2018 (7) TMI 2161 - HC - Income Tax

Bogus LTCG - companies in which the investment was made were bogus - disallowance made on account of legal expenses relating to bogus share transaction - HELD THAT - As decided in Commissioner of Income Tax vs. Smt. Pooja Agarwal 2017 (9) TMI 1104 - RAJASTHAN HIGH COURT AO has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all the material facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker were non-genuine or there was any adverse mention about the transaction in question . Simply because in the sham transactions bank a/c were opened and the appellant has also received short term capital gain in his account with that bank does not establish that the transaction made by the appellant were non genuine - denying the claim of short term capital gain made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant - Decided in favour of the assessee

Summary

Issues Involved:
- Whether the Tribunal was justified in deleting the addition of Long Term Capital Gain made by the Assessing Officer on the grounds of bogus companies and transactions?
- Whether the Tribunal was justified in deleting the addition of commission and legal expenses related to bogus share transactions as made by the Assessing Officer?
- Whether the decision of the court in a related case is applicable to the current appeals?

Analysis:

Issue 1: Long Term Capital Gain Addition
The appellant challenged the Tribunal's decision to delete the addition of Long Term Capital Gain made by the Assessing Officer. The Tribunal found that the transactions were genuine based on documentary evidence provided by the appellant. The Assessing Officer had treated the amount as undisclosed income, alleging that the transactions were accommodation entries to convert black money into white. However, the Tribunal and CIT(A) disagreed, stating that the transactions were supported by documents like contract notes, demat account details, and payments through a/c payee cheques. They found no evidence of cash going back into the appellant's account, and the transactions appeared genuine. The court upheld the Tribunal's decision, stating that the appellant's transactions could not be deemed non-genuine based on the evidence presented.

Issue 2: Commission and Legal Expenses
The appellant also contested the deletion of additions for commission and legal expenses related to the bogus share transactions. The Tribunal and CIT(A) found the transactions to be genuine based on the evidence provided, including details of transactions, demat account information, and payments through legitimate channels. They noted that the Assessing Officer failed to counter the appellant's objections during the assessment proceedings and did not provide independent inquiry or material to prove the transactions were non-genuine. The court upheld the decision to delete these additions, as the transactions were supported by documentation and appeared genuine.

Issue 3: Applicability of Related Case
The court referred to a previous decision involving similar issues to determine the current appeals. The court found that the Tribunal and CIT had correctly analyzed the facts and evidence in the present case, similar to the previous case. As a result, the court held that no substantial question of law arose, and the appeals were dismissed in favor of the assessee based on the decisions of the Tribunal and CIT.

In conclusion, the court upheld the Tribunal's decision to delete the additions of Long Term Capital Gain, commission, and legal expenses related to the bogus share transactions. The court found that the transactions were supported by evidence and genuine, based on the documentation provided by the appellant.