The Delhi Bench High Court has held that the Addition of unexplained credit based on bogus LTCG on the sale of penny stock without cogent evidence is not valid.
Karuna Garg, the appellant contended that the ITAT has erred in deleting the additions of Rs.1,60,18,923/- as unexplained credit under Section 68 read with Section 115BBE of the Income Tax Act, 1961 (‘the Act’) on account of bogus Long-Term Capital Gain on sale of penny stock company namely M/s Goldline International Finvest Ltd. on the ground that the assessing officer has not made an independent enquiry.
The AO proceeded predominantly based on the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials.
On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the Sensex, and the financials of the company did not show any reason for the extraordinary performance of its stock.
The reliance placed on the report, without further corroboration based on cogent material, does not justify his conclusion that the transaction is bogus, a sham and nothing other than a racket of accommodation entries.
The Court comprising Justice Manmohan and Justice Manmeet Pritam Singh Arora observed that the AO made an attempt to delve into the question of the infusion of Respondent’s unaccounted money, but he did not dig deeper. There was an astronomical increase in the share price of a company which was not commensurate with the financial parameters of the said company.
It was held by the court that the ITAT, being the last fact-finding authority, based on the evidence brought on record, has rightly decided and dismissed the appeal.
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