2022 (4) TMI 103 - AT - Income Tax

Addition u/s 68 - unaccounted money has been brought in to purchase alleged penny stock - HELD THAT - Assessee has brought to our notice the fact that the shares were sold in the range of ₹ 47.45 to 49.95 per share on the stock exchange though the price of share of the company subsequently rose up to ₹ 103 per share as on 01-10-2015 i.e. almost three years after the appellant sold his shares. Therefore, from the facts it is seen that the assessee has held the shares for a substantially long period of time before selling its shares during F.Y. 2012-13. AO has not doubted the purchase of shares from the Bombay Stock Exchange. While making the additions, the ld. Assessing Officer has not brought any material how the assessee has brought its own unaccounted money for the acquisition of the shares specially when the purchase of shares was not doubted and shares have been sold on Bombay Stock Exchange - Assessing Officer has not brought on record statement of any persons through whom assessee s own unaccounted money has been brought in. Appellant has held the shares for over 13 years and it would be incorrect to treat sale of shares as bogus merely on the basis of suspicion and on account of fact that a substantial quantum of capital gains has been made by the assessee. In the present case, no material has been brought on record to suggest that purchase and sale of shares were bogus. Assessing Officer has not brought any material to support his finding that there has been collusion or connivance between the broker and the assessee for the introduction of his own unaccounted money. In the present case, the transaction of purchase and sale of shares were duly supported by contract note, demat account and payments were made through banking channel. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made under Section 68 of the IT Act.
2. Validity of reassessment proceedings under Section 143(3) read with Section 147 of the IT Act.

Issue-wise Detailed Analysis:

1. Deletion of addition made under Section 68 of the IT Act:

The Revenue appealed against the CIT(A)'s order, which deleted the addition of ?1,96,04,023 made under Section 68 of the IT Act. The Assessing Officer (AO) had added this amount as unexplained cash credit, suspecting that the assessee used penny stocks to claim bogus Long-Term Capital Gains (LTCG). The AO observed that the assessee held shares of M/s Suryanagari Finlease Ltd., a penny stock, and manipulated its price to book LTCG. The AO noted the company's negligible income and the unnatural rise and fall in its share price, concluding that the assessee's unaccounted funds were routed through these transactions.

In contrast, the CIT(A) found that the assessee had held shares since 1994, purchased through the Bombay Stock Exchange (BSE), and sold them through proper banking channels. The CIT(A) emphasized that the AO did not provide material evidence to prove that the assessee introduced unaccounted funds or that the transactions were bogus. The CIT(A) cited judicial precedents, including the Gujarat High Court's rulings, which held that genuine transactions supported by contract notes, DMAT accounts, and bank statements should not be treated as unexplained cash credits.

The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to present evidence of collusion or bogus transactions. The Tribunal referred to various judicial pronouncements, including the Delhi High Court's decision in PCIT vs. Smt. Krishna Devi, which emphasized that suspicion alone cannot justify treating genuine transactions as bogus without material evidence.

2. Validity of reassessment proceedings under Section 143(3) read with Section 147 of the IT Act:

The assessee contested the reassessment proceedings initiated under Section 148, arguing that the AO did not properly consider judicial pronouncements and the assessee's contentions. The reassessment was based on information from the investigation wing, indicating that the assessee claimed exempt LTCG from penny stocks, specifically M/s Surabhi Chemicals & Investments, identified as a penny stock in a search operation.

The Tribunal examined the reassessment process and found that the AO did not provide adequate evidence to substantiate the claim that the assessee's transactions were bogus. The Tribunal noted that the AO did not doubt the purchase of shares from BSE and failed to show how the assessee introduced unaccounted funds. The Tribunal concluded that the reassessment proceedings were not justified based on mere suspicion and assumptions without concrete evidence.

Conclusion:

The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection, affirming the CIT(A)'s deletion of the addition made under Section 68 and questioning the validity of the reassessment proceedings. The Tribunal emphasized the importance of material evidence over suspicion in tax assessments and upheld the genuineness of the assessee's transactions based on the presented documents and judicial precedents.