In 2012, an assessee purchased shares of a company in cash at Rs. 20 per share and sold them during the year for Rs. 675 per share as long-term capital gains, claiming exemption under section 10(38). However, the Assessing Officer noticed that the scrip was under investigation related to penny stock companies and made additions to the capital gains as unexplained income under section 68, thereby denying the claim for exemption.
The assessment order was not solely based on the investigation, but the Assessing Officer had also verified each aspect of the increase in the share price. Furthermore, the purchase of shares appeared to be a bogus transaction as the scrip was purchased at a price higher than the market price, and as an off-market transaction. The submission of demat and transaction statements, along with the debit note and share certificate, by the assessee would not suffice to dismiss the fact that the assessee was well aware of penny stock brokers.
As a result, the Assessing Officer was justified in denying the exemption on the long-term capital gains and treating them as unexplained income under section 68. This decision was made in favor of the revenue.
It is essential to note that investing in bogus scrips, such as the one mentioned in this case, is a clear violation of securities law. The Securities and Exchange Board of India (SEBI) has taken strict measures to prevent such transactions and has put in place various regulations to safeguard investors’ interests.
Penny stocks, like the one under investigation in this case, are stocks that trade at low prices and have a low market capitalization. They are often associated with fraudulent activities, such as price manipulation and insider trading, and investors must exercise caution while dealing with such stocks.
The case of Atmiben Alipitkumar Doshi v. ITO serves as a reminder to investors to conduct thorough due diligence before investing in any stock. Investors should verify the credibility of the company, the brokers, and any other parties involved in the transaction. Any suspicious transactions should be reported to the appropriate authorities.
In conclusion, investing in bogus scrips is a severe offense, and investors must be cautious while dealing with penny stocks. The Assessing Officer was justified in denying the exemption on long-term capital gains in the case of Atmiben Alipitkumar Doshi v. ITO as the purchase of shares appeared to be a bogus transaction. Investors must conduct thorough due diligence before investing in any stock and report any suspicious transactions to the relevant authorities.
