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2019 (5) TMI 1845 - AT - Income TaxBogus LTCG - Addition u/s 68 - Bogus transaction of shares - addition based on statement made in survey - assessee pleaded that in an online platform, there would be no nexus between the purchasers and the seller and the delivery of shares and payments would be made through their respective stock brokers - as argued AO ought to have summoned the assessee s brokers to examine the authenticity of the sale of shares of GIFL and the amount received on sale of shares - HELD THAT - We find that the revenue had merely disbelieved the entire documentary evidences on record and alleged the share sale transactions made in the open market as bogus based on the statements recorded during survey, which does not have any evidentiary value. The materials found in the course of survey could not be the basis for making any addition in the assessment. The word may used in section 133A(3)(iii) makes it clear that the material collected and statement recorded during the survey u/s 133A of the Act are not conclusive piece of evidences by itself. Statements were never subjected to any cross examination by the assessee despite the request made by the assessee in this regard, which has been summarily rejected by the ld AO. This fact is also recorded by the ld AO in his assessment order. Hence in these circumstances, we hold that no addition could be made merely based on the statements recorded during survey. One more excruciating factor which goes in favour of the assessee is that the assessee had sold only 883000 shares out of 2000000 shares held by him and the remaining shares were retained by the assessee. Hence the allegations leveled on the assessee that assessee had converted his unaccounted money in the form of long term capital gains claimed as exempt does not hold water . Even these 883000 shares were sold after holding the same for a substantial minimum period of 26 months by the assessee from the date of its purchase. Moreover, when the purchase of shares made by the assessee has been accepted as genuine which was done in Asst Year 2013-14, the sale of the very same shares in part in Asst Year 2014-15 in open market at prevailing market prices after suffering STT should not be doubted. Merely because the assessee himself is engaged in independent manufacturing business , it cannot be said that all his investment decisions would be prudent and would be done only after analyzing the entire fundamentals and financials of the investee company. It is in everybody s knowledge, that an investor would try to take calculated risks by investing his money on an unknown scrip based on certain information from friends, relatives, or in some stock market related websites and take a chance. Since the scrip purchased by the assessee was showing considerable growth from the time of purchase, the assessee being a gullible investor, continued to hold it for a period of 26 months and later sold it in open market in online platform at prevailing market prices. CIT-A was not justified in upholding the action of the ld AO in bringing the sale proceeds of shares of GIFL as unexplained income of the assessee treating the same as just an accommodation entry. Consequentially, the addition made towards commission on such accommodation entry at the rate of 5% is also hereby directed to be deleted. Accordingly, the grounds raised by the assessee are allowed.
Issues Involved:
1. Whether the CIT(A) was justified in upholding the AO's action of treating the sale consideration of shares as bogus and denying the exemption claimed by the assessee under Section 10(38) of the Income Tax Act. 2. Whether the CIT(A) was justified in confirming the addition made under Section 69C towards commission on sale proceeds of shares. Issue-wise Detailed Analysis: 1. Bogus Sale Consideration and Denial of Exemption under Section 10(38): The primary issue revolves around whether the sale consideration of shares amounting to ?7,88,77,854/- should be treated as bogus, and consequently, whether the exemption claimed under Section 10(38) of the Income Tax Act should be denied. The assessee, an individual partner in a firm, declared a total income of ?44,47,430/- for the assessment year 2014-15, which included a long-term capital gain of ?7,75,53,354/- from the sale of shares, claimed as exempt under Section 10(38). The shares were purchased from M/s Global Infratech & Finance Ltd (GIFL) and sold through registered brokers on the Bombay Stock Exchange after paying Securities Transaction Tax (STT). The AO treated the sale proceeds as unexplained income under Section 68, relying on statements from third-party surveys, price movements of GIFL shares, and financial analysis of GIFL. The AO's action was upheld by the CIT(A). The Tribunal noted that the assessee provided comprehensive documentation to substantiate the purchase and sale of shares, including bank statements, demat account statements, and contract notes. The Tribunal emphasized that the AO did not summon the brokers involved in the transactions to verify the authenticity. Moreover, there was no evidence linking the assessee to any manipulation or accommodation entries. The Tribunal highlighted that the SEBI had not passed any adverse orders against GIFL, and the revenue and profitability of GIFL during the relevant years supported the genuineness of the transactions. The Tribunal also noted that the AO's reliance on third-party statements without providing the assessee an opportunity for cross-examination violated principles of natural justice. The Tribunal referenced several judicial precedents, including decisions from the Kolkata Tribunal and the Hon'ble Supreme Court, emphasizing that suspicion, conjecture, and statements from third parties without cross-examination cannot form the basis for additions. The Tribunal concluded that the purchase and sale of shares were genuine and directed the deletion of the addition made under Section 68. 2. Addition under Section 69C for Commission on Sale Proceeds: The interconnected issue was whether the addition of ?39,43,893/- under Section 69C towards alleged commission on sale proceeds was justified. The AO made this addition based on an assumed commission rate of 5% on the sale proceeds, treating it as an unexplained expenditure. The CIT(A) upheld this addition. The Tribunal found that the AO's assumption of commission was based on conjecture without any concrete evidence. The Tribunal reiterated that the entire transaction was genuine and documented, and there was no basis for assuming any commission payment. The Tribunal directed the deletion of the addition made under Section 69C, aligning with its findings on the primary issue. Conclusion: The Tribunal allowed the appeal of the assessee, holding that the CIT(A) was not justified in upholding the AO's action of treating the sale consideration of shares as bogus and denying the exemption under Section 10(38). Consequently, the addition under Section 69C for commission was also deleted. The Tribunal emphasized adherence to principles of natural justice and reliance on concrete evidence rather than suspicion and conjecture.
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