By TIOL News Service

CHANDIGARH, MAY 22, 2018: THE ISSUE IS - Whether unnatural LTCG @ 3072% over a period of 1.5 years from script of the unlisted company whose even net worth is not known to assessee, without expert advice is beyond the business logics and is valid reason to make addition for undisclosed income. YES IS THE VERDICT.

Facts of the case:

The assessee is an Individual. The assessee had purchased 800 shares of M/s Sharp Transport Limited (STL), a company base at Kolkata in December 2008. Subsequently, STL along with another company M/s Sakshi Vayapar Ltd. (SVL) merged into M/s Oasis Cine Communication Ltd (OCL). Pursuant to the said merger, the assessee was allotted 27,200 shares of OCL in the ratio of 1:34, in Oct 2009 which were sold at stock exchange in May 2010 for Rs. 83 lakh (approx). The assessee claimed to have paid securities transaction tax (STT) on the transfer and in return claimed LTCG as exempt u/s 10(38) of the Act. During assessment, AO was of the view that it could not be normal in tune with the regular business transactions to have LTCG of Rs. 80,85,577/- within 1.5 years of buying shares worth Rs. 2,72,000/- of a non listed company. The AO was also of view that it was quite possible that the assessee had not purchased the shares of STL as was claimed but had fictitiously arranged to show the same afterwards. The AO called the assessee for giving statement u/s 131 to verify the source of the payment as well as mode and nature of payment. The statement was recorded. After considering all the data available AO noted that receipt of Rs. 83,57,578/- was an undisclosed income u/s 68 of Act as assessee had entered in sham arrangement to evade due taxes by introducing its own unaccounted income through bogus LTCG. On appeal, CIT(A) upheld the order of AO.

Tribunal held that,

++ assessee failed to furnish copy of ITR with its enclosures or copy of assessment order and produce the concerned party STL or by change name of OCL after the merger. Therefore, the assessee has failed to prove the genuineness of the transaction. The AO has worked out certain glaring facts which cannot be ignored and which are clear indicative of suspicious nature of transaction. Some of these facts are that the assessee has under collusion with the stock broker has managed to show transaction, whereas as per contact note received from broker the dates of transaction are different which shows that the transaction has been managed after a later date. The assessee has failed to satisfactorily explain the reason of investment of shares of the company whose net worth was not known to him. Most importantly, the assessee was out when these transactions took place. The AO has also worked but with regard to a major fact that the assessee did not have the requisite source of investment during the relevant period of investment;

++ on consideration of the facts of the case as a whole it cannot be accepted that the assessee can have long term capital gains of Rs. 80,25,291/- within 17 months of buying of shares at Rs. 2,72,000/- of a non descript company incorporated in 2017 which got merged in 2009. This cannot be a case of intelligent investment or a simple case of tax planning to gain benefit of long term capital gains. The issue that it deals with and the facts are however, quite interesting. The in-congruencies found out by the Revenue that the investments were made on the advice of renowned investment advising company like Edelweiss for which the assessee has not paid any consultation fee leads to a conclusion that the entire transaction is synchronized and carefully planned only to defeat the purpose of revenue. The earnings @ 3072% over a period of 17 months breaks the ceiling of any record of return on investment which is beyond the human probability and beyond the business logics of any enterprise. The fact of purchase of shares of the company with such a higher premium of Rs. 328 per share, whose net worth was not known by the assessee and the company is not listed with any Exchange cuts no ice. In the result, appeal of the Assessee is dismissed.

(See 2018-TIOL-733-ITAT-CHD)