2019 (7) TMI 1604 - AT - Income Tax

Addition u/s 68 - Bogus LTCG on sale of shares - HELD THAT - When the assessee has produced all the relevant documentary evidences to establish the genuineness of the transaction and there is no contrary evidence to doubt the correctness of the evidences produced by the assessee then treating the transaction of purchase and sale as sham by the AO is not justified. The assessee has also produced the financial statements of M/s. Kailash Auto Finance Ltd. to show that the company has earned a handsome profit - alleged SEBI order was also subsequently revoked. Therefore, all these facts established the genuineness of the transaction. Hence we do not find any error or illegality in the order of the ld. CIT (A) in deleting the addition made by the AO under section 68 of the IT Act by treating the Long Term Capital Gain on sale of shares as unexplained cash credit. - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition made on account of unexplained credit under Section 68 of the Income Tax Act.
2. Justification of treating the transaction as genuine based on its execution through the stock exchange and payment by cheque.
3. Deletion of addition made on account of commission for acquiring accommodation entry.
4. Consideration of corroborative information from the Investigation Wing, Kolkata.

Detailed Analysis:

1. Deletion of Addition Made on Account of Unexplained Credit under Section 68 of the Income Tax Act:
The core issue revolves around the assessee's purchase and sale of shares, resulting in a significant long-term capital gain, which was claimed as exempt under Section 10(38) of the Income Tax Act. The Assessing Officer (AO) treated this gain as a sham transaction based on a report from the Investigation Wing, Kolkata. The AO’s basis for this conclusion included statements from individuals admitting to providing accommodation entries for Long Term Capital Gain (LTCG). However, the CIT (A) deleted the addition, emphasizing that the assessee had provided substantial documentary evidence, including purchase bills, dematerialization records, and bank statements reflecting the transactions. The Tribunal upheld the CIT (A)'s decision, noting that the AO did not bring any concrete evidence to counter the documentary evidence provided by the assessee.

2. Justification of Treating the Transaction as Genuine Based on its Execution through the Stock Exchange and Payment by Cheque:
The Tribunal noted that the transactions were executed through the stock exchange and payments were made via cheque, which are considered legitimate methods. The shares were purchased from M/s. Sanskriti Vincom Pvt. Ltd. and later merged with M/s. Kailash Auto Finance Ltd. The shares were dematerialized and sold through a registered broker, with the sale proceeds credited to the assessee’s bank account. The Tribunal emphasized that the AO failed to disprove the authenticity of these documents or to establish that the transactions were not genuine. It was highlighted that the SEBI had later revoked its interim order against the company, further supporting the genuineness of the transactions.

3. Deletion of Addition Made on Account of Commission for Acquiring Accommodation Entry:
The AO had also added an amount of ?1,51,869/- as commission allegedly paid for acquiring the accommodation entry. The CIT (A) deleted this addition, and the Tribunal upheld this decision, stating that the AO did not provide any evidence to show that the assessee had paid such commission. The Tribunal reiterated that without concrete evidence, the addition could not be justified.

4. Consideration of Corroborative Information from the Investigation Wing, Kolkata:
The AO relied heavily on the statements and reports from the Investigation Wing, Kolkata, which suggested that the transactions were part of a larger scheme of providing accommodation entries. However, the Tribunal pointed out that these statements did not specifically implicate the assessee or the transactions in question. The Tribunal stressed that the AO did not offer the assessee an opportunity to cross-examine the individuals who made these statements, which is a violation of the principles of natural justice. The Tribunal cited several judicial precedents to support the view that without direct evidence against the assessee, the reliance on third-party statements was insufficient to justify the additions.

Conclusion:
The Tribunal concluded that the AO's findings were based on suspicion and surmises without substantial evidence. The documentary evidence provided by the assessee, including purchase bills, dematerialization records, and bank statements, were sufficient to establish the genuineness of the transactions. The Tribunal upheld the CIT (A)'s decision to delete the additions made by the AO under Section 68 of the Income Tax Act and the alleged commission for acquiring accommodation entry. The appeal by the revenue was dismissed.

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