2021 (9) TMI 540 - AT - Income Tax

Reopening of assessment u/s 147 - Bogus LTCG - unexplained cash credit u/s.68 - income chargeable to tax had been escaped assessment on account of exemption claimed u/s.10(38) of the Income Tax Act, 1961, in respect of long term capital gain derived from sale of shares of certain companies - HELD THAT - As assessee has filed relevant documents including contract note issued by stock broker, as per which purchase and sale of shares were through online. The assessee has paid consideration for purchase of shares by cheque and had received consideration for sale of shares by cheque. AO has not made any adverse comments on the evidences filed by the assessee, but he has disbelieved documents filed by the assessee for simple reason that broker was kept under watch list by the SEBI for fraudulent and unfair trade practices relating to Securities Market Regulations, 1995. Basis on which the AO has concluded his finding to hold the assessee is a beneficiary of bogus long term capital gain is not supported by any corroborative evidences - AO has predominantly went on the basis of theory of human behavior and preponderance of probabilities for the reason that the assessee was never involved in purchase and sale of shares, but has done isolated transaction of purchase and sale of a particular company . The said finding of the AO is contrary to facts, because, the assessee was a regular investor in shares which is evident from Demat account furnished before us, as per which along with this script, the assessee had purchased and sold number of other scripts. AO as well as CIT(A) were erred in treating consideration received for sale of shares as unexplained cash credit u/s.68 of the Act. Hence, we direct the Assessing Officer to delete additions made u/s.68 - Decided in favour of assessee.

Issues Involved:
1. Condonation of delay in filing the appeal for the assessment year 2012-13.
2. Disallowance of exemption claimed under section 10(38) of the Income Tax Act.
3. Treatment of income from the sale of shares as unexplained cash credit under section 68 of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Condonation of Delay:
The assessee filed an appeal with an 18-day delay for the assessment year 2012-13. The delay was attributed to a clerical error in Form 36, where the date of receipt of the CIT(A) order was incorrectly mentioned as 12.06.2018 instead of 16.07.2018. The Tribunal accepted the assessee's explanation, considering it a reasonable cause under the Act, and condoned the delay, allowing the appeal to be admitted for adjudication.

2. Disallowance of Exemption under Section 10(38):
The core issue was the disallowance of the assessee's claim for exemption under section 10(38) for long-term capital gains derived from the sale of shares. The Assessing Officer (AO) and the CIT(A) disallowed the claim, suspecting that the assessee was part of an organized racket involving bogus long-term capital gains from penny stocks. The AO noted that the financials of M/s. Tuni Textile Mills Ltd. did not support the significant rise in share prices, suggesting manipulation. The CIT(A) upheld the AO's decision, emphasizing the involvement of a broker previously charged by SEBI and the suspicious rapid increase in share prices.

3. Treatment as Unexplained Cash Credit under Section 68:
The AO treated the entire consideration received from the sale of shares as unexplained cash credit under section 68, based on the findings that the transactions were part of a scheme involving penny stocks. The CIT(A) supported this view, citing the lack of a plausible explanation from the assessee regarding the use of a broker from Ahmedabad and the extraordinary rise in share prices.

Tribunal's Findings:
The Tribunal examined the facts and evidence presented. It acknowledged that the assessee had purchased and sold shares through recognized stock exchanges and made payments and received consideration through cheques. The Tribunal found no adverse comments on the evidence provided by the assessee and noted that the AO's conclusions were based on suspicions and an analysis of the financial statements of M/s. Tuni Textile Mills Ltd. The Tribunal emphasized that mere circumstantial evidence and the naming of the company as a penny stock were insufficient to treat genuine transactions as unexplained cash credits under section 68.

The Tribunal highlighted the need for concrete evidence linking the assessee to the alleged organized racket and manipulation of share prices. It noted that the assessee was a regular investor in shares, contrary to the AO's findings of isolated transactions. The Tribunal concluded that the AO and CIT(A) erred in their approach and directed the AO to delete the additions made under section 68.

Conclusion:
The appeals for both assessment years were allowed, with the Tribunal directing the deletion of the additions made under section 68, thereby upholding the assessee's claim for exemption under section 10(38). The Tribunal's decision underscored the importance of concrete evidence over mere suspicion in tax assessments.

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