Transaction of LTCG related to sale of shares will be presumed as BOGUS merely because the regulator found broker guilty ?

ITO vs. Arvind KumarJain HUF (ITAT Mumbai)-4 Nov 2017

Question of law discussed: Merely because SEBI has caught any broker dealing in malpractices will make such transaction BOGUS even there was nothing which AO was able to prove against such assessee who transacted with the broker?


Some important points/ facts discussed about the case (for easy reference):

1- Nowhere the AO has alleged that the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority that transaction in M/s Ramkrishna Fincap Pvt. Ltd. on the floor of the stock exchange are ingenuine or mere accommodation entries. The CIT(A) after relying on the various decision of the coordinate bench, wherein on similar facts and circumstances, issue was decided in favour of the assessee, came to the conclusion that transaction entered by the assessee was genuine.

2- In Shyam R. Pawar (supra), it has been held by the Hon’ble Bombay High Court that where DMAT account and contract note showed details of share transaction, and Assessing Officer had not proved said transaction as bogus, capital gain earned on said transaction could not be treated as unaccounted income u/s 68.

3- In the case of Arun Kumar Agarwal (HUF) (supra), the Hon’ble Jharkhand High Court has held that where assessee’s broker share transaction was bone fide in all respect, merely because share broker was tainted violating SEBI regulations, would not make assessee’s share transactions bogus.


For reading full text of the case please refer link - http://itatonline.org/archives/ito-vs-arvind-kumar-jain-huf-itat-mumbai-bogus-capital-gains-from-penny-stocks-if-the-dmat-account-and-contract-note-show-details-of-the-share-transactions-and-the-ao-has-not-proved-the-transactions/arvind-kumar-jain-bogus-capital-gains-penny-stocks/