2011 (9) TMI 1047 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - Held that - The assessee explained genuine transactions on sales and purchases of the shares. The sources of sale of shares are explained through evidences and materials on record. Considering the facts and circumstances of the case in the light of the above decisions and evidences on record, we are of the view that the authorities below have wrongly made the addition u/s 68 of the IT Act. The transactions declared by the assessee shall have to be accepted by the revenue authorities for capital gains. Orders of the authorities below are accordingly set aside and the addition is deleted.

Summary

Issues Involved:
1. Addition on account of household expenses.
2. Addition on account of unexplained cash credit under Section 68 of the IT Act related to long-term capital gains from the sale of shares.

Issue-wise Detailed Analysis:

1. Addition on Account of Household Expenses:
The learned Counsel for the assessee did not press ground No.2 challenging the addition on account of household expenses. Consequently, these grounds in both the appeals (ITA No. 763/Ahd/2009 and 764/Ahd/2009) were dismissed as not pressed.

2. Addition on Account of Unexplained Cash Credit under Section 68 of the IT Act:

Facts and Background:
The primary issue in all the appeals was the addition made on account of unexplained cash credit under Section 68 of the IT Act, which was contested against the long-term capital gains shown by the assessees from the sale of shares. The appeals were consolidated and heard together due to the identical nature of the questions involved.

Case Analysis (ITA No.762/Ahd/2009 - Smt. Vimlarani Biharilal Batra):
- The assessee, engaged in the business of manufacturing and trading in sarees, claimed long-term capital gain from share transactions.
- The Assessing Officer (AO) issued notices to verify the genuineness of the transactions, receiving responses that did not match the details provided by the brokers.
- The AO confronted the assessee with discrepancies, including unserved notices to brokers, mismatched transaction dates, and unexplained entries in the demat account.
- The AO concluded that the long-term capital gain claim was not genuine and treated the credited amount as unexplained cash credit under Section 68.

Arguments and Evidence:
- The assessee argued that the transactions were genuine, supported by contract notes, demat account entries, and bank statements.
- The assessee contended that the shares were sold through authorized brokers and that the demat account entries validated the transactions.
- The Counsel for the assessee emphasized that the shares were listed and the transactions were documented, even if conducted off-market.

CIT(A) Findings:
- The CIT(A) upheld the AO's addition, noting the lack of confirmation from brokers, discrepancies in payment dates, and the non-verifiable nature of the transactions.
- The CIT(A) highlighted the bogus nature of the transactions, especially with penny stocks, and the failure of the assessee to explain the entries in the demat account.

Tribunal's Decision:
- The Tribunal considered the rival submissions and the material on record.
- It was noted that the assessee provided sufficient documentary evidence, including contract notes, demat account statements, and bank records, to support the genuineness of the transactions.
- The Tribunal found that the transactions were properly documented and supported by evidence, even if conducted off-market.
- The Tribunal referenced previous decisions where similar additions were deleted, emphasizing that profit on shares and sale of shares cannot be treated as cash credit under Section 68.
- The Tribunal concluded that the authorities below wrongly made the addition under Section 68 and accepted the transactions for capital gains.

Outcome:
- The appeal in ITA No.762/Ahd/2009 was allowed, and the addition was deleted.
- Similar findings and decisions were applied to ITA No.763/Ahd/2009, ITA No.764/Ahd/2009, ITA No.765/Ahd/2009, and ITA No.766/Ahd/2009, with the appeals being allowed or partly allowed based on the identical nature of the issues and evidence provided.

Conclusion:
The Tribunal's comprehensive analysis and reliance on documentary evidence and previous rulings led to the conclusion that the additions under Section 68 were not justified. The appeals were allowed, affirming the genuineness of the transactions and the long-term capital gains claimed by the assessees.