Sanjay Bimalchand Jain vs. Pr CIT (Bombay High Court) -16 Dec 2017
Some of the useful references of the discussion during the case (for easy reference):
1- It was held that ""U/s. 2(13) of the Income Tax Act the word ‘Business’ is defined and it include any trade. Commerce or maintenance o any adventure or concern in the nature of trade, commerce or manufacture. In the instant case the transaction of purchase of two penny stock shares for Rs.60,000/- and then merger with a new company and its subsequent sale for Rs.11,58,930/- falls within the ambit of adventure in the nature of trade. In view of the above, the profit of Rs.13,98,930/- (Rs.14,58,930 – Rs.60,000) is brought to tax under the head business income.”"
2- ""Further, assessee's contention, that he has taken delivery of shares and, hence, the profits should be assessed as capital gains cannot be accepted since this cannot be, and is not the criteria for determining the nature of income. To determine the nature of the transactions or whether the assessee has acted as a trader or investor, what will have to be examined is as to how he has dealt overall with his assets after the purchases and how he has acquired the said assets""
3- ""In Trishul Investment Ltd., reported in 305 ITR 434 (Mad), the Hon'ble Madras High Court has -held that the rest to decide whether an activity was in the nature of investment or an adventure in the nature of trade has a very thin line of demarcation. It held that "even a single instance of transaction can be regarded as business and even multiple transactions sometime are deemed as investments. So, the criteria, for deciding whether it is investment or business is that the intention of the assessee, viz. whether assessee's real intention is to invest or the intention was in the nature of trade."
4- It was finally concluded " Section 68 of the I.T. Act provides that where any sum is found credited in the books of the assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the AO satisfactory, the sum so credited may be charged to income tax as income of the assessee of that year. In the present case the assessee’s explanation that the said receipt is on account of investment in shares whereby share of Rs.5/- of unknown company has jumped to Rs.485/- in no time has been totally rejected by the authorities below. The assessee has not at all been able to adduce cogent evidences in this regard. There is no economic or financial justification for the sale price of these shares.....
Hence the fantastic sale price realisation is not at all humanly probably, as there is no economic or financial basis, that a share of little known company would jump from Rs. 5/- to 485/-, In these circumstances, I do not find any infirmity in the orders of the authorities below. Accordingly I affirm the same and decide the issue against the assessee
For reading full text of the case please refer link - http://itatonline.org/archives/sanjay-bimalchand-jain-vs-pr-cit-bombay-high-court-bogus-ltcg-from-penny-stocks-the-assessee-has-not-tendered-cogent-evidence-to-explain-how-the-shares-in-an-unknown-company-worth-rs-5-had-jumped-to/sanjay-bimalchand-jain-bogus-penny-stocks-capital-gains/
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