2021 (10) TMI 746 - AT - Income Tax

Addition u/s 69 - assessee had purchased immovable property as unexplained - creditworthiness of the company namely M/s Seven Star Developers Township Pvt. Ltd could not be established - HELD THAT - Revenue authorities were expected to appreciate the reasonable explanation put forth by the assessee and the evidences produced about the nature and source of investment, however, in this case, the revenue authorities made additions merely on the basis of surmises and conjectures as well as without any supporting evidence which they were not entitled to do so. Although, in the remand report, the A.O. has expressed doubts regarding the financial position of the company but be that as it may, the fact still remains that no property was purchased in the name of assessee and no payments were made by the assessee in his personal capacity and the said fact has also been admitted by the A.O. in his remand report that out of total payment of ₹ 1,97,03,295/- claimed to be paid to the land owners namely Sh. Rajendra Singh, Dakh Kanwar and Bheru Singh, the payments to the extent of ₹ 34,50,000/- could only be verified from the two bank accounts and the balance of ₹ 1,62,53,295/- remained unverified - A.O. merely presumed that such payments might have been made/paid by the assessee - no documentary evidence has been placed on record to prove the said contention of the A.O. Thus, the A.O. merely acted on the basis of surmises and conjectures, therefore, the additions made by the A.O. are not tenable in the eyes of law. Therefore we are of the considered view that no liability can be fastened upon the present assessee U/s 69 of the Act. Therefore, we direct the A.O. to delete the said addition. Thus, these grounds of appeal raised by the assessee are allowed. Bogus LTCG - Unexplained cash credit after disallowing claim of the assessee of exemption u/s 10(38) - Penny stock purchases - HELD THAT - In the present case, the assessee had satisfied all the conditions in respect of claiming exemptions u/s 10(38) of the Act as mentioned for claiming exemption, therefore, the shares sold by the assessee are entitled for long term capital gain. The assessee had furnished all the required evidence for the purchase of shares as well as sale of shares which inter alia included copies of bills for purchase of share and contract notes for sale of share, Demat account and bank statement evidencing payments for purchase of shares and receipts against sale of shares by account payee cheques - As relying on MEENU GOEL VERSUS ITO, WARD-31 (1) , NEW DELHI 2018 (3) TMI 1020 - ITAT DELHI we are of the view that the assessee is entitled for exemption u/s 10(38) of the Act. Accordingly, we set aside the order passed by the ld. CIT(A) and direct the AO to grant exemption to the assessee u/s 10(38) of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of Delay in Filing the Appeal
2. Addition of ?1,65,53,295/- under Section 69 of the Income Tax Act, 1961
3. Disallowance of Claim of Long Term Capital Gain of ?93,34,545/- under Section 68 of the Income Tax Act, 1961

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal
The assessee filed an appeal with a delay of 91 days due to the Covid-19 pandemic and lockdown. The Tribunal considered the rival submissions and relevant material on record. It cited the principle laid down by the Hon’ble Supreme Court in the case of Collector, Land Acquisition Vs. Mst. Katiji (1987) 167 ITR 471, emphasizing a liberal approach in interpreting ‘sufficient cause’ for condonation of delay to ensure substantial justice. The Tribunal found the reasons for the delay to be bona fide and condoned the delay, admitting the appeal for hearing.

2. Addition of ?1,65,53,295/- under Section 69 of the Income Tax Act, 1961
The assessee challenged the addition of ?1,65,53,295/- made by the Assessing Officer (AO) under Section 69 for unexplained investment in the purchase of immovable property. The AO had determined the total income at ?6,35,62,970/- through an ex-parte assessment under Section 144 due to non-compliance with statutory notices.

The Tribunal noted that the property was purchased by M/s Seven Star Township Pvt. Ltd., where the assessee was a director. The assessee acted as a Power of Attorney (POA) holder for the company for the administrative and legal formalities. The Tribunal emphasized that the company is a separate legal entity distinct from its directors and shareholders, as established in the case of Salomon v Salomon & Co. Ltd and State Trading Corporation of India Ltd. AIR (1963) SC 1811.

The Tribunal observed that the registered sale deed was in the name of the company, and payments were made from the company’s bank accounts. The AO’s remand report confirmed partial payments from the company’s accounts but doubted the creditworthiness of the company for the remaining amount. However, the Tribunal held that the AO’s findings were based on assumptions and lacked documentary evidence to prove that the assessee made the payments personally. Consequently, the Tribunal directed the AO to delete the addition of ?1,65,53,295/-.

3. Disallowance of Claim of Long Term Capital Gain of ?93,34,545/- under Section 68 of the Income Tax Act, 1961
The assessee claimed an exemption under Section 10(38) for Long Term Capital Gains (LTCG) of ?93,34,545/- from the sale of shares of Unisys Software & Holdings Ind. Ltd. The AO disallowed the claim, treating the transactions as bogus based on the report of the Investigation Wing, Kolkata, which listed Unisys Software as a penny stock company involved in accommodation entries.

The Tribunal noted that the assessee had provided documentary evidence, including purchase bills, contract notes, Demat account statements, and bank statements, to substantiate the genuineness of the transactions. It referred to the CBDT Circular No. 6/2016, which clarifies that gains from listed shares held for more than 12 months should be treated as capital gains if the assessee opts for such treatment.

The Tribunal relied on the decision in Vijayrattan Balkrishan Mittal vs. DCIT (ITAT Mumbai), which held that not all transactions in penny stocks could be regarded as bogus without specific evidence. It also referred to the case of Meenu Goel Vs ITO (ITAT Delhi), where similar transactions were held genuine based on documentary evidence.

The Tribunal concluded that the assessee had satisfied all conditions for claiming the exemption under Section 10(38) and directed the AO to grant the exemption, setting aside the addition of ?93,34,545/-.

Conclusion
The Tribunal allowed the appeal, condoning the delay, deleting the addition under Section 69 for unexplained investment, and granting the exemption under Section 10(38) for the LTCG.