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2018 (8) TMI 1747 - AT - Income TaxGain on sale of shares - allegation of taking accommodation taken for the purpose of bogus long-term capital gains to claim exempt income - LTCG or busniss income - Held that - As decided in NAVNEET AGARWAL, LEGAL HEIR OF LATE KIRAN AGARWAL VERSUS ITO, WARD-35 (3), KOLKATA 2018 (8) TMI 509 - ITAT KOLKATA we are bound to consider and rely on the evidence produced by the assessee in support of its claim and base our decision on such evidence and not on suspicion or preponderance of probabilities. No material was brought on record by the AO to controvert the evidence furnished by the assessee. We accept the evidence filed by the assessee and allow the claim that the income in question is Long Term Capital Gain from sale of shares and hence exempt from income tax. Addition made u/s 68 - on account of sale of shares in the case of both the assessee - addition u/s 69C is also deleted. Accordingly both the appeals of the assessee are allowed.
Issues Involved:
1. Treatment of sale consideration from shares as unexplained cash credit under Section 115BBE of the Income Tax Act, 1961. 2. Validity and genuineness of the assessee's claim of exemption on long-term capital gains (LTCG). Issue-Wise Detailed Analysis: 1. Treatment of Sale Consideration from Shares as Unexplained Cash Credit: The Assessing Officer (AO) treated the receipt of sale consideration from the shares as unexplained cash credit under Section 115BBE of the Income Tax Act, 1961. The AO made several observations to support this treatment: - Initial allotment of shares was generally through preferential allotment. - Market price of shares rose significantly within a year. - Trading volume during the price manipulation period was thin. - Most investors received their initial investment back in cash, with only a small amount retained as security. - Many companies involved had no business or credentials to justify the sharp rise in market prices. - The price rise was not supported by company fundamentals or genuine factors. - Common persons/entities were involved in trading across multiple LTCG companies. - Names of LTCG companies were often changed during the scam period. - Shares were split to avoid market analysts' scrutiny. - Trade volume spiked when market prices reached levels ensuring LTCG eligibility. - Common buyers, often paper companies, were involved in buying inflated shares. - Share prices fell sharply after LTCG beneficiaries offloaded shares to short-term loss seekers or dummy entities. - Shares were not available for trade outside the syndicate, ensured by synchronized trading or exchange mechanisms. 2. Validity and Genuineness of the Assessee's Claim of Exemption on Long-Term Capital Gains: The First Appellate Authority upheld the AO's order, finding the entire transaction to be an accommodation for bogus LTCG to claim exempt income. The Appellate Authority noted: - Direct evidence indicated the transaction was merely an accommodation. - SEBI investigations led to the suspension of certain scrips due to abnormal price increases. - The assessee's elaborate documentation (e.g., share applications, allotments, certificates, payment proofs, amalgamation proof, bank statements, and broker instructions) was deemed part of a pre-planned scheme with malafide intentions and not genuine evidence. - Transactions were considered unnatural and highly suspicious, with grave doubts about the assessee's story. The Tribunal, however, found that the AO relied on general observations without controverting the specific evidence provided by the assessee, such as bills, contract notes, bank statements, broker ledger accounts, and Demat statements. The Tribunal cited several decisions from the Kolkata Bench of the ITAT and the Hon'ble Jurisdictional High Court, which had ruled in favor of the assessee in similar cases. Key points included: - Legal evidence should guide decisions rather than general observations or suspicions. - Each case must be assessed based on specific evidence, not generalized modus operandi. - The burden of proving a transaction as bogus rests on the party alleging it. - Evidence from third parties must be presented to the assessee for cross-examination. - Transactions supported by proper documentation and banking channels cannot be rejected based on suspicion alone. The Tribunal concluded that the AO failed to bring specific evidence against the assessee and relied on conjectures and surmises. The Tribunal emphasized the principles of natural justice, including the right to cross-examine witnesses and the necessity of concrete evidence to support allegations. Consequently, the Tribunal deleted the addition made under Section 68 of the Act and the consequential addition under Section 69C, allowing the assessee's appeals. Conclusion: The Tribunal's judgment highlights the importance of concrete evidence and adherence to principles of natural justice in tax assessments. General observations and suspicions are insufficient to reject claims of genuine transactions supported by proper documentation and banking channels. The Tribunal's decision underscores the necessity for the revenue authorities to provide specific evidence and allow cross-examination to substantiate allegations of bogus transactions.
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