2010 (2) TMI 1157 - AT - Income Tax

Bogus LTCG - Disallowance of exemption claimed u/s. 10(38) - unaccounted money converted into accounted money - validity of the off market share transactions - AO came to the conclusion that the entire transactions i.e. the purchase and sale of shares are part of accommodation entry of sale by the assessee - CIT(A) deleted addition HELD THAT - For off market transactions we find that the issue is covered by the decision in the case of Mukesh R. Marolia 2005 (12) TMI 457 - ITAT MUMBAI wherein it has been held that off market transaction is not a unlawful activity and there is no relevance in seeking details of share transaction from stock exchange when the sale was not on stock exchange and relying upon it for making addition. Sale proceeds have been paid to the assessee through the funds provided by the assessee - We find that the assessee has filed relevant documentary evidence before the AO but the AO has failed to consider the same. The CIT A in his order has considered the said evidence and has come to the conclusion that the share transactions are genuine. AO could have verified from the Registrar of companies as to whether the shares have been transferred and the names of the shareholders in whose names shares have been transferred - Therefore, we do not see any reason to interfere with the order of the CIT A and the same is upheld. Revenue s appeal is dismissed.

Summary

Issues:
Appeal against CIT(A)'s order deleting addition as income from other sources in respect of long term capital gains on sale of shares.

Analysis:
1. The revenue appealed against the CIT(A)'s decision to delete the addition of income from other sources in relation to long term capital gains on the sale of shares of two companies.
2. During assessment, the AO observed discrepancies in the share transactions carried out by the assessee through certain brokers, leading to suspicions of bogus transactions.
3. The AO issued notices and summoned directors of the broker companies, concluding that the transactions were accommodation entries converting unaccounted money into accounted money.
4. The assessee provided various documents to support the transactions, challenging the AO's findings and the reliance on incomplete information.
5. The CIT(A) considered the documentary evidence and relevant case laws, including the Tribunal's decisions in similar cases, to conclude that the share transactions were genuine.
6. The Tribunal upheld the CIT(A)'s decision, emphasizing that off-market transactions are not illegal and the AO failed to consider the evidence provided by the assessee.
7. The Tribunal also highlighted the importance of verifying share transfers with the Registrar of Companies, as seen in previous cases, to determine the authenticity of transactions.
8. Ultimately, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision based on the evidence presented and legal precedents cited.

This detailed analysis of the judgment highlights the issues involved, the arguments presented by both parties, the assessment by the AO and CIT(A), and the final decision of the Tribunal, providing a comprehensive overview of the legal proceedings and outcomes.