2019 (5) TMI 527 - AT - Income Tax

Addition u/s 68 - bogus short term capital gain - disallowance of claim for short term capital loss - HELD THAT - Once the assessee has furnished all evidences in support of the genuineness of the transactions, the onus to disprove the same is on revenue. 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. - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of addition made under Section 68 of the Income-tax Act, 1961 regarding short-term capital gain.
2. Disallowance of the claim for short-term capital loss.
3. Disallowance on account of legal accounting, conveyance, and telephone charges.
4. Disallowance under Section 14A.

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Section 68:
The main issue pertains to the confirmation of the addition made by the Assessing Officer (AO) under Section 68 of the Income-tax Act, 1961 concerning short-term capital gain. The assessee claimed short-term capital gain of ?3,07,339/- on the sale of shares of M/s. Sulabh Engineers Ltd. (SEL) and short-term capital loss of ?3,30,578/- on the sale of scrips of M/s. SRK Industries. The AO opined that the transactions were stage-managed and pre-arranged to convert the assessee's own money through a syndicate, thus adding the entire claim of ?3,30,578/- (loss) + ?3,09,927/- (gain). The CIT(A) confirmed the AO's action.

The Tribunal noted that the assessee provided substantial evidence, including contract notes, DP statements, ledger accounts, and bank statements, showing that the transactions were conducted through recognized stock exchanges and brokers, and were reflected in the demat account and banking channels. The Tribunal found no material evidence suggesting that the documents were false or fabricated. It held that the AO's reliance on the modus operandi suggested by the Investigation Wing and SEBI without specific evidence against the assessee was insufficient to disallow the claim. The Tribunal overturned the decisions of the lower authorities and directed the AO to allow the claim of LTCG.

2. Disallowance of Short-term Capital Loss:
The assessee also claimed short-term capital loss on the sale of shares of M/s. SRK Industries. The AO disallowed the claim, suspecting the transactions to be part of a pre-arranged scheme. The Tribunal, however, noted that the transactions were supported by proper documentation and were conducted through recognized channels. It found no evidence to support the AO's suspicion of the transactions being bogus. The Tribunal directed the AO to allow the claim of short-term capital loss.

3. Disallowance on Account of Legal Accounting, Conveyance, and Telephone Charges:
The assessee had not pressed these grounds before the CIT(A), and no submissions were made before the Tribunal regarding these disallowances. Consequently, the Tribunal dismissed these grounds.

4. Disallowance under Section 14A:
Similar to the disallowance on legal accounting, conveyance, and telephone charges, the assessee did not press this ground before the CIT(A) and made no submissions before the Tribunal. Therefore, this ground was also dismissed.

Conclusion:
The Tribunal allowed the appeal partly, directing the AO to treat the gains arising from the sale of shares under the head capital gains and to allow the claim of short-term capital loss. The disallowances on legal accounting, conveyance, telephone charges, and under Section 14A were dismissed due to lack of submissions from the assessee.