This case examines the legitimacy of long term capital gains claimed by Mohit Mittal from penny stock transactions, which were challenged by the Income Tax Department for the Assessment Year 2014-15. The Income Tax Appellate Tribunal (ITAT) evaluated the evidence and arguments to determine the genuineness of these transactions.
Mohit Mittal, a resident individual, filed his return of income for AY 2014-15 on 12th February 2015, declaring a total income of Rs. 7,21,260/-. The case was selected for scrutiny due to suspicious long term capital gains from the sale of shares of penny stock companies. Based on information from the Investigation Wing, the Assessing Officer (AO) concluded that Mittal was a beneficiary of accommodation entries through these transactions.
The AO found that Mittal reported long term capital gains of Rs. 37,36,239/- from the sale of shares of Turbotech Engineering Ltd., a penny stock company. The AO called upon Mittal to prove the genuineness of these transactions. However, not convinced by Mittal’s submissions, the AO treated the reported gains as unexplained cash credit under section 68 of the Income Tax Act and added this amount to Mittal’s income. Additionally, the AO estimated a commission expenditure of Rs. 1,12,687/- (3% of the long term capital gains) as unexplained expenditure under section 69C of the Act.
Mittal contested these additions before the Commissioner of Income Tax (Appeals) [CIT(A)], but the CIT(A) upheld the AO’s order. Consequently, Mittal appealed to the ITAT.
The ITAT noted that despite multiple opportunities, Mittal neither appeared for the hearings nor provided sufficient evidence to support his claims. The appeal was thus considered ex-parte based on the submissions of the Departmental Representative and the available records.
The Departmental Representative emphasized the findings from the Investigation Wing, highlighting the significant increase in the value of Turbotech Engineering Ltd.’s shares from Rs. 2 per share in November 2011 to Rs. 475 per share by May 2013, a 23750% jump. Additionally, the company’s financials showed a substantial increase in share capital without corresponding justifications in their annual reports. These findings suggested that the transactions were not genuine but were instead used to introduce unaccounted money into the system.
The ITAT analyzed the facts and found that the AO’s conclusions were based on credible information from the Investigation Wing. The drastic increase in share value and the company’s financial inconsistencies supported the view that the transactions were accommodation entries to legitimize unexplained income.
Given the lack of any counter-evidence from Mittal, the ITAT upheld the additions made by the AO and sustained by the CIT(A). The tribunal confirmed the treatment of the long term capital gains as unexplained cash credits under section 68 and the commission expenditure as unexplained expenditure under section 69C.
The appeal was thus dismissed, reinforcing the need for substantial evidence to support claims of genuine transactions in cases involving suspicious capital gains from penny stocks.
This case highlights the importance of maintaining robust documentation and evidence to substantiate the legitimacy of financial transactions, especially in cases flagged for scrutiny due to unusual patterns. The ITAT’s decision in Mohit Mittal vs ITO underscores the judicial process’s reliance on credible evidence and the taxpayer’s responsibility to provide satisfactory proof to support their claims.
The order, pronounced on 13th February 2023, serves as a precedent for similar cases, stressing the need for transparency and integrity in financial reporting and compliance with tax regulations.
Mohit Mittal vs ITO: Long Term Capital Gain Dispute for AY 2014-15
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