2019 (2) TMI 159 - AT - Income Tax

Addition u/s 68 - bogus Long Term Capital Gains on purchase and sale of the shares - exemption made u/s 10(38) denied - Held that - AO has not assessed this amount as Business Income . As bound to follow the judgment of the Jurisdictional High Court in this matter. As find that the assessee has filed all necessary evidences in support of the transactions. Some of these evidences are (a) evidence of purchase of shares, (b) evidence of payment for purchase of shares made by way of account payee cheque, copy of bank statements, (c) copy of balance sheet disclosing investments, (d) copy of demat statement reflecting purchase, (e) copy of merger order passed by the High Court , (f) copy of allotment of shares on merger, (g) evidence of sale of shares through the stock exchange, (h) copy of demat statement showing the sale of shares, (i) copy of bank statement reflecting sale receipts, (j) copy of brokers ledger, (k) copy of Contract Notes etc. - Delete the addition made u/s 68 of the Act, on account of Long Term Capital Gains. - Decided in favour of assessee.

Summary

Issues:
Whether Assessing Officer was right in rejecting the claim of Long Term Capital Gains on shares sale?

Analysis:

1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the rejection of the claim of Long Term Capital Gains on shares sale. The Assessing Officer (AO) concluded that the claimed gains were bogus based on general observations and a report, adding the entire sale proceeds as income and rejecting the exemption under section 10(38) of the Income Tax Act, 1961.

2. The ld. CIT(A) upheld the addition based on "circumstantial evidence" and "human probabilities" without direct material to challenge the evidence provided by the assessee. The revenue authorities relied on a general report from the Director of Investigation, Kolkata, not specific to the assessee, without providing the report or confronting the assessee with the alleged basis.

3. The Departmental Representative argued that the transaction was not genuine, citing cases where similar gains were taxed. However, the Tribunal and Calcutta High Court consistently ruled that decisions should rely on evidence, not generalizations. The assessee presented various evidence supporting the transactions, including purchase details, bank statements, demat statements, merger orders, and sale receipts.

4. In comparison to the cases cited by the Departmental Representative, where evidence was lacking or transactions were deemed as business income, the present case had substantial evidence supporting the genuine nature of the transactions. The Tribunal and High Court decisions favoring the assessee's position were found to be applicable, leading to the deletion of the addition under section 68 of the Act for Long Term Capital Gains.

5. The judgment highlighted the importance of evidence in determining the genuineness of transactions and emphasized the need to follow established legal precedents. The decision to delete the addition was based on the overwhelming evidence provided by the assessee and the consistent rulings in similar cases by the Tribunal and Calcutta High Court.

6. Ultimately, the appeal of the assessee was allowed, and the addition under section 68 of the Act for Long Term Capital Gains was deleted, following the principles laid down by the Jurisdictional High Court and the ITAT Kolkata in similar cases.