2018 (4) TMI 1620 - AT - Income Tax

Exemption u/s 10(38) - sale proceeds with respect to the said share transaction - Capital gain computation - Held that - Long term capital gains of ₹ 80,25,291/- within 17 months of buying of shares at ₹ 2,72,000/- of a non descript company incorporated in 2017 which got merged in 2009. This cannot be a case of intelligent investment or a simple case of tax planning to gain benefit of long term capital gains. The issue that it deals with and the facts are however, quite interesting. The in-congruencies found out by the Revenue that the investments were made on the advice of renowned investment advising company like Edelweiss for which the assessee has not paid any consultation fee leads to a conclusion that the entire transaction is synchronized and carefully planned only to defeat the purpose of revenue. The earnings @ 3072% over a period of 17 months breaks the ceiling of any record of return on investment which is beyond the human probability and beyond the business logics of any enterprise. The fact of purchase of shares of the company with such a higher premium of ₹ 328 per share, whose net worth was not known by the assessee and the company is not listed with any Exchange cuts no ice. Another important factor considered is that the assessee has made transaction with share broker Sh. S.M. Khemka banking channels and subsequent years still the assessee has made transaction in cash for the year under consideration accords credence to the non reliability of the entire transaction of shares giving rise to such capital gains. As coupled with the fact that the transfer of money in cash from Ludhiana to Delhi and a person representing the broker operating at Kolkata has collected the money at Delhi cannot be accepted. The tax authorities are entitled to look into the surrounding circumstances to find out the realities and the matter has to be considered by applying test of human probabilities as enunciated by the Honble Supreme Court. The fact that inspite of earning 3072% of profits, the assessee never ventured to involve himself in any other transactions with the broker which gave him even much lower profits during the period which cannot be a mere coincidence or lack of interest or absence of advice from the financial institutions as done earlier. - Decided against assessee.

Summary

Issues Involved:
1. Legitimacy of the Long Term Capital Gains (LTCG) claim under Section 10(38) of the Income Tax Act, 1961.
2. Validity of the addition of ?83,57,578/- as undisclosed income under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

1. Legitimacy of the Long Term Capital Gains (LTCG) Claim under Section 10(38) of the Income Tax Act, 1961:
The assessee claimed LTCG amounting to ?80,25,291/- as exempt under Section 10(38) from the total sale proceeds of ?83,57,578/- related to a share transaction. The shares were initially purchased from M/s Sharp Transport Limited (STL) and later merged into M/s Oasis Cine Communication Ltd. (OCL). The Assessing Officer (AO) doubted the genuineness of the purchase and sale of shares, suspecting the transactions to be fictitious. The AO's investigation revealed discrepancies such as the assessee being out of India during the alleged purchase period and the improbability of such high returns from a non-descript company. The AO noted that the transactions lacked credibility, particularly the cash payments to a Kolkata-based broker from Ludhiana, and the alleged purchase of shares was not satisfactorily explained.

2. Validity of the Addition of ?83,57,578/- as Undisclosed Income under Section 68 of the Income Tax Act, 1961:
The AO added the entire sale proceeds of ?83,57,578/- as undisclosed income under Section 68, citing the inability of the assessee to prove the genuineness of the transactions. The AO highlighted various inconsistencies, such as the lack of evidence for cash payments, the improbability of such high returns, and the absence of a credible source of the initial investment. The AO also noted that the assessee's explanations were unconvincing and the transactions appeared to be stage-managed to evade taxes.

Judgment Analysis:
The appellate tribunal upheld the AO's decision, agreeing that the assessee failed to prove the genuineness of the transactions. The tribunal noted that the assessee could not provide satisfactory evidence for the purchase of shares, the source of the investment, or the rationale behind the high returns. The tribunal emphasized the importance of human probability and surrounding circumstances in assessing the genuineness of transactions. The tribunal cited several judgments, including CIT v. Durga Prasad More and Sumati Dayal v. CIT, to support the view that the apparent must be considered real until proven otherwise, and the tax authorities are entitled to look into the surrounding circumstances to find out the reality of the transactions.

The tribunal also distinguished the cases cited by the assessee, noting that in those cases, the transactions were supported by credible evidence such as account payee cheques and demand drafts, whereas in the present case, the transactions were conducted in cash without satisfactory proof. The tribunal concluded that the entire transaction was synchronized and carefully planned to defeat the purpose of revenue, and the assessee's claims were not credible.

Conclusion:
The tribunal dismissed the appeal of the assessee, affirming the addition of ?83,57,578/- as undisclosed income under Section 68 and rejecting the claim of LTCG exemption under Section 10(38). The decision was based on the assessee's failure to prove the genuineness of the transactions, the improbability of such high returns, and the lack of credible evidence for the initial investment and cash payments.