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2021 (1) TMI 361 - AT - Income TaxBogus LTCG - Addition u/s 68 - Deduction u/s 10(38) denied - LTCG on sale of shares of the scrip with assessee is having acquaintance with the entry provider - HELD THAT - As relying on MR. RAMPRASAD AGARWAL case 2018 (12) TMI 561 - ITAT MUMBAI and KAMLA DEVI S. DOSHI 2017 (5) TMI 1578 - ITAT MUMBAI Assessee has produced the relevant record to show the allotment of shares by the company on payment of consideration by cheque and therefore, it is not a case of payment of consideration by in cash. But the transaction is established from the evidence and record which cannot be manipulated as all the entries are part of the bank account of the assessee and the assessee dematerialized the shares in the D-mat account which is also an independent material and evidence cannot be manipulated. The holding of the shares by the assessee cannot be doubted and the finding of the AO is based merely on the suspicion and surmises without any cogent material to show that the assessee has introduction his unaccounted income in the shape of long term capital gain. The order of the AO treating the long term capital gain as bogus and consequential addition made to the total income of the assessee is not sustainable. - Decided in favour of assessee.
Issues Involved:
1. Claim of deduction under Section 10(38) of the Income Tax Act. 2. Allegations of pre-arranged transactions to evade taxes. 3. Analysis of share transactions and financials of PS IT Infra. 4. Statements and evidences provided by the assessee. 5. Findings of the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)]. 6. Appeals and grounds raised by the assessee. Issue-Wise Detailed Analysis: 1. Claim of Deduction under Section 10(38) of the Income Tax Act: The primary issue in the appeals was the claim of deduction under Section 10(38) for Long Term Capital Gains (LTCG) on the sale of shares. The assessee reported LTCG of ?99,55,347/- from the sale of shares of PS IT Infra, which was claimed as exempt under Section 10(38). The AO scrutinized the transaction, suspecting it was pre-arranged to claim tax exemption fraudulently. 2. Allegations of Pre-Arranged Transactions to Evade Taxes: The AO suspected the transactions were pre-arranged based on investigations and patterns observed in similar cases. The AO noted that the assessee purchased shares from an unknown entity, Bushit Trading Pvt Ltd, and sold them at significantly higher prices without any substantial financial backing of the company. The AO concluded that the transactions were designed to create artificial gains and evade taxes. 3. Analysis of Share Transactions and Financials of PS IT Infra: The AO analyzed the financials of PS IT Infra, noting that the share prices increased without any substantial financial strength. The AO observed that the shares were purchased off-market and sold through the stock exchange, resulting in a significant price increase. The AO issued notices under Section 133(6) to the purchasers of these shares but did not receive satisfactory responses regarding their identity or creditworthiness. 4. Statements and Evidences Provided by the Assessee: The assessee provided various documents, including purchase bills, DP statements, and bank statements, to support the genuineness of the transactions. The assessee argued that the shares were purchased through legitimate means and sold through a recognized stock exchange, fulfilling all conditions for claiming exemption under Section 10(38). The assessee also highlighted the financial growth of PS IT Infra to justify the investment. 5. Findings of the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)]: The AO, after considering the submissions and analyzing the transactions, disallowed the LTCG claimed by the assessee, treating it as unexplained cash credit under Section 68. The AO's findings were based on the mode of acquisition, unusual rise in share prices, investment profile, and investigation reports indicating a pre-arranged scheme. The CIT(A) upheld the AO's findings, dismissing the appeal of the assessee, stating that the contentions were routine and lacked credible documents. 6. Appeals and Grounds Raised by the Assessee: The assessee appealed against the CIT(A)'s order, raising several grounds, including the erroneous treatment of share sales as accommodation entries, reliance on irrelevant considerations, and denial of natural justice by not providing an opportunity to cross-examine witnesses. The assessee cited similar cases where the Tribunal ruled in favor of the taxpayer, arguing that the transactions were genuine and supported by documentary evidence. Tribunal's Judgment: The Tribunal considered the rival submissions and material on record, noting that similar grounds had been decided in favor of the assessee in previous cases. The Tribunal observed that the assessee provided sufficient evidence to support the genuineness of the transactions, including purchase and sale through recognized channels, payment through bank, and dematerialization of shares. The Tribunal found that the AO's findings were based on suspicion and circumstantial evidence without concrete proof of bogus transactions. The Tribunal, following the decisions in similar cases, allowed the appeals, directing the AO to not treat the LTCG as bogus and delete the consequential additions. Conclusion: The Tribunal ruled in favor of the assessee, allowing the appeals and directing the AO to accept the LTCG as genuine, thus granting the exemption under Section 10(38) of the Income Tax Act. The Tribunal emphasized the importance of concrete evidence over mere suspicion and upheld the principles of natural justice.
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