2019 (1) TMI 1350 - AT - Income Tax

Addition u/s 68 - bogus Long term capital gain on sale of shares - exempt from taxation u/s 10(38) claimed - price rigging - Held that - The Assessing Officer has doubted the transaction since the selling broker was subjected to SEBI s action. However, the demat account given the statement of transactions from 01.04.2004 to 31.03.2005 i.e. relevant for the assessment year under appeal (2005-06) are before us. There cannot be any doubt about the transaction as has been observed by the Assessing Officer. The transactions were as per norms under controlled by the Securities Transaction Tax, brokerage service tax and cess, which were already paid. They were complied with. All the transactions were through bank. There is no iota of evidence over the above transactions as it were through demat format. Hence, we agree with the given findings of the Ld. Commissioner of Income Tax (Appeals ) in accepting the transactions as genuine too. Addition made by the Assessing Officer u/s 68 of the Act which has been sustained by the CIT(A) is not justified under the facts and circumstances of the present case. We, therefore, set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of notice under section 143(2) and assessment order.
2. Application of section 68 of the IT Act for unexplained cash credit.
3. Genuineness of the share transactions and long-term capital gains claimed as exempt under section 10(38).

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 143(2) and Assessment Order:
The assessee contended that the selection of the case for scrutiny was not based on the Assessing Officer's opinion but on instructions issued by the CBDT under section 119 of the IT Act. The Tribunal upheld the validity of the notice issued under section 143(2) and the assessment order, dismissing the assessee's argument that the selection was invalid and that the assessment order dated 30.03.2016 was illegal.

2. Application of Section 68 of the IT Act for Unexplained Cash Credit:
The Assessing Officer observed that the assessee introduced capital of approximately ?2.40 crores, largely from the sale of shares, and claimed exemption under section 10(38). The AO found discrepancies in the share transactions, suspecting them to be sham transactions aimed at converting unaccounted cash into tax-exempt income. The AO held that the introduction of ?2,36,97,101/- attracted section 68 as unexplained cash credit. The CIT(A) upheld this view, noting the dubious nature of the company and the abnormal increase in share prices, which were not justified by the company's financials.

3. Genuineness of the Share Transactions and Long-Term Capital Gains Claimed as Exempt under Section 10(38):
The assessee argued that the transactions were genuine, supported by documentary evidence, and conducted through recognized stock exchanges with all regulatory compliances, including payment of STT. The Tribunal found merit in the assessee's arguments, noting that the shares were purchased through RTGS, held in a demat account, and sold through a registered stock broker with proceeds credited to the bank account. The Tribunal emphasized that the AO's conclusions were based on suspicion without disproving the documentary evidence provided by the assessee. The Tribunal relied on several judicial precedents, including decisions from the Bombay High Court, Jharkhand High Court, Gujarat High Court, and Punjab & Haryana High Court, which supported the assessee's claim of genuine transactions and exempt long-term capital gains.

Conclusion:
The Tribunal concluded that the addition made by the AO under section 68 was not justified, as the transactions were genuine and supported by evidence. The Tribunal set aside the order of the CIT(A) and directed the AO to delete the addition, allowing the appeal filed by the assessee.