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2019 (7) TMI 1208 - AT - Income TaxBogus LTCG - addition u/s 68 in respect of sale proceeds of shares of M/s Kailash Auto Finance Limited (KAFL) treating the same as income from undisclosed sources - off market transaction for purchase of shares - claim u/s u/s. 10(38) denied - HELD THAT - 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. Whether the addition made by the AO under Section 68 of the Income-tax Act, 1961, in respect of sale proceeds of shares of M/s Kailash Auto Finance Limited (KAFL), treating the same as income from undisclosed sources after rejecting the assessee's claim of Long Term Capital Gains (LTCG) under Section 10(38) of the Act, was justified. Issue-wise Detailed Analysis: 1. Addition under Section 68 and Rejection of LTCG Claim: The primary issue in this appeal was whether the Assessing Officer (AO) was justified in treating the sale proceeds of shares of M/s Kailash Auto Finance Limited (KAFL) as income from undisclosed sources under Section 68 of the Income-tax Act, 1961, after rejecting the assessee's claim of Long Term Capital Gains (LTCG) under Section 10(38) of the Act. Facts and Arguments: - The assessee claimed LTCG from the sale of shares of M/s KAFL, which was exempt from income tax under Section 10(38) of the Act. - The AO found the transactions suspicious due to the significant gains in a short period and suspected the transactions were a sham to convert unaccounted cash into tax-exempt income. - The AO noted that the financials of KAFL did not justify the high premiums of its shares and concluded that the transactions were not genuine investments but a premeditated arrangement to provide LTCG to beneficiaries. - The AO relied on the statements of various individuals, including Shri Sunil Dokania, who explained the modus operandi of providing LTCG through artificial price rigging of KAFL shares. - The AO also referred to SEBI orders indicating price manipulation of KAFL shares and concluded that the assessee's transactions were part of this scheme. Tribunal's Findings: - The Tribunal noted that similar issues had been decided in favor of the assessee in previous cases, where it was held that the scrips of M/s KAFL were not bogus and the LTCG claims were allowed. - The Tribunal emphasized that the AO's conclusions were based on suspicion and surmises without concrete evidence against the assessee. - The Tribunal highlighted that the assessee had provided all necessary documents to substantiate the genuineness of the transactions, including purchase bills, bank statements, demat statements, and contract notes for the sale of shares. - The Tribunal found that the transactions were conducted through recognized stock exchanges and payment was made through banking channels, which supported the assessee's claim of genuine transactions. - The Tribunal also noted that the AO did not provide the assessee with an opportunity to cross-examine the individuals whose statements were relied upon, which violated the principles of natural justice. Judicial Precedents: - The Tribunal referred to several judicial precedents, including decisions of the Hon'ble Supreme Court and various High Courts, which consistently held that suspicion, however strong, cannot replace concrete evidence. - The Tribunal emphasized that the burden of proof lies with the revenue authorities to disprove the assessee's claim with substantial evidence, which was not done in this case. Conclusion: - The Tribunal concluded that the AO's addition under Section 68 and rejection of the LTCG claim were not justified. The transactions were genuine, supported by documentary evidence, and conducted through recognized channels. - The Tribunal allowed the assessee's appeal, setting aside the AO's order and directing the deletion of the addition made under Section 68. Interest Under Sections 234A, 234B, and 234C: - The Tribunal noted that the issue of interest under Sections 234A, 234B, and 234C of the Act was consequential in nature and would depend on the outcome of the primary issue. Final Order: - The appeal of the assessee was allowed, and the addition made by the AO under Section 68 was deleted. The Tribunal directed the AO to treat the gains from the sale of shares as LTCG and grant the exemption under Section 10(38) of the Act. The issue of interest under Sections 234A, 234B, and 234C was to be addressed accordingly.
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