2023 (7) TMI 1347 - AT - Income Tax

Unexplained income u/s 68 - sale proceeds of the share treated as bogus - Penny stock transactions - HELD THAT - Addition u/s 68 of the Act made merely on the basis of suspicion, presumptions and probability of preponderance without any direct evidence to prove the transactions as non-genuine or sham or demonstrating assessee's involvement in any kind of manipulation, cannot be made. Thus, the assessee has explained and submitted evidences to prove identity, nature and source of the cash credit on account of sale proceeds credited / received in the bank account of the assessee and also furnished all evidences comprising contract notes, brokers, banking details in support of the genuineness of the transactions. The shares are sold by assessee's broker on BSE platform hence source is BSE's clearing system. The transactions on the BSE platform and settlement system who are responsible for the transactions of the demat account and prevailing price on public domain prove the genuineness of the transactions. Therefore, we deleted the addition. Addition u/s 69C - Since we have deleted the main addition u/s 68, Ground raised by the assessee for addition u/s 69C, w.r.t. notional commission expenses @ 2% of LTCG being unexplained expenditure, is consequential in nature and hence deleted. Charging of income tax @ 30% u/s 115BBE would also not survive, as we have deleted the main addition.

Summary

Issues Involved:
1. Addition of Long Term Capital Gain (LTCG) under Section 68 of the Income Tax Act.
2. Addition of Commission under Section 69 of the Income Tax Act.
3. Application of tax rate under Section 115BBE of the Income Tax Act.
4. Condonation of delay in filing the appeal.

Condonation of Delay:
The assessee's appeal was delayed by 137 days due to the negligence of the Tax Consultant, who failed to check the order on the Income Tax Department's portal. The Tribunal condoned the delay, citing that the assessee should not be penalized for the consultant's mistake, referencing the decision in M/s. Garg Bros. Pvt. Ltd. & Others vs. DCIT.

Issue 1: Addition of LTCG under Section 68:
The Assessing Officer (AO) added Rs. 49,01,840/- as LTCG under Section 68, alleging the transaction was bogus based on information from the Directorate of Investigation, Kolkata, and the abnormal rise in share prices. The assessee provided extensive documentation, including ledger accounts, share certificates, bank statements, and evidence of SEBI-registered broker transactions. The Tribunal noted that the AO did not find any defects in these documents and relied solely on suspicion and third-party reports without providing the assessee an opportunity for cross-examination. The Tribunal cited various judgments, including the Gujarat High Court in Jagat Pravinbhai Sarabhai and Nishant Kantilal Patel, which supported the genuineness of long-term investments substantiated by proper documentation. The addition under Section 68 was deleted.

Issue 2: Addition of Commission under Section 69:
The AO added Rs. 98,037/- as unexplained expenditure under Section 69, assuming a 2% commission on the alleged bogus LTCG. Since the primary addition under Section 68 was deleted, this addition was also deleted as consequential.

Issue 3: Application of Tax Rate under Section 115BBE:
The AO applied a 30% tax rate under Section 115BBE on the alleged unaccounted income. As the primary addition under Section 68 was deleted, this issue did not require further adjudication.

Conclusion:
The Tribunal allowed the appeal, deleting all additions made by the AO under Sections 68 and 69, and negating the application of Section 115BBE. The order emphasized adherence to principles of natural justice and the necessity of concrete evidence over mere suspicion.