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2018 (7) TMI 2028 - AT - Income TaxBogus LTCG and STCG - unexplained cash credit u/s 68 - HELD THAT - This case are same as the facts and circumstances of the cases of Navneet Agarwal 2018 (8) TMI 509 - ITAT KOLKATA , we delete the addition made u/s 68 on account of sale of shares in the case of both the assessee. The consequential addition u/s 69C is also deleted. Accordingly both the appeals of the assessee are allowed.
Issues Involved:
1. Examination of long-term capital gains (LTCG) from sale of shares. 2. Treatment of income from alleged suspicious transactions in penny stocks. 3. Application of Section 68 of the Income Tax Act for unexplained cash credits. 4. Application of Section 69C for undisclosed expenditure. 5. Principles of natural justice and the right to cross-examination. Detailed Analysis: 1. Examination of Long-Term Capital Gains (LTCG) from Sale of Shares: The assessee declared LTCG from the sale of shares of SRK Industries Ltd., claiming an exemption under Section 10(38) of the Income Tax Act. The Assessing Officer (AO) scrutinized these transactions due to their suspicious nature, as indicated by the Investigation Wing. The AO observed that the shares were purchased off-market for ?7,500 and later sold at ?5,57,658, resulting in a substantial gain. 2. Treatment of Income from Alleged Suspicious Transactions in Penny Stocks: The AO concluded that the LTCG claimed by the assessee was from transactions in penny stocks, which were flagged as suspicious. The AO's detailed order indicated that the transactions were not genuine and were part of a modus operandi to introduce unaccounted money into the banking system through the sale of shares. 3. Application of Section 68 of the Income Tax Act for Unexplained Cash Credits: The AO added ?5,57,658 to the assessee's income as unexplained cash credit under Section 68 of the Income Tax Act. The AO's rationale was that the amount introduced through the sale of shares was not satisfactorily explained by the assessee and thus treated as unexplained cash credit, taxable at the rate of 30% under Section 115BBE. 4. Application of Section 69C for Undisclosed Expenditure: Additionally, the AO made an addition of ?27,508 under Section 69C of the Income Tax Act, representing 5% of the alleged bogus LTCG, as undisclosed expenditure. This was based on the assumption that the assessee incurred certain expenses to facilitate these transactions, which were not disclosed. 5. Principles of Natural Justice and the Right to Cross-Examination: On appeal, the First Appellate Authority classified these transactions as 'suspicious' and confirmed the AO's order. However, the Tribunal, referencing the case of Navneet Agarwal vs. ITO, emphasized the importance of adhering to principles of natural justice. It highlighted that specific evidence produced by the assessee was not adequately countered by the revenue authorities. The Tribunal underscored the necessity for the AO to provide the assessee with an opportunity for cross-examination of third-party statements and evidence relied upon by the revenue. The Tribunal observed that the revenue's reliance on general modus operandi and probabilities without concrete evidence against the specific assessee was insufficient. It reiterated that suspicion, however strong, cannot replace legal evidence. The Tribunal cited several judgments, including those from the Hon'ble Supreme Court, emphasizing that additions cannot be made based on conjectures and surmises. Conclusion: The Tribunal concluded that the AO failed to bring on record any material evidence to prove that the transactions were collusive or bogus. As a result, the Tribunal accepted the evidence furnished by the assessee, holding that the income in question was indeed LTCG from the sale of shares and thus exempt from income tax under Section 10(38). Consequently, the additions made under Sections 68 and 69C were deleted, and the appeal of the assessee was allowed. Summary: The Tribunal allowed the appeal of the assessee, emphasizing the need for concrete evidence to support allegations of bogus transactions. It underscored the importance of adhering to principles of natural justice, including the right to cross-examination, and rejected the revenue's reliance on general observations and probabilities without specific evidence against the assessee. The additions made under Sections 68 and 69C were deleted, affirming the assessee's claim of exemption for LTCG under Section 10(38).
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