The Pune bench of Income Tax Appellate Tribunal ( ITAT ) has held that one percentage disallowance is reasonable on fraudulent Capital gain obtained by manipulating stock broker
Dineshkumar R. Tulsyan (HUF) and Smt. Sumandevi D. Tulsyan, the appellants challenged the separate assessment order under Income Tax Act,1961.The assessee has filed a return of income declaring a total income of Rs. 7,28,260/- on 02-08-2014. The A.O assessed the income of the assessee at Rs. 1,09,42,141/- after making an addition of Rs. 1,00,97,902/- on account of unexplained income in the garb of sale of shares u/s 68 and Rs. 1,00,979/- on account of unexplained expenditure and Rs. 15,000/- on account of unexplained investment.
The issue before A.O. was to examine the claim for exemption of Rs. 1,00,97,902/- u/s 10(38) of the Act on the sale of securities of M/s. Mishka Finance and Trading Pvt. Ltd. (hereinafter referred to as “Mishka”). The assessee had purchased shares of Pyramid Trading Ltd., in physical form which was subsequently changed to Mishka Finance Ltd. The shares were purchased by preferential mode @ Rs. 6 per share for an amount of Rs. 15,000/- on 15-06-2012 from Mr Vijay Kumar Jain.
The A.O. held that on obtaining accommodation entries, it is an accepted fact that the commission of about 1-2% of the transaction is paid to the broker who negotiates the deal. As the assessee had received an amountof Rs. 1,00,97,902/-, therefore, the A.O. disallowed the number of Rs. 1,00,979/- @ 1%.
The CIT(A) relied on the decision of the Mumbai Tribunal in the case of Arvind M. Karia Vs. ACIT and held that the share transactions were manipulated through entry providers, stockbrokers to obtain fraudulent income by rigging share prices and selling them to justify the unaccounted income of the assessee and for all these activities the broker is making all the negotiations and arrangements.
It was viewed that the A.O and the CIT(A) has made a detailed examination of the facts and circumstances in this case and it has been brought out that the assessee has purchased shares investing Rs. 15,000/- and after manipulation and rigging of the price of the shares, the assessee has received total consideration of Rs. 1,00,97,902/-.
The ITAT held that the action of the assessee is nothing but pre-motivated and deliberate conduct done for converting the unaccounted money of the assessee under the guise of a long-term share transaction and that too without paying requisite tax on the same. This amounts to tax evasion.
It was beyond a preponderance of probabilities that the fantastic sale price of a little-knownshare i.e. Mishka without any economic or financial basis increased from Rs. 6/- to Rs. 50.25 per share, and likewise whereby the assessee manipulated the capital gain which was bogus and was done to claim exemption u/s 10(38) of the Act and upheld the findings of CIT(A).
A Coram of ITAT bench consisting of Shri Partha Sarathi Chaudhury, JM and Dr Dipak P Ripote, AM observed that transactions involving money, paid to entry provider for fraudulent capital gains and disallowance @ 1% are held to be reasonable and upheld the order of CIT(A). The appeal of the assessee was dismissed.
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