2019 (7) TMI 1514 - AT - Income Tax

Bogus LTCG - HELD THAT - The evidences put forth by the Revenue regarding the entry operation fairly leads to a conclusion that the assessee is one of the beneficiaries of the accommodation entry receipts in the form of long-term capital gains. The assessee has failed to prove that the share transactions are genuine and could not furnish evidences regarding the sale of shares except the copies of the contract notes, cheques received against the overwhelming evidences collected by the Revenue regarding the operation of the entire affairs of the assessee. This cannot be a case of intelligent investment or a simple and straight case of tax planning to gain benefit of long-term capital gains. The earnings @ 491% over a period of 5 months is beyond human probability and defies business logic of any business enterprise dealing with share transactions. The net worth of the company is not known to the assessee. Even the brokers who coordinated the transactions were also unknown to the assessee. All these facts give credence to the unreliability of the entire transaction of shares giving rise to such capital gains. Though the assessee has received the amounts by way of account payee cheques, the transactions cannot be treated as genuine in the presence of the overwhelming evidences put forward by the Revenue. The fact that in spite of earning such steep profits, the assessee never ventured to involve himself in any other transaction with the broker cannot be a mere coincidence of lack of interest. Profits earned by the assessee are a part of major scheme of the accommodation entries we, hereby decline to interfere in the order of the ld. CIT(A). Appeal of the assessee is dismissed.

Issues Involved:
1. Genuineness of Long-Term Capital Gains (LTCG) on sale of shares.
2. Denial of exemption claimed under Section 10(38) of the Income Tax Act.
3. Addition of ?73,77,806 under Section 68 of the Income Tax Act.
4. Failure to provide cross-examination of persons whose statements were used against the assessee.
5. Reliance on assumptions and presumptions for making the addition.

Issue-Wise Detailed Analysis:

1. Genuineness of Long-Term Capital Gains (LTCG) on Sale of Shares:
The assessee declared LTCG of ?73,77,806 from the sale of shares and claimed it as exempt under Section 10(38). The Assessing Officer (AO) added this amount under Section 68, questioning the genuineness of the transactions based on investigations by the Revenue department at Kolkata. The assessee provided various documents to support the genuineness, including the purchase details, dematerialization records, and sale contracts. However, the AO found inconsistencies and noted that the financials of the company (Cressanda Solutions Ltd.) did not support such high gains, indicating the transactions were non-genuine.

2. Denial of Exemption Claimed Under Section 10(38) of the Income Tax Act:
The assessee argued that the shares were purchased through a banking channel and held for more than 12 months before being sold, thus meeting the conditions for exemption under Section 10(38). Despite providing evidence of the purchase, dematerialization, and sale, the AO and CIT(A) denied the exemption, citing the non-genuine nature of the transactions and the lack of substantial financial growth in the company to justify such high gains.

3. Addition of ?73,77,806 Under Section 68 of the Income Tax Act:
The AO added ?73,77,806 to the assessee's income under Section 68, which deals with unexplained cash credits. The AO highlighted the improbability of earning a 4910% profit in a short period and the lack of any subsequent investment transactions by the assessee. The CIT(A) upheld this addition, and the ITAT found the assessee's explanations unsatisfactory, reinforcing the AO's decision.

4. Failure to Provide Cross-Examination of Persons Whose Statements Were Used Against the Assessee:
The assessee contended that the findings were based on statements from third parties without providing an opportunity for cross-examination. The ITAT referred to various judgments, including Prem Castings Pvt. Ltd., and concluded that the absence of cross-examination did not invalidate the addition, given the substantial corroborative evidence against the assessee.

5. Reliance on Assumptions and Presumptions for Making the Addition:
The assessee argued that the addition was based on assumptions and lacked cogent material. However, the ITAT found that the AO's conclusions were supported by detailed investigations and financial analysis of Cressanda Solutions Ltd., which revealed it as a penny stock company with negligible operations and revenue. The ITAT emphasized the need to look beyond the surface and consider the overall conduct and surrounding circumstances, as per the judgments in cases like Nipun Builders and Developers Pvt. Ltd. and NR Portfolio.

Conclusion:
The ITAT upheld the addition of ?73,77,806 under Section 68 and denied the exemption under Section 10(38), concluding that the transactions were non-genuine and part of an accommodation entry scheme. The appeal of the assessee was dismissed, affirming the orders of the lower authorities. The decision was based on substantial evidence and aligned with various judicial pronouncements, reinforcing the need for genuine and credible transactions to claim tax exemptions.

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