2019 (6) TMI 1659 - AT - Income Tax

Addition u/s 68 - bogus STCL - Gain derived from rigging of the scrip prices in issue and involving accommodation entry in collusion with the concerned entry operators - as argued that the department has disallowed/added the impugned STCL based on circumstantial evidence unearthed after a series of search actions / investigations undertaken by the DDIT(Inv) - HELD THAT - The fact remains that the assessee has duly placed on record the relevant contract notes, share certificate(s), detailed corroborative documentary evidence indicating purchase / sale of shares through registered brokers by banking channel, demat statements etc., Revenue s only case as per its pleadings and both the lower authorities unanimously conclusion that there is very strong circumstantial evidence against the assessee suggesting bogus STCL accommodation entries. Find that there is not even a single case which could pin-point any making against these assessees which could be taken as a revenue nexus - we make it clear that the CBDT s circular dated 10.03.2003 has itself made it clear that mere search statements in the nature of admission in absence of supportive material do not carry weight - we notice that this tribunal s coordinate bench s decision in Mahavir Jhanwar vs. ITO 2019 (3) TMI 210 - ITAT KOLKATA has taken into consideration identical facts and circumstances as well as latest developments on legal side whilst deleting the similar bogus LTCG addition. Coupled with this, hon'ble jurisdictional high court s other decisions in CIT vs. Rungta Properties Pvt. Ltd. 2017 (6) TMI 521 - CALCUTTA HIGH COURT , CIT vs. Shreyahi Ganguly 2012 (9) TMI 1113 - CALCUTTA HIGH COURT , M/s Classic Growers Ltd 2013 (2) TMI 825 - CALCUTTA HIGH COURT also hold such transactions in scrips supported by the corresponding relevant evidence to be genuine. We adopt the above extracted reasoning mutatis mutandis therefore to delete the impugned STCL disallowance / addition. Unexplained commission expenditure disallowance, if any shall automatically follow suit as a necessary corollary. - Decided in favour of assessee.

Summary

Issues Involved:
1. Genuineness of Long Term Capital Gains (LTCG) and Long/Short Term Capital Loss (LTCL).
2. Treatment of LTCG/LTCL as unexplained cash credits under Section 68 of the Income Tax Act, 1961.
3. Analysis of circumstantial evidence and human probabilities in determining the nature of transactions.
4. Application of principles from judicial precedents and statutory interpretations.

Detailed Analysis:

1. Genuineness of Long Term Capital Gains (LTCG) and Long/Short Term Capital Loss (LTCL):
The primary issue in these appeals was the genuineness of LTCG/LTCL derived from the sale of shares held in various scrips. The assessees claimed these gains/losses as legitimate, supported by documentation such as share certificates, bank statements, and demat accounts. However, the Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] treated these transactions as pre-arranged and bogus, designed to create artificial gains/losses.

2. Treatment of LTCG/LTCL as unexplained cash credits under Section 68 of the Income Tax Act, 1961:
The AO and CIT(A) concluded that the sums involved in these transactions should be treated as unexplained cash credits under Section 68 of the Act. This conclusion was based on the analysis that the transactions were merely accommodation entries. The CIT(A) emphasized that despite elaborate documentation, the transactions were unnatural and highly suspicious, falling under the category of "suspicious transactions."

3. Analysis of circumstantial evidence and human probabilities in determining the nature of transactions:
The judgment heavily relied on circumstantial evidence and the principle of human probabilities. The CIT(A) and AO noted that the economic parameters of the companies involved did not justify the sharp rise and fall in share prices. They referred to various judicial precedents, including the Supreme Court's decisions in CIT vs. P. Mohankala and Sumati Dayal vs. CIT, which highlight the importance of surrounding circumstances and human conduct in assessing the genuineness of transactions. The CIT(A) concluded that the transactions were manipulated and did not reflect genuine market behavior.

4. Application of principles from judicial precedents and statutory interpretations:
The judgment referenced multiple judicial precedents to support its conclusions. Notable cases included CIT vs. Durga Prasad More, where the Supreme Court emphasized the need to look beyond self-serving recitals in documents, and the principle that the burden of proof lies on the assessee to establish the genuineness of transactions. The CIT(A) also cited decisions that upheld the use of circumstantial evidence and the importance of human probabilities in tax assessments. The judgment stressed that the AO is both an investigator and an adjudicator, and must verify factual assertions when in doubt.

Conclusion:
The Tribunal, after considering the detailed arguments and evidence presented, found no merit in the Revenue's arguments. It held that the assessees had provided sufficient documentary evidence to support the genuineness of their transactions. The Tribunal emphasized that mere search statements without supportive material do not carry weight. It relied on the principles laid down in various judicial precedents, including the jurisdictional High Court's decisions, to conclude that the transactions were genuine. Consequently, the impugned additions/disallowances made by the AO and CIT(A) were deleted, and the appeals were allowed in favor of the assessees.