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2019 (3) TMI 1626 - AT - Income TaxBogus LTCG - unexplained cash credits u/s 68 - HELD THAT - The assessee has successfully proved genuineness of the share profits in issue claimed as LTCG u/s 10(38) of the Act. We accordingly direct the Assessing Officer to delete the impugned addition as unexplained cash credits u/s 68 of the Act. Commission expense disallowance; if any shall also follow suit as a necessary corollary. See SANJAY MEHTA VERSUS ACIT, KOLKATA 2018 (10) TMI 187 - ITAT KOLKATA - Decided in favour of assessee.
Issues Involved:
1. Treatment of Long Term Capital Gains (LTCG) as unexplained cash credits under Section 68 of the Income Tax Act, 1961. 2. Validity of the reassessment proceedings under Sections 143(3) and 147 of the Income Tax Act, 1961. Detailed Analysis: 1. Treatment of Long Term Capital Gains (LTCG) as unexplained cash credits under Section 68 of the Income Tax Act, 1961: The primary issue in these appeals was whether the LTCG claimed by the assessees should be treated as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The assessees had reported LTCG from the sale of shares, which they claimed to be exempt under Section 10(38) of the Act. The Assessing Officer (AO) disallowed the exemption, treating the LTCG as bogus and added the amount back to the income of the assessees. The AO's decision was based on information received from the Directorate of Income Tax (Investigation), Kolkata, which identified certain companies as "penny stocks" involved in bogus LTCG scams. The AO noted that the trading pattern of these stocks showed a bell-shaped curve, indicating price manipulation. The AO also pointed out that the companies involved had no significant financial credentials to support the rapid increase in share prices. The AO concluded that the transactions were arranged to provide bogus LTCG to the assessees. During the appellate proceedings, the assessees submitted various documents to support the genuineness of the transactions, including purchase bills, share certificates, bank statements, and demat statements. They also cited several judicial precedents to argue that the AO had erred in treating the LTCG as bogus. The appellate authority, however, upheld the AO's decision, stating that the transactions were not natural and lacked genuine business purposes. The appellate authority emphasized that the rapid increase in share prices without any substantial business activity indicated that the transactions were arranged to generate bogus LTCG. 2. Validity of the reassessment proceedings under Sections 143(3) and 147 of the Income Tax Act, 1961: The assessees also challenged the validity of the reassessment proceedings initiated by the AO. They argued that the AO did not provide any cross-examination of the individuals whose statements were used against them. They contended that the reassessment was based on a survey report prepared by the Investigation Department, which could not be used as evidence in their assessment proceedings. The appellate authority found that the AO had followed due process in reopening the assessment and provided sufficient opportunity to the assessees to present their case. The appellate authority noted that the AO had issued notices under Section 148 and provided the reasons for reopening the assessment. The objections filed by the assessees against the reopening were duly considered by the AO. Conclusion: The tribunal, after considering the submissions and evidence presented by both parties, concluded that the assessees had successfully proved the genuineness of the share transactions and the LTCG claimed under Section 10(38) of the Act. The tribunal emphasized that the AO's conclusions were based on general suspicions and conjectures without any concrete evidence to support the allegations of bogus transactions. The tribunal directed the AO to delete the additions made under Section 68 of the Act and allowed the appeals on merits. In summary, the tribunal's decision highlighted the importance of concrete evidence and due process in reassessment proceedings and the treatment of LTCG as unexplained cash credits. The tribunal's detailed analysis of the facts and reliance on judicial precedents provided a comprehensive resolution to the issues involved.
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