2018 (11) TMI 408 - AT - Income Tax

Addition u/s 68 - Long Term Capital Gain by the assessee on sale of listed equity shares treated as bogus - income from other sources - shady transaction of getting accommodation entry in the form of Long Term Capital Gain - Held that - It is to be noted here is that purchase made in the earlier year has not been disturbed and once the entire transaction is through DEMAT account with the reputed broker without having any link with any such entities pointed out by the learned Assessing Officer then no adverse inference at all can be drawn against the assessee. If the sales are evidenced through proper contract notes by HDFC Security Ltd., sold on BSE after paying STT and duly credited in the DEMAT account, then source of the credit has to be accepted that it is from transaction of sale of shares held for a Long Term Capital Gain. If purchase of shares is not doubted and these shares are not in possession with the assessee, then there cannot be any adverse inference that it is unexplained credit to be added u/s.68 - there was a genuine transaction of purchase and sale of shares on which assessee has earned Long Term Capital Gain, and therefore, such Long Term Capital Gain cannot be taxed u/s.68. Since Long Term Capital Gain is exempted u/s.10 (38), therefore, no addition is called for. - Decided in favour of assessee.

Issues:
1. Appellants challenging impugned orders by Commissioner of Income Tax for Assessment Year 2015-16.
2. Addition of Long Term Capital Gain as income from other sources u/s.68 of the Act.
3. Reliance on statement of employee of M/s. Gateway Financial Services Ltd.
4. Confirmation of Assessing Officer's action by CIT (A).
5. Assessee's submission of documentary evidences to prove genuineness of transactions.
6. Comparison with similar judgments in favor of the assessee.
7. Department's reliance on Investigation Wing's findings and company's financial details.
8. Analysis of purchase and sale transactions, banking channels, and DEMAT account.
9. Conclusion on genuine transaction of Long Term Capital Gain and exemption u/s.10(38).
10. Application of findings to other appeals.

Detailed Analysis:
The judgment by ITAT Delhi involved appeals against orders by the Commissioner of Income Tax for the Assessment Year 2015-16. The primary issue revolved around the addition of Long Term Capital Gain as income from other sources under section 68 of the Income Tax Act. The case of Smt. Sadhana Rastogi was specifically addressed, with the finding applicable to all appeals due to common facts. The Assessing Officer and CIT (A) relied on a statement by an employee of M/s. Gateway Financial Services Ltd., linking the transactions to bogus entries of Long Term Capital Gain. However, the assessee provided documentary evidence to establish the genuineness of the purchase and sale of shares.

The assessee's counsel argued that the statement of the employee should not be relied upon, emphasizing the legitimate nature of the transactions supported by banking records and DEMAT account details. The counsel also presented a compilation of judgments from various Tribunals favoring similar transactions. In contrast, the Department emphasized the findings of the Investigation Wing and the company's financial status to support the addition of Long Term Capital Gain.

Upon thorough examination of the purchase and sale transactions, including banking channels and DEMAT account movements, the ITAT found the transactions to be genuine. The judgment highlighted the lack of adverse inferences against the assessee, given the proper documentation and absence of links to entities providing bogus entries. The ITAT concluded that the Long Term Capital Gain was exempt under section 10(38) and should not be taxed under section 68. The findings were applied to other appeals with similar facts, resulting in the allowance of all appeals.

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