LTCG exempt u/s 10(38) earned from penny stock company considered Unexplained Cash Credit u/s 68: ITAT

The assessee is a resident Hindu Undivided Family (HUF). For the assessment year under dispute, the assessee filed its return declaring an income of Rs. 6,27,900. The return of income was selected for scrutiny to examine the genuineness of the long-term capital gain offered and claimed exemption under section 10(38) of the Act. In course of the assessment proceeding, the Assessing Officer noticed that during the year under consideration, the assessee stated to have sold 6000 equity shares of M/s. Esteem Bio Organic Food Processing Ltd. for a consideration of Rs. 29,18,507. These were purchased at a nominal price of Rs.25 per share for a total consideration of Rs.1,50,000 however at the time of the sale of shares, the price increased astronomically by 1945%. Also, it was found that this company was a penny stock company and completed the assessment by treating the long-term capital gain of Rs. 29,18,507 as unexplained cash credit under section 68 of the Act. Further, he added back an amount of Rs. 30,689 as commission paid to avail the bogus long-term capital gain.

Appeal before CIT(A): On appeal, the additions so made by the Assessing Officer were also confirmed by ld. Commissioner (Appeals).

Appeal before ITAT: the tribunal held that as per the investigation conducted in relation to the shares of the company, on which, the assessee offered long-term capital gain, it was found that it is a penny stock company. It was also found that due to price manipulation and rigging, there was an astronomical increase in the price of the shares. As it appears from the facts on record, the assessee has not furnished any strong evidence before the departmental authorities to rebut the adverse materials brought on record by the department. Even before the tribunal, the factual position remains unaltered as the assessee neither appeared nor placed contrary materials for enabling the tribunal to disturb the finding of the departmental authorities.

The tribunal did not find any merit in the grounds raised by the assessee. Hence, the appeal was dismissed.

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