2019 (2) TMI 798 - AT - Income Tax

Bogus LTCG - addition u/s 68 - Addition of commission received as sale consideration/LTCG/exempt income on sale of scrip - Held that - The transactions of sale of shares by the assessee was duly backed up by material/evidence including contract notes, demat statement, bank account reflecting transactions, the stock brokers have confirmed the transactions, the shares having been sold on the online platform of the stock exchange and each trade of sale of shares were having unique trade number and trade time. It is not the case of the AO that the shares which were sold on the date mentioned in the contract note were not the traded price on that particular date. The AO doubted the transactions due to the high rise in the stock price and for that the assessee cannot be blamed unless there was any material/evidence to prove that the assessee or any one on his behalf has rigged the stock price. It should be noted that the Stock Exchange and SEBI are the statutory authorities appointed by the Govt. of India to ensure that there is no stock rigging or manipulation - The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. The facts of the case of the assessee are identical with the facts in the case of Kiran Kothari HUF 2017 (11) TMI 1075 - ITAT KOLKATA , wherein the co-ordinate bench of the Tribunal has deleted the addition and allowed the claim of LTCG on sale of shares of M/s TTML. So we, respectfully following the same, set aside the order of Ld. CIT(A) and direct the AO not to treat the long term capital as bogus and delete the consequential addition. Addition as unexplained expenditure towards commission charges of sale of such shares by the operator. We have already held that the transactions relating to LTCG were genuine and not the accommodation entries as alleged by the AO. Consequently the addition is hereby directed to be deleted. We accordingly hold that the issue is allowed in favour of the assessee.

Issues Involved:
1. Addition of sale consideration/LTCG/exempt income on sale of shares of M/s. Tuni Textiles Mills Ltd. (TTML).
2. Addition of 0.5% as commission on the sale of shares.
3. Validity of additions based on incriminating material found during the search.
4. Evidentiary value of statements made during the survey.
5. Genuineness of the transactions and the applicability of Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of Sale Consideration/LTCG/Exempt Income on Sale of Shares of M/s. Tuni Textiles Mills Ltd. (TTML):
The assessee's main grievance was against the addition of ?2,35,58,171/- for AY 2011-12 and ?2,89,17,929/- for AY 2012-13, which were claimed as sale consideration/LTCG/exempt income on the sale of shares of TTML. The AO considered these gains as bogus LTCG based on the abnormal rise in share prices and the company's lack of financial credibility. The AO alleged that the transactions were a colorable device to launder unexplained money. However, the assessee contended that the transactions were genuine, backed by documentary evidence such as purchase bills, sale contract notes, demat statements, and bank statements. The Tribunal found that the AO failed to provide concrete evidence to prove that the transactions were bogus and held that the assessee's claim of LTCG was genuine.

2. Addition of 0.5% as Commission on the Sale of Shares:
The AO added 0.5% of the sale amount as commission, assuming that the assessee would have paid this amount to brokers for facilitating the bogus LTCG. The Tribunal, however, found that since the transactions were genuine, the addition of ?1,17,791/- as commission for AY 2011-12 and ?1,44,590/- for AY 2012-13 was not justified and directed the AO to delete these additions.

3. Validity of Additions Based on Incriminating Material Found During the Search:
The AO asserted that incriminating materials (CJ-2 and CJ-13) were found during the search, which indicated that the assessee had availed of bogus LTCG. The Tribunal examined these documents and concluded that they were regular business documents such as bank statements, ledgers, and contract notes, which were already disclosed before the search. Therefore, these documents could not be classified as incriminating materials. The Tribunal emphasized that no addition could be made without the aid of incriminating material found during the search, especially for completed assessments.

4. Evidentiary Value of Statements Made During the Survey:
The AO relied on the statement of Shri Narendra Prabhudayal Sureka, the Managing Director of TTML, who admitted that TTML was a penny stock company used to provide accommodation entries for bogus LTCG. However, the Tribunal noted that this statement was recorded before the search and did not directly implicate the assessee. The Tribunal also highlighted that the statement was recorded behind the back of the assessee, and no opportunity for cross-examination was provided. Therefore, the statement could not be used as incriminating evidence against the assessee.

5. Genuineness of the Transactions and the Applicability of Section 68 of the Income Tax Act:
The Tribunal found that the assessee had provided all necessary documents to substantiate the genuineness of the transactions, including purchase and sale contract notes, demat statements, and bank statements. The AO did not find any defects in these documents. The Tribunal held that the AO's conclusions were based on suspicion and conjectures without any legally admissible evidence. The Tribunal referred to various judicial precedents that emphasized the need for concrete evidence to prove that a transaction was bogus. Therefore, the Tribunal directed the AO to delete the additions made under Section 68 of the Income Tax Act.

Conclusion:
The Tribunal concluded that the assessee's transactions were genuine and directed the AO to delete the additions related to the sale consideration/LTCG/exempt income and the commission. The Tribunal emphasized that no addition could be made without incriminating material found during the search and that statements made during the survey could not be used as evidence without providing an opportunity for cross-examination.

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