NEHA BANKIM JOSHI,MUMBAI vs. INCOME TAX OFFICER - 42(2)(4), MUMBAI

In the instant case, on the basis of investigation carried out by Investigation Directorate, Kolkata into 84 penny stocks including M/s. Luminare Technologies being one of it, of which the assessee had shares and sold the same during the assessment year under consideration, the Assessing Officer (AO) has given detailed findings indicating bogus Long Term Capital Gains (LTCG)/Short Term Capital Loss (STCL) entries claimed by large number of beneficiaries under section 147 of the Act. Consequently notice under section 148 as well as under section 142(1) of the Act was issued to the assessee, in response to which the assessee filed her details. On perusing the same it was observed by the AO that the assessee had 3000 shares in 1995-96 @ Rs.96.5 per share of M/s. Luminare Technologies (earlier M/s. Nandini Syntex Ltd.) which was subsequently in 2004 splitted to Rs.1 each and holding of 3000 shares became a holding of 30,000 shares. Thereafter all shares were sold out at the Bombay Stock Exchange platform at the average rate of Rs.38.95 approximately to various entities for a total sale consideration of Rs.11,68,688/- during the financial year under consideration, which resulted into LTCG of Rs.8,79,089/-. As the investigation carried out by the Investigation Wing, Kolkata in 84 penny stock companies (Luminare Technologies being one of it), therefore the AO considering the mode of acquisition of shares, sale of shares and unusual rise in the price, findings of the investigation wing, analysis of transactions, ignorance of the assessee about shares/penny stock companies, failure of the assessee to prove the unusual rise and fall of share price to be natural and based on the market forces, financial analysis of the penny stock company and considering the transaction as arranged transaction, ultimately disallowed the exemption claimed to the tune of Rs.11,68,688/- under section 10(38) of the Act and added the same in the income of the assessee under section 68 of the Act.

The Assessee, being aggrieved, challenged the said addition before the Ld. Commissioner, however, could not succeed, as the Ld. Commissioner on the similar footing as of the AO affirmed the said addition by dismissing the appeal of the assessee.

Being aggrieved, the Assessee has preferred this appeal.

Having heard the parties and perused the material available on record and given thoughtful considerations to the peculiar facts and circumstances of the case. Admittedly the assessee had purchased 3000 shares under consideration, in the financial year 1995-96 @ Rs.96.5 per share and thereafter in 2004 the shares were splitted to Rs.1 each and consequently became a holding of 3,000 shares meaning thereby at that time of splitting, the price of share could be considered as Rs.9.65 per share and consequently in 2007 shares got dematerialized and ultimately sold on Bombay Stock Exchange platform @ Rs.38.95 (approx.) on a total consideration of Rs.11,68,688/- resulting into LTCG of Rs.8,79,089/- which goes to show that there was no sharp/unusual rise in the price of the shares involved.