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2018 (5) TMI 2073 - AT - Income TaxBogus LTCG - Addition u/s 68 - sale proceeds of shares of Sulabh Engineering and Services Ltd. treated as income from undisclosed sources - HELD THAT - Scrips / equity shares of M/s Sulabh Engineering and Services Ltd. has been dealt with by the SMC Bench of this Tribunal in the case of Vasudha Jain 2019 (2) TMI 1136 - ITAT KOLKATA wherein the SMC Bench of this Tribunal held that addition has been made by AO mainly on the basis of suspicion and probability . No price rigging established by AO - AO as well as ld CIT(A), were guided by the report of the Investigation Wing, which is general in nature and no specific findings for the assessee, and hence based on these facts the SMC Bench deleted the addition - Decided in favour of assessee.
Issues Involved:
1. Addition under Section 68 of the Income Tax Act for sale proceeds of shares. 2. Treatment of transactions in shares as bogus and addition under Section 69C for presumed commission payments. Issue-wise Detailed Analysis: 1. Addition under Section 68 of the Income Tax Act for Sale Proceeds of Shares: The primary issue was whether the sale proceeds of shares amounting to ?1,12,13,010/- should be treated as income from undisclosed sources under Section 68 of the Income Tax Act, 1961. The assessee claimed these proceeds as Long Term Capital Gains (LTCG) and sought exemption under Section 10(38) of the Act. The Assessing Officer (AO) rejected this claim, suspecting that the transactions were part of a pre-designed scheme to convert black money into white through artificially rigged share prices. The AO's suspicion was based on a report from the Directorate of Investigation, which indicated that certain penny stocks were manipulated to provide tax-exempt LTCG. The AO concluded that the assessee's transactions in shares of Sulabh Engineering and Services Ltd. were bogus and added the sale proceeds to the assessee's income under Section 68. 2. Treatment of Transactions in Shares as Bogus and Addition under Section 69C for Presumed Commission Payments: The AO also added ?56,065/- under Section 69C, presuming that the assessee paid commission at 0.5% for arranging the bogus LTCG. This addition was based on the assumption that commission payments were made to facilitate the alleged accommodation entry scam. The AO's decision was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], prompting the assessee to appeal to the ITAT. Appellant's Arguments: The assessee's counsel argued that the transactions were genuine and supported by substantial evidence, including contract notes, bank statements, NSDL statements, and other relevant documents. The counsel contended that the AO's addition was based on mere suspicion and general reports without specific adverse material against the assessee. Respondent's Arguments: The Departmental Representative (DR) supported the AO's findings, emphasizing that the transactions were accommodation entries designed to avoid tax. The DR highlighted that the AO had carefully analyzed the information from the Investigation Wing and SEBI's actions against abnormal price increases in certain stocks. Tribunal's Findings: The ITAT noted that the assessee had provided comprehensive evidence to support the genuineness of the transactions. The Tribunal observed that the AO's addition was primarily based on suspicion without concrete evidence. It was highlighted that similar cases had been decided in favor of the assessee by the ITAT, where additions were deleted due to lack of specific findings and reliance on general reports. The Tribunal referenced the case of Vasudha Jain, where the ITAT had deleted similar additions, stating that the AO's conclusions were based on suspicion and not supported by concrete evidence. The Tribunal also cited various judgments emphasizing that the burden of proving a transaction as bogus lies with the revenue authorities, which must be discharged with definite evidence, not mere suspicion. Conclusion: The ITAT concluded that the assessee's transactions were genuine and the additions made by the AO were unjustified. The Tribunal deleted the addition of ?1,12,13,010/- under Section 68 and the consequential addition of ?56,065/- under Section 69C. The appeal of the assessee was allowed, and the order was pronounced in the open court on 10.05.2019.
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