2018 (1) TMI 991 - AT - Income Tax

Addition u/s 68 - genuineness of share transactions - treating the short term capital gain as income from undisclosed sources - Held that - The relevant documents in the paper book prove beyond doubt the genuineness of sale of equity shares. It is also not disputed that the share of IFCI Ltd were dematized after the purchase and they have been debited from this account at the time of sale. As far as purchase is concerned the shares have been purchased through a registered broker who is a member of Stock Exchange, Bombay having SEBI registration No.INB010005219. For the only reason that the payment of purchase has been made after a lapse of 9 months cannot render the purchase as non genuine unless and otherwise any material is brought on record which could negate this fact. Addition has been made for the unexplained credit but nowhere right from the assessment proceedings and till the proceedings before the appellate authority, revenue authorities have ever doubted the source of amount of sale consideration which the assessee received through banking channel from sale of shares held in Dmat account through the recognized stock exchange which is verifiable from the contract note. Both the lower authorities erred in treating the alleged transaction of sale of equity shares as a sham transaction. - Decided in favour of assessee

Issues Involved:
1. Treatment of short-term capital gains as income under Section 68 of the Income Tax Act.
2. Determination of the purchase date and value of shares.
3. Confirmation of short-term capital gains and applicable tax rate.
4. Consideration of evidence and submissions by the assessee.
5. Addition of unexplained credit under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Treatment of Short-Term Capital Gains as Income Under Section 68 of the Income Tax Act:
The primary issue in this case was whether the short-term capital gains of ?6,62,870 should be treated as income under Section 68 of the Income Tax Act. The Assessing Officer (AO) doubted the genuineness of the purchase of shares and treated the transaction as bogus, thereby adding the amount as unexplained credit. The CIT(A) confirmed this view, leading to the appeal.

2. Determination of the Purchase Date and Value of Shares:
The CIT(A) held that the purchase of shares should be considered on the date of dematerialization, which was 13.08.2007, and not on the date of the actual purchase, which was 17.10.2006. The CIT(A) used the average price of shares on the date of dematerialization to determine the purchase value, resulting in a calculated purchase value of ?7,82,400. This was contested by the assessee, who argued that the actual purchase price was ?1,19,530.

3. Confirmation of Short-Term Capital Gains and Applicable Tax Rate:
The assessee claimed short-term capital gains of ?6,44,816 from the sale of shares and sought the applicable tax rate of 10% under Section 111A of the Income Tax Act. However, the AO and CIT(A) did not accept this claim, treating the gains as unexplained income. The Tribunal, upon review, found that the purchase and sale transactions were genuine and that the short-term capital gains should be recognized as claimed by the assessee.

4. Consideration of Evidence and Submissions by the Assessee:
The assessee provided various documents, including contract notes, confirmation of accounts from the broker, bank statements, and demat account details, to prove the genuineness of the transactions. The Tribunal noted that these documents were not proven to be false or fabricated by the authorities. The Tribunal emphasized that the onus to prove that the apparent is not real lies on the party making such a claim, citing the Supreme Court's decision in CIT vs Dualat Ram Rawatmull.

5. Addition of Unexplained Credit Under Section 68 of the Income Tax Act:
The CIT(A) and AO added ?6,62,870 as unexplained credit under Section 68, based on assumptions and conjectures. The Tribunal found that the addition was not supported by any concrete evidence and was based merely on suspicion. The Tribunal referred to the Supreme Court's rulings in Dhakeswari Cotton Mills Ltd. vs. CIT and Shreelekha Banerjee vs. CIT, which held that additions cannot be made based on conjectures and must be supported by relevant evidence.

Conclusion:
The Tribunal concluded that the lower authorities erred in treating the transaction as sham and in making additions based on assumptions. The Tribunal allowed the appeal, recognizing the short-term capital gains of ?6,44,816 as genuine and holding that the assessee had rightly disclosed these gains. The appeal was thus allowed, and the order was pronounced in open court on 19.01.2018.

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