2019 (1) TMI 1900 - AT - Income Tax

Bogus LTCG - Addition u/s 68 - Bogus Long-Term Capital Gain earned at listed equity shares sold through Bombay Stock Exchange after payment by Security Transaction Tax, on the ground that it is a case of penny stock - HELD THAT - As seen nowhere there is any evidence or information gathered during the course of any investigation or inquiry either from the broker or from the company M/s. Kappac Pharma Ltd. that assessee is beneficiary of any accommodation entry or has routed his own unaccounted money in the garb of fictious Long-Term Capital Gain. The entire addition has been made on hypothesis from general modus operandi adopted by various entry operators for providing accommodation entry in Long Term Capital Gain. Here, in this case, there is no reference of any entry provider or any information that the assessee has paid any unaccounted money for getting such kind of an accommodation entry. Once the nature of transaction is dealing in shares and source of the credit appearing in the bank account is from sale of shares, then without any contrary material to show that such credit in the bank account is bogus or non-genuine, then said credit cannot be deemed to be income of the assessee. Though such a phenomenal rise of the shares in a span of 18 months do raises lot of suspicion, but howsoever strong suspicion may be, there has to be some kind of an evidence or information that assessee was involved in some kind of bogus or sham transaction, either by himself or through some entry provider. There is no whisper in the assessment order or appellate order that any action has been taken by SEBI against M/s. Kappac Pharma or they have been found to be rigging the price in the stock exchange. Once a listed share which is regularly traded in the recognized stock exchange at quoted price and the sale of share is recorded in the stock exchange and sale proceeds of the said share has been credited in the bank account, then source of credit stands proved. Simply because the price of the scrip has risen manifold cannot per se be the ground to hold that credit in bank account of the assessee is unexplained . If there is some undisclosed or unexplained money which has been routed through some suspicious channel then that has to be some evidence or trail brought on record so as to nail the assessee. General modus operandi of the entry providers cannot be the basis for making the addition in each and every case in absence of any specific information or material that such person is beneficiary of accommodation entry or any kind of scam or is part of that modus operandi. Appeal of the assessee is allowed.

Summary

Issues Involved:
Challenge to addition of ?6,80,000 made u/s.68 by disallowing claim of exemption u/s.10(38) in respect of Long-Term Capital Gain earned at listed equity shares sold through Bombay Stock Exchange.

Detailed Analysis:
1. Background and Facts: The assessee purchased shares of a company at face value, later sold them at a significant profit. The assessing officer raised concerns over the substantial return earned in a short period, lack of prior share trading activity, and suspicious nature of the company's financials.

2. AO's Observations: The AO noted suspicious activities related to the company's equity capital, lack of tangible assets, and absence of business activity. Referring to general modus operandi of Long-Term Capital Gain Schemes, the AO added the amount to the assessee's income u/s.68.

3. CIT(A)'s Decision: The CIT(A) upheld the addition, citing irregularities in the off-market share purchase, abnormal appreciation in share value, and lack of financial prudence in the company's operations.

4. Assessee's Defense: The assessee provided various documents to prove the genuineness of the transaction, including share certificates, transfer deeds, payment receipts, Demat account details, and sale contract notes. The counsel argued that the shares were sold through a recognized stock exchange, and the sale proceeds were credited to the bank account.

5. Judicial Analysis: The Tribunal analyzed the evidence presented by the assessee, highlighting the physical possession of shares, sale through a recognized stock exchange, payment of STT, and crediting of sale proceeds to the bank account. The Tribunal emphasized the absence of concrete evidence linking the transaction to accommodation entries or sham dealings.

6. Decision and Rationale: The Tribunal ruled in favor of the assessee, emphasizing the lack of evidence indicating bogus transactions or involvement in any scam. Despite suspicions raised by the significant share price rise, the Tribunal stressed the need for specific evidence to deem the credit as unexplained income. The Tribunal concluded that without contrary material, the addition u/s.68 was unjustified, and directed its deletion.

7. Conclusion: The Tribunal allowed the assessee's appeal, emphasizing the importance of concrete evidence in establishing the genuineness of transactions and rejecting additions based solely on suspicions or general modus operandi of fraudulent schemes.