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2019 (1) TMI 1464 - AT - Income TaxBogus LTCG - addition u/s 68 - exemption of Long Term Capital Gain u/s 10(38) denied - abnormal rise in the price - Held that - No defect in the said documentary evidences could be brought on record by the revenue. The addition in question was made merely on the basis of suspicion and surmises. No material has been brought on record to show that the assessee was involved in the racket which was unearthed by the Investigation Wing of the department. The revenue could not point out that in anywhere in the statement of Sh. Sanjay Vora and/or Sh. Praveen Kumar Agarwal, the name of the assessee was stated by them. Therefore, simply because some persons were involved in generation of bogus Long Term Capital Gain cannot lead to conclusion that the assessee was also involved in it without cogent material. After making inquiries from the person, from whom, the assessee purchased the shares in question and/or from the share broker through whom the assessee sold the shares, no material could be brought on record by the AO to show that the transaction of the assessee was not genuine and the assessee actually paid any amount in cash to any person in consideration of cheque received by him from the authorized share broker. In absence of such a material being brought on record by the revenue, in my considered opinion, the transaction of the assessee which is supported by overwhelming documentary evidences cannot be impeached merely because share prices rose abnormally or other persons were involved in generation of bogus Long Term Capital Gain. - Decided in favour of assessee
Issues Involved:
1. Exemption of Long Term Capital Gain (LTCG) under Section 10(38) of the Income Tax Act, 1961. 2. Allegation of bogus LTCG transactions. 3. Principles of natural justice and denial of cross-examination. Issue-wise Detailed Analysis: 1. Exemption of Long Term Capital Gain (LTCG) under Section 10(38) of the Income Tax Act, 1961: The assessee claimed an exemption for LTCG of ?23,51,714/- on the sale of 5,000 shares of M/s Turbotech Engineering Ltd. The shares were purchased on 26.11.2011 at ?2/- per share and sold on 15.05.2013 at ?475/- per share. The Assessing Officer (AO) observed an abnormal increase in share price, raising suspicion about the genuineness of the LTCG claim. 2. Allegation of Bogus LTCG Transactions: The AO referred to an investigation by the Directorate of Investigation, Kolkata, which revealed a racket of generating bogus LTCG for tax exemption. Statements from stock broker Sanjay Vora and Praveen Kumar Agarwal indicated that shares of M/s Turbotech Engineering Ltd. were involved in providing bogus LTCG. The AO concluded that the transactions were sham and added ?23,51,714/- to the assessee's income as undisclosed income under Section 68 of the Act. 3. Principles of Natural Justice and Denial of Cross-Examination: The assessee argued that the AO did not allow cross-examination of the persons whose statements were relied upon. The AO contended that the principles of natural justice were not violated as no prejudice was caused to the assessee. However, the CIT(A) confirmed the AO's action, stating that the transactions were arranged to create bogus profit under the guise of tax-exempt LTCG. Tribunal's Findings: The Tribunal noted that the purchase and sale of shares were supported by documentary evidence, including bills, money receipts, contract notes, and bank statements. No defects were found in these documents. The Tribunal emphasized that no material evidence was presented by the revenue to show the assessee's involvement in the bogus LTCG racket. The statements of Sanjay Vora and Praveen Kumar Agarwal did not mention the assessee's name. The Tribunal also highlighted that the revenue failed to prove that the transactions were not genuine or that the assessee paid any amount in cash for the shares. The abnormal increase in share price alone was insufficient to discredit the transactions without cogent material evidence. Conclusion: The Tribunal concluded that the addition made under Section 68 of the Act was unsustainable. The Tribunal set aside the orders of the lower authorities and deleted the addition of ?23,51,714/-, allowing the appeal of the assessee. The decision was based on the lack of direct evidence against the assessee and the overwhelming documentary support for the transactions. The principles of natural justice were deemed violated due to the denial of cross-examination, further supporting the assessee's case.
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