INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Long-term capital gain on sale of shares - Huge profit within a short span of time--No satisfactory explanation offered by assessee

Assessee earned huge long-term capital gain on sale of shares of K over a very short period of just over 12 months and declared the same as exempt under section 10(38) Taking clue from this astronomical proportion in earnings of assessee from the scrip M/s K AO verified trading history of assesse and financials of M/s. K and also took into consideration the attendant circumstances like report from investigation wing, Kolkata, SEBI's surveillance measures, details of trade data of exit providers, etc., and concluded that share price movement and sale purchase transactions were not genuine and were the result of meticulously planned circular trading and entities involved in these were art of this exercise in an effort to create a documentary evidence for a preplanned scheme for converting unaccounted money into tax exempt income, as has been corroborated by confession by brokers, operators and exit providers. Accordingly, AO treated assessee's claim for exemption as bogus and made addition under section 68. Assessee's case was that sale proceeds of shares were received through banking channel and long-term capital gains could not be treated as bogus merely because some investigation with regard to certain company and broker was carried out by the Directorate of Investigation, Kolkata.Held: AO did not rely on investigation report of Kolkata wing of income-tax department to reach conclusion as to the nature of transaction, and on the other hand, his findings were firmly entrenched into the facts he culled out during assessment proceedings and derived from the analysis of financials of M/s. 'K' and also other circumstances. Although assessee meticulously completed paperwork by routing his entire investments through banking channel, but conduct of assessee who was a novice, in investing in stocks of a company whose financial results were not brilliant and where there was no apparent chance of lucrative gains at the time when such an investment was made raised reasonable doubt to suspect the bona fides of the transaction and in the absence of any satisfactory explanation offered by assessee on vital points, AO was justified in making addition under section 68.

Distinguished:Andaman Timber Industries v. CCE Civil Appeal No.4228 of 2006 : 2015 TaxPub(DT) 5186 (SC).

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2014-15

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