Woman makes mind-boggling tax-free gain of Rs. 97 Lakh (4800%) from unknown penny stock

Discussion in 'Must-Read Interviews, Articles & News Items' started by Arjun, Jan 31, 2021.

  1. Arjun

    Arjun Chief Executive Officer (CEO) Staff Member

    Mar 19, 2015
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    "Hero Ya Zero" stocks

    Penny stocks and junkyard stocks are known to have a high-risk high-reward ratio.

    These stocks are rightly described as "Hero Ya Zero" stocks.

    One can invest small sums of money. Either the entire sum is lost or it blossoms into a gigantic fortune.

    Ujjwal Singhania, son of the illustrious Fund Manager Sunil Singhania, appears to have mastered this technique.

    He recently invested in two junkyard stocks known as Gamestop and AMC Entertainment and took home mammoth gains of 3540% and 680% respectively.

    Smt. Krishna Devi, a woman investor based in Delhi, is also a master of the same technique.

    She bought a chunk of an unknown penny stock named Gold Line International Finvest Limited.

    To her good luck, the stock surged into a glorious megabagger and she sold her entire holding, netting a long-term capital gain of Rs. 96,75,939, representing a mind-boggling return on investment of 4849.2%.

    However, when she filed a return of income and claimed that the long-term capital gains were exempt from tax, she was in for a nasty surprise.

    No prudent investor would invest in penny scrips: Tax Officer

    The Tax Officer held that, taking the aspect of human probabilities into consideration, no prudent investor would invest in penny scrips.

    He also observed that the financials of the company did not support the gains made by it in the stock exchange and that there was no evidence forthcoming to sustain the credibility of the company.

    He accordingly held that the investments made by Krishna Devi was not genuine.

    Thankfully, Krishna Devi was not cowed down by the allegations made by the Tax Officer or the huge tax bill raised by him.

    Instead, she fought him valiantly all the way to the Delhi High Court.

    If the documentation is in order, a transaction of penny stocks cannot be branded as being bogus

    The Court, comprising of Hon’ble Mr. Justice Rajiv Sahai Endlaw and Hon’ble Mr. Justice Sanjeev Narula, was quite appreciative of Krishna Devi's investment prowess.

    "On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes," it observed.

    The Court also held that a transaction of penny stocks cannot be branded as being bogus if the documentation is in order.

    There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels,” it stated.

    It was also held that while the startling spike of 4800% in the share price and other factors may create suspicion; the Tax Officer has to decide an issue on the basis of evidence and proof, and not on suspicion alone.

    It also emphasized that the theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Taxpayer.

    Click here to download the judgement of the High Court