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2019 (1) TMI 651 - AT - Income TaxAddition u/s. 68 - unexplained cash credit - during the course of assessment proceedings, when the assessee was asked about purchase and sale of shares, the assessee filed a revised computation of income declared longer capital gain amounting, which was claimed as exempt u/s 10(38) - AO concluded that the transactions were sham and aimed only to bring unaccounted money in the semblance of exempted long term capital gains - Held that - in this case AO has invoked the Section 68 of the Act on cash deposits found in the bank accounts. It is correct that since no books of account are maintained in the ordinary course of business of the assessee, no such addition u/s 68 of the Act is tenable. Therefore, in my considered opinion the ground in dispute is squarely covered by the decision of the ITAT 2019 (1) TMI 264 - ITAT DELHI - Decided in favour of assessee.
Issues Involved:
1. Applicability of Section 68 to the sale of shares. 2. Legitimacy of Long Term Capital Gains (LTCG) claimed as exempt under Section 10(38). 3. Validity of additions made by the Assessing Officer (AO) based on alleged sham transactions. Detailed Analysis: 1. Applicability of Section 68 to the Sale of Shares: The primary issue in these appeals is whether Section 68 of the Income Tax Act, 1961, is applicable to the sale of shares. The assessee argued that Section 68 is not applicable to the sale of shares as it pertains to cash credits found in the books of accounts maintained by the assessee. The Tribunal noted that the AO invoked Section 68 based on cash deposits found in bank accounts. The Tribunal highlighted that the assessee did not maintain any books of accounts, and therefore, any addition under Section 68 is untenable as the section applies only where credits are found in books of accounts maintained by the assessee. This position was supported by various case laws, including the ITAT Delhi 'B' Bench decision in the case of Inder Singh vs. ITO, where it was held that Section 68 is not applicable in the absence of books of accounts. 2. Legitimacy of Long Term Capital Gains (LTCG) Claimed as Exempt Under Section 10(38): The AO observed that the shares in question were part of a penny stock scheme controlled by a group of people, including promoters, operators, and brokers, who arranged the purchase and sale of shares to book bogus LTCG in favor of the assessee. The AO concluded that the transactions were sham and aimed at bringing unaccounted money into the semblance of exempted LTCG. Consequently, the AO denied the exemption claimed under Section 10(38) and treated the entire receipt as income of the assessee under Section 68, along with an addition for commission paid from undisclosed sources. However, the Tribunal found that the AO's reliance on Section 68 was misplaced due to the absence of books of accounts, thus invalidating the addition made under this section. 3. Validity of Additions Made by the AO Based on Alleged Sham Transactions: The AO made additions to the assessee's income on the grounds that the transactions were sham and aimed at bringing unaccounted money into the guise of exempted LTCG. The Tribunal, however, found that the AO's application of Section 68 was not sustainable in the absence of books of accounts. The Tribunal referenced several precedents where similar issues were adjudicated, concluding that the addition under Section 68 was not tenable. The Tribunal emphasized that the AO should have considered Section 69 for unexplained investments, but as a Tribunal, it could not make additions under Section 69A due to jurisdictional constraints. Conclusion: The Tribunal allowed the appeals, holding that the addition under Section 68 was not sustainable due to the absence of books of accounts. The Tribunal deleted the additions made by the AO and allowed the ground argued by the assessee, thereby granting relief to the assessee in all three appeals. The findings in one appeal were applied mutatis mutandis to the other two appeals due to the similarity of facts and issues involved. Order Pronounced: The Tribunal pronounced the order on 11.01.2019, allowing all three appeals of the separate assessees.
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