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The Pune Income Tax Appellate tribunal in the Case of Abhishek Ashok Lohade vs ITO 2022 has ruled that where the assessee is unable to prove to the court the genuineness of the transaction of purchase and sale of shares and failed to refute the findings of the quasi-judicial body in regard to the bogus share transactions, in that case, the whole transaction will be held as void ab initio. Therefore, the transaction entered into by the assessee is held to be fraud under the principle “Fraud vitiates everything” and the assessee will not be liable for exemption under clause 38 of Section 10 of the IT act, 1961.
Table of Contents
The facts of the case are:
Whether the claim of the appellant for bogus share transactions is liable for exemption under cluase 38 of section 10 of the Income Tax Act, 1961?
The respondent submits that the decision of PCIT vs Swati Bajaj, 446 ITR 56, Calcutta, is a well-decided case on the point of law and therefore based on the decided principles under the said case, the order of the CIT (A) shall be upheld. It is further contended that despite various opportunities provided to the appellant, the assessee has failed to refute the findings of the assessing officer for bogus share transactions.
The court, while dealing with the issue, relied on the Case of CIT vs. Manish D. Jain and observed that in the said case, the court or tribunal had affirmed the action of the assessing officer by stating that the officer had cogently found out about the real factual scenario for establishing the fraudulent, manipulative and deceptive practices. The court observes that in the said case, the assessing officer has discovered how the stock exchange system is manipulated to generate bogus share transactions that lead to long-term capital gains.
The court, while upholding the contentions of the assessing officer observes that the officer has correctly applied the principle “Fraud vitiate everything” and therefore such transaction is void ab initio. The court based this judgement while relying on the Case of Friends Trading Co. vs Union of India, civil appeal no. 5608 of 2011 wherein it was held that the exemption availed on the forged DEPB license is void ab initio based on the principle that fraud vitiates everything and therefore, the application of a limitation period has no use. In the said case, the department was held justified in holding that even though the beneficiary has no knowledge of a forged DEPF license this does not bar the obligation of the department to impose custom duty. Henceforth, the same principle applies to this case.
Further, the court, while defining the “Principle of Fraud”, observes the following cases:
Based on the well-settled principle of law on fraud, the court observes that the appellant has deliberately concealed the information from the assessing officer and CIT (A). The information is well exclusively within the knowledge of the appellant; hence, it is for the appellant to prove that the transaction entered into by him is not a bogus share transaction but a genuine one. Therefore, it is held that it is a fraud committed by the appellant against the assessing officer and CIT (A).
The tribunal, when applying the principle of fraud, held that the transaction of purchase & sale of shares of SRK Industries Pvt. Ltd. is a bogus share transaction and is, therefore, void ab initio. It is held that it is a sham and make-believe story with excellent paperwork with the intention of bringing the undisclosed income into the book of accounts. Therefore, the court upheld the order of the assessing officer and CIT (A) and dismissed the appellant’s appeal.
The fraud vitiated the sanctity of proceedings in any case. It not only puts the court on the wrong foot but also vitiates the other party’s rights. The court, in the present case, rightly upheld the order of the assessing officer and CIT (A) while upholding the transaction entered into by the appellant as bogus share transactions. Further, to claim any exemption under clause 38 of Section 10 of the act, all the relevant documents related to the transaction shall be produced to judge the transaction’s sanctity.
Read Our Article: Deletion of Additions Allowed If Transactions are Genuine: ITAT Delhi
An Advocate by profession, Nikhil Mogha holds experience in the field of Business and Securities law. He has done his Masters of Law in Corporate Law from Guru Gobind Singh Indraprastha University, New Delhi. He is also versed with the drafting and research work in the field of Company Law, Banking Laws and Contract Laws.
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