Income Tax Evasion: Calcutta HC upholds 90 Assessment Orders relating to Penny Stock Scam worth Rs. 38,000 [Read Order]

In a significant ruling relating to the penny stock probe, a division bench of the Calcutta High Court has upheld the additions made by the income tax department under section 68 of the Income Tax Act.

A bench of Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya was considering appeal filed by taxpayers that had allegedly misused capital gains provisions to evade Rs 34,000 crore in taxes to the income tax department.

In the year 2016, the income tax department had unearthed a trail of Rs. 38,000 crore involving manipulation in 84 listed penny stocks for converting black money into white in Kolkata. As per a report released by the department, a copy of which is available with Mint, uncovered a trail of Rs. 38,000 crore involving manipulation in 84 BSE-listed penny stocks and through 5,000 listed and unlisted firms, many of them shell companies. It assumed that around 64,811 entities evaded taxes through such fraudulent methods.

Upholding the addition, the High Court held that merely because the assessee had invested in other blue chit companies had earned profit or incurred loss cannot validate the tainted transactions.

The Court observed that “It has been established by the department that the rise of the prices of the shares was artificially done by the adopting manipulative practices. Consequently, whatever resultant benefits which accrue from out of such manipulative practices are also to be treated as tainted. However, the assessee had the opportunity to prove that there was no manipulation at the other end and whatever gains the assessee has reaped was not tainted. This has not been proved or established by any of the assessee before us.”

“Therefore, the assessing officers were well justified in coming to a conclusion that the so-called explanation offered by the assessee was not to their satisfaction. Thus, the assessee having not proved the genuineness of the claim, the creditworthiness of the companies in which they had invested and the identity of the persons to whom the transactions were done, have to necessarily fail. In such factual scenario, the Assessing Officers as well as the CIT(A) have adopted an inferential process which we find to be a process that would be followed by a reasonable and prudent person. The Assessing Officers and the CIT(A) have culled out proximate facts in each of the cases, took into consideration the surrounding circumstances which came to light after the investigation, assessed the conduct of the assessee, took note of the proximity of the time between the buy and sale operations and also the sudden and steep rise of the price of the shares of the companies when the general market trend was admittedly recessive and thereafter arrived at a conclusion which in our opinion is a proper conclusion and in the absence of any satisfactory explanation by the assessee, the Assessing Officers were bound to make addition under Section 68 of the Act,” the Court said.

To Read the full text of the Order CLICK HERE

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