×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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This appeal filed by assessee is against the order of Ld. CIT(A) - 6, Kolkata dated 09.10.2018 for AY 2015-16.
2. The assessee’s sole g ound of appeal is as to whether on the facts and circumstances of the case, the ld CITA was justified in upholding the addition made by the AO u/s 68 of the Act in respect of sale proceeds of shares of Kailash Auto Finance Limited (KAFL) treating the same as income from undisclosed sources after rejecting the assessee’s claim of Long Term Capital Gains (LTCG) on sale of those shares.
3. The brief facts of the issue as has been recorded by the AO in the Assessment Order are that the assessee claimed long term capital gains from sale of shares of M/s. Kailash Auto Finance Limited (KAFL). The AO noted that the assessee had purchased shares of M/s. Kailash Auto at a price of Rs.40,000/-. The said shares were later sold at a price of Rs.14,06,366/-, which according to assessee, resulted in Long Term Capital Gains and so the assessee claimed exemption u/s 10(38) of the Act of Rs.13,66,366/-. However, the AO relying on the report of the Investigation Wing, Kolkata and an order by SEBI alleged that the claim of assessee of exempt income (LTCG) was bogus in nature.
The AO further alleged that the transactions in the scrip of Kailash Auto Finance Ltd. (KAFL) were being manipulated by entry operators and the share prices were hiked artificially to earn LTCG. So, the AO did not accept the assessee’s claim of LTCG and exemption thereof claimed by the assessee. Thereafter, the AO treated the same as cash credit u/s 68 of the Act and added the entire LTCG to the income of the assessee as unexplained income. On first appeal, the Ld. CIT(A) dismissed the grounds raised by the assessee against his claim of exemption u/s 10(38) of the Act and he also confirmed the additions made by the AO under section 68 of the Act. Aggrieved, the assessee is in appeal before this Tribunal.
4. I have heard rival submissions and gone through the facts and circumstances of the case. At the time of hearing it was brought to my notice by the Ld. AR that this Tribunal in the following cases have decided that the scrips of KAFL are not bogus and held that the LTCG claim of the assessee needs o be allowed:
i) Manish Kumar Baid Vs. ACIT, ITA Nos. 1236& 1237/Kol/2017 dated 18.08.2017
ii) Rukmini Devi Manpria Vs. DCIT, ITA No.1724/Kol/2017 dated 24.10.2018
iii) Jagmohan Agarwal Vs. ACIT, ITA No.604/Kol/2018 dated 05.09.2018.
It was also brought to our notice by the Ld. AR that AO was influenced by an interim order of SEBI dated 29.03.2016, which the SEBI has withdrawn by later order dated 21.09.2017 by virtue of it all the restrictions imposed upon by the earlier order dated 29.03.2016 has been withdrawn, since SEBI could not find any infirmity in the scrips of M/s. KAFL. So he pleaded that the claim of assessee for LTCG should be allowed.
5. On the other hand, the Ld. DR for the Revenue vehemently opposed the contentions of the assessee and took us through the AO’s order and Ld. CIT(A) order and submitted that scrips of M/s. KAFL was artificially rigged to provide LTCG to the assessee which cannot be allowed and supported the impugned order and relied on the order of Hon’ble Bombay High Court in the case of Binod Chand Jain in Tax Appeal No.18 of 2017 does not want me to interfere. And filed written submission as under;-
“In this case purchase of the stock of Panchshul Marketing Ltd. was not an investment decision. Assessee never came out with any explanation as to why he choose to purchase this company's share in large number and at a time involving substantial amount, and how that company was an investment destination and why.
The behaviour of the assessee with such stock from the decision of it's purchase and the sequence of events that followed till its sale clearly shows that it was not an investment decision. Rather, assessee's behaviour shows that such transaction was entered into with a pre-planned and pre-arranged manner where assessee was over confident about making huge gain for certain reason which assessee never disclosed. The fantastic rate of return from such transaction within the shortest period of time to ensure the gain as LTCG was just unbelievable, and same thing hardly happens in reality on a single attempt. So that was beyond of any human logic and possibility and for the
In the instant case, the behaviour of the assessee regarding purchase of this stock found to be a dubious. It appears that the decision of such purchase was triggered by certain information in the possession of the assessee, or some arrangement and assessee just exploited such situation for making huge gain. So, the income arising out of such action should be considered as profit out of "an adventure in the nature of trade" and not from an investment.
Therefore, it is submitted that, if the appeal of the assessee is upheld by the Hon'ble Bench for any reason, this alternative ground is put up for favour of your consideration. The AO considered the transac ion as bogus and added the entire LTCG income u/s 68, so there was no occasion at that time to take an alternate ground for addition. In view of that, such transaction at best may be considered as an "adventure in the nature of trade" .
In the case of Sanjay Bimalchand Jain 89 taxmann.com 196 (Bombay), the assessee purchased large number of shares of two penny stock companies at a nominal rate in large quantity which assessee claimed as an investment.
Considering the circumstances of that case the Assessing Officer did not accept the claim of the assessee and held that the transaction with a penny stock of an insignificant company, its subsequent the merger with a new company, and ultimate sale of the shares of the new company at such an higher profit within a short period of time falls in the ambit of an adventure in the nature of trade, and so, AO brought the aforesaid amount to tax under the head 'business income'. On appeal, the Commissioner (Appeals), as well as, the Hon'ble Tribunal upheld the decision of the Assessing Officer. "
In view of the above it is submitted that assessee's dealing with this stock may be considered as "an adventure in the nature of trade" and so, profit derives from such activity may kindly be considered as income from business or other sources.”