2016 (12) TMI 1074 - AT - Income Tax

Income from undisclosed sources - claim of long term capital gains on sale of shares rejected - Held that - Similar issue had been adjudicated in case of DCIT vs Sunita Khemka 2015 (12) TMI 1014 - ITAT KOLKATA wherein it was held that when purchase and sale of shares were supported by proper contract notes, deliveries of shares were received through demat accounts maintained with various agencies, the shares were purchased and sold through recognized broker and the sale considerations were received by account payee cheques, the transactions cannot be treated as bogus and the income so disclosed was assessable as LTCG. We find that in the instant case, the addition has been made only on the basis of the suspicion that the difference in purchase and sale price of these shares is unusually high. The revenue had not brought any material on record to support its finding that there has been collusion / connivance between the broker and the assessee for the introduction of its unaccounted money. Thus we have no hesitation in directing the ld AO to accept the claim of exemption of LTCG of the assessee arising out of sale of shares of G.K.Consultants Ltd - Decided in favour of assessee Addition of gift received from his co-brother - Held that -On perusal of the documents submitted in the paper book, we are convinced to conclude that the gift received by the assessee from his co-brother is genuine which are duly supported by all the required documents in that regard. We hold that the assessee had duly proved the identity of the donor, genuineness of the transaction and creditworthiness of the donor in the instant case. We find that the gift received by the assessee from his relative also falls under the exception clause covered in the said definition in section 56(2)(v) of the Act. We hold that when all the documents prove the factum of gift by the assessee beyond any doubt, dismissing those documents summarily on the ground that there was no occasion to give the gift would be unjust - Decided in favour of assessee

Issues Involved:
1. Whether the CIT(A) was justified in upholding the addition of ?6,44,270 treating it as income from undisclosed sources after rejecting the claim of long-term capital gains (LTCG) on the sale of shares of M/s G.K. Consultants Ltd.
2. Whether the CIT(A) was justified in upholding the addition of ?4,34,400 by disbelieving the gift received by the assessee from his co-brother.

Issue 1: Addition of ?6,44,270 as Income from Undisclosed Sources
The primary issue in this appeal was whether the addition of ?6,44,270 as income from undisclosed sources was justified after rejecting the claim of LTCG on the sale of shares of M/s G.K. Consultants Ltd. The assessee, an individual with business income from a partnership firm, claimed LTCG of ?13,13,482 as exempt. The Assessing Officer (AO) observed that the shares of G.K. Consultants Ltd were purchased in an off-market transaction and sold through a recognized stock broker. The AO made several observations, including that the purchase was made in cash, which violated SEBI and Stock Exchange rules, and the shares were dematerialized only in February 2005. The AO also noted discrepancies in the trade details and concluded that the transaction was sham and colorful, treating the LTCG as undisclosed income.

Before the CIT(A), the assessee provided various documents to support the claim, including contract notes, demat account details, and payment proofs. The CIT(A) upheld the AO's decision, reiterating the findings. The Tribunal noted that the AO's conclusion was based on suspicion and not on concrete evidence. The Tribunal found that the transaction was supported by proper documentation, including contract notes, demat account entries, and payment receipts. The Tribunal also noted that the AO did not take necessary steps to verify the transaction further with the Calcutta Stock Exchange or SEBI. Relying on judicial precedents, the Tribunal directed the AO to accept the claim of exemption of LTCG and allowed the ground raised by the assessee.

Issue 2: Addition of ?4,34,400 as Income from Undisclosed Sources
The second issue was whether the addition of ?4,34,400 by disbelieving the gift received by the assessee from his co-brother was justified. The AO observed that the assessee received a gift of USD 10,000 from a relative, which was credited to the assessee's bank account. The AO doubted the veracity of the gift based on discrepancies in the dates on the notarized confirmation letter and concluded that the creditworthiness of the donor was not proved. The CIT(A) upheld the AO's decision, stating that the occasion to give the gift was not proved conclusively.

Before the Tribunal, the assessee provided additional evidence, including IT returns of the donor, property tax assessments, and affidavits confirming the gift. The Tribunal found that the identity of the donor, genuineness of the transaction, and creditworthiness of the donor were proved beyond doubt. The Tribunal also noted that the gift fell under the definition of 'relative' in section 56(2) of the Act. The Tribunal held that dismissing the documents on the ground that there was no occasion to give the gift was unjust. Accordingly, the Tribunal directed the AO to delete the addition made towards the gift received by the assessee and allowed the ground raised by the assessee.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the AO to accept the claim of exemption of LTCG and to delete the addition made towards the gift received by the assessee. The order was pronounced in the open court on 02.12.2016.

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