2021 (12) TMI 586 - AT - Income Tax

Bogus LTCG - bogus exempted income - Amount of capital gain treated as unexplained cash credit u/s 68 - HELD THAT - The income generated by the assessee cannot be held bogus only one the basis of the modus operandi, generalisation, and preponderance of human probabilities. In order to hold income earned by the assessee as bogus, specific evidence has to be brought on record by the Revenue to prove that the assessee was involved in the collusion with the entry operator/ stock brokers for such an arrangements. In absence of such finding, it is not justifiable to link the fact or the finding unearthed in case of some third party or parties with the transactions carried out by the assessee. Further the case laws relied by the AO are with regard to the test of human probabilities which may be of greater impact but the same cannot used blindly without disposing off the evidence forwarded by the assessee. In simple words, there were not brought any evidence from independent enquiry to corroborate the allegation. As relying on Smt. Krishna Devi 2021 (1) TMI 1008 - DELHI HIGH COURT we hold that in absence of any specific finding against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated as far as long term capital gain earned on sale of share of M/s AGIL is concern. Capital gain earned by the assessee cannot held bogus merely on the basis of some report finding unearthed in case of third party/parties unless cogent material brought against particular assessee are brought on record. Therefore, we set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence the grounds of assessee appeal is allowed.

Issues Involved:
1. Genuineness of the off-market purchase of shares of Alpha Graphics India Ltd. (AGIL).
2. Validity of the sale of shares and the resulting capital gains.
3. Treatment of capital gains as unexplained cash credit under section 68 of the Income Tax Act.
4. Reliance on enquiries and statements without confronting the appellant.
5. Failure to furnish requested information by the appellant.

Detailed Analysis:

1. Genuineness of the Off-Market Purchase of Shares of AGIL:
The assessee purchased 5 lakh shares of AGIL at ?12 per share, which were later dematerialized. The AO questioned the genuineness of these transactions, citing the unprecedented price increase of AGIL shares and the involvement of brokers in manipulating share prices. The AO issued a show-cause notice proposing to treat the capital gains as bogus and unexplained money under section 68. The assessee responded with detailed documentation, including contract notes, bank statements, and DEMAT statements, asserting that the transactions were genuine and conducted through proper channels.

2. Validity of the Sale of Shares and the Resulting Capital Gains:
The AO argued that the sale of shares, despite being from a dematerialized account and having paid Securities Transaction Tax (STT), did not establish the genuineness of the transactions. The AO relied on statements from brokers involved in manipulating share prices and noted that AGIL was suspended by SEBI due to penny stock transactions. The assessee contended that the transactions were legitimate, conducted in good faith, and supported by substantial documentation. The assessee also argued that the lack of financial performance of AGIL should not be a basis to deem the capital gains as bogus.

3. Treatment of Capital Gains as Unexplained Cash Credit Under Section 68:
The AO treated the capital gains of ?2,54,86,714/- as unexplained cash credit, concluding that the transactions were sham and aimed at converting unaccounted money into exempt income. The assessee appealed to the CIT (A), who upheld the AO's findings. The CIT (A) emphasized that the transactions lacked genuineness, were off-market, and involved penny stock with artificially hiked prices. The CIT (A) also noted that the auditor of AGIL denied auditing the company's books, further questioning the credibility of the transactions.

4. Reliance on Enquiries and Statements Without Confronting the Appellant:
The assessee argued that the statements from brokers used by the AO were taken behind their back without providing an opportunity for cross-examination, violating the principles of natural justice. The CIT (A) dismissed this argument, stating that the general findings from the investigation were sufficient to question the genuineness of the transactions.

5. Failure to Furnish Requested Information by the Appellant:
The CIT (A) noted that the appellant did not respond to requests for additional information, such as share transfer forms and bank clearance dates for the share purchases. This non-compliance was used to support the conclusion that the transactions were not genuine.

Conclusion:
The Tribunal found that the authorities below had not provided sufficient evidence to prove that the assessee was involved in manipulating share prices or generating bogus capital gains. The Tribunal noted that the assessee had provided substantial documentation supporting the genuineness of the transactions and that the authorities had not conducted independent enquiries from SEBI or BSE. The Tribunal emphasized that suspicion alone, without concrete evidence, could not justify treating the capital gains as bogus. The appeal was allowed, and the addition made by the AO was directed to be deleted.

← Previous Next →