2021 (4) TMI 258 - AT - Income Tax

Bogus LTCG - addition u/s 68 - disallowing long term capital gains exemption claimed under section 10(38) - Share purchases from penny stock company -HELD THAT - AO merely declared this company to be penny stock company without bringing any evidence on record. Though the A.O. discussed in the assessment order that Investigation Wing as well as SEBI revealed that Shilpi Cable Technologies Ltd., is engaged in scam, but, no details have been brought on record as to how in assessment year under appeal this company was engaged in scam or indulged in price raise in shares. The Ld. D.R. referred to the assessment order in the case of M/s. Renu Proptech Pvt. Ltd., in which it is mentioned that SEBI has suspended the share transactions of this company in the year 2017. But, the assessment year under appeal is A.Y. 2016-2017, therefore, it would have no impact on the transactions carried-out by the assessee in assessment year under appeal. A.O. thereafter did not bring any evidence on record as to how the transaction of the assessee was not genuine. The Ld. CIT(A) considering the details on record found that there is an increase in the turnover and profit of this company and this company has also declared substantial income and paid the taxes also. There were no basis for the A.O. to hold this company to be penny stock company. The Ld. CIT(A) also found that this company has declared dividend to the shareholders as well as have reputed customers. The assessee kept the shares for more than one year and sold the shares through recognized stock exchange on which STT is also paid. The assessee purchased the shares through banking channel as well as sold the shares through online trading platform of NSE. The payment is also received through banking channel. This company is actually engaged in manufacturing and has substantial assets also. No evidence has been brought on record by the A.O. as to how the assessee s transactions were not genuine. It was also brought on record that assessee is a habitual investor as is evident from the Demat Statement with the Bank. No justification to interfere with the Order of the Ld. CIT(A) in deleting the addition. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made on account of disallowing long-term capital gains (LTCG) exemption claimed under section 10(38) of the Income Tax Act, 1961.
2. Determination of whether the transactions involving shares were genuine or sham.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Disallowing LTCG Exemption:

The Revenue challenged the order of the CIT(A) which deleted the addition of ?1,60,98,447 made by the AO on account of disallowing the LTCG exemption claimed under section 10(38) of the I.T. Act. The AO considered the transactions as 'sham' and added the entire LTCG to the income of the assessee. The CIT(A) found that the assessee had provided sufficient documentary evidence to prove the genuineness of the transactions, including bank statements, contract notes, demat account statements, and other relevant documents. The CIT(A) noted that the AO did not conduct any independent inquiry and relied solely on the investigation report without directly linking the assessee to any bogus transactions. The CIT(A) concluded that the AO's findings were based on suspicion and conjecture, and therefore, the addition was deleted.

2. Determination of Whether the Transactions Involving Shares Were Genuine or Sham:

The AO suspected that the transactions involving shares of M/s Eins Edutech Ltd. were sham and aimed at converting unaccounted money into LTCG. The AO relied on an investigation report from the Kolkata Directorate, which discussed the modus operandi of arranging bogus LTCG through penny stocks. However, the CIT(A) found that the AO did not bring any concrete evidence against the assessee and did not allow cross-examination of the statements recorded during the investigation. The CIT(A) observed that the assessee had sold the shares through recognized stock exchanges, paid STT, and received payments through banking channels. The CIT(A) also noted that the assessee had been regularly trading in shares and had provided all necessary documentary evidence to support the transactions. The CIT(A) concluded that the AO's suspicion was not supported by any material evidence, and therefore, the transactions were genuine.

Separate Judgment Analysis:

In the case of Shri Dinesh Gupta for A.Y. 2016-2017, the Revenue challenged the deletion of addition of ?12,92,40,482 under section 10(38). The AO considered the LTCG claimed by the assessee as bogus, citing the modus operandi of arranging bogus LTCG through penny stocks. The CIT(A) found that the assessee had provided substantial evidence, including audited financial data, stock exchange data, and details of the company (Shilpi Cable Technologies Ltd.), which showed that the company was engaged in actual business and was not a penny stock. The CIT(A) noted that the AO did not bring any specific evidence against the assessee and relied on general observations. The CIT(A) concluded that the assessee had discharged the onus of proving the genuineness of the transactions, and therefore, the addition was deleted.

Conclusion:

The Tribunal upheld the orders of the CIT(A) in both cases, finding that the AO's additions were based on suspicion and conjecture without any concrete evidence. The Tribunal noted that the assessee had provided sufficient documentary evidence to support the genuineness of the transactions and had fulfilled the conditions for claiming exemption under section 10(38). The appeals of the Department were dismissed.