2019 (5) TMI 1377 - AT - Income Tax

Bogus LTCG - sale of scrip of M/s. Tuni Textile Mills Ltd. as exempt u/s. 10(38) of the Act which was held by AO to be bogus - HELD THAT - We note that in a number of cases, this Tribunal has held that the scrip of M/s. Tuni Textile Mills is not bogus and has allowed the claim of assessee in respect of LTCG claim on the sale of this scrip i.e. M/s. Tuni Textile Mills Ltd. (in short M/s. TTML). We note that the issue is no longer res integra as the Tribunal in Ramesh Chandra K. Shah Vs. ACIT 2019 (2) TMI 798 - ITAT KOLKATA wherein the Tribunal has held that the scrip of M/s. TTML is not a bogus scrip. Unexplained expenditure u/s 69C - Addition being commission @ 0.5% expenditure incurred - HELD THAT - Since we have already allowed the claim of LTCG on sale of scrip of M/s. TTML as exempt u/s. 10(38) of the Act, and held it as a genuine transaction, consequently, the addition as unexplained expenditure is directed to be deleted.

Summary

Issues Involved:
1. Validity of reopening u/s 147 read with 148 of the Income-tax Act, 1961.
2. Treatment of Long Term Capital Gains (LTCG) from the sale of shares of M/s. Tuni Textile Mills Ltd. as bogus.
3. Addition of alleged commission expenditure incurred for obtaining bogus LTCG.

Issue-wise Detailed Analysis:

1. Validity of Reopening u/s 147 read with 148 of the Income-tax Act, 1961:
The assessee raised a legal issue against the validity of reopening u/s 147 read with 148 of the Income-tax Act, 1961. However, the Tribunal noted that the reassessment order focused on the addition related to the LTCG claim of the assessee from the sale of shares of M/s. Tuni Textile Mills Ltd. (TTML), which was held to be bogus by the AO and confirmed by the CIT(A). The Tribunal did not specifically adjudicate on the validity of reopening since the primary issue was the genuineness of the LTCG claim.

2. Treatment of Long Term Capital Gains (LTCG) from the Sale of Shares of M/s. Tuni Textile Mills Ltd. as Bogus:
The AO treated the LTCG of ?28,93,483/- as unexplained cash credit u/s 68 of the Act based on information from the Directorate of Income Tax (Inv.) that the assessee had transacted in penny stock shares. The AO further added ?14,467/- for alleged commission paid to obtain the bogus LTCG u/s 69C of the Act. The CIT(A) confirmed the AO's action.

The Tribunal examined the facts and circumstances of the case, noting that in several cases, the Tribunal had held that the scrip of M/s. TTML is not bogus and allowed the LTCG claim on the sale of this scrip. The Tribunal referred to the case of Ramesh Chandra K. Shah vs. ACIT, where it was held that the scrip of M/s. TTML is not bogus. The Tribunal emphasized that no incriminating material was found during the search to justify the addition made by the AO. The Tribunal highlighted that the AO's assertion was based on general statements and not on any specific evidence against the assessee.

The Tribunal further analyzed the statement of Shri Narendra Prabhudayal Sureka, the Managing Director of M/s. TTML, who admitted that the shares of M/s. TTML were used to provide entry for bogus LTCG. However, the Tribunal noted that the statement did not directly implicate the assessee and was recorded before the search. The Tribunal concluded that without any incriminating material found during the search, no addition could be made.

On the merits, the Tribunal found that the assessee had provided all relevant documents to substantiate the genuineness of the share transactions, including purchase bills, sale contract notes, bank statements, and de-mat statements. The AO did not find any defects in these documents. The Tribunal held that the AO could not deny the LTCG claim without cogent grounds and material evidence to substantiate the claim that the assessee indulged in a stage-managed transaction.

The Tribunal referred to several judicial precedents, including the Hon'ble Calcutta High Court's decision in CIT vs. Veerprabhu Marketing Ltd., which held that incriminating material is a prerequisite before making additions u/s 153A. The Tribunal also referred to the Hon'ble Supreme Court's decision in Omar Salav Mohamed Sait, which held that no addition can be made based on surmises, suspicion, and conjectures.

The Tribunal concluded that the AO failed to bring any material evidence to substantiate the claim that the share transactions were bogus. Therefore, the Tribunal allowed the assessee's claim of LTCG as genuine and directed the AO to delete the addition.

3. Addition of Alleged Commission Expenditure Incurred for Obtaining Bogus LTCG:
The AO added ?14,467/- as unexplained expenditure towards commission charges for obtaining bogus LTCG. The CIT(A) confirmed the AO's action. Since the Tribunal allowed the claim of LTCG as genuine, it consequently directed the deletion of the addition of ?14,467/- as unexplained expenditure.

Conclusion:
The Tribunal allowed the assessee's appeal on the merits, holding that the LTCG from the sale of shares of M/s. TTML was genuine and not bogus. Consequently, the addition of ?14,467/- as unexplained expenditure was also directed to be deleted. The legal issue regarding the validity of reopening u/s 147 read with 148 was not adjudicated as the assessee succeeded on the merits. The appeal of the assessee was partly allowed.