2023 (7) TMI 1393 - AT - Income Tax

Additions u/s 68 - bogus sale proceeds of sale of shares - AO received information from the Investigation Directorate Kolkata that the prices of certain stocks are manipulated by certain people in order to generate bogus capital gains business loss etc. Those types of shares were named as penny stocks - HELD THAT - There is no dispute with regard to the facts that the assessee has purchased the shares through a broker by paying the consideration in cheque. The said shares were split and were sold through a broker in a recognized stock exchange. The said shares have been held for more than one year. Assessee has furnished all the documents in support of purchase and sale of shares. However the AO did not examine those documents and find fault with them. It is the finding of CIT(A) that the shares have entered and exited his demat account of the assessee. There is also no allegation made that the assessee was part of ring which indulged in the alleged price rigging. The AO has placed reliance on the report of Investigation wing to hold that the assessee has availed accommodation entries by way of long term capital gains. We are of the view that the decision rendered in the case of Shyam R Pawar 2014 (12) TMI 977 - BOMBAY HIGH COURT and Ziauddin A Siddique 2022 (3) TMI 1437 - BOMBAY HIGH COURT are squarely applicable in the present case. Accordingly we hold that the long term capital gains declared by the assessee cannot be doubted with. Accordingly we hold that the AO was not justified in assessing the sale value of shares as unexplained cash credit in both the years under consideration. Decided in favour of assessee.

Summary

Issues Involved:
The judgment involves the deletion of additions made under section 68 of the Income Tax Act relating to the sale proceeds of shares for the assessment years 2011-12 and 2012-13. The primary issue is whether the transactions of purchase and sale of shares were genuine or sham, particularly in relation to penny stocks and alleged price manipulation.

Issue 1 - Addition under Section 68 of the Act:
The Assessing Officer reopened the assessment based on information that certain stocks, including those of M/s. Global Capital Market Ltd., were manipulated penny stocks. The AO assessed the sale value of shares declared by the assessee as unexplained cash credit under section 68, suspecting the transactions to be bogus.

Judgment:
The first appellate authority, the CIT(A), found that the transactions were carried out on a recognized stock exchange through a registered broker and the shares were held in a Demat account. Citing relevant case laws, the CIT(A) deleted the additions for both years, emphasizing the absence of reason to suspect the genuineness of the transactions.

Issue 2 - Examination of Documents and Allegations:
The Tribunal found that the assessee had purchased shares through a broker, sold them through a recognized stock exchange, and provided documents supporting the transactions. The AO did not examine these documents and relied on a report from the Investigation Wing to allege accommodation entries for bogus capital gains.

Judgment:
The Tribunal concluded that the transactions were genuine, as evidenced by the shares entering and exiting the assessee's Demat account. It noted the absence of evidence connecting the assessee to alleged price rigging schemes, citing a previous Bombay High Court decision to support its findings.

Separate Judgment by the Judges:
The Judges dismissed both appeals of the revenue, affirming the CIT(A)'s decision. They referenced previous High Court judgments to emphasize the genuine nature of the transactions, the absence of price rigging allegations, and the proper documentation and payment methods used in the share transactions. The Tribunal found no substantial question of law in the appeals and upheld the deletion of the additions made by the AO under section 68 of the Act.