2014 (5) TMI 881 - AT - Income Tax

Deletion of LTCG as non-genuine - transactions in shares - Deletion of undisclosed commission paid for arranging accommodation entries Held that - The assessee furnished certain additional evidences under Rule 46A of the I.T. Rules, those evidences could not be furnished before the AO, but those were relevant to decide the controversy - CIT(A) forwarded those additional evidences to the AO for his comment - Additional evidences furnished by the assessee were examined by the learned CIT(A), who also considered the remand report of the AO and categorically stated that the assessee furnished complete details of the transactions of the shares i.e statement of demat account, list of share trading, quotations of Madhya Pradesh Stock Exchange, certificate of Registrar of Companies, which clearly proved that the assessee entered into the transaction and the sale of the shares of M/s Suma Finance & Investment Ltd., which were listed with Madhya Pradesh Stock Exchange was affected to demat account - CIT(A) also verified that the sales proceeds had been received through banking channel and that any sale of the shares was not possible through demat account, if the shares were not listed in some stock exchange. The assessee was having proper demat account and sold the shares which were listed in the Madhya Pradesh Stock Exchange, the sale proceed received by the assessee through bank channel was not doubted by the AO - The purchase of the shares was through a broker and nothing is brought on record to substantiate that the said broker was not in existence at the relevant time when the purchases were made - the transactions entered into by the assessee was a genuine transaction and as the shares were purchased on 04/04/2003, which were sold on 10/06/2004, the holding period of the shares was more than 12 months as such the profit earned by the assessee on account of sale of shares, which were held for more than 12 months was long term capital gain there was no infirmity in the order of the CIT(A) on the issue. CIT(A) has stated that the brokerage was deducted from the share consideration by the broker and only balance amount was paid to the assessee through demand draft - The observation of the CIT(A) was not rebutted - the CIT(A) has rightly deleted the addition on account of commission/brokerage made by the AO on the basis of presumption - CIT(A) rightly deleted the additions made by the AO and there was no valid ground to interfere with the of the CIT(A) Decided against Revenue.

Summary

Issues Involved:
1. Deletion of addition made by the AO by holding the claimed long-term capital gain as non-genuine.
2. Rejection of the AO's alternative finding of treating it as short-term capital gain.
3. Deletion of addition made by the AO on account of undisclosed commission paid for arranging the accommodation entries.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made by the AO by Holding the Claimed Long-term Capital Gain as Non-genuine:

The assessee filed a return of income including a long-term capital gain, which was processed. A survey under section 133A of the I.T. Act revealed that the assessee was allegedly involved in arranging bogus capital gains. The AO issued notice under section 148 after recording reasons and treated the transactions as bogus, adding the sale consideration as unexplained cash credits under section 68. The assessee provided detailed submissions and evidence, including purchase and sale bills, demat account statements, and bank transaction details, to substantiate the genuineness of the transactions. The CIT(A) accepted the additional evidence under Rule 46A, which included demat account statements, share trading quotations, and certificates from the Registrar of Companies, proving the transactions were genuine. The CIT(A) observed that the sale proceeds were received through banking channels and there was no evidence to suggest the concealed income was routed through the broker. Consequently, the CIT(A) deleted the addition of Rs. 15,69,818/- made by the AO.

2. Rejection of the AO's Alternative Finding of Treating it as Short-term Capital Gain:

The AO contended that the shares were held for less than 12 months based on the date mentioned in the consolidated share certificate, thus treating the gain as short-term. However, the CIT(A) found that the shares were purchased on 04/04/2003 and sold on 10/06/2004, holding them for more than 12 months. The CIT(A) concluded that the AO's basis for treating the gain as short-term was incorrect, and the profit earned was indeed long-term capital gain.

3. Deletion of Addition Made by the AO on Account of Undisclosed Commission Paid for Arranging the Accommodation Entries:

The AO made an addition of Rs. 60,651/- on the presumption that the assessee paid commission for obtaining accommodation entries. The assessee argued that the brokerage was already deducted from the sale proceeds by the broker, and no separate commission was paid. The CIT(A) noted that the AO did not provide concrete evidence to support the claim of undisclosed commission payment. The CIT(A) deleted the addition, stating that the brokerage was deducted from the sale consideration and the balance was received through demand drafts/cheques.

Conclusion:

The ITAT upheld the CIT(A)'s decision, stating that the transactions were genuine and the sale proceeds were received through banking channels. The ITAT found no infirmity in the CIT(A)'s order and dismissed the department's appeals, affirming the deletion of additions made by the AO on account of non-genuine long-term capital gain, incorrect treatment as short-term capital gain, and alleged undisclosed commission payment.