This case review focuses on the tax dispute involving Sanjay Kaul and the Income Tax Officer (ITO), Ward-24(4), New Delhi, for the assessment year 2015-16. The appeal was filed on 27th February 2019, and the final order was pronounced on 7th January 2020.
The appeal was filed by Sanjay Kaul against the order of the learned Commissioner of Income-tax (Appeals)-8, New Delhi, dated 14th January 2019. The primary issue in the appeal was the addition of Rs. 1,22,76,352/- as unexplained credit under Section 68 of the Income Tax Act, 1961, related to the denial of the claim of short term capital loss on the sale of shares.
Sanjay Kaul filed his return of income declaring a total income of Rs. 3,12,59,350/-. During the scrutiny assessment, the Assessing Officer (AO) noticed that the assessee had declared a long-term capital gain of Rs. 4,15,67,925/- on the sale of unlisted shares and had set off this gain against a short-term capital loss of Rs. 1,22,76,352/- on the sale of shares of three companies: Cressanda Solutions Ltd., Kailash Auto Finance Ltd., and Matra Kaushal Enterprises Ltd.
The AO questioned the genuineness of these transactions, citing that the companies were involved in providing accommodation entries and were identified as penny stock companies with no substantial business activity or financial worth. The AO concluded that the transactions were sham and treated the short-term capital loss as unexplained credit, adding the amount to the assessee’s income.
Sanjay Kaul appealed to the CIT(A), who upheld the AO’s order, concluding that the transactions were not genuine and were part of a scheme to evade taxes by showing bogus short-term capital losses.
The case was heard by the Delhi Bench ‘G’ of the ITAT, with Shri H.S. Sidhu, Judicial Member, and Shri O.P. Kant, Accountant Member, presiding. The hearing took place on 16th October 2019, and the order was pronounced on 7th January 2020.
The ITAT analyzed the detailed findings of the AO and CIT(A), noting the extensive investigation and the modus operandi of the bogus transactions. The ITAT agreed with the lower authorities that the transactions were not genuine and were structured to generate artificial losses. The tribunal highlighted that the companies involved were identified as penny stocks and had no significant business operations or financial stability.
The ITAT dismissed the appeal of Sanjay Kaul, agreeing with the findings of the AO and CIT(A) that the short-term capital loss claimed was not genuine and was rightly added back to the assessee’s income as unexplained credit under Section 68 of the Income Tax Act. The tribunal emphasized that the assessee failed to provide a satisfactory explanation for the transactions and their financial rationale.
This case underscores the importance of providing clear and credible evidence for transactions, especially in cases involving significant capital gains and losses. It highlights the tax authorities’ vigilance in scrutinizing transactions involving penny stocks and their willingness to disallow claims that lack genuine financial rationale.
For taxpayers, this case serves as a reminder to ensure the authenticity and transparency of their financial transactions and to maintain proper documentation to support their claims. For tax authorities, it reaffirms the need for thorough investigations and the application of the principles of natural justice in assessing the genuineness of transactions.
In conclusion, the ITAT’s decision to uphold the addition made by the AO and CIT(A) in disallowing the short-term capital loss claimed by Sanjay Kaul demonstrates a stringent approach to addressing tax evasion schemes. It ensures that only genuine transactions are considered for tax benefits and reinforces the importance of maintaining transparency in financial dealings.
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