SHWETA PUNEET KULTHIA,DELHI vs. ITO, WARD- 61(2), NEW DELHI

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ITA 2042/DEL/2018Status: DisposedITAT Delhi25 April 2022AY 2014-156 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the order of the CIT(A) and the AO. It found that the assessee failed to substantiate the sale of shares with evidence, and the sharp price increase was not supported by the company's fundamentals, indicating a modus operandi for money laundering.

What were the facts?

The assessee claimed exemption under Section 10(38) on long-term capital gains from the sale of shares of M/s Lifeline Drugs & Pharma Ltd. The Assessing Officer (AO) disallowed this claim, finding the company to be a penny stock and suspecting the transaction to be an accommodation entry for money laundering.

What were the issues?

Whether the long-term capital gains claimed as exempt under Section 10(38) were genuine or part of a penny stock manipulation scheme for money laundering.

Which sections of the Income-tax Act were involved?

Section 10(38)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH, ‘B’: NEW DELHI

Before: SHRI R. K. PANDA & SHRI ANUBHAV SHARMA

Hearing: 20.04.2022Pronounced: 25.04.2022

ORDER PER R.K. PANDA, AM, This appeal filed by the assessee is directed against the order dated 13.12.2017 of the learned CIT(A)-12, New Delhi, relating to AY 2014-15.

2.

The assessee in the grounds of appeal has challenged the order of the Ld. CIT(A) in confirming the addition of Rs.52,31,521/- made by the AO by disallowing the claim of deduction 10(38) of the Act.

3.

None appeared on behalf of the assessee at the time of hearing despite service of notice. A perusal of the order- sheet entries shows that this appeal is getting adjourned from time to time due to non-appearance of the assessee. Therefore, this appeal is being decided on the basis of material available on record and after hearing the ld. DR.

4.

Facts of the case, in brief, are that the assessee is an individual and filed her return of income on 17.12.2014 declaring total income of Rs.9,24,420/- after claiming deduction of Rs.1,07,210/-under chapter VI-A. The return was selected for scrutiny under CASS and statutory notices u/s 143(2) and 142(1) of the Act were issued and served upon the assessee. During the course of assessment proceedings, the AO noted that the assessee has shown Long Term Capital Gain of Rs.50,63,521/-from sale of shares of M/s Lifeline Drugs & Pharma Ltd. and claimed the same as exempt u/s 10(38) of the Act. The AO noted that M/s Lifeline Drugs & Pharma Ltd. is a penny stock company. The AO referred to the Investigation report of the Investigation Wing, Kolkata and noted that certain stock brokers were involved in providing accommodation entries in the form of sale of shares against payment of commission. He noted that certain brokers had admitted that they had received cash from beneficiaries including the assessee and the same was returned in the form of sale proceeds of shares with STT payment to entitle them to claim benefit of exemption u/s 10(38) of the Act. The stock bought by the assessee i.e. M/s Lifeline Drugs & Pharma Ltd. was a penny stock as the company had a small capital base. The company had no profit earning apparatus and therefore vulnerable to price manipulation by the interested parties. He, therefore, confronted the same to the assessee and asked her to explain as to why the claim of deduction u/s 10(38) should not be disallowed. Rejecting the various explanation given by the assessee, the AO disallowed the claim of deduction u/s 10(38) of the Act by observing the following as summarized by the Ld. CIT(A) at para 7.3 of his order and which reads as under:-

“7.3 From the observations made by the Assessing Officer in the assessment proceedings, the following facts emerge : i) M/s Lifeline Drugs and Pharma Ltd. was a company with issued / paid capital of 11,79,500 equity shares till 28.08.2012 when the preferential allotment of shares was made. The Assessee invested Rs. 1,68,000/- on 26.09.2012 for the purchase of 28000 shares @ Rs.6/-. ii) The prices of M/s Lifeline Drugs and Pharma Ltd. Jacked up to Rs. 186.84 in the span of 18 months. The hike in The prices of the shares was not supported by the fundamentals of the company. The increase was nearly 31 times. iii) M/s Lifeline Drugs and Pharma Ltd. did not have any fixed assets or plant & machinery. Most of the assets were either investments or loans and advances. The price movement upward and downward was sharp after the investment and sale of the shares. There was thin volume of the transactions involving the shares of this company and it was also noticed that all / most entities involved in the same were related in some way or other. iv) The activities of SAM Global Securities Ltd., the broker were found suspicious in the matter of Pioneer Embroideries Ltd. v) The Assessee had never met the broker and she cotild not reveal the name and identity of the middle man arranging such purchase and sale. vi) The Assessee was not a regular investor in the shares. Therefore, the phenomenal return of 98 times on the sale of the shares of M/s Lifeline Drugs and Pharma Ltd. was astonishing. vii) These shares were sold to a broker namely SMC Global Securities Ltd. for a aggregate consideration of Rs.52,31,521/-. The Appellant computed capital gain on sale of above shares at Rs.50,63,561/- and claimed exemption u/s 10(38) of the Act as the shares were listed in the stock exchange and STT was paid on sale of these shares as per the brokers note. M/s Lifeline Drugs and Pharma Ltd. replied to the notice issued u/s 133(6) by the Assessing Officer. The Assessing Officer found that the paper work to claim exemption u/s 10(38) has been meticulous and in chronological order.”

5.

In appeal, the ld. CIT(A) upheld the action of the AO.

6.

Aggrieved with such order of the Ld. CIT(A), the assessee in appeal before the Tribunal.

7.

We have heard the ld. DR and perused the record.

We find the AO in the instant case has rejected the claim of deduction u/s 10(38) of the Act on the ground that the assessee failed to substantiate with evidence to his satisfaction regarding sale of shares of M/s Lifeline Drugs & Pharma Ltd. which increased from Rs.6 to Rs.186.84 in just 18 months.

According to him, hike in price of the scrip is not supported by the fundamental of the company and the assessee could not substantiate with any supporting evidence to justify the transaction. We find the ld. CIT(A) in his elaborate order has decided the issue and dismissed the appeal filed by the assessee on the ground that the AO has clearly given the modus operandi of money laundering by the stock broker of the agents and the beneficiaries are interested in having their money laundered. He has given detailed reasoning as to how the assessee has introduced her unaccounted money in the garb of Long Term Capital Gain. Nothing has been brought by the assessee before us to take a contrary view than the view taken by the ld. CIT(A) on this issue. We, therefore, uphold the order of the Ld. CIT(A) and the ground raised by the assessee is dismissed.

8.

In the result, the appeal filed by the assessee is dismissed.

Order was pronounced in the open court on 25.04.2022.

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