2022 (2) TMI 1376 - AT - Income Tax

Bogus LTCG - Penny Stocks transactions - share transactions - organized scam/tax evasion activity - HELD THAT - As the issue involved in the present appeal is duly covered in favour of the assessee in the case of Smt. Renu Agarwal 2022 (1) TMI 1037 - ITAT LUCKNOW deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, DR has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. Thus no infirmity in the order of learned CIT(A) as in this case also the necessary evidences were duly filed before Assessing Officer. This fact of having filed the necessary evidences before the Assessing Officer are coming out from the findings of learned CIT(A). In his findings the learned CIT(A) has also noted that the Assessing Officer had not carried out any independent verification and moreover, the broker through whom assessee entered into transactions was also not examined. Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition of Rs. 44,44,174/- by CIT(A).
2. Organized scam/tax evasion activity involving bogus LTCG/STCL through Penny Stocks.
3. Validity of the order of the CIT(A) and the assessment order passed u/s 143(3) of the I.T. Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 44,44,174/- by CIT(A):
The Revenue challenged the deletion of Rs. 44,44,174/- by the CIT(A), arguing that the sale of shares was not a natural phenomenon but an arrangement to provide accommodation entry of Long Term Capital Gain (LTCG) to introduce unaccounted own money as exempt income. The CIT(A) deleted the addition, holding that the Assessing Officer (AO) did not carry out necessary verifications and did not examine the stock brokers through whom the shares were purchased and sold. The CIT(A) relied on documentary evidence such as sale and purchase bills, STT payment, and Demat accounts, which showed that payments were received through banking channels. The CIT(A) also relied on various case laws decided by ITAT, Lucknow Benches, which allowed relief to the assessees based on the evidence on record.

2. Organized Scam/Tax Evasion Activity Involving Bogus LTCG/STCL Through Penny Stocks:
The Revenue argued that the issue pertained to an organized scam/tax evasion activity and a unique modus operandi of embezzlement, as per CBDT's Circular No. 23 of 2019. The DR submitted that the Department got ready to file an appeal after the issuance of circulars dated 6.9.2019 and 16.9.2019, which allowed filing appeals on merits in cases involving organized tax evasion activities. The AO had disallowed the LTCG claim and made additions u/s 69A of the Act, alleging that the assessee declared LTCG on shares through an organized activity. The DR argued that the AO rightly disallowed the LTCG and made additions due to the phenomenon of dubious transactions.

3. Validity of the Order of the CIT(A) and the Assessment Order Passed u/s 143(3) of the I.T. Act:
The CIT(A) deleted the additions made by the AO, holding that the AO did not conduct necessary verifications and relied on general statements without examining specific transactions of the assessee. The CIT(A) found that the AO ignored documentary evidence in favor of the assessee. The ITAT upheld the CIT(A)'s order, stating that the AO did not bring any specific adverse material against the assessee and made the additions based on presumptions. The ITAT noted that the AO did not examine the stock brokers or conduct independent verification. The ITAT relied on the combined order of the Lucknow Bench of the Tribunal in similar cases, where the appeals filed by the Revenue were dismissed.

Conclusion:
The ITAT dismissed the appeal of the Revenue, upholding the CIT(A)'s order. The ITAT found that the AO did not conduct necessary verifications and relied on presumptions without specific adverse material against the assessee. The ITAT relied on documentary evidence and previous case laws, which favored the assessee. The ITAT concluded that the assessment order was based on unfounded presumptions and was bad in law. The appeal was dismissed, and the order of the CIT(A) was upheld.