2019 (1) TMI 1869 - AT - Income Tax

Bogus LTCG - unexplained credit u/s.68 - denial of exemptions claimed u/s 10(38) - HELD THAT - In the identical facts and circumstances, the Hon ble ITAT Ahmedabad in the case of Ketulkumar D.Jaiswal 2017 (10) TMI 168 - ITAT AHMEDABAD decided issue in favour of assessee stating that no direct or material evidence against the assessee to hold that the share transactions were not genuine - additions made by the AO u/s.68 are not warranted and are accordingly deleted. In this case, transaction are made for the D-mat account and STT has also been paid. Assessee has sold his shares to authorized stock exchange and received Invoice duly paid STT on his selling shares. In our opinion, the order of the CIT(A) is not sustainable. - Decided in favour of assessee.

Summary

Issues Involved:
1. Treatment of Long Term Capital Gain (LTCG) as income from other sources.
2. Validity of assessment under section 143(3) read with section 147 beyond the period of limitation.

Issue-wise Detailed Analysis:

1. Treatment of Long Term Capital Gain (LTCG) as income from other sources:

The primary issue in the appeal was whether the LTCG amounting to ?5,26,461/- should be treated as income from other sources, thereby denying the exemption claimed under section 10(38) of the Income Tax Act. The assessee claimed the LTCG on the sale of shares of M/s Talent Infoway Limited, which was executed through Mahasagar Group of companies. The Assessing Officer (AO) contended that the LTCG was not genuine, based on a search operation and statements from Mukesh M. Chokshi, the director of the Mahasagar Group, who admitted to providing accommodation entries for LTCG and share premiums. The AO noted that the shares were dematerialized in May 2006, which contradicted the assessee's claim of purchasing them in 2004. Consequently, the AO treated the LTCG as income from undisclosed sources.

The assessee argued that the shares were purchased physically in 2004 and later transferred to a DMAT account before being sold through an authorized member of the Stock Exchange. The assessee provided supporting documents, including contract notes and bills. However, the AO doubted the genuineness of the transactions due to the delay in dematerialization and the non-compliance with SEBI guidelines.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the cross-examination of Mukesh M. Chokshi would not yield new findings and the contract notes were bogus. The assessee's appeal to the Income Tax Appellate Tribunal (ITAT) was based on similar cases where the ITAT had ruled in favor of the assessee, recognizing the genuineness of the transactions and allowing the LTCG exemption.

The ITAT, referencing previous judgments, observed that the transactions were genuine, supported by broker's contract notes, and the demat account records. The Tribunal noted that there was no direct evidence against the assessee to suggest that the transactions were not genuine. Consequently, the ITAT allowed the appeal, directing the AO to treat the surplus as LTCG and grant the exemption under section 10(38).

2. Validity of assessment under section 143(3) read with section 147 beyond the period of limitation:

The second issue raised by the assessee was the validity of the assessment made under section 143(3) read with section 147, arguing that it was completed beyond the period of limitation specified in section 153 of the Act. However, this issue was not elaborated upon in the judgment, as the primary focus was on the treatment of LTCG.

Conclusion:

The ITAT allowed the appeals of the assessee, concluding that the transactions were genuine and the LTCG should be treated as such, granting the exemption under section 10(38). The Tribunal's decision was consistent with previous judgments in similar cases, emphasizing the lack of direct evidence against the assessee and the validity of the supporting documents provided. The appeals for the other two assessees (Ashish D. Jaiswal and Jigna D. Jaiswal) were also allowed on identical grounds.