Off-Market Share Purchase Above Market Price is Clear Case of Investing in Bogus Scrip: ITAT

Case Details: Atmiben Alipitkumar Doshi v. ITO - [2023] 149 taxmann.com 104 (Ahmedabad-ITAT)

Judiciary and Counsel Details

• • Ms Suchitra Kamble, Judicial Member
  • Vipul Khandhar, AR for the Appellant.
  • R.R. Makwana, Sr. DR for the Respondent.

Facts of the Case

Assessee purchased shares of a company in cash in 2012 at Rs. 20 per share. During the year, the assessee sold said shares and gained Rs. 675 per share as long-term capital gains and claimed the same as exempt under section 10(38).

The Assessing Officer (AO) noted that there was an enquiry related to penny stock companies, and this scrip was under investigation. Therefore, AO made additions on account of such capital gains as unexplained income under section 68, thereby denying the claim of exemption on the same.

On appeal, the CIT(A) confirmed the addition made by the AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that the assessee purchased the shares in the scrip from Kappac Pharma Limited at Rs. 20/- per share in cash. Later the shares were sold on the Bombay Stock Exchange on different dates and gained Rs. 675 per share within 24 months. Further, the assessee bought shares at Rs. 20; however, the market price was Rs. 17.45.

The purchase of Kappac Pharma Limited shares appears bogus as the scrip when having a share price of Rs. 17.45 was purchased by the assessee at Rs. 20 outside the regular stock exchange. Merely because the assessee submitted his demat statement and transaction statement along with debit note and share certificate does not shun away the aspect that the assessee was very well aware of brokers in respect of penny stock.

Therefore, the AO and the CIT(A) rightly denied LTCG exemption under section 10(38), and additions made under section 68 were to be upheld.

List of Cases Referred to

• • Prakash Javia HUF v. ITO [IT Appeal Nos. 464 & 465 (Ind.) of 2019, dated 25-5-2021] (para 5)
  • Ayushi Jain v. ITO [IT Appeal No. 2551 (Kol.) of 2018, dated 9-8-2019] (para 5)
  • Pr. CIT v. Jagat Pravinbhai Sarabhai [2022] 142 taxmann.com 247/289 Taxman 298 (Guj.) (para 5)
  • Smt. Reshmiben P. Kanugo v. ITO [IT Appeal No. 2131 (Ahd.) of 2018, dated 28-2-2022] (para 5)
  • Udit Kalra v. ITO 2019 (4) TM/834 (para 7).