Onus to Prove Genuineness of Transaction of Sale of Share not being Bogus not Discharged by Mere Filing of Documentary Evidence: ITAT Confirms Income Tax Addition [Read Order]

The Ahemdabad bench of Income Tax Appellate Tribunal (ITAT) held that the onus on the assessee of proving the genuineness of long term capital gains not being bogus is not discharged by merely filing documentary evidence and hence confirms the addition made on account of bogus long term capital gains under Section 68 of Income Tax Act,1961.

The Assessee Hemil Subhashbhai Shah “Samarpan”, has earned long term capital gain on sale of 1500 shares of KAPPAC Pharm Ltd. in  the Assessment Year (AY) 2014-15 sold for a consideration of Rs.10,42,425 and in AY 2015-16, 13500 shares of the same company were sold for a consideration of Rs.58,10,231.

During the assessment process the Assessing Officer (AO) has relied on the report of Investigation Wing, Kolkata, which found these shares to be penny stock i.e. of no value as such, but manipulated by accommodation entry operators in collusion with the brokers to artificially rig their prices resulting in long term capital gains to the beneficiaries.

Based on these facts, the long term capital gain returned by the assessee was treated as bogus and all documentary evidences filed by the assessee to prove genuineness of its claim were rejected, as not sufficient to discharge onus cast on the assessee.

Aggrieved by this order assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the decision of AO. Hence the  assessee filed an appeal before the ITAT.

The counsel for the assessee contended that the finding of the authorities below of the transaction of sale of shares being bogus was flawed since the assessee had discharged its onus of proving the genuineness of the transactions of sale and purchase was  proven by the assessee through documentary evidences, and further contended that no specific evidences against the assessee was found, and also that, the  assessee was not confronted with the adverse report and allowed opportunity for cross-examination.

The Departmental Representative, on the other hand relied on the  judgment of the  Calcutta High Court in the case of Pr.CIT Vs. Swati Bajaj, where it was held that held that mere filing documentary evidences did not discharge onus cast on the assessee to prove genuineness of the transaction.

The ITAT Bench comprising of Smt Annapurna Gupta, Accountant Member and T.R. Senthil Kumar, Judicial Member relied on decision of the Kolkata High court in the case of CIT Vs. Swati Bajaj which dealt with the identical issue of alleged bogus long term capital gain from transaction in penny stocks.

The bench observed “the infraction of the principles of natural justice would invalidate orders passed only when such infraction is shown to have caused prejudice to the assessee” hence, the assessee failing to show how they were prejudiced by not providing the report, the same cannot be held to be infraction of principle of natural justice to invalidate the order of the AO.

Further, it stated that holding the burden in the said cases where the facts showed phenomenal and fanciful rise in shares in a short span of time and thereafter steep fall, all unsupported by the financials of the companies, was heavy and could not be said to be discharged by filing mere documentary evidences of sale and purchase of shares.

The Tribunal confirmed the order of CIT(A) and allowed the addition under Section 68 of Income Tax Act made on account of bogus long term capital gains claimed by the assessee.

To Read the full text of the Order CLICK HERE

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