2021 (2) TMI 531 - AT - Income Tax

Reopening of assessment u/s 147 - Addition u/s 68 - suspicious sale transaction in shares (penny scrip) - bogus LTCG - disallowing the exemption Claimed by assessee u/s.10(38) on account of Long-Term Capital Gain - HELD THAT - there is no dispute regarding date of purchase of shares. Price of the shares ₹ 2/- instead of ₹ 0.55/- per share, confirmed from the party. The shares which the assessee had acquired were later on demated and then the assessee sold the shares at stock exchange through registered stock broker after making payment of STT. Neither the Stock Exchange or SEBI has disputed the assessee s transaction nor was any action against the assessee s broker taken by BSE or SEBI. The assessee s dealings in shares are supported by the contract notes issued by broker as well as demat account. Genuineness of contract notes or demat accounts have not been disputed even in the show cause notice by the assessing officer. The payments were received through account payee cheque and transaction was done through recognized stock exchange. The inflow of shares is reflected by way of physical share certificate and demat account. The shares were transferred through demat account. There is no evidence that the cash was recycled back to the assessee. The assessee merely acted on the basis of such market information and happened to get phenomenal gain. It could have been otherwise as well. The rags to riches story in the stock market are galore. It has been submitted that the alleged, circumstantial evidence and material has led the Assessing Officer to believe that the real is not the apparent. In the absence of any link between the assessee and the alleged admissions of the directors and brokers, human probability is being used as a vague and convenient medium for the department s conjectures - Decided in favour of assessee.

Issues Involved:
1. Validity of reassessment proceedings under section 147/148 of the Income Tax Act.
2. Disallowance of exemption claimed under section 10(38) of the Act on account of Long-Term Capital Gain (LTCG).
3. Addition under section 68 of the Act for treating LTCG as accommodation entry.
4. Addition under section 69C of the Act for unexplained expenditure on commission payment for procuring alleged accommodation entry.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147/148 of the Act:
The primary issue was whether the reassessment proceedings initiated under section 147/148 were valid. The assessee argued that the reasons recorded for reopening the assessment were based on mere information from the Investigation Wing, Kolkata, without tangible material or independent application of mind by the Assessing Officer (AO). The Tribunal observed that the reasons recorded by the AO were general and not specific to the assessee. The reasons did not establish a direct nexus or live link between the material and the formation of belief that income had escaped assessment. The Tribunal concluded that the reasons recorded fell into the zone of "reason to suspect" rather than "reason to believe," rendering the reassessment proceedings invalid. Consequently, the Tribunal quashed the reassessment proceedings.

2. Disallowance of Exemption Claimed under Section 10(38) of the Act on Account of LTCG:
The AO had disallowed the exemption claimed under section 10(38) on the grounds that the transactions were accommodation entries to book bogus LTCG. The AO relied on information from the Investigation Wing and statements from various individuals. However, the Tribunal noted that the assessee had provided all necessary documents, including contract notes, demat account statements, and bank statements, to support the genuineness of the transactions. The Tribunal found that the AO failed to bring any cogent evidence to prove that the transactions were bogus. The Tribunal emphasized that mere suspicion or conjecture could not replace concrete evidence. Therefore, the Tribunal allowed the exemption claimed under section 10(38).

3. Addition under Section 68 of the Act for Treating LTCG as Accommodation Entry:
The AO had made additions under section 68, treating the LTCG as accommodation entries. The Tribunal observed that the AO's conclusions were based on general information and statements from third parties, which did not specifically implicate the assessee. The Tribunal highlighted that the assessee had provided sufficient evidence to substantiate the transactions, including the purchase and sale of shares through recognized stock exchanges and payment of Securities Transaction Tax (STT). The Tribunal held that the AO had not discharged the burden of proving that the transactions were sham or bogus. Consequently, the Tribunal deleted the additions made under section 68.

4. Addition under Section 69C of the Act for Unexplained Expenditure on Commission Payment:
The AO had also made additions under section 69C, alleging that the assessee paid commission for procuring accommodation entries. The Tribunal noted that the AO's conclusions were based on statements from third parties without any direct evidence linking the assessee to such payments. The Tribunal emphasized that the statements recorded under section 133A did not have evidentiary value unless supported by concrete evidence. The Tribunal found that the AO had failed to provide any corroborative evidence to substantiate the claim of unexplained expenditure. Therefore, the Tribunal deleted the additions made under section 69C.

Conclusion:
The Tribunal quashed the reassessment proceedings under section 147/148 due to the lack of valid reasons to believe that income had escaped assessment. Consequently, the Tribunal allowed the appeals, deleting the additions made under sections 68 and 69C, and upheld the exemption claimed under section 10(38) for LTCG. The Tribunal emphasized the importance of concrete evidence over mere suspicion or conjecture in tax assessments.

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