2016 (11) TMI 436 - AT - Income Tax

Penalty levied u/s 271(1)(c) - LTCG on sale of shares - Held that - AO could not examine the details of purchase transactions as directed by the Tribunal, since the concerned broker did not co-operate. Further, we notice that the AO did not make any attempt to collect details from the return of income filed by M/s G.R Pandya Share broking Ltd. On the contrary, the assessee has furnished confirmation letter and an affidavit in support of the purchase transactions. We have noticed earlier that M/s G.R Pandya Share broking Ltd has denied the transactions out of air, i.e., without bringing any material. The broking firm could not have also brought any material against the assessee, since they have claimed that their records have been destroyed. Under these set of facts, we are of the view that the AO was not justified in taking adverse view in the matter. We have earlier noticed that the assessee has sold the shares through another broker by dematerializing the same. The dematerialization of shares would not happen without physical shares. We have noticed that the Tribunal has already given finding that the genuineness of shares cannot be doubted. The only dispute, in our view, was with regard to the mode and time of purchase of shares and the claim of the assessee in this regard could not be proved by the AO as wrong. Under these set of facts, we are of the view that the Ld CIT(A) was justified in reversing the order passed by the AO and directing the AO to accept the long term capital gain declared by the assessee. Hence the estimated addition made towards expenses was also rightly deleted by Ld CIT(A). Accordingly we uphold the order passed by Ld CIT(A). We have upheld the order passed by Ld CIT(A) in cancelling the additions made by the AO. We notice that the Ld CIT(A) has deleted the penalty on the ground that the additions made by the AO stood deleted. We notice that the Ld CIT(A) has deleted the penalty on correct reasoning and hence order does not call for any interference. - Decided against revenue

Issues Involved:
1. Assessment of long-term capital gain as undisclosed income.
2. Deletion of addition related to alleged commission expenses.
3. Penalty levied under section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Assessment of Long-Term Capital Gain as Undisclosed Income:
The primary issue was whether the long-term capital gain of ?1.44 crores declared by the assessee should be assessed as undisclosed income. The assessee filed her return of income declaring a total income of ?3,96,993/- and claimed the long-term capital gain from the sale of shares as exempt. The Assessing Officer (AO) treated the purchase and sale of shares as bogus transactions and assessed the long-term capital gain as income from undisclosed sources. The AO also added 5% of the long-term capital gain as expenses incurred in arranging bogus transactions.

The Tribunal had earlier restored the matter to the AO to examine the transactions relating to the purchase of shares. The AO required the assessee to produce the broker, M/s. GR Pandya Share Broking Ltd., who initially denied the transactions but later claimed that records were lost due to a mishap. The AO concluded that the long-term capital gain was not genuine and assessed it as income from undisclosed sources, adding 5% thereof as expenses.

The CIT(A) set aside the AO's view, holding that the long-term capital gains declared by the assessee should be accepted. The CIT(A) noted that the Tribunal had previously held that the letter from the company dated 06.08.2007 should not be given much weight as it was not relevant to the period when the shares were purchased and sold. The Tribunal also noted that the broker had confirmed the transactions during appellate proceedings, which the CIT(A) had not admitted as additional evidence. The Tribunal directed the AO to re-examine the confirmation from the broker.

Upon re-examination, the AO found that the broker could not furnish any evidence due to the loss of records. The CIT(A) observed that the broker's denial of transactions without examining records was not justified. The Tribunal had previously found that the shares were genuine and purchased in AY 2002-03, duly declared in the balance sheet and assessed by the same AO. The CIT(A) concluded that the AO had no adverse evidence against the assessee, and the confirmation from the broker should be accepted.

2. Deletion of Addition Related to Alleged Commission Expenses:
The AO had added 5% of the long-term capital gain as expenses incurred in procuring bogus long-term capital gain. The CIT(A) deleted this addition, and the Tribunal upheld this decision. The Tribunal noted that the AO could not prove the claim of purchase transactions as wrong and that the dematerialization of shares indicated their genuineness. The Tribunal agreed with the CIT(A) that the estimated addition towards expenses was rightly deleted.

3. Penalty Levied Under Section 271(1)(c) of the Income Tax Act:
The AO had levied a penalty under section 271(1)(c) of the Income Tax Act, which the CIT(A) cancelled. The Tribunal upheld the CIT(A)'s decision, noting that the penalty was deleted on the ground that the additions made by the AO stood deleted. The Tribunal found that the CIT(A) had deleted the penalty on correct reasoning and upheld the order.

Conclusion:
The Tribunal dismissed both appeals filed by the Revenue, upholding the order passed by the CIT(A) in accepting the long-term capital gain declared by the assessee, deleting the addition related to alleged commission expenses, and cancelling the penalty levied under section 271(1)(c) of the Income Tax Act. The Tribunal found that the AO could not substantiate the claim of bogus transactions, and the evidence provided by the assessee was sufficient to prove the genuineness of the transactions.

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