2013 (3) TMI 95 - HC - Income Tax

Addition u/s 68 - as per AO assessee had not produced the broker through whom the transaction of shares had taken place thus has not substantiated claim with evidence - Held that - The submission of AO is wholly misconceived as the share transaction was done in Demat form. The sale has been certified and therefore there is no question of adding the income under Section 68 of the Act - in favour of assessee.

Summary

Issues:
1. Interpretation of Section 68 of the Income Tax Act, 1961 regarding receipt in the guise of sale of shares.
2. Requirement of substantiating receipt on account of sale of shares with evidence before the Assessing Officer.

Analysis:

Issue 1: The primary issue in this case revolves around the interpretation of Section 68 of the Income Tax Act, 1961 concerning the receipt in the guise of sale of shares. The Income Tax Department raised a substantial question of law challenging the Tribunal's conclusion that Section 68 was not applicable, despite the Assessing Officer finding the explanation offered by the assessee unsatisfactory. The Tribunal, however, upheld the order of the Commissioner of Income Tax (Appeals) which had accepted the plea of the assessee and deleted the addition of Rs. 9,44,000 received from the sale of shares as income from undisclosed sources. The Tribunal correctly considered that the share transaction was done in Demat form and certified, thus rejecting the application of Section 68. The High Court concurred with the Tribunal's decision, emphasizing that there was no legal infirmity in the order.

Issue 2: The second issue pertains to the requirement of substantiating the receipt on account of the sale of shares with evidence before the Assessing Officer. The Assessing Officer had added the amount received from the sale of shares under Section 68 of the Act, citing lack of evidence such as the absence of the broker through whom the transaction took place. However, the Tribunal and the Commissioner of Income Tax (Appeals) found in favor of the assessee, noting that the sale was certified and conducted through a Demat account. Consequently, the Tribunal rightly dismissed the appeal, and the High Court affirmed this decision, highlighting that the nature of the transaction being in Demat form negated the need for addition under Section 68.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of considering the specific circumstances of the case, such as the Demat form of share transaction, in determining the applicability of Section 68 of the Income Tax Act, 1961. The judgment highlights the significance of providing substantial evidence and adhering to legal provisions while assessing income from share transactions to prevent unwarranted additions under Section 68.