INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition unders ection 68 - Bogus long-term capital gain on sale of shares - Finding recorded by AO remained unchallenged

AO received a report from the investigation wing, in which, inter alia, assessee was specified as one of the parties who indlged in bogus/non-genuine long-term capital gain (LTCG) from transactions of alleged purchase and sale of shares of M/s. Kailash Auto Finance Ltd. (KAFL) which was found as penny stock company and a scheme was hatched by various players to obtain/provide accommodation of entry of bogus LTCG through manipulation of stock market for generating bogus LTCG. Therefore, treated entire LTCG claimed s exempt under section 10(38) as bogus and accordingly, made addition of sale proceeds of shares under section 68.Held: As apparent, AO examined entire set of transactions and held, inter alia that assessee had deliberately entered into a sham transaction of purchase and sale of bogus shares with full knowledge of such transactions in view of substantial gains shown on sale of such penny stocks, within reasonably a short period so as to convert the unaccounted money into accounted money in the guise of exempt capital gains. Therefore, AO treated entire sale proceeds as unexplained credit under section 68 and completed the assessment. Since, right to exemption must be established by those who seek it, the onus therefore lied on assessee, however, assessee had not placed relevant material and proved genuineness of impugned transactions. Although, an appeal against addition had been filed even at that stage assessee had not challenged findings recorded by AO with relevant material and addition was sustained.

Supported by:CIT v. Ramakrishna Deo. (1959) 35 ITR 312 (SC) : 1959 TaxPub(DT) 94 (SC).

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2014-15

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