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2021 (5) TMI 217 - AT - Income TaxBogus LTCG - disallowance of exemption claimed by assessee u/s 10(38) on account of LTCG - assessee submits that it is to be noted that the additions in this case is not based on investigation report of either income tax department or other authority or on the statement of entry provider - HELD THAT - The conclusion drawn by ld CIT(A) is based on mare presumption. In our view, once it is accepted by the assessing officer in his remand report that all the transaction of the assessee that is contract notice/ledger accounts furnished by assessee are matching with the data furnished by the Stock Exchange. And the ld. CIT(A) the also took his view that the basis for making the addition did not survive, the additions cannot be sustained. The ld. CIT(A) sustained the additions merely on the basis of suspicion. There is no evidence on record to suggest that the assessee has availed accommodation entry or beneficiary of penny stock. So far as the allegation of the assessing officer in his second report dated 28.02.2018 is with regards to ban on trading of Bharat Bachubhai Merchant, Director of Nimbus Industries Ltd., by SEBI vide its order dated 30.09.2012 for market manipulation during the Initial Public Offering (IPO) of P. G. Electroplast Ltd., and M. R. Shah, Director of Regency Trust Ltd is concerned, the assessee has purchased shares much prior to the orders of SEBI. Moreover, there is no live link in the order of SEBI about the transactions of shares of assessee under scrutiny, so such order cannot be read against the assessee in absence of ant corroborative evidence. In fact there is no evidence on record that the assessee made any prearranged transactions. Thus, we do not find merit in the order of ld. CIT(A) in sustaining the additions on mere probability. The Hon ble Supreme Court in Umacharan Shah brothers Vs CIT 1959 (5) TMI 11 - SUPREME COURT held that suspicion howsoever strong, may be cannot substitute the place of evidence. Also held in OMAR SALAY MOHAMED SAIT VERSUS COMMISSIONER OF INCOME-TAX, MADRAS 1959 (3) TMI 2 - SUPREME COURT that no additions can be made on the basis of surmises, suspicion and conjecture. - Decided in favour of assessee. Exemption under section 10(2A) - assessee submits that the assessing officer has not allowed the exemption under section 10(2A) in respect of share of profit from the Firm namely Desai Gas Agency , in which the assessee is one of the partner - HELD THAT - We have seen that the assessee in the computation of income has claimed exempt income of ₹ 1,66,406/- is allowable as exempted under section 10(2A), being income of share received from Firm Desai Gas Agency . The assessing officer instead of examining the facts and the evidences furnished by the assessee clubbed this income with the exempted LTCG claimed by the assessee. CIT(A) also ignored the similar facts and upheld the action of assessing officer. We have seen that the amount of ₹ 1,66,406/- is separate and independent income component, earned by the assessee which is claimed as exempted under section 10(2A). Further we have seen that the assessee has furnished all details particulars of the Firm including the return of income of Firm, details of partners, their PAN, and Circle of assessment of partners. After considering the documentary evidences furnished by the assessee, we find that all the evidences filed by the assessee are in order and that the assessee has earned exempted income of ₹ 1,66,406/-, form the profit of Firm, which is allowable as exempt income under section 10(2A) of the Act - we direct the Assessing Officer to allow full relief to the assessee.
Issues Involved:
1. Disallowance of exemption claimed under Section 10(38) of the Income Tax Act on account of Long-Term Capital Gain (LTCG). 2. Disallowance of exemption claimed under Section 10(2A) of the Income Tax Act on account of share of profit from a firm. Issue-Wise Detailed Analysis: 1. Disallowance of Exemption under Section 10(38) on Account of LTCG: The assessee filed an appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which confirmed the Assessing Officer's (AO) decision to disallow the exemption of ?8,66,13,252/- claimed under Section 10(38) for LTCG. The AO had questioned the genuineness of the transactions due to the absence of documentary evidence. The assessee provided detailed submissions and evidence, including Demat accounts and transaction statements. The AO, in a remand report, confirmed the transactions were genuine but later cited SEBI bans on directors of the companies involved, suggesting potential market manipulation. The CIT(A) acknowledged the transactions' genuineness but speculated that the transactions might have been pre-planned to convert unaccounted income into exempt income. The Tribunal found this conclusion to be based on mere suspicion without concrete evidence. The Tribunal emphasized that additions cannot be sustained on the basis of suspicion and conjecture, referencing Supreme Court rulings in Umacharan Shah & Bros and Omar Salav Mohamed Sait. The Tribunal allowed the assessee's appeal, stating that the transactions were genuine and there was no evidence of accommodation entries or penny stock manipulation. 2. Disallowance of Exemption under Section 10(2A) on Account of Share of Profit from a Firm: The assessee also contested the disallowance of ?1,66,406/- claimed as exempt under Section 10(2A) for the share of profit from the firm 'Desai Gas Agency.' The AO had clubbed this exempt income with LTCG, and the CIT(A) upheld the AO's decision without examining the provided evidence. The assessee submitted detailed documentation, including the firm's return of income, partners' details, and computation of income. The Tribunal reviewed the evidence and found that the assessee had indeed earned exempt income of ?1,66,406/- from the firm, which should be allowed under Section 10(2A). The Tribunal directed the AO to allow the full exemption, concluding that the lower authorities had erred in their assessment. Conclusion: The appeal was allowed in favor of the assessee for both issues. The Tribunal directed the AO to allow the exemptions claimed under Sections 10(38) and 10(2A) of the Income Tax Act, emphasizing that the additions were based on suspicion without substantial evidence. The order was pronounced on 06.05.2021.
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