purchased in physical form had been dematerialized only immediately prior to their sale on stock exchanges. At the time of the purchase, value of shares was very low and after purchase by assessee, the prices of shares had gone astronomically, without any commensurate financial results of investee companies. The shares had been sold within a small period as soon as after attaining peak value and thereafter share prices have come down again at their original level around purchase price. The shares have been sold through SMS Global Securities stated to be part of accommodation entry syndicate providing accommodation entries and trading in most of the shares dealt by with assessee was suspended by stock exchange due to abnormal behaviour of trading of shares. When documentary evidence containing contract notes of purchase,demat account, contract note of sale and receipt of sale proceeds in bank account were seen vis-a-vis observations of AO on transactions, the documents were not sufficient to discharge burden of proof that purchase and sale transactions of assessee were genuine. In view of failure on the part of assessee to discharge his burden of proof and explain nature and source of transaction and huge profit in all shares traded by assessee against human probability, AO had rightly made addition under section 68.

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