ITAT Upholds Addition On Account Of Manipulation And Rigging Of Shares Via Penny Stock Company

The assessee/appellant is a resident Hindu Undivided Family (HUF). For the assessment year under dispute, the assessee filed its return of income, declaring income. The assessee's income tax return was chosen for examination to determine the genuineness of the long-term capital gain offered and claimed exempt under section 10(38) of the Income Tax Act.

The Assessing Officer noticed that the assessee stated to have sold 6000 equity shares of M/s. Esteem Bio Organic Food Processing Ltd. for a consideration. On further verification, he found that the assessee had purchased the shares earlier at a nominal price of Rs.25 per share for a total consideration of Rs.1,50,000/-. whereas, at the time of the sale of shares, the price had increased astronomically by almost 1945%.

The AO found that, as per investigation conducted by the Investigation Wing of the department at various places, it was found that the company is a penny stock company. Thus, based on the information available on record, he called upon the assessee to explain why the long-term capital gain offered should not be treated as an unexplained cash credit. Though the assessee offered some explanation to claim that the share transaction was genuine, the Assessing Officer was unconvinced.

The AO proceeded to complete the assessment by treating the long-term capital gain as an unexplained cash credit. The AO added back an amount of Rs. 30,689 as commission paid to avail the bogus long term capital gain. The additions made by the Assessing Officer were also confirmed by the Commissioner (Appeals).

The ITAT held that the assessee had not furnished any strong evidence before the department to rebut the adverse materials brought on record by the department.

Case Title: Aditya Saraf HUF Versus ITO

Citation: ITA No.9581/Del/2019

Dated: 10.06.2022

Counsel For Appellant: None

Counsel For Respondent: Sr. DR Om Prakash

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