2021 (1) TMI 1280 - AT - Income Tax

Bogus LTCG - Addition u/s 68 - investigation wing of the Department had held the script SRK Industries as bogus - Long Term Capital Gain on the sale of shares which are exempt u/s 10(38) denied by holding that the script in which the capital gain had accrued was a penny stock and bogus - HELD THAT - Hon'ble I.T.A.T. Kolkata Bench in the case of Aditya Vikram Sureka HUF 2019 (10) TMI 837 - ITAT KOLKATA has considered gain from scrip SRK Industries Ltd. and have allowed relief to the assessee. Similarly, we find that SMC Kolkata Bench in the case of Shreyans Chopra 2018 (7) TMI 2028 - ITAT KOLKATA has allowed relief to the assessee on the same scrip - Also in AMRITA BAID 2018 (11) TMI 1924 - ITAT KOLKATA capital gain on the script SRK Industries was allowed exempt u/s 10(38) - Decided in favour of assessee. Disallowance of commission paid - AO disallowed amount by holding that assessee failed to furnish address of the persons and he further held that tax at source was also not deducted - HELD THAT - Before Learned CIT(A) it was submitted that assessee was not required to deduct TDS to which he agreed but upheld the addition by holding that no evidence was produced in support of commission paid. In this respect that assessee had furnished the information relating to persons to whom commission was paid where the name of one person including his address is mentioned and in respect of second person only name of the person is mentioned. Therefore, we accept the request of Learned AR for another opportunity to file the evidence of commission before A.O. and in view of that the second grievance of assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Denial of exemption under section 10(38) for Long Term Capital Gains (LTCG) on the sale of shares.
2. Disallowance of commission payment due to non-deduction of tax at source under section 194H and lack of evidence.

Detailed Analysis:

1. Denial of Exemption under Section 10(38) for LTCG:

The assessee claimed exemption for LTCG on the sale of shares of SRK Industries Ltd. under section 10(38) of the Income Tax Act. The Assessing Officer (AO) denied this exemption, labeling the shares as "penny stock" and the transactions as bogus, based on an investigation report. The AO issued a detailed show cause notice and, despite the assessee's detailed reply, made an addition under section 69B of the Act.

The CIT(A) upheld the AO's decision, relying on the judgment of the Hon'ble Bombay High Court in the case of Sanjay Bimalchand Jain vs. Principal CIT, which dealt with a different factual matrix involving cash purchases and non-responsive brokers. The CIT(A) dismissed the appeal, emphasizing the findings of the investigation wing and the lack of fundamental support for the sharp rise in the share price of SRK Industries Ltd.

The assessee argued that the transactions were genuine, conducted through SEBI-registered brokers, and supported by contract notes, Demat account statements, and banking channel payments. The assessee cited multiple ITAT decisions where similar transactions in SRK Industries Ltd. were held genuine and exempt under section 10(38).

The ITAT considered the detailed submissions and evidence provided by the assessee, including contract notes, Demat account statements, and banking transactions. It noted that the CIT(A) did not dispute these evidences but relied solely on the investigation report. The ITAT referred to several precedents where the same script (SRK Industries Ltd.) was deemed genuine, including decisions by ITAT Kolkata and Mumbai Benches, and allowed the appeal, granting the exemption under section 10(38).

2. Disallowance of Commission Payment:

The AO disallowed a commission payment of Rs. 1,00,000/- made by the assessee for the sale of property, citing non-deduction of tax at source under section 194H and the lack of addresses for the commission recipients. The CIT(A) agreed that TDS was not required but upheld the disallowance due to insufficient evidence of the commission payment.

The assessee requested a remand to provide necessary evidence. The ITAT accepted this request, noting that partial information was already provided, and directed the AO to re-adjudicate the issue after considering the additional evidence.

Conclusion:

The ITAT allowed the appeal on the issue of LTCG exemption under section 10(38), following precedents that established the genuineness of transactions in SRK Industries Ltd. For the disallowed commission payment, the ITAT remanded the issue to the AO for re-adjudication with additional evidence to be provided by the assessee.