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2019 (4) TMI 1294 - AT - Income TaxBogus LTCG on sale of shares - addition u/s 68 - rejecting the assessee s claim of long term Capital Gains (LTCG) on sale of those shares - claim of exemption u/s 10(38) - HELD THAT - As decided in Manish Kumar Baid and Mahendra Kumar Baid vs ACIT 2017 (10) TMI 522 - ITAT KOLKATA as held SEBI order did mention the list of 246 beneficiaries of persons trading in shares of KAFL, wherein, the assessee and/or Ashita Stock Broking Ltd s name is not reflected at all. Hence the allegation that the assessee getting involved in price rigging of KAFL shares fails. We also find that even the SEBI S order heavily relied upon by the Id AO clearly states that the company KAFL had performed very well during the year under appeal and the P/E ratio had increased substantially. Thus we hold that the said orders of SEBI is not evidence against the assessee. Transactions of the assessee were bonafide and genuine and therefore the AO was not justified in rejecting the assessee s claim of exemption under section 10(38) of the Act. AO was not justified in assessing the sale proceeds of shares of KAFL as undisclosed income of the assessee u/s 68 of the Act. - Decided in favour of the assessee.
Issues Involved:
1. Justification of the addition made under Section 68 of the Income Tax Act concerning sale proceeds of shares of Kailash Auto Finance Limited (KAFL), treating them as income from undisclosed sources after rejecting the assessee's claim of Long Term Capital Gains (LTCG). 2. Justification of charging interest under Sections 234A, 234B, and 234C of the Income Tax Act. Issue-wise Detailed Analysis: 1. Addition under Section 68 of the Income Tax Act: The assessee purchased 50,000 shares of Careful Projects Advisory Limited (CPAL) which later amalgamated with KAFL. The shares were sold through a registered broker, resulting in LTCG, which the assessee claimed as exempt under Section 10(38) of the Act. The Assessing Officer (AO) treated the purchase as bogus due to the non-verification of the seller (Needful Vincom Pvt Ltd) and considered the LTCG as fictitious, denying the exemption. Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, suspecting the transactions were staged to convert unaccounted money into tax-exempt income. The AO's observations were based on general investigations into penny stocks and statements from unrelated third parties, without specific evidence against the assessee. The Tribunal found that: - The shares were duly dematted and sold through a registered broker. - The amalgamation was approved by the Hon'ble Allahabad High Court. - The AO's reliance on the non-verification of Needful Vincom Pvt Ltd and general findings from investigations into penny stocks was insufficient. - The AO did not dispute the documentary evidence provided by the assessee, including purchase bills, demat statements, and bank statements. The Tribunal referred to several case laws, including the decision in Manish Kumar Baid and Mahendra Kumar Baid vs. ACIT, which highlighted that suspicion alone cannot replace concrete evidence. The Tribunal emphasized that the AO failed to provide direct evidence linking the assessee to any manipulative activities or bogus transactions. The Tribunal concluded that the AO's addition under Section 68 was unsustainable and directed the AO to grant the exemption under Section 10(38) for the LTCG claimed by the assessee. 2. Charging of Interest under Sections 234A, 234B, and 234C: The Tribunal did not provide a detailed analysis on this issue as it was consequential to the primary issue of the addition under Section 68. Since the Tribunal decided in favor of the assessee regarding the primary issue, the consequential interest charges under Sections 234A, 234B, and 234C would also be affected accordingly. Conclusion: The Tribunal allowed the appeal of the assessee, directing the AO to grant the exemption under Section 10(38) for the LTCG on the sale of shares and to adjust the interest charges under Sections 234A, 234B, and 234C accordingly. The Tribunal emphasized the need for concrete evidence rather than suspicion to justify additions under Section 68.
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