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

Legally SpeakingOn Account Of Rigging Of Shares Via Penny Stock Company, ITAT Upholds Addition

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) in the case Aditya Saraf HUF Versus ITO, the bench comprising of Judicial Member, Saktijit Dey observed and upheld the addition on the grounds that due to price manipulation and rigging there was an astronomical increase in the price of the shares.
Under the dispute, the assessee or appellant is a resident Hindu Undivided Family (HUF). The the assessee filed its return of income, declaring income for the assessment year. It was stated that the assessee’s income tax return was chosen for the examination to determine the genuineness of the long-term capital gain offered and the exemption under section 10(38) of the Income Tax Act, 1961., was claimed by the assessee.
The Court observed that it was noticed by the assessing officer that the assessee for a consideration stated to have sold 6000 equity shares of M/s. Esteem Bio Organic Food Processing Ltd. It was found on further verification 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, the price had increased astronomically by almost 1945%, at the time of the sale of shares.
As per the investigation conducted by the Investigation Wing of the department, AO found that the company is a penny stock company. However, 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, some explanation offered was offered by assessee to claim that the share transaction was genuine. Hence, the Assessing Officer was unconvinced. It was found by AO, proceeding further that to complete the assessment by treating the long-term capital gain as an unexplained cash credit. An amount of Rs. 30,689 was added back by AO as a commission paid to avail the bogus long term capital gain. the Commissioner also confirmed the additions made by the Assessing Officer.
The ITAT, in the present case observed that the strong evidence had not been furnished by the assessee before the department to rebut the adverse materials brought on record by the department.

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