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2019 (2) TMI 1136 - AT - Income TaxAddition u/s 68 - bogus LTCG on sale of shares - addition on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties - HELD THAT - Since the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. The assessee has furnished all evidences in support of the claim of the assessee that it earned LTCG on transactions of his investment in shares. The purchase of shares had been accepted by the AO in the year of its acquisition and thereafter until the same were sold. The off market transaction for purchase of shares is not illegal as was held by the decision of Co-ordinate Bench of this Tribunal in the case of Dolarrai Hemani vs. ITO 2016 (12) TMI 1074 - ITAT KOLKATA and PCIT Vs. BLB Cables & Conductors Pvt. Ltd. 2018 (8) TMI 525 - CALCUTTA HIGH COURT wherein all the transactions took place off market and the loss on commodity exchange was allowed in favour of assessee. The transactions were all through account payee cheques and reflected in the books of accounts. The purchase of shares and the sale of shares were also reflected in Demat account statements. The sale of shares suffered STT, brokerage etc. In the facts and circumstances of the case, it cannot be held that the transactions were bogus. - Decided in favour of assessee.
Issues Involved:
1. Legitimacy of Long Term Capital Gains (LTCG) claimed by the assessee. 2. Validity of the addition made by the Assessing Officer (AO) under Section 68 of the Income-tax Act, 1961. Detailed Analysis: 1. Legitimacy of Long Term Capital Gains (LTCG) Claimed by the Assessee: The sole issue in the appeal is whether the LTCG claimed by the assessee on the sale of shares of M/s. Sulabh Engineers & Services Ltd. (M/s. SESL) should be accepted or not. The AO rejected the LTCG claim, suspecting the transactions to be pre-arranged and stage-managed to launder the assessee’s own money. The AO’s suspicion was based on a general modus operandi revealed by the Investigation Wing of the Department and SEBI, although he admitted that the specific cash trail did not pertain to the assessee’s case. The assessee provided substantial documentation, including contract notes, bank statements, demat statements, and broker’s ledgers, to substantiate the purchase and sale of shares through recognized stock exchanges and brokers, with all transactions conducted online and through banking channels. Despite this, the AO added the entire sale consideration to the income of the assessee, which was upheld by the CIT(A). Upon review, it was noted that the AO failed to provide any direct evidence that the transactions were bogus. The Tribunal found that the assessee had adequately discharged the onus of proof by providing all necessary documents. The Tribunal also noted that the AO’s reliance on a general report without specific evidence against the assessee was insufficient to disallow the LTCG claim. 2. Validity of the Addition Made by the AO under Section 68 of the Income-tax Act, 1961: The Tribunal examined several judicial precedents to determine the validity of the addition made by the AO. Key judgments cited include: - CIT vs. Smt. Jamnadevi Agrawal & Ors.: The Bombay High Court held that transactions supported by documentary evidence such as purchase bills, contract notes, and bank statements cannot be deemed sham or bogus. - CIT vs. Smt. Pushpa Malpani: The Rajasthan High Court dismissed the department's appeal, noting that the assessee had provided sufficient documentary evidence to substantiate the transactions. - Anupam Kapoor 299 ITR 0179: The Punjab and Haryana High Court emphasized that suspicion, however strong, cannot replace legal proof, and transactions supported by proper documentation should be accepted as genuine. The Tribunal also referred to the Supreme Court’s decision in Andaman Timber Industries, which underscored the necessity of allowing cross-examination when statements form the basis of an assessment. The Tribunal found that the AO’s conclusions were based on presumptions and lacked concrete evidence. In light of these precedents, the Tribunal concluded that the AO’s addition under Section 68 was not justified. The Tribunal directed the AO to allow the LTCG claim and delete the consequential addition. Conclusion: The Tribunal overturned the decisions of the lower authorities and directed the AO to allow the assessee's claim of LTCG. The Tribunal emphasized that without concrete evidence of wrongdoing, the transactions should be accepted as genuine. The appeal was partly allowed, with the Tribunal setting aside the addition made under Section 68 of the Income-tax Act, 1961.
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