2021 (2) TMI 540 - AT - Income Tax

Addition u/s 68 as accommodation entries - long term capital gain on sale of shares as sham/bogus transaction - HELD THAT - AO has treated the transaction of sale of 66,500 shares as bogus being accommodation entry but has not doubted the holding of the shares by the assessee to the tune of 4,13,500 shares in the Demat account of the assessee. Once the assessee has produced all the supporting evidences which include purchase bill, bank statement showing the payment of purchase consideration, Demat account, holding of shares in the Demat account, sale of the shares through Stock Exchange which are also reflected in the Demat account of the assessee and receipt of the sale consideration in the bank account of the assessee as it is evident from the bank account, statement of the assessee, then in the absence of any contrary material or evidence brought on record by the AO, the transaction of purchase and sale of the shares in question cannot be held as bogus merely on the basis of the investigation carried out by the Department in some other cases where some persons were found indulged in providing accommodation entry. AO in the entire assessment order has not made reference to single documentary evidence which can be said to be an incriminating material against the assessee to show that the assessee has availed accommodation entry of bogus Long Term Capital Gain. Mere suspicion cannot be a ground for treating the transaction as bogus in the absence of any evidence or material on record -when the assessee has produced all the relevant documentary evidences to establish the genuineness of the transaction and there is no contrary evidence to doubt the correctness of the evidences produced by the assessee then treating the transaction of purchase and sale as sham by the AO is not justified - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition under Section 68 of the IT Act, 1961 as accommodation entries.
2. Addition under Section 69C of the IT Act, 1961 as commission provided for sale of shares as accommodation entries.

Detailed Analysis:

1. Addition under Section 68 of the IT Act, 1961 as accommodation entries:

The primary issue in this case was whether the long-term capital gain (LTCG) on the sale of shares was genuine or a sham transaction. The assessee purchased 4,80,000 shares of M/s. Careful Projects Advisory Ltd. which later merged with M/s. Kailash Auto Finance Ltd. The assessee sold 66,500 shares for a substantial gain, which was claimed as exempt under Section 10(38) of the IT Act. The Assessing Officer (AO) treated the LTCG claim as bogus based on a report from the Investigation Wing, Kolkata, and a statement from Shri Sunil Dokania, who admitted to providing accommodation entries.

The assessee argued that all transactions were genuine, supported by documentary evidence like purchase bills, bank statements, demat account statements, and contract notes for the sale of shares. The Tribunal found that the AO did not provide any concrete evidence to disprove the assessee's claims or the authenticity of the documents provided. The Tribunal emphasized that the AO's reliance on the statement of Shri Sunil Dokania, without offering the assessee an opportunity for cross-examination, violated the principles of natural justice.

The Tribunal referred to several precedents, including decisions from the Hon'ble Jurisdictional High Court and other Tribunal decisions, which supported the assessee's position. It was concluded that the AO's addition under Section 68 was based on mere suspicion and not on concrete evidence. The Tribunal held that the transactions were genuine and directed the deletion of the addition made under Section 68.

2. Addition under Section 69C of the IT Act, 1961 as commission provided for sale of shares as accommodation entries:

This issue was consequential to the first issue. The AO had made an addition for commission expenses on the alleged bogus LTCG transactions. Since the Tribunal found the LTCG transactions to be genuine, it also directed the deletion of the addition made under Section 69C for commission expenses.

Conclusion:

The Tribunal allowed the appeals of the assessee, holding that the transactions of purchase and sale of shares were genuine. The additions made by the AO under Sections 68 and 69C were deleted. The Tribunal's decision was based on the lack of concrete evidence from the AO and the violation of principles of natural justice.