2019 (7) TMI 364 - AT - Income Tax

Bogus LTCG on sale of shares - sale of penny stocks - accommodation entries as alleged by the ld AO - undisclosed commission expenses u/s 69C - HELD THAT - AO / CIT(A) has not made any negative/adverse remarks or finding against the aforesaid documents produced before the AO. However, they have brushed aside these documents and has relied heavily upon the general investigation report of the department, which has not found any wrong doing on the part of the assessee or her broker who sold the shares. We note that the suspension by SEBI of transaction of scrips of M/s. KAFL has been later lifted. Therefore, in the light of the above supporting documents the assessee s claim for LTCG has to be allowed. We allow the claim of LTCG of the assessee and delete the addition made u/s 69C of commission expenses. See MANISH KUMAR BAID AND MAHENDRA KUMAR BAID VERSUS ACIT, CIR-35, KOLKATA 2017 (10) TMI 522 - ITAT KOLKATA Valid claim of LTCG - period of holding - whether assessee held the scrip for a period of 12 months - CBDT Circular No. 704 dated 28.04.1995 - date of contract of sale as declared by the parties shall be treated as the date of transfer - purchase of share made directly between the parties and not through stock exchange - HELD THAT - According to the documents filed before us since the actual delivery of shares took place along with transfer deeds/contract bills, so that date should be considered the date of transfer. Thus, we note that assessee held the shares of M/s. Panchshul on 30.03.2012 (page 8 9 of paper book) which was later merged with M/s. KAFL and scrips of M/s KAFL was sold on 16.08.2013 28.08.2013, so the assessee was holding the shares in question for more than 12 months. Therefore, the claim of assessee for LTCG is valid in the eyes of law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of addition under Section 68 for sale proceeds of shares.
2. Addition of commission expenses under Section 69C for earning alleged bogus Long Term Capital Gain (LTCG).

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Section 68 for Sale Proceeds of Shares:

The main grievance of the assessee was against the confirmation of the addition of ?15,25,000/- made by the Assessing Officer (AO) under Section 68 concerning the sale proceeds of shares from M/s. Kailash Auto Finance Ltd. (KAFL). The AO questioned the genuineness of the Long Term Capital Gain (LTCG) claimed by the assessee, invoking a report from the Investigation Wing that identified misuse of stock exchange platforms for selling penny stocks to avoid taxes. The AO's apprehensions were based on the modus operandi described in the report, which involved artificially inflating stock prices with the help of unscrupulous brokers.

Despite the assessee providing several documents, including bank statements, depository account statements, contract notes, and balance sheets, the AO relied on the investigation report and SEBI's suspension of KAFL transactions to disallow the LTCG claim. The AO added ?14,81,950/- as income and ?45,750/- as undisclosed commission expenses under Section 69C.

However, the Tribunal noted that the assessee had provided substantial evidence, including purchase bills, bank statements, demat statements, and contract notes, which were not disputed by the AO or CIT(A). The Tribunal referenced the case of Manish Kumar Baid and Mahendra Kumar Baid vs. ACIT, where similar transactions were considered genuine. The Tribunal concluded that the AO's reliance on the general investigation report without specific evidence against the assessee was unjustified. The suspension by SEBI had also been lifted, further supporting the genuineness of the transactions. Therefore, the Tribunal allowed the assessee's claim for LTCG.

2. Addition of Commission Expenses under Section 69C:

The AO added ?45,750/- as commission expenses under Section 69C, assuming that the assessee must have incurred these expenses to earn the alleged bogus LTCG. The Tribunal, referencing the same case of Manish Kumar Baid, held that no addition under Section 69C could be made without concrete evidence of such expenditure. The Tribunal emphasized that the AO had not found any false or fabricated evidence among the documents provided by the assessee. Consequently, the addition under Section 69C was directed to be deleted.

Conclusion:

The Tribunal, after considering all the evidence and referencing relevant case law, concluded that the transactions involving the sale of shares of M/s. Kailash Auto Finance Ltd. were genuine. The assessee's claim for LTCG was allowed, and the addition of commission expenses under Section 69C was deleted. The appeal of the assessee was thus allowed.