2018 (10) TMI 1088 - AT - Income Tax

Addition u/s 69 - Unaccounted income in the shape of long term capital gain - exemption u/s 10(38) denied - failure to prove existence of long term capital gain on sale of listed shares on recognized stock exchange - Held that - In this case the assessee has recorded the purchase transactions of shares in the books of accounts and shown in the Balance Sheet as on 31st March, 2009. The books of accounts of the assessee were duly audited and have not been disputed by the AO. The AO has denied the claim of the assessee by relying on the report of the ITO Investigation, Indore as well as the statement of Shri Mahesh Pancholi recorded by the AO. Both the parties have advanced the arguments similar as in the case of Shri Pramod Kumar Lodha vs. ITO 2018 (8) TMI 508 - ITAT JAIPUR as held that merely supplying of statement to the assessee at the fag end of the assessment proceedings is not sufficient to meet the requirement of giving an opportunity to cross examine the witness when the witness himself was not available at the place. Accordingly, we hold that the denial of the claim on the basis of suspicion without any cogent material to show that the assessee has brought back his own unaccounted income in the shape of long term capital gain, the said action of the AO is not sustainable. The authorities below qua this issue and delete the addition made by the AO on this account. - Decided in favour of assessee

Issues Involved:
1. Whether the assessee failed to prove the existence of long-term capital gain on the sale of listed shares and the consequent addition of the said amount to the income as income from undisclosed sources.
2. Whether the assessee was denied the exemption under section 10(38) of the IT Act, 1961, on the long-term capital gain.

Detailed Analysis:

1. Existence of Long-Term Capital Gain and Addition to Income:
The primary issue revolves around the assessee's claim of a long-term capital gain of ?2,65,27,020 arising from the sale of 98,000 shares of M/s Well Pack Papers & Containers Ltd. The Assessing Officer (AO) disallowed this claim, treating it as bogus and considering it as the assessee's unaccounted income. The AO's decision was based on the report from the ITO Investigation, Indore, and the statement of Shri Mahesh Pancholi, which suggested that the transactions were not genuine.

The assessee argued that all relevant records and evidence supporting the purchase and sale of shares were produced, including dematerialization and banking channel transactions. The AO did not dispute the sale of shares or the receipt of the consideration but treated the transaction as bogus due to the abnormal increase in the market price of the shares.

The Tribunal found that the facts and issues in this case were identical to those in the case of Shri Pramod Kumar Lodha vs. ITO (ITA No. 826/JP/2014), where similar arguments were advanced. The Tribunal noted that the shares were recorded in the books of accounts and shown in the Balance Sheet as on 31st March 2009. The AO had not disputed the sale transaction or the market price at the time of sale. The Tribunal concluded that merely because there was a significant capital gain, it could not be a basis for holding the transaction as bogus without any material evidence to support such a conclusion.

2. Denial of Exemption under Section 10(38):
The assessee claimed exemption under section 10(38) of the IT Act, 1961, for the long-term capital gain. The AO denied this exemption, relying on the statement of Shri Mahesh Pancholi and the report from the ITO Investigation, Indore. The Tribunal observed that the AO did not provide the opportunity for the assessee to cross-examine the Inspector or Shri Mahesh Pancholi. The Tribunal emphasized that the denial of exemption based on suspicion without any cogent material evidence was not justified.

The Tribunal referred to several precedents, including the decision of the Hon’ble Supreme Court in the case of CIT vs. Sunita Dhadda and the decision of the Mumbai Bench of the Tribunal in the case of GTC Industries vs. ACIT. These cases established that without direct evidence proving that the assessee introduced unaccounted money by way of bogus long-term capital gain, the claim could not be denied.

The Tribunal concluded that the AO's action was based on suspicion without any material evidence to controvert the evidence produced by the assessee. The Tribunal held that the denial of the claim on the basis of suspicion was not sustainable and deleted the addition made by the AO.

Conclusion:
The appeal of the assessee was allowed. The Tribunal set aside the orders of the authorities below and deleted the addition made by the AO, holding that the long-term capital gain was genuine and the exemption under section 10(38) was rightly claimed by the assessee. The Tribunal emphasized that suspicion alone, without cogent evidence, could not be the basis for denying the assessee's claim.

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