LTCG not considered genuine if shares bought in cash kept in broker’s pool a/c until sale: ITAT

Case Details: Abhishek Gupta v. ITO - [2023] 147 taxmann.com 21 (Indore-Trib.)

Judiciary and Counsel Details

• • Ms Suchitra Kamble, Judicial Member & B.M. Biyani, Accountant Member
  • Shubhash Jain, AR. for the Appellant.
  • R.S. Ambedkar & Aditya Shukla, Sr. DR for the Respondent.

Facts of the Case

The assessee was an individual who filed return of income (ITR) declaring a total income of just over 2 lakh from tuition, laptop work, and interest. He also declared a long-term capital gain of more than Rs. 64 lakhs from the sale of shares of a listed company. He claimed exemption under section 10(38).

Assessing Officer (AO) treated said capital gains as bogus receipts under section 68 on the ground that the assessee made unrealistic non-taxable capital gains on a very small investment that too in a short period of just 17 months by indulging in transactions of penny stocks.

On appeal, the CIT(A) upheld the order of AO. Aggreived-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that the assessee acquired shares of Turbotech Engineering Ltd in cash and not through banking channels. The prevalent trend in the stock market is to pay/receive through a banking channel. Further, the assessee purchased from a broker located in Mumbai. The act of the assessee paying a sum in cash to a Bombay-based broker raises significant concerns.

A thorough examination of the assessee’s Demat account revealed that shares were deposited into the account 17 months after they were acquired and before their sale. During these 17 months, the shares were kept in the broker’s Pool A/c, further intensifying suspicions.

In a situation where the assessee claims to have purchased in cash, how is this believable that the assessee shall keep those shares in the Pool A/c of the broker and get in his custody after 17 months?

Further, the first assessee contented that he purchased shares based on messages of good return received on the “mobiles of family members”. However, later re-averred that he had purchased and sold shares based on the message received on his “own mobile. Thus, there was a clear contraction in the averments of the assessee.

These factors indicate that the transaction claimed by the assessee was shrouded by a thick cloud of glaring fallacies which demonstrate that the same was not genuine. Thus, AO was justified in invoking section 68.