2021 (3) TMI 830 - AT - Income Tax

Addition u/s 68 - bogus LTCG - assessment order is based upon the Ad-Interim order of the SEBI - HELD THAT - It can be seen that the entire assessment order has been framed by the Assessing Officer without conducting any enquiry from the relevant parties or independent source or evidence but has merely relied upon the SEBI order without conducting any independent and separate enquiry in the case of the appellant. It is provided u/s 142(2) of the Act that for the purpose of obtaining full information in respect of income of loss of any person, the Assessing Officer may make such enquiry as he considers necessary. Whether the assessee has discharged his onus cast upon him by provisions of section 68 of the Act or not is purely a question of fact and considering the vortex of evidences, we are of the considered view that the assessee has successfully discharged the onus cast upon him by provisions of section 68. As mentioned elsewhere, the discharge of onus is purely a question of fact, the judicial decisions relied upon by the ld. DR would do no good on the peculiar plethora of evidences in respect of facts in hand and hence the judicial decisions relied upon by both the sides, though perused, but not considered on the facts of the case in hand except the decision of the coordinate bench discussed elsewhere because the same exparte Ad-Interim order of SEBI was considered and facts are mutatis mutandis same. We, accordingly, direct the Assessing Officer to accept the long term capital gain declared as such and delete the addition. SEBI order is dated 22.12.2020 whereas the transactions which have been considered in this appeal took place in F.Y. 2014-15 and therefore, restrain after a gap of more than 5 years would do no good to the Revenue. This order has restrained named noticees from accessing security market by issuing prospectus, offer document or advertisement soliciting money from the public in any manner for a period of 8 years. Obviously, this restraint is prospective.

Summary

Issues Involved:

1. Addition of ?2,10,23,848/- under Section 68 of the Income Tax Act, 1961.
2. Addition of ?14 lakhs under Section 69 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Addition of ?2,10,23,848/- under Section 68

The assessee's grievance pertains to the addition of ?2,10,23,848/- under Section 68 of the Income Tax Act, 1961, denying the claim of exemption under Section 10(38) of the Act. The assessee had purchased 40,000 equity shares through an Initial Public Offer (IPO) of HPC Bioscience Ltd on 15.03.2013, with payment made on 16.03.2013. Out of these, 39,000 shares were sold during the year under consideration for ?2,10,23,848/-, resulting in a long-term capital gain of ?1,96,23,848/- after deducting the acquisition cost of ?14 lakhs, which was claimed as exempt under Section 10(38).

During the scrutiny assessment, the Assessing Officer (AO) formed a belief, supported by SEBI and Income Tax Department investigations, that the share prices were manipulated by a cartel. The AO relied heavily on SEBI's Ad-Interim Order dated 29.06.2015, which categorized entities involved in pre-IPO activities and trading of shares, none of which included the appellant's name. Subsequent SEBI orders did not find violations against the appellant, and the interim order was revoked for 216 entities, including the appellant.

The AO's findings were confirmed by the CIT(A). However, the Tribunal noted that the AO's assessment was based on SEBI's interim order without independent enquiry or evidence. The Tribunal referenced similar cases where the appellants were not named in SEBI's debarred entities list, leading to favorable judgments for the assessee. The Tribunal concluded that the assessee had discharged the onus under Section 68 by providing sufficient evidence of genuine transactions, including payments through banking channels and dematerialized shares. Consequently, the Tribunal directed the AO to accept the long-term capital gain as declared and delete the addition of ?2,10,23,848/-.

Issue 2: Addition of ?14 lakhs under Section 69

The assessee also contested the addition of ?14 lakhs under Section 69 as unexplained investment. The Tribunal noted that the purchase of 40,000 equity shares through the IPO of HPC Bioscience Ltd occurred in FY 2012-13, relevant to AY 2013-14, not AY 2015-16, which was under consideration. Therefore, the Tribunal opined that no addition could be made under Section 69C for the year under consideration and directed the deletion of the ?14 lakhs addition.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, directing the deletion of both the ?2,10,23,848/- addition under Section 68 and the ?14 lakhs addition under Section 69. The Tribunal emphasized the lack of independent enquiry by the AO and the absence of the assessee's name in SEBI's debarred entities list, thereby upholding the genuineness of the transactions and the assessee's compliance with the onus under Section 68. The order was pronounced in the open court on 19.03.2021.