2019 (1) TMI 34 - AT - Income Tax

Bogus long term capital gain on shares - addition u/s 68 - claim of long term capital gain exemption u/s 10(38) denied - addition made u/s 69C - Held that - Purchase and sale of shares are documented and exhibited. Sale of shares are carried out in BSE at the prices prevailing in the market which are duly supported by contract notes issued by the broker. The entire transactions have been discarded by the Revenue authorities because the BSE has suspended trading in shares of Turbotech Engineering Pvt Ltd in January 2015. The undisputed fact is that the assessee had sold the shares in the month of July and September 2013, therefore, any action taken in 2015 would not affect the transactions done in 2013. Moreover, neither the SEBI nor the BSE has nullified the transactions done in 2013 in the scrip of Turbotech Engineering Pvt Ltd. Merely because some market players were doing clandestine activities in some scrips in the stock market would not make genuine transactions bogus. Merely because in the report of investigation wing, Kolkata name of Turbotech Engineering Pvt Ltd is mentioned would not make genuine transaction bogus - no direct evidence to demonstrate that the assessee was one of the direct beneficiaries of the accommodation entries provided by the company. Considering all no merit in the impugned additions - allow claim of long term capital gain exemption u/s 10(38) and delete the additions made u/s 69C of the Act. - decided in favour of assessee

Summary

Issues:
1. Denial of long term capital gain exemption under section 10(38) of the Income-tax Act, 1961.
2. Addition made under section 68 of the Act.
3. Confirmation of addition made under section 69C of the Act.

Analysis:
1. The appeal was against the order of the Commissioner of Income Tax [Appeals] regarding the denial of long term capital gain exemption under section 10(38) of the Income-tax Act, 1961. The Assessing Officer had disallowed the claimed long term capital gain and made additions under sections 68 and 69C of the Act. The Assessing Officer relied on an investigation by the Directorate of Investigation, Kolkata, which identified Turbotech Engineering Pvt Ltd as a company involved in generating bogus long term capital gain. However, the Tribunal found that the transactions were genuine as they were supported by documented evidence, including contract notes from the broker. The suspension of trading in the shares of Turbotech Engineering Pvt Ltd in 2015 did not affect the transactions conducted in 2013. The Tribunal concluded that there was no direct evidence implicating the assessee in any fraudulent activities, and hence, directed the Assessing Officer to allow the claim of long term capital gain exemption under section 10(38) and delete the additions made under section 69C of the Act.

2. The Assessing Officer made additions under section 68 of the Act, alleging that the long term capital gain claimed by the assessee was bogus. The Tribunal, after examining the documentary evidence and the circumstances of the case, found that the transactions were genuine and supported by valid documentation. The Tribunal emphasized that the mere mention of Turbotech Engineering Pvt Ltd in the investigation report did not render the transactions bogus. The Tribunal held that the actions taken in 2015 did not invalidate the transactions conducted in 2013. Therefore, the Tribunal directed the Assessing Officer to delete the additions made under section 68 of the Act.

3. The Assessing Officer also made additions under section 69C of the Act. However, the Tribunal, after a thorough review of the facts and evidence, concluded that there was no merit in the additions made under section 69C. The Tribunal highlighted that the transactions were genuine, supported by documentary evidence, and there was no direct evidence linking the assessee to any fraudulent activities. Consequently, the Tribunal directed the Assessing Officer to delete the additions made under section 69C of the Act.

In conclusion, the Tribunal allowed the appeal filed by the assessee, directing the Assessing Officer to allow the claim of long term capital gain exemption under section 10(38) of the Act and delete the additions made under section 69C of the Act.