2016 (6) TMI 1209 - AT - Income Tax

Denial of caim u/s.10(38) - AO disbelieved the purchase of shares by the assessees was that Shri. Mukesh Chokshi had given a statement in which he had mentioned providing accommodation entries to various persons in India which included the names of the assessees along with the PAN - Held that - None of the assessees had purchased shares from the said person. They had purchased shares from Stock-broking firms though through off-line deals. Assessees had produced brokers bill for the purchases. It might be true that assessees had purchased such shares at a rate lower than what was quoted in the market but this in my opinion would not be sufficient to treat the purchases to be bogus when the prices were paid and concerned stock-brokers had delivered the shares. Assessees had also got the shares dematised later. Statement given by a party who was totally unrelated to the assessees could not be taken as evidence for disbelieving the evidence furnished by the assessees. Therefore denial of the claim u/s.10(38) of the Act was not warranted. Additions made are deleted. - Decided in favour of assessee.

Summary

Issues: Appeals against orders of CIT (A) for AY 2008-09, 2009-10, and 2010-11.

Analysis:
1. The assessees, general merchants and commission agents, filed returns for the impugned assessment years and claimed exemption on long-term capital gains under section 10(38) of the Income-tax Act, 1961.
2. The Assessing Officer (AO) reopened the assessments under section 148 and questioned the legitimacy of the capital gains, suspecting them to be bogus transactions. The AO raised concerns about the shares being purchased at significantly lower rates than the market prices.
3. The AO relied on a statement by Shri. Mukesh Chokshi, who was unrelated to the assessees, mentioning providing accommodation entries to various persons, including the assessees. The AO disbelieved the purchase bills provided by the assessees and denied the claim of exemption under section 10(38).
4. The assessees appealed to the CIT (A), arguing that they purchased shares from stock-brokers through off-market deals and had produced brokers' bills as evidence. However, the CIT (A) upheld the AO's decision based on SEBI regulations and lack of confirmation from stock-brokers.
5. Before the ITAT, the assessees reiterated that they were not connected to Shri. Mukesh Chokshi and had legitimately purchased shares through stock-brokers, supported by purchase bills and account payee cheques. They cited a Rajasthan High Court case to support their claim.
6. The ITAT observed that the assessees' purchases were genuine as they were made through stock-brokers, even though the prices were lower than market rates. The ITAT emphasized that an unrelated party's statement could not be the sole basis for disbelieving the assessees' evidence.
7. Citing the Rajasthan High Court case, the ITAT concluded that the purchases were not bogus and allowed the assessees' appeals, deleting the additions made by the AO.
8. The ITAT pronounced the order in favor of the assessees on June 30, 2016, granting them relief and upholding their claim for exemption under section 10(38) of the Act.