2022 (3) TMI 474 - AT - Income Tax

Deduction u/s 54F - Long term capital gain earned in AY 2008-09 on sale of shares against which deduction u/s 54F was claimed was not shown in the e-filed return by not refuting the explanation of assessee and thereby confirming the addition for the same in the year under consideration - whether CIT(A), NFAC has erred on facts and in law in holding that the transaction of purchase sale of shares of M/s Radha Swami Buildcon Pvt. Ltd. on which long term capital gain was earned in AY 2008-09 is an accommodation entry? - CIT(A) held that the assessee has failed to explain as to how the efiled return could not have captured the details of capital gain and claim of deduction u/s 54F - HELD THAT - In a computerized system driven environment, it is not possible that an assessee would feed something and the IT department system would capture something else - in the case of e-filed return, immediately after submitting return, the electronic copy of the return so submitted is available for download. In normal course, the appellant would have noticed from the downloaded return that the return is not showing correct information and in that case the appellant could have revised the return. This is not the case here - details of the purported transaction i.e. purchase of the shares of M/s Radha Swami Buildcon Pvt. Ltd. on 27.03.2006 for ₹ 2,00,000/- at the rate of ₹ 10/- per share and subsequent sale on 07.04.2007 for ₹ 40,00,000/- indicate that this was an accommodation entry taken by the assessee. Within a short span of holding for just one year, the shares of an unknown company had risen by 20 times. Thus, clearly the assessee had not shown the long term capital gain in the e-filed return of income for AY 2008-09 but it was claimed to have been submitted in the paper return which was not in the form specified under relevant rules. Assessee had purposely done so in order to avoid any scrutiny/ investigation of the transaction. It is therefore concluded that the assessee had not shown any such income in the return of income for AY 2008-09 which has been claimed to have been brought in the capital account for the AY 2014-15. Hence, AO is justified in treating the accretion to the capital account as an undisclosed income. Against the affidavit and copy of online ITR filed in the paper book, the ld. DR has not filed any contrary facts that the contention of the assessee are not correct. Thus, it appears that the Ld. CIT(A) has incorrectly held that this transaction of purchase sale of shares is an accommodation entry. Thus, once the record before the lower authorities suggest that the transaction of sale of shares and the resultant capital gain has arisen in AY 2008-09, it cannot be added in the year under consideration - such capital gain which relate to AY 2008-09 cannot be taxed in AY 2014-15. Hence, for this reason alone, the addition made by AO and confirmed by Ld. CIT(A) cannot be sustained. Thus the grounds No. 1 and 2 of the assessee are allowed.

Issues Involved:
1. Whether the long-term capital gain of ?37,78,270/- earned in AY 2008-09 on the sale of shares and claimed as a deduction under Section 54F was shown in the e-filed return.
2. Whether the transaction of purchase and sale of shares of M/s Radha Swami Buildcon Pvt. Ltd., which resulted in the long-term capital gain in AY 2008-09, can be considered an accommodation entry and thus treated as unexplained income for AY 2014-15.

Detailed Analysis:

Issue 1: Long-Term Capital Gain and E-Filed Return
- Contention by the Assessee: The assessee argued that the long-term capital gain of ?37,78,270/- on the sale of shares was included in the e-filed return for AY 2008-09. The assessee also filed a paper return along with the computation of total income, which reflected the long-term capital gain and the exemption claimed under Section 54F.
- Observations by AO and CIT(A): The AO noted that the system-generated return for AY 2008-09 did not show any long-term capital gain. The CIT(A) supported this by stating that the e-filed return showed the long-term capital gain field as blank, while other income fields were correctly captured. The CIT(A) concluded that in a computerized system, it is unlikely that the IT department's system would capture incorrect data if the correct data was fed.
- Assessee's Explanation: The assessee explained that the e-filing system in AY 2008-09 was in its initial stages and prone to errors, which led to inaccuracies in the system-generated return. The assessee provided an affidavit and detailed explanations highlighting various discrepancies in the system-generated return.
- Tribunal's Findings: The Tribunal noted that the assessee had duly declared the long-term capital gain in the e-filed return and had provided supporting documents, including an affidavit and bank statements. The Tribunal found that the AO and CIT(A) did not provide any contrary evidence to refute the assessee's claims. Therefore, the Tribunal concluded that the long-term capital gain was indeed declared in AY 2008-09 and could not be taxed in AY 2014-15.

Issue 2: Accommodation Entry and Unexplained Income
- Contention by the Revenue: The Revenue argued that the transaction of purchasing shares of M/s Radha Swami Buildcon Pvt. Ltd. and selling them within a short period at a significantly higher price was an accommodation entry, indicating that the long-term capital gain was not genuine.
- Assessee's Defense: The assessee provided evidence of the share purchase and sale transactions, including Form 2, sale bills, and bank statements showing the credit of sale proceeds. The assessee argued that the transactions were genuine and related to AY 2008-09.
- Observations by CIT(A): The CIT(A) held that the rapid increase in the share value within a short period suggested that the transaction was an accommodation entry. The CIT(A) concluded that the assessee had not shown the long-term capital gain in the e-filed return for AY 2008-09 and had done so to avoid scrutiny.
- Tribunal's Findings: The Tribunal found that the evidence provided by the assessee, including the affidavit and online ITR, supported the genuineness of the transactions. The Tribunal noted that the Revenue did not provide any evidence to contradict the assessee's claims. The Tribunal concluded that the transaction of sale of shares and the resultant capital gain arose in AY 2008-09 and could not be treated as unexplained income for AY 2014-15.

Conclusion:
The Tribunal allowed the appeal of the assessee, concluding that the long-term capital gain of ?37,78,270/- was duly declared in AY 2008-09 and could not be taxed in AY 2014-15. The Tribunal found that the evidence provided by the assessee supported the genuineness of the transactions, and the Revenue failed to provide any contrary evidence. Therefore, the addition made by the AO and confirmed by the CIT(A) was not sustained.

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