Facts of the Case

  • The assessee filed return declaring income of ₹3.12 crore for AY 2015–16.
  • Earned LTCG of ₹4.15 crore and claimed STCL of ₹1.22 crore from shares of:
    • Cressanda Solutions Ltd.
    • Kailash Auto Finance Ltd.
    • Matra Kaushal Enterprises Ltd.
  • The Assessing Officer (AO) held STCL as bogus and:
    • Added ₹1.22 crore u/s 68 r/w 115BBE
    • Added ₹3,06,908 u/s 69C
  • CIT(A) and ITAT upheld additions (though ITAT held Section 68 technically inapplicable).
  • Appeal filed before Delhi High Court u/s 260A.

Issues Involved

  1. Whether STCL from penny stock transactions can be treated as bogus?
  2. Whether addition can be sustained despite incorrect invocation of Section 68?
  3. Whether denial of cross-examination violates principles of natural justice?
  4. Whether any substantial question of law arises for High Court interference?

Petitioner’s Arguments

  • Transactions executed through registered broker on BSE, hence genuine.
  • All documentary evidence submitted; none disproved by authorities.
  • Once Section 68 held inapplicable, burden shifts to Revenue.
  • No direct evidence proving transactions as bogus.
  • Denial of cross-examination violates natural justice.

Respondent’s Arguments (Revenue)

  • Transactions part of accommodation entry scheme involving penny stocks.
  • Investigation Wing report revealed:
    • Use of shell companies
    • Artificial price rigging
    • Conversion of unaccounted money
  • Assessee invested in financially weak companies with abnormal price rise.
  • Evidence included statements, market analysis, and surrounding circumstances.
  • Cross-examination not mandatory when evidence is corroborative.

Court Findings / Judgment

  • High Court upheld findings of AO, CIT(A), and ITAT.
  • Key observations:
    • Transactions were pre-arranged and not market-driven.
    • Penny stock companies lacked financial credibility.
    • Price movement was unnatural and unsupported by fundamentals.
    • Evidence based on human probability and surrounding circumstances valid.
    • Wrong section invocation does not invalidate assessment.
  • Held: No substantial question of law arises.
  • Result: Appeal dismissed.

Important Clarifications by Court

  • Mere routing through stock exchange does not prove genuineness.
  • Human probability test (Sumati Dayal principle) applies in tax matters.
  • Cross-examination is not mandatory unless addition is solely based on statements.
  • Documentary evidence like contract notes and bank entries is not conclusive proof.
  • Courts can “look beyond documents” to detect tax evasion schemes.

 Sections Involved

  • Section 260A – Appeal before High Court
  • Section 68 – Unexplained Cash Credits
  • Section 69C – Unexplained Expenditure
  • Section 70 – Set-off of Loss
  • Section 143(3) – Assessment
  • Section 115BBE – Tax on unexplained income

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:2420-DB/SVN29072020ITA2032020_192744.pdf

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