2011 (12) TMI 600 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition under Section 68 of the IT Act.
2. Sustaining of addition under Section 68 of the IT Act.
3. Deletion of addition under Section 69 of the IT Act.
4. Deduction under Section 54EC of the IT Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68 of the IT Act:

The department's appeal contested the deletion of Rs. 38,79,420/- out of the total addition of Rs. 40,28,420/- made by the Assessing Officer under Section 68 of the IT Act. The assessee had purchased 50,000 equity shares of Mantra Online Ltd. through a recognized stockbroker and later sold them, resulting in a long-term capital gain of Rs. 40,28,420/-. The assessee invested Rs. 41,00,000/- in Rural Electrification Ltd. bonds and claimed exemption under Section 54EC.

The Assessing Officer doubted the genuineness of the transactions, noting discrepancies such as the surrender of the broker's license in 1997 and the purchase of shares in cash. The Assessing Officer concluded that the transactions were manipulated and added the sale consideration under Section 68.

The CIT (A) conducted a detailed inquiry and found that the shares were indeed purchased and sold through proper channels, with confirmations from the stock exchange and depository. The CIT (A) deleted the addition of Rs. 38,79,420/- but sustained Rs. 1,49,000/- for an unverified transaction. The tribunal upheld the CIT (A)'s findings, noting that the transactions were genuine and properly documented.

2. Sustaining of Addition under Section 68 of the IT Act:

The assessee's cross-objection challenged the addition of Rs. 1,49,000/- sustained by the CIT (A). This amount represented the sale of 2,000 shares on 19.12.2002, which was not confirmed by the Calcutta Stock Exchange. Despite the overall genuineness of the transactions, the CIT (A) sustained this addition due to the lack of verification.

The tribunal, however, found that the sale proceeds were received through proper banking channels and that the shares were indeed sold. Therefore, the tribunal deleted the addition of Rs. 1,49,000/-, allowing the assessee's cross-objection.

3. Deletion of Addition under Section 69 of the IT Act:

The department's appeal also contested the deletion of Rs. 41,00,000/- made under Section 69 by the Assessing Officer, who argued that the assessee had no funds of his own for the investment in REC bonds. The CIT (A) found that the investment was made from the sale proceeds of shares and allowed the deduction under Section 54EC.

The tribunal upheld the CIT (A)'s decision, noting that the source of investment was explained and that the addition by the Assessing Officer amounted to double addition, as the same amount was already considered for the sale of shares.

4. Deduction under Section 54EC of the IT Act:

This issue was consequential to the first ground. The tribunal confirmed that the sale transactions were genuine and that the assessee had invested the sale proceeds in REC bonds within the stipulated period, making the deduction under Section 54EC allowable. The tribunal upheld the CIT (A)'s direction to allow the deduction.

Conclusion:

The tribunal dismissed the department's appeal and allowed the assessee's cross-objection, confirming the deletion of the addition under Section 68, the deletion of the addition under Section 69, and the allowance of the deduction under Section 54EC. The order was pronounced in the open court on 09.12.2011.