2023 (3) TMI 1501 - AT - Income Tax

Bogus LTCG - Addition u/s 68 - disallowance of claim of exempt income u/s 10(38) - HELD THAT - The scrip of M/s. Vas Infrastructure Ltd. was not black listed by the SEBI at the relevant period and the brokers from whom the assessee has purchased and sold the scrip has been detailed by the assessee through contract notes brokers details and other relevant documents. Assessee has also pointed out that on these transactions the assessee has paid Securities Transaction Tax i.e. STT . The investigation report has nowhere stated that the scrip of M/s. Vas Infrastructure Ltd. or any of the brokers have been black listed. In fact, AO as well as CIT(A) has not given any finding in respect of assessee s case as relates to fluctuation in the market related to scrip of Vas Infrastructure Ltd. T Assessee purchase share online through various brokers and the payments made to brokers are reflected in the bank account. The assessee has DP accounts with all the brokers and the proof of payment was also duly filed. The Assessing Officer as well as CIT(A) has not given any detail finding as to how the assessee is dealing with penny stock. In fact, scrip of purchase and sales of M/s. Vas Infrastructure Ltd. has not been declared a penny stock by SEBI or the Stock Exchange Regulatory Authority. The assessee has filed statement of scrip wise purchase and sales, stocks summary, copy of assessee s ledger in broker s books and copy of broker s ledger in books of assessee for A.Y. 2011-12 alongwith bank statements and bank book. Thus, AO as well as the CIT(A) was not right in disallowing the claim of exempt income u/s 10(38) - AO was not right in making the addition under Section 68 as this cannot termed as unaccounted cash deposit. Assessee appeal allowed.

Summary

Issues involved:
The appeal challenges the assessment order u/s 143(3) read with sections 147 and 148 of the Income Tax Act, 1961, the order passed by the CIT(A), and the initiation of penalty proceedings u/s 271(1)(c) for A.Y. 2011-12.

Assessment Order Challenge:
The appeal contends that the assessment order was passed without proper authority or jurisdiction u/s 148, rendering it void. It further argues that the CIT(A) erred by not understanding the case facts, not rebutting the assessee's submissions, and wrongly concluding that the source of investment was unexplained.

Evidence and Observations:
The Assessing Officer reopened the case under section 147, suspecting manipulation in share prices of Vas Infrastructure Ltd. The AO denied exemption under section 10(38) and audited the income under section 68 as unaccounted cash deposit. However, the Tribunal found that the scrip was not blacklisted by SEBI, the transactions were through recognized brokers with STT paid, and there was no evidence of blacklisting. The AO and CIT(A) failed to provide detailed findings on the penny stock dealings and did not consider the documentary evidence provided by the assessee.

Appellate Tribunal Decision:
After considering all relevant material, the Tribunal found in favor of the assessee. It noted that the scrip was not declared a penny stock by SEBI, the transactions were legitimate, and payments were reflected in bank accounts. The AO's addition under section 68 was deemed incorrect as it was not unaccounted cash deposit. Consequently, the appeal was allowed, overturning the assessment order.

Conclusion:
The Tribunal allowed the appeal, emphasizing that the assessment order lacked proper jurisdiction, failed to consider crucial evidence, and incorrectly disallowed the claim of exempt income. The decision highlights the importance of thorough examination of facts and adherence to legal procedures in tax assessments.