From Financialexpress · Mithilesh Jha · · 2m
Woman's shares surge 2000% but IT rejects tax exemption
Mumbai investor's Rs 4.41 lakh shares jumped to Rs 92 lakh in 16 months, but Income Tax department rejected the gains as fake.
In brief
Mumbai investor's Rs 4.41 lakh shares jumped to Rs 92 lakh in 16 months, but Income Tax department rejected the gains as fake. Income Tax Appellate Tribunal upheld tax additions of Rs 94.79 lakh for Sandhya Rakesh Sharma's alleged penny stock manipulation. Originally reported by Financialexpress.
Investor's claim
A Mumbai investor bought shares for rs 4.41 lakh in november 2012 and sold them for rs 92 lakh in 16 months.
Tax department's rejection
Income Tax department treated the gains as bogus, adding rs 94.79 lakh in tax.
Investor's argument
Sharma claimed the profit was long-term capital gains exempt under section 10(38) of the Income Tax Act.
Penny stock suspicion
ITAT Mumbai suspected penny stock manipulation to generate artificial tax-free capital gains.
Share price history
Shares bought at rs 21 per share rose to rs 488.50 per share in 16 months.
SEBI findings
SEBI imposed a rs 1 crore penalty on Sunrise Asian Ltd and barred directors from the securities market for one year.
Investor's documents
Sharma submitted bank statements, demat records, and stock exchange contract notes.
Tribunal's decision
ITAT Mumbai upheld the tax additions, citing lack of evidence for genuine transactions.
Why transactions were fake
The share price rose without company financial improvement, low trading volume, and SEBI findings.
Tax additions breakdown
Rs 92.03 lakh sale proceeds treated as unexplained cash credit, plus rs 2.76 lakh commission.
Investor's non-compliance
Sharma did not appear for summons and failed to respond to notices from exit providers.
What this means
Investors must maintain records and respond to tax notices to avoid similar issues.
Tax implications
High returns from small companies may attract scrutiny if financial performance doesn't support the price rise.
Expert advice
Dinkar Sharma recommends explaining investment, price movement, and fund sources with proper records.
Key takeaway
The ruling applies only to assessment year 2014-15 and does not mean all penny stock investments are bogus.
The bottom line
Income Tax Appellate Tribunal upheld tax additions of Rs 94.79 lakh for Sandhya Rakesh Sharma's alleged penny stock manipulation.
