Account payee check will not make any bogus transaction, genuine

Recently, the Delhi ITAT held that mere payment by account payee check is not sacrosanct, nor can it make a non-genuine transaction genuine.

The Division Bench of Astha Chandra (Judicial Member) and B.R.R. Kumar (Accountant Member) has observed that the assessee cannot escape from the burden cast upon him, and unfortunately, the burden is heavy as the facts establish that the shares that were traded by the assessee had a phenomenal and fanciful rise in a short span of time, and more importantly, after a period of 17 to 22 months, there has been a steep fall, which has led to huge claims of short-term capital loss.

Therefore, the Bench clarified that unless and until the assessee discharges such a burden of proof, the addition made by the AO cannot be faulted.

Advocate Rajiv Saxena appeared for the Appellant, whereas Advocate Amit Shukla appeared for the Respondent.

Briefly, the assessee is an individual and derives income from salary, other sources, and capital gain, which she claimed was exempt under Section 10(38) of the Income Tax Act, 1961. For AY 2015-16, she e-filed her return declaring income, which was processed under Section 143(1). Her case was selected for complete scrutiny through CASS for the reason of “suspicious sale transaction in shares and exempt long-term capital gain shown in return. Later, statutory notices were issued and served. In response, the details called for were furnished.

The AO found that the assessee earned a long-term capital gain of Rs. 1,17,14,346 on the sale of shares of M/s. HPC Biosciences Limited, which the assessee claimed was exempt under Section 10(38). Thereafter, the AO issued a show-cause notice stating that M/s. HPC Biosciences Limited has been identified as a BSE-listed stock that has been used to generate bogus long-term capital gains.

The exemption under Section 10(38) of the Act has been claimed on the capital gain against the sale of shares of M/s. HPC Biosciences Limited. On appeal, the CIT(A) held that only the form of the transaction exists in the assessee’s case by creating the necessary documents, but the financial results of the company do not justify such a steep escalation in the price of its shares, and as such, there is no substance in the transaction undertaken by the assessee.

After considering the submission, the ITAT held that the assessee is lawfully bound to prove the huge long-term capital gain claims to be genuine.

If there is information and data available about an unreasonable rise in the price of shares of penny stock companies over a short period of time, the genuineness of such a steep rise in the prices of shares needs to be established, and the onus is on the assessee to do so, added the Coram.

Accordingly, the ITAT concluded that the assessee failed to discharge the onus cast upon her under Section 68 and rejected the exemption under Section 10(38) on the long-term capital gain.

Cause Title: Sangeeta Devi Jhunjhunwala vs. ITO [ITA No. 747/Del/2022 / 2023-Enterslice-16-ITAT-Del]

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