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10-07-2019, Dipak Kr. De Sarkar, Section 10(38), 260A, 68, Tribunal Kolkata
These are appeals preferred by the assessee against the separate Orders of the CIT(A)-6, Kolkata dated 14.09.2018 for assessment year 2014-15 and dated 25.10.2018 for assessment year 2015-16
2. Since the grounds of appeal for both the assessment years are identical and facts are also identical, I am inclined to pass this consolidated order for both the years.
3. The main grievance of the assessee is against the action of Ld. CIT(A) in confirming the action of the AO to treat the Long Term Capital Gains (LTCG) of Rs.14,08,205/- for AY 2014-15 and Rs. 36,21,880/- for AY 2015-16 as fictitious and thereby denying the exemption claimed by the assessee under Section 10(38) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).
4. At the outset itself it was brought to my notice that the facts relating to the issue under consideration before me is identical and therefore the facts for the AY 2014-15 will be dealt with and the result will be followed for the AY 2015-16. Brief facts for AY 2014- 15 related to this issue is that the assessee has filed his return of income for AY 2014-15 declaring total income of Rs. 7,10,390/-. Later the return was processed on 22.04.2015 under Section (hereinafter referred to as ‘U/s’) 143(1) of the Act. Thereafter the AO notes that the case was selected for scrutiny under Cass in AST module and thereafter he issued statutory notices. According to AO from a perusal of the documents it was found that the assessee had purchased Scrip of M/s Smart Champs I.T. Infra Ltd. on 26.07.2011 of thousand shares for Rs. 1,00,000/-. Later on this private limited company was merged into M/s Cressanda Solutions Ltd. (hereinafter referred to as ‘M/s CSL’) and subsequently, the face value was changed to Rs. 1 per share meaning thereby 1,00,000/- share of M/s CSL was allotted to assessee. Out of this 32,500/- shares were sold on different dates during the financial year under consideration for a total amount of Rs. 17,65,705/- by which transaction the assessee received capital gain of Rs. 17,33,205/-. The AO notes that assessee has claimed Rs. 14,08,205/- as exempt income (LTCG) in his return of income for AY 2014-15 U/s 10(38) of the Act. According to the AO, he asked the assessee to produce the purchase bill and sale contracts Thereafter, the AO notes that he had gone through the submissions of the assessee pursuant to which a show cause notice (SCN) dated 22.11.2016 was issued to the assessee. The AO reproduces the SCN at page 2 & 3 of the Assessment Order wherein he stated that he had issued notice U/s 133(6) to the assessee’s broker M/s Excel Broking Pvt. Ltd. through whom assessee had sold the Scrip but have not replied to his notice as on that date and however, acknowledges the fact that the Bombay Stock Exchange (hereinafter referred to as ‘BSE’) had replied to the AO. Thereafter the AO brought to the notice of the assessee that an investigation was conducted by the Investigation Wing which revealed that 84 penny stock companies were involved with 32 share broking entities who were actively involved in providing bogus LTCG / STCL to the beneficiaries like assessee and these LTCG / STCL were nothing but the assessee’s own money circulated through these dubious brokers and brought back as LTCG / STCL which are claimed as exempt income. According to the AO, the investigation brought out that initially the price of these shares started from a low range and it rises rapidly and price stays stagnant for some time and thereafter it decreases and falls down which resembles a trade
pattern of “a bell” shape. According to the AO the Scrip of M/s CSL is one of the penny stock which has been banned by SEBI. Thereafter, he reproduces the chart which shows the price rise and falling of the Scrip of M/s CSL. According to the AO, it was found that these scrips (penny stocks) have no actual financial credentials to support their share price rising/falling. Therefore, according to the AO the amount claimed by the assessee to the tune of Rs. 14,08,205/- as exempt U/s 10(38) of the Act was a fictitious claim and is nothing but the assessee’s income from other sources brought back into his books in the form of exempted income and therefore, it needs to be added back to his total income and taxed thereon. Thereafter, the AO acknowledges that the assessee had replied to the SCN which was received in his office on 09.12.2016 and after having carefully gone through it he has kept it on record. Thereafter the AO observes that assessee stated earlier that while purchasing the shares, no broker was involved and that the purchase consideration by mode of cheque was directly issued in favour of the company and that the company issued share certificates directly to the assessee. Further, the AO notes that the assessee had not submitted any purchase bill. So he could not verify the purchase claimed to have been made by the assessee. Further, he notes that assessee is silentregarding the bell shape structure of trading of the scrip and the sale of the same at a rigged value almost fifty times of its purchase price within a span of around two and a half years is unbelievable. Therefore, he treated the claim of the assessee as fictitious and made the addition of Rs. 14,08,205/- for AY 2014-15 and or the same scrip sold in the next assessment year and the LTCG claimed of Rs. 36,21,880/- for AY 2015-16 was added back. Aggrieved, the assessee preferred an
appeal before the Ld. CIT(A) who was pleased to dismiss the appeals. Aggrieved by the action of the Ld. CIT(A), the assessee has preferred both the appeals before me.
5. The Ld. AR assailing the decision of the Ld. CIT(A) drew our attention to the paper book filed by the assessee wherein the assessee had filed the documents to prove that the assessee had purchased the shares of M/s. Smart Champs IT and Infra Ltd. for which contract notes have been filed and later on M/s. Smart Champs IT and Infra Ltd. got