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2023 (3) TMI 1431 - AT - Income TaxAddition u/s 68 - bogus LTCG - whether an off market purchase of shares could be taken as a ground to declare the entire transaction as sham? - CIT(A) deleted the additions appreciating the contentions of the assessee together with the documentary evidences thereon especially the final SEBI order wherein the assessee was duly discharged by SEBI as not to be involved in the price manipulation of scrip of Pine Animation Ltd. - HELD THAT - The transactions could not be treated as sham merely because they are done in off-market if the assessee had discharged his onus of proving the fact that shares purchased by him were dematerialized in the Demat account and held by the assessee till the same were sold from the Demat account of the assessee. The transaction of holding the shares are reflected in Demat account and sale of shares are through Demat account. More so when there is no dispute regarding the purchase price and sale price of shares. Our view is further fortified by the decision of Hon ble Jurisdictional High Court in the case of CIT vs Jamnadevi Agarwal 2010 (9) TMI 81 - BOMBAY HIGH COURT We find that independent enquiries were conducted by SEBI and SEBI had passed an interim order dated 08.05.2015 in the case of Pine Animation Ltd wherein the assessee and Pine Animation Ltd together with some others were restrained from accessing the securities market either directly or indirectly in any manner whatsoever till the final investigation by SEBI is completed. After completion of the final investigation SEBI had passed a final order dated 19.09.2017 in the case of Pine Animation Ltd clearly acquitting 114 persons which admittedly included the assessee on the plea that they were not involved in artificial price rigging of shares. In the said order SEBI had listed out the names and PAN of various persons who were involved in artificial price rigging of shares and the list of beneficiaries together with exit providers. Hence even SEBI does not allege any involvement of the assessee herein with the manipulation of share prices. We find that the Hon ble Calcutta High Court in the case of CIT vs Shreyashi Ganguli 2012 (9) TMI 1113 - CALCUTTA HIGH COURT had observed that in that case the Hon ble Calcutta High Court held that the Assessing Officer doubted the transactions since the selling broker was subjected to SEBI s action. However the transactions were as per norms and suffered STT brokerage service tax and cess. There is no iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed. We find that the assessee s case before us is in a much stronger footing as no action has been initiated on the Broker by SEBI and even the action initiated on the assessee by SEBI vide Interim order dated 08.05.2015 were finally revoked by SEBI in its final order dated 19.09.2017. In any case we find that the assessee had duly proved the nature and source of credit representing sale proceeds of shares of Pine Animation Ltd within the meaning of section 68 of the Act. The sale proceeds have been received by the assessee from the stock exchange through the SEBI registered share broker by account payee cheques through regular banking channels. We find that the three ingredients of section 68 of the Act are duly fulfilled by the assessee in the instant case. Hence there is no question of making any addition as unexplained cash credit u/s 68 of the Act in the instant case. No infirmity in the order of the ld. CIT(A) granting relief to the assessee by deleting the impugned additions on account of denial of exemption for long term capital gains u/s 10(38) of the Act and estimated commission @ 6% against the same. Accordingly the grounds raised by the revenue are dismissed. Validity of reopening of assessment - reason to belive - huge LTCG claimed as exempt on sale of shares - HELD THAT - Admittedly the ld. AO had indeed received information from the investigation wing unit of Mumbai that assessee had earned huge LTCG claimed as exempt on sale of shares of Pine Animation Ltd which has been categorized as a Penny Stock by the Income Tax Department based on the various enquiries conducted by them. These facts are also supported by searches conducted on various persons and statements recorded from various entry operators and promotes that the prices of certain scrips had been artificially rigged by certain manipulators. This information definitely in our considered opinion constitutes primafacie information which enables the ld. AO to constitute a primafacie belief that income of the assessee had escaped assessment as admittedly the assessee had also dealt in the said scrip. Moreover SEBI had also passed an interim order dated 08.05.2015 wherein the assessee s name is included as one of the beneficiary and was suspended from entering the capital market in any manner whatsoever till the completion of investigation by SEBI. In view of this we are not inclined to accept the arguments advanced by the ld. AR challenging the validity of reopening of assessment. Hence we hold that the assessment had been validly reopened as the ld. AO had indeed primafacie material before him to form a belief that income of the assessee had escaped assessment within the meaning of section 147 - Decided against assessee.
Issues Involved:
1. Delay in filing appeals by the revenue. 2. Justification of the CIT(A) in deleting the addition made by the AO by denying the exemption claimed under section 10(38) of the Income Tax Act. 3. Justification of the CIT(A) in deleting the addition made by the AO on account of estimated commission expenditure as unexplained under section 69C of the Income Tax Act. 4. Validity of reassessment under section 147 of the Income Tax Act. Summary: 1. Delay in Filing Appeals by the Revenue: The Tribunal noted a delay of 291 days in filing the appeals by the revenue due to the Covid-19 pandemic. Citing the relaxation granted by the Hon'ble Supreme Court regarding the limitation for preferring appeals, the Tribunal condoned the delay and admitted the appeals for adjudication. 2. Justification of the CIT(A) in Deleting the Addition Made by the AO by Denying the Exemption Claimed Under Section 10(38) of the Income Tax Act: The core issue was whether the CIT(A) was justified in deleting the addition made by the AO by denying the exemption claimed under section 10(38) for long-term capital gains derived from the sale of shares of Pine Animation Limited. The AO categorized the shares as "Penny Stock" and treated the gains as bogus. The Tribunal found that the assessee had provided substantial documentary evidence supporting the purchase and sale of shares, including demat statements, bank statements, and broker's contract notes. The CIT(A) had relied on the final SEBI order dated 19/09/2017, which acquitted the assessee from any involvement in price manipulation. The Tribunal upheld the CIT(A)'s decision, stating that the AO's conclusions were based on suspicion and lacked corroborative evidence. 3. Justification of the CIT(A) in Deleting the Addition Made by the AO on Account of Estimated Commission Expenditure as Unexplained Under Section 69C of the Income Tax Act: The Tribunal also addressed the connected issue of whether the CIT(A) was justified in deleting the addition made by the AO on account of estimated commission expenditure as unexplained under section 69C. The AO had added an estimated commission expenditure for arranging the alleged bogus LTCG. The Tribunal found no evidence proving that the assessee paid any commission to entry operators. The CIT(A) correctly deleted the addition, and the Tribunal upheld this decision. 4. Validity of Reassessment Under Section 147 of the Income Tax Act: In the cross objections, the assessee challenged the validity of the reassessment under section 147. The Tribunal found that the AO had received prima facie information from the investigation wing about the assessee's involvement in transactions with Pine Animation Ltd, categorized as Penny Stock. This information constituted a valid basis for the AO to form a belief that income had escaped assessment. The Tribunal held that the reassessment was validly reopened as the AO had prima facie material to form the belief, dismissing the assessee's objections. Conclusion: All the appeals of the revenue were dismissed, and all the cross objections of the assessee were dismissed. The Tribunal upheld the CIT(A)'s decisions, emphasizing the lack of evidence and reliance on suspicion by the AO. The reassessment under section 147 was deemed valid.
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