2019 (9) TMI 719 - AT - Income Tax

Bogus LTCG - AO has received information about suspicious share transactions and on the basis of the same; he has disbelieved the claim of long term capital gains - HELD THAT - Assessee has purchased shares through a broker named M/s Eden Financial Services and sold shares through Intime Equities Ltd. Thus, the purchase and sale of shares have been carried out through two different brokers. It is not the case of the AO that both the share brokers referred above have been identified as tainted brokers involved in fraudulent transactions. The assessee has earned speculation profit in the immediately preceding year through M/s Eden Financial Services also and the said profit has been used to purchase the shares of M/s Sunrise Asian Ltd. The assessee has offered the speculation profit for income tax purposes in the immediately preceding year and it has been accepted. The assessee has shown the purchase of impugned shares as investment in the Balance Sheet. Hence the purchase of shares has been accepted. Further the shares have been received in the D-mat account of the assessee and they have been sold through the D-mat account only. Hence the delivery of shares also stand proved. AO has not brought any material on record to show that the assessee was part of fraudulent price rigging. Accordingly, in the absence of any evidence to implicate the assessee or to prove that the transactions are bogus, the capital gains declared by the assessee cannot be doubted with. In that view of the matter, the addition made towards expenses is not also sustainable. - Decided in favour of assessee.

Summary

Issues:
Appeal against partial confirmation of addition related to sale of shares made by AO rejecting capital gains claim for assessment year 2014-15.

Analysis:
1. The appellant declared long term capital gains from the sale of shares but the AO reopened the assessment due to suspicious trading activities in shares of the company. The AO concluded that the transactions were not genuine, leading to the rejection of the capital gains claim and treating the sale consideration as income under section 68 of the Act.

2. The CIT(A) partially confirmed the addition, noting that the speculation profit was earned from a different broker than the one through whom the shares were purchased. The appellant argued that the transactions were genuine, pointing out that the shares were received and sold through a d-mat account, and there was no link established between the appellant and the directors involved in price rigging.

3. The appellant further contended that the AO treated the gain as income under section 68, whereas it was offered as long term capital gain. Citing a precedent, the appellant argued that similar additions were deleted by the Tribunal when shares were transacted through the stock exchange, as was the case here.

4. The Tribunal found that the purchase and sale of shares were conducted through different brokers, neither of whom were identified as tainted. The appellant's use of speculation profit to purchase the shares was accepted in the previous year, and the transactions were reflected in the balance sheet. With no evidence implicating the appellant in fraudulent activities, the Tribunal held that the capital gains declaration was reliable and directed the AO to delete the additions.

5. Consequently, the Tribunal allowed the appeal, setting aside the CIT(A)'s order and instructing the AO to delete both the additions related to the sale of shares. The judgment was pronounced on 16-07-2019.