Unexplained 33- Fold Share Price Increase: ITAT Upholds ₹80.17 Lakh Bogus LTCG Addition u/s 68 [Read Order]

Suresh Chandra Sadh (assessee), an individual, filed his income tax return declaring a total income of Rs. 9,71,140. The AO issued a notice, alleging that the assessee had obtained accommodation entries of bogus LTCG from the sale of shares of M/s Yamini Investments Company Ltd. (YICL), a company listed on the Bombay Stock Exchange (BSE).

The AO observed that the assessee had used the sale of penny stock shares to introduce unaccounted money by claiming exempt LTCG under Section 10(38) of the Act.

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The AO noted that the assessee had purchased 2,50,000 shares of M/s Fidelio Power and Infrastructure Ltd. (FPIL) on 19/02/2014 at Rs. 1 per share, costing Rs. 2,50,000. Following the amalgamation of FPIL with YICL, approved by the Delhi High Court, the assessee received 2,00,000 shares of YICL on 04/05/2015 at a cost price of Rs. 1.25 per share.

These shares were sold between 08/06/2015 and 10/03/2016 at an average rate of Rs. 41.33, generating a total sale value of Rs. 82,67,339 and an LTCG of Rs. 80,17,339, reflecting a 33-fold appreciation in share price within a short period.

The AO observed that the share price of YICL was Rs. 33 on 19/02/2014 and Rs. 57 on 04/05/2015, and questioned the justification for the assessee receiving high-priced YICL shares in exchange for low-priced FPIL shares.

The AO concluded that the transactions were pre-planned to generate bogus LTCG, supported by various judicial precedents, and added Rs. 80,17,339 under Section 68 of the Income tax Act, 1961.

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Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) upheld the AO’s findings, noting that the assessee failed to justify the 33-fold share price increase and that the documentary evidence appeared designed to create an illusion of genuine transactions.

Aggrieved by the CIT(A)’ order, the assessee then appealed to the ITAT. The assessee argued that the transactions were conducted through proper banking channels via a recognized stock exchange and a DEMAT account, fulfilling the conditions for exemption under Section 10(38) of the Income tax act.

The two-member bench, comprising Sunil Kumar Singh (Judicial Member) and Brajesh Kumar Singh (Accountant Member) observed that the assessee failed to explain the 33-fold share price increase during the assessment proceedings, before the CIT(A), or at the ITAT.

The Tribunal found no evidence to support the genuineness of the transactions or to deviate from the AO’s conclusions, which were confirmed by the CIT(A). It upheld the addition of Rs. 80,17,339 under Section 68, dismissing the assessee’s claim of genuine investment.

However, the tribunal directed the AO to recompute the interest charged under Sections 234B and 234D as per law. The appeal filed by the assessee was partly allowed.

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