2020 (4) TMI 162 - AT - Income Tax

Addition u/s 68 - bogus LTCG - denying the exemption claimed by the assessee u/s. 10(38) - addition u/s. 69C on the presumption that commission @ 5% was paid for arranging the aforesaid bogus long term capital gain - HELD THAT - AO failed to expose the wrong doing if any on the part of the assessee by bringing out or unraveling any nexus of assessee/broker with the purchase of shares. Further, I note that AO has not brought any evidence/material to suggest that the appellant knows any of the so-called entry operators/broker/paper companies or they have named the appellant in particular, that they have dealt with the appellant. So, it is upon mere surmise and assumption that AO says that assessee s own unaccounted cash have been given to purchasers in order to claim bogus LTCG. In order to create a tax liability in a case of this nature, the AO has to prove and establish the cash trail and the allegations, particularly in respect of the appellant, which is yet to be proved in the instant case. AO has failed to establish any link and therefore the order is based on surmises, predetermined, solely relying upon the investigation report which is general in nature and no concrete material has been brought on record proving otherwise. 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. Since the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. Claim of the assessee in respect of Long Term Capital Gain allowed in respect of sale of shares of M/s. Cressanda Solutions Ltd and direct deletion of addition. Since addition is hereby deleted in favour of the assessee the addition on account of commission expenses u/s. 69C of the Act for arranging LTCG is also hereby allowed in favour of the assessee. Disallowance u/s. 14A read with Rule 8D - A.O has simply invoked Sec 14A read with Rule 8D, while the appellant has contended that only those investments which yield dividend income ought to contribute to any calculation for disallowance under Rule 8D - HELD THAT - The details being sketchy and incomplete, I do not feed any cause to interfere with the action of the Ld. A.O in making the impugned disallowance.

Summary

Issues Involved:
1. Treatment of Long Term Capital Gains (LTCG) as bogus.
2. Addition under Section 69C of the Income Tax Act.
3. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules.
4. Charging of interest under Sections 234A and 234B of the Income Tax Act.

Detailed Analysis:

1. Treatment of Long Term Capital Gains (LTCG) as bogus:
The primary issue was whether the LTCG of ?30,78,601/- claimed by the assessee from the sale of shares of M/s. Cressanda Solutions Ltd. was genuine or bogus. The AO, influenced by an investigation report, treated the LTCG as bogus, suspecting the transactions were pre-arranged to evade tax. The AO noted that the shares were purchased for ?1,00,000/- and sold for ?30,78,601/- within a short period, which he found improbable given the company's financial status.

The assessee provided substantial documentation, including contract notes, demat account statements, and bank statements, to support the legitimacy of the transactions. The AO did not find any defects in these documents but still dismissed the claim based on human probability and the investigation report, which was not shared with the assessee.

The tribunal, after reviewing the documents and considering precedents, including the case of Navneet Agarwal, concluded that the AO's decision was based on suspicion rather than concrete evidence. The tribunal emphasized the importance of providing the assessee an opportunity to counter any adverse material, which was not done in this case. Consequently, the tribunal allowed the LTCG claim, directing the deletion of the addition of ?30,78,601/-.

2. Addition under Section 69C of the Income Tax Act:
The AO added ?15,393/- under Section 69C, presuming it was commission paid for arranging the bogus LTCG. Since the tribunal found the LTCG to be genuine, the addition under Section 69C was also deleted.

3. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules:
The AO disallowed ?7,041/- under Section 14A read with Rule 8D, assuming that some expenditure must have been incurred to earn exempt income. The assessee argued that no expenditure was incurred for earning the exempt income, as evident from the profit and loss account.

The tribunal noted that neither the AO nor the assessee provided specific details about the dividend income earned. The tribunal upheld the AO's decision, as the appellant did not provide sufficient evidence to counter the disallowance.

4. Charging of interest under Sections 234A and 234B of the Income Tax Act:
The assessee's ground against the charging of interest under Sections 234A and 234B was dismissed as it was consequential in nature and did not require adjudication.

Conclusion:
The tribunal allowed the appeal in part, specifically in favor of the assessee regarding the LTCG and the related addition under Section 69C. The disallowance under Section 14A and the charging of interest under Sections 234A and 234B were upheld.