2019 (8) TMI 610 - AT - Income Tax

Bogus LTCG - bogus accommodation entry - statement of witness relied upon - AO has not disputed part sale of same share on which short term capital gain was offered to tax by the assessee - HELD THAT - We further note that this is not a case of purchase of penny stock of a company and within a short period there is an unprecedented hike in the sale price of the shares, but in case the assessee purchased the shares of unlisted company which was subsequently amalgamated with a listed company and, therefore, the value of the amalgamated entity is certainly very higher than the value of share of unlisted company though there can be a question about the sweep ratio of the shares. However, the same has not been doubted by any authority and the scheme of amalgamation was duly approved by the Hon ble High Court. Thus there is an extraordinary event in this case of amalgamation of unlisted company with a listed company and consequently there is a sudden increase in the price of the shares of amalgamated entity. As held in Shri Pramod Jain vs. DCIT 2018 (2) TMI 300 - ITAT JAIPUR addition made by the AO based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Thus when the assessee has produced all the supporting evidences which has not been controverted or disputed by the AO, then we do not find any error or illegality in the order of the ld. CIT (A) qua this issue. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made by the AO treating long-term capital gains as bogus transactions.
2. Deletion of additions based on corroborative information from the Investigation Wing.
3. Deletion of additions related to commission for acquiring cash accommodation entry.

Detailed Analysis:

Issue 1: Deletion of Addition Treating Long-Term Capital Gains as Bogus Transactions

The revenue challenged the deletion of the addition made by the AO, who treated the long-term capital gain declared by the assessee on the sale of shares of M/s. Trinity Tradelink Ltd. as a bogus transaction. The AO's decision was based on information from the Investigation Wing, which uncovered a scam involving bogus accommodation entries. The AO referenced a statement by Shri Vikrant Kayan, who admitted to providing such entries. Despite the assessee providing documentation and dematerialized account details to support the genuineness of the transactions, the AO added ?1,48,50,672/- under section 68 as unexplained cash credit and a notional commission of ?9,00,340/-.

The CIT (A) accepted the assessee's evidence, including the purchase consideration paid through banking channels, dematerialization of shares, and sale through the stock exchange, and deleted the addition. The Tribunal upheld this decision, noting the assessee's regular trading activities and the lack of direct evidence from the AO to prove the transactions were bogus. The Tribunal emphasized that suspicion alone cannot justify an addition without concrete evidence.

Issue 2: Deletion of Additions Based on Corroborative Information from Investigation Wing

The revenue argued that the CIT (A) erred in deleting the additions based on information from the Investigation Wing, which falls under the exception clause 10(e) of Circular 03 of 2018. The AO relied on the statement of Shri Vikrant Kayan, who described the modus operandi of providing accommodation entries. However, the Tribunal found that the AO did not conduct an independent investigation and solely relied on the Investigation Wing's report. The Tribunal noted that the assessee's transactions were supported by verifiable documents, such as bank statements and demat accounts, which the AO did not disprove.

Issue 3: Deletion of Additions Related to Commission for Acquiring Cash Accommodation Entry

The AO added a notional commission of ?9,00,340/- for acquiring cash accommodation entries, assuming the long-term capital gains were bogus. Since the Tribunal upheld the CIT (A)'s decision that the long-term capital gains were genuine, the addition of notional commission was also dismissed. The Tribunal reiterated that the AO's findings were based on suspicion without substantial evidence, and the assessee had provided all necessary documentation to support the genuineness of the transactions.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming the CIT (A)'s deletion of the additions. The Tribunal emphasized the importance of concrete evidence over mere suspicion and upheld the genuineness of the assessee's transactions based on the provided documentation and independent verifiability. The Tribunal also highlighted the procedural lapse in not allowing cross-examination of key witnesses, which further weakened the AO's case.