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2021 (6) TMI 363 - AT - Income TaxAssessment u/s 153A - Addition u/s 68 - Search and seizure - incriminating material - penny stock companies - purchase and sale of shares - HELD THAT - Search and seizure action was conducted on 06.10.2017 and thus on the date of search, the assessment has attained finality and is an unabated assessment on the date of search. We find merit in the arguments of the Ld. A.R. that in the case of unabated assessment year, addition can only be made on the basis of incriminating material found during the course of search and not on the otherwise. In the present case, we have noted that no incriminating material was found during the course of search in relation to the purchase and sale of penny stocks and the authorities below have relied on the general investigation that assessee has made purchase and sale in penny stocks on the basis of documents which are already on records and made huge addition of bogus long term capital gain. AO had discussed the modus operandi of the penny stock companies and operators involved in carrying out the purchase and sale of shares. However, nowhere the AO has referred to incriminating material found during the course of search in relation to purchase and sale of shares. The case of the assessee is squarely covered by the decision of the co-ordinate bench of the Tribunal Smt. Kalpana Mukesh Ruia 2021 (1) TMI 93 - ITAT MUMBAI wherein an identical issue has been decided by the co-ordinate bench of the Tribunal in favour of the assessee. We, therefore, respectfully following the decision of the coordinate bench of the Tribunal which has been passed after following the decision of the jurisdictional High Court in the case of CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd. 2015 (5) TMI 656 - BOMBAY HIGH COURT and various other decisions, hold that the addition made by the AO under section 68 69 are without jurisdiction and are directed to be deleted on the jurisdictional issue. Addition u/s 68 - unexplained cash credit by treating the long term capital gain on sale of shares as non genuine - HELD THAT - We hold that the long term capital gain on the sale of shares of M/s. Blue Circle Services Ltd. is not a bogus capital gain as the AO has solely relied on the report of investigation/survey team and has not carried out any further verification on the basis of documents furnished by the assessee. Similarly, the position of long term capital gain earned on the sale of shares of M/s. Gemstone Investment Ltd. is same as the assessee has filed all the necessary evidences before the AO and AO has failed to carry out any further investigation to prove that the long term capital gain earned by the assessee is bogus and fictitious. Appeal of the assessee is allowed.
Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) to frame assessment under section 143(3) read with section 153A. 2. Validity of additions made under sections 68 and 69 of the Income Tax Act. 3. Confirmation of addition as unexplained cash credit by treating Long Term Capital Gain (LTCG) on sale of shares as non-genuine. 4. Confirmation of addition under section 69 for alleged accommodation entry charges in the form of commission paid. Issue-wise Detailed Analysis: 1. Jurisdiction of the AO to Frame Assessment under Section 143(3) read with Section 153A: The assessee challenged the jurisdiction of the AO on the grounds that the notice issued under section 143(2) was bad in law, and consequently, the assessment framed was illegal. The search action was conducted on 06.10.2017, and the assessment related to AY 2012-13 had attained finality, making it an unabated assessment. The Tribunal found merit in the argument that in the case of unabated assessment, additions could only be made based on incriminating material found during the search. Since no incriminating material was found regarding the purchase and sale of shares, the Tribunal held that the additions made under sections 68 and 69C were without jurisdiction and directed their deletion. 2. Validity of Additions Made under Sections 68 and 69: The AO had made additions of ?3,80,08,867/- under section 68 and ?11,40,266/- under section 69C. The Tribunal, referencing the jurisdictional High Court's decision in CIT vs. Continental Warehousing Corporation, held that in the absence of incriminating material found during the search, such additions in unabated assessments were not sustainable. The Tribunal noted that the AO had relied on general investigations and documents already on record without referring to any specific incriminating material found during the search. 3. Confirmation of Addition as Unexplained Cash Credit by Treating LTCG on Sale of Shares as Non-Genuine: The assessee had claimed LTCG on the sale of shares of Blue Circle Services Ltd. and Gemstone Investment Ltd. as exempt under section 10(38). The AO and CIT(A) treated these gains as non-genuine, relying on general investigations and alleging that the transactions were part of accommodation entries. The Tribunal observed that the assessee had provided all necessary documents such as contract notes, D-mat account statements, and bank statements to substantiate the transactions. The Tribunal referred to a coordinate bench's decision in the case of Shri Subrata Benerjee vs. ACIT, which held that Blue Circle Services Ltd. was not a penny stock. Consequently, the Tribunal held that the LTCG on the sale of shares was not bogus and directed the deletion of the addition. 4. Confirmation of Addition under Section 69 for Alleged Accommodation Entry Charges in the Form of Commission Paid: The AO had added ?11,40,266/- under section 69 as commission paid for accommodation entries. Since the Tribunal had already decided in favor of the assessee on the legal and merit issues, it also directed the deletion of this consequential addition. Conclusion: The Tribunal allowed the appeals of the assessee, holding that the additions made by the AO under sections 68 and 69 were without jurisdiction and not sustainable in the absence of incriminating material found during the search. The Tribunal directed the deletion of all the additions and allowed the appeals of the assessee for the relevant assessment years.
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