ITAT Upholds addition made on account of Trading in Penny Stock Shares of Shell Company [Read Order]

The Ahmedabad bench of Income Tax Appellate Tribunal (ITAT) has upheld the addition made by the assessing officer on account of trading in  penny stock shares of a shell company.

The assessee Tarachand Agrawal's  case was reopened under Section 147 of the Income Tax Act based on the information from investigation wing related to the trading of Penny Stock of  Vax Housing Finance Corporation Ltd. The company was a shell company and being used for getting bogus long term capital gain/loss to the traders.

While processing the re-assessment, the AO found that the price of 105212 shares of Vax Housing Finance Corporation Ltd of Rs.65,51,852/- was found to be Penny Stock.

Hence which has been used for beneficiaries i.e. sellers of the shares to launder money in the  garb of long term capital gain while claiming tax exemption under Section 10(38) of the Income Tax Act declared to be a sham transaction.

Thereafter, the AO made an addition on account of trading in Penny Stock of Vax Housing Finance Corporation Ltd.

Aggrieved by the order, the assesee filed an appeal before the Commissioner of Income Tax (Appeals), who dismissed the appeal of the assessee  and observed that  assessee has to prove the genuineness of the transaction beyond doubt.

In the appeal, the assessee could not establish the genuineness of the transaction as there is no justification for purchase of shares from an unknown person and of the unknown company having no financial credentials.

The CIT(A)  further observed that the assessee  was involved in buying the penny stock, which is similar to shell companies for which various investigations were already carried out byKolkata Investigation Wing and SEBI Order. Also, established that the share purchase and sales transaction were accommodation entry and sham transaction.

Thus, the CIT(A) dismissed the appeal of the assessee, Then  the assessee filed a second appeal before the tribunal.

After considering the facts the two  member bench of Annapurna Gupta, (Accountant Member) and Madhumita Roy, (Judicial Member)  observed that no one appeared for assessee and did not appear while several chances were given to assesee.

The bench upheld the addition made by the lower authority on account of trading in Penny Stock of Vax Housing Finance Corporation Ltd.and confirmed it was a sham transaction.

Atul Pandey,  counsel Appeared for the revenue.

To Read the full text of the Order CLICK HERE

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