Read how the Bombay HC in a key ruling have provided relief to genuine investors in matters of section 68 (income from Penny stocks) incase the broker has been subjected to SEBI investigation.
Introduction
Bombay High Court (Bom HC) confirms the ruling of the ITAT, Mumbai in the matter of penny stocks under section 68 of the Income Tax Act, 1961 stating that merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction. Read about the key ruling in the matter of PCIT v/s Indravadan Jain HUF here.
Facts of the case
The assessee bought 30,000 shares of Ramkrishna Fincap Ltd @ Rs. 3.10 per share on the floor of Kolkata stock exchange through a registered share broker M/s. Basant Periwal & Co. The shares were held in the assessee's demat account for more than 1 year before being sold @ Rs. 171 through M/s. Basat Periwal & Co on the floor of Kolkata Stock Exchange on various dates. The broker issued a contract note cum bill for sale of shares vide various bills.
After transfer of shares from assessee's demat a/c, the broker M/s.Basant PeriwaI & Co who received the payment from Kolkata Stock Exchange issued the cheque in favour of appellant.
The original return of income for A.Y. 2005-06 was filed on 28.3.2007. The notice u/s 148 was issued on 30.3.2012.
SEBI passed an order dated 9.7.2009 regarding the irregularities and synchronized trades carried out in scrip of Ramkrishna Fincap Ltd. by the broker M/s.Basant Periwal & Co. SEBI initiated adjudicating proceedings against M/s.Basant Periwal & Co vide show cause notice (SCN) issued and there were allegation of gross violation of the various clause of SEBI regulations and Bye laws. SEBI imposed fine of Rs. 3,00,000/- on M/s. Basant Periwal & Co for violation of Bye laws of SEBI.
In the above mentioned case the Assessing Officer (AO) had received information from Investigation Wing and accordingly reopened the assessment based on the information provided. The notice u/s 148 was issued to the assessee on 30.3.2012.
The AO added income of Rs.60,19,691/- by treating the long term capital gain as unexplained cash credit u/s.68 of the Income Tax Act.
Ruling of ITAT (Bom HC has confirmed the ruling of ITAT in this matter)
We found that as far as initiation of investigation of broker is concerned, the assessee is no way concerned with the activity of the broker.
Merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same.
This issue is also covered by the decision of jurisdictional High Court in the case of Shyam R. Pawar (54 Taxman.com 108), wherein under similar facts and circumstances, transactions in shares were held to be genuine and addition made by AO was deleted.
Conclusion
This ruling of the Bombay High Court will go a long way in assuaging the concerns of the genuine investors who have been adversely affected by such rulings of the AO or CIT(A). You can contact us to understand how we can best use this judgement to seek relief from such ruling in your case.
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