2020 (5) TMI 158 - AT - Income Tax

Addition u/s 68 - bogus Long Term Capital Gain - HELD THAT - No confusion to the extent that the income declared in earlier assessment year can be taken into account to explain the transactions of subsequent year provided there is a nexus between the income declared and the transaction of the subsequent assessment year. In the case of assessee for A.Y. 2013-14 cash income is offered as undisclosed income. The revenue authorities were unable to find any other source of undisclosed income for A.Y. 2013-14. Therefore, the assessee had undisclosed cash income at the end of A.Y. 2013-14 i.e. at the opening of A.Y. 2014-15. For A.Y. 2014-15 there is no other undisclosed income found except the bogus claim of Long Term Capital Gain. Income offered by the assessee under IDS 2016 for A.Y. 2013-14 has been rightly claimed as the source of the bogus Long Term Capital Gain managed by the assessee in A.Y. 2014-15 and thus, the bogus claim of Long Term Capital Gain for A.Y. 2014-15 has been rightly explained by the assessee byway of offering undisclosed income in A.Y. 2013-14 under the Income Declaration Scheme 2016. We, thus, set aside the orders of the both lower authorities delete the addition and allow the sole ground raised by the assessee. Appeal of the assessee is allowed.

Summary

Issues:
- Disallowance of Long Term Capital Gain (LTCG) claimed by the assessee
- Eligibility of the assessee to claim benefit under the Income Declaration Scheme 2016

Analysis:
1. The assessee filed a return showing total income with exemption under section 10(38) for LTCG from the sale of shares. The assessing officer (AO) found no Secured Transaction Tax (STT) paid and deemed the LTCG claim as bogus.
2. The assessee disclosed cash income under the Income Declaration Scheme 2016 for A.Y. 2013-14. The Commissioner of Income Tax (Appeals) denied the benefit of this disclosure against the LTCG claim for A.Y. 2014-15, citing the pending assessment.
3. The assessee argued that the IDS 2016 disclosure for A.Y. 2013-14 should be considered as the source for the LTCG claim in A.Y. 2014-15. The Departmental Representative supported the lower authorities' decision.
4. The Tribunal noted that the assessee had disclosed cash income under IDS 2016 for A.Y. 2013-14 and used it to earn LTCG in A.Y. 2014-15. The Tribunal examined circulars related to IDS 2016 and found that the disclosed income from an earlier year can explain transactions in subsequent years.
5. As there was no other undisclosed income for A.Y. 2013-14, the undisclosed cash income was considered as the source for the LTCG claim in A.Y. 2014-15. The Tribunal allowed the appeal, setting aside the lower authorities' decisions and deleting the addition of LTCG claimed by the assessee.
6. The Tribunal concluded that the assessee's disclosure under IDS 2016 for A.Y. 2013-14 was rightly claimed as the source of the LTCG claimed in A.Y. 2014-15. The addition of LTCG was deleted, and the assessee's appeal was allowed.

This detailed analysis highlights the dispute over the LTCG disallowance and the eligibility of the assessee to use the disclosed income under IDS 2016 as the source for the LTCG claim, ultimately resulting in the Tribunal allowing the appeal and deleting the addition made by the lower authorities.