2012 (10) TMI 1034 - AT - Income Tax

Genuineness of purchase of shares - notice u/s.153A - Held that - Since the assessee was not able to satisfy the revenue authorities with the distinctive numbers of the original shares which were subsequently dematerialised and sold, the lower authorities had doubted the genuineness of the transactions. It is the submission of the learned counsel for the assessee that he is in a position to demonstrate before the AO that the consolidated share certificates received on purchase of the shares in physical form were subsequently splitted into smaller denomination and the splitted shares were sent for dematerialisation and the shares bearing the same distinctive numbers were later sold. In other words, the distinctive number of the shares sold and the shares purchased are the same. Therefore, we, in the interest of justice, deem it proper to restore the issue to the file of the AO with the direction to give an opportunity to the assessee to substantiate with evidence to his satisfaction that the assessee has infact sent the consolidated share certificates to the respective companies for splitting and the distinctive numbers of such splitted share certificates which has gone to the DMAT account and subsequently sold are same. We accordingly restore the issue to the file of the AO for deciding the issue afresh in the light of our above observations and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

Issues Involved:
1. Legitimacy of long-term capital gains claimed by the assessee.
2. Genuineness of share transactions conducted by the assessee.
3. Validity of the addition of commission for accommodation entries.
4. Admissibility of statements made during search and survey operations.

Detailed Analysis:

Legitimacy of Long-Term Capital Gains Claimed by the Assessee:
The primary issue revolves around the legitimacy of long-term capital gains claimed by the assessee. The AO disallowed the long-term capital gains on the grounds that the evidences seized during the search indicated that the gains were not genuine and were based on fictitious documents. The AO concluded that the assessee group systematically created documents to give a genuine appearance to otherwise fake transactions involving shares of various companies. The CIT(A) upheld the AO's decision, agreeing that the transactions were not genuine and that the sale proceeds should be treated as undisclosed income.

Genuineness of Share Transactions Conducted by the Assessee:
The AO noted multiple discrepancies in the share transactions, such as the inability of the assessee to provide distinctive numbers of shares, proof of delivery, and correlation between purchased and dematerialized shares. The AO also highlighted that several brokers denied having conducted the transactions and that some stock exchanges confirmed no trading took place as claimed by the assessee. The CIT(A) supported these findings, noting that the companies involved were typical "penny stocks" with no market standing. However, the Tribunal found that the sale of shares from the D-MAT account was not disputed and that the issue was primarily about the purchase dates and distinctive numbers of the shares. The Tribunal restored the issue to the AO, directing them to verify if the consolidated share certificates were split and dematerialized correctly.

Validity of the Addition of Commission for Accommodation Entries:
The AO added 6% of the sale proceeds as commission for accommodation entries, assuming that no broker would provide such services free of cost. The CIT(A) upheld this addition. However, the Tribunal noted that if the assessee could prove the genuineness of the share transactions, the addition for commission would not survive. Thus, this issue was also restored to the AO for reconsideration based on the verification of the share transactions.

Admissibility of Statements Made During Search and Survey Operations:
The AO relied heavily on statements made by the assessee during the search and survey operations, where the assessee admitted to the transactions being bogus. The CIT(A) noted that these statements were in line with the evidence gathered. However, the Tribunal pointed out that statements made during survey operations under section 133A have limited evidentiary value and that the assessee should be given an opportunity to retract and provide evidence to the contrary. The Tribunal cited various legal precedents to support the view that retracted statements, especially those made under duress or without corroborative evidence, should not be the sole basis for additions.

Conclusion:
The Tribunal restored the matter to the AO for a fresh examination, directing the AO to verify the distinctive numbers and dematerialization process of the shares. If the assessee could substantiate the genuineness of the transactions, the long-term capital gains should be accepted, and the addition for commission should be deleted. The appeals were allowed for statistical purposes, emphasizing the need for a thorough and fair reassessment.

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