2010 (2) TMI 656 - AT - Income Tax

Long-term capital gain - Unexplained income - Scrutiny Exemption u/s 54F - assessment of Rs. 12,19,538 as the income from undisclosed sources as against the sale consideration of shares declared by the assessee. Addition - Held that - Department has thus proceeded entirely on suspicion and surmises if seen in the light of the orders of the Tribunal - Accordingly AO is directed to assess the income declared from the sale of shares under the head income from long-term capital gain Decided in the favour of the assessee

Issues Involved:
1. Assessment of Rs. 12,19,538 as income from undisclosed sources versus long-term capital gain from the sale of shares.
2. Justification of the rejection of the long-term capital gain claim.
3. Whether the findings of the authorities were based on conjectures and surmises.
4. Direction to tax the amount received through drafts in different assessment years.

Issue-wise Detailed Analysis:

1. Assessment of Rs. 12,19,538 as Income from Undisclosed Sources vs. Long-term Capital Gain:
The primary issue was whether the amount of Rs. 12,19,538 should be treated as income from undisclosed sources or as long-term capital gain from the sale of shares. The assessee claimed the amount as long-term capital gain, supported by documents such as contract notes, bills, and statements from the broker. The Assessing Officer (AO) doubted the genuineness of the sale transactions due to the non-existence of the broker at the given address, the company's premises being taken over by UPFC, and discrepancies in trading records. Despite the assessee providing new addresses and further evidence, the AO concluded that the sale was not genuine and treated the amount as income from undisclosed sources.

2. Justification of the Rejection of Long-term Capital Gain Claim:
The AO and CIT(A) rejected the assessee's claim of long-term capital gain on the grounds that the sale transactions were fictitious, citing reasons such as the abnormal increase in share prices and the non-confirmation of transactions by the broker and the company. The assessee argued that the transactions were genuine, supported by the purchase of shares being undisputed and the sale prices being at market rates. The Tribunal, after examining the evidence and considering precedents, found that the AO's reliance on the broker's inconsistent statements and the lack of cross-examination opportunity for the assessee were significant flaws. The Tribunal noted that the purchase of shares was not in dispute and that the sale transactions were supported by market quotations and bank drafts.

3. Findings Based on Conjectures and Surmises:
The assessee contended that the findings of the authorities were based on conjectures, surmises, and suspicion rather than concrete evidence. The Tribunal agreed, stating that the AO's conclusions were influenced by general suspicions of share scams and abnormal price increases without specific evidence against the assessee. The Tribunal emphasized that suspicion, however strong, cannot replace evidence and that the burden of proof lies with the Revenue to establish that the transactions were bogus. The Tribunal found that the assessee had provided sufficient documentary evidence to support the genuineness of the transactions.

4. Direction to Tax Amount Received Through Drafts in Different Assessment Years:
The CIT(A) directed that only Rs. 5,98,000 received through a draft dated 20-1-2001 be taxed in the assessment year 2001-02, and the remaining amount in the assessment year 2002-03. The Revenue appealed against this bifurcation, arguing that the entire amount should be taxed in the year under consideration. The Tribunal, however, found that the bifurcation was unnecessary as the entire transaction was genuine and should be treated as long-term capital gain in the year of sale.

Separate Judgments Delivered by Judges:
The Judicial Member and the Accountant Member initially had differing views. The Judicial Member ruled in favor of the assessee, accepting the transactions as genuine. The Accountant Member dissented, relying on a similar case (Baijnath Agarwal) to support the Revenue's stance. The Third Member, P.K. Bansal, was appointed to resolve the difference and agreed with the Judicial Member, leading to the majority decision in favor of the assessee.

Conclusion:
The Tribunal, by majority decision, allowed the assessee's appeal, recognizing the sale transactions as genuine and treating the income as long-term capital gain. The Revenue's appeal was dismissed, and the direction to bifurcate the amount received through drafts was deemed unnecessary.

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