2019 (8) TMI 1324 - AT - Income Tax

Bogus LTCG - exemption u/s 10(38) - penny stock transactions - successive layers of transactions - the AO found some cash deposits in the accounts of unrelated parties - HELD THAT - No cogent material was brought on record which in any manner showed that either the survey team or the AO had identified the persons to whom the entities/concerns belonged and in whose accounts the cash was allegedly deposited - neither any of the proprietors of bank accounts where cash was deposited were personally examined by the AO nor any independent enquiries were made from them to verify the true correct facts of the case. Merely because while tracing the successive layers of transactions, the AO found some cash deposits in the accounts of unrelated parties; in our considered view, on such fact alone the AO could not record a conclusive finding that the cash so deposited represented appellant s undisclosed income which was routed through several accounts. Therefore, the so-called evidences in the form of cash trail of transactions did not conclusively prove the AO s alleged findings that the proceeds realized by the appellant from sale of shares could be considered as appellant s undisclosed income. This finding is further fortified from the fact that even through the aggregate of the additions made u/s 68 in these group of cases is ₹ 6,46,63,639/-, the alleged cash deposits as per the trail found was only ₹ 3,58,90,000/- which in itself shows that the said deposits were not sufficient to lead to conclusion that sale proceeds represented appellant s undisclosed income introduced in the form of sale proceeds. We find the entire assessment substantially proceeded on the AO s suspicion that the appellant had indulged in laundering her unaccounted income during the month of February 2014. All the payments received during the month of February 2014 against the sale of shares was received through banking channel from registered stock broker and even as per the AO s own observation the source as well as source of source for receipt of sale consideration were found through proper banking channel. In fact the appellant s transactions in the same shares conducted through the same broker, in months other than February 2014, has been accepted to be genuine by the AO and no adverse inference has been drawn. It is relevant to reiterate at this juncture that the AO has recorded a finding of fact accepting the explanation furnished by the appellant substantiating the genuineness of the appellant s transactions involving purchase sale of various listed shares and that the appellant was not involved in the alleged racket of penny stock transactions. We therefore do not find that the conclusions drawn by the AO making the impugned addition to be factually as well as legally sustainable.- Decided in favour of assessee

Issues Involved:
1. Confirmation of addition of ?2,01,67,214/- by the AO out of the total proceeds received by the appellant on the sale of shares.
2. Examination of the appellant’s transactions in listed shares and the genuineness of the long-term capital gains claimed as exempt under section 10(38) of the Act.
3. Analysis of the cash trail prepared by the AO and its implications on the appellant’s transactions.
4. The appellant’s opportunity to cross-examine third parties and the relevance of statements recorded under section 131.
5. The AO’s reliance on statements and evidence gathered during the survey operations.

Detailed Analysis:

1. Confirmation of Addition by AO:
The solitary issue in the appeal concerned the AO’s addition of ?2,01,67,214/- out of the total proceeds of ?14,36,04,042/- received by the appellant on the sale of shares. The appellant declared a long-term capital gain of ?13,03,49,090/- claimed as exempt under section 10(38) of the Act. The AO, based on a survey operation and subsequent cash trail analysis, inferred that ?2,01,67,214/- represented the appellant’s unaccounted money brought back through banking channels and added the same under section 68 of the Act. The Ld. CIT(A) confirmed this addition, leading to the appellant’s appeal.

2. Examination of Transactions and Genuineness of Gains:
The appellant argued that she was a regular investor in shares and provided substantial documentary evidence to substantiate her transactions. The AO accepted the genuineness of the transactions and the long-term capital gains except for the proceeds received in February 2014. The appellant contended that all transactions were conducted through a registered stock broker on the stock exchange, and there was no incriminating material found during the survey to prove the gains were bogus.

3. Cash Trail Analysis:
The AO prepared a cash trail indicating that cash was deposited in various companies and eventually transferred to the appellant. The AO’s analysis suggested that the appellant managed to bring back unaccounted money through her broker. However, the appellant argued that the cash trail was based on surmises and conjectures, and no concrete evidence was provided to substantiate the AO’s claims. The appellant also pointed out that the AO accepted the genuineness of transactions for other periods, and the same modus operandi was followed for all transactions.

4. Opportunity to Cross-Examine and Relevance of Statements:
The appellant argued that the lower authorities did not provide the basis or bank statements of intermediary parties supporting the alleged cash trail. The statements recorded under section 131 did not reference the appellant or her group, and the appellant was not given an opportunity to cross-examine the third parties. The ld. DR contended that the appellant did not avail the opportunity to cross-examine and suggested restoring the matter to the AO for further examination.

5. Reliance on Statements and Survey Evidence:
The ld. DR relied on the statement of the appellant’s stock broker, who admitted to providing accommodation entries. However, the Tribunal noted that the broker’s statement did not specifically mention the appellant or her group as beneficiaries of bogus long-term capital gains. The Tribunal found that the AO’s reliance on the broker’s statement and the cash trail was insufficient to establish that the proceeds received by the appellant in February 2014 represented unaccounted income.

Conclusion:
The Tribunal concluded that the AO’s findings were not supported by concrete evidence. The appellant provided sufficient documentary evidence to substantiate the genuineness of her transactions. The AO’s cash trail analysis did not conclusively prove that the proceeds received by the appellant were her undisclosed income. The Tribunal directed the AO to delete the addition of ?2,01,67,214/- and allowed the appeals of the appellant assessees.

Order Pronounced:
The Tribunal allowed all the appeals of the appellant assessees and pronounced the order in the open court on 23rd August 2019.

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