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2022 (8) TMI 1223 - AT - Income TaxBogus LTCG - Addition u/s 68 - Long Term Capital Gain claimed exempt u/s. 10(38) denied - primary onus to prove - Whether appellant has duly discharged the primary onus in terms of Section 68? - whether a person who genuinely purchases the shares at a low price and sold at high price, therefore, he enjoyed the windfall from such scripts, can he be disallowed the benefit of tax exemption provided under section 10(38) of the Act in a situation where it is established that the share price of the company was rigged up to extend the benefit to certain parties/ - HELD THAT - The Justice cannot be delivered in a mechanical manner. In other words, what we see on the records available before us, sometime we have to travel beyond it after ignoring the same. Furthermore, while delivering the justice, we have to ensure in this process that culprits should only be punished and no innocent should be castigated. An innocent person should not suffer for the wrongdoings of the other parties. In the case on hand, admittedly there was no evidence available on record suggesting that the assessee or his broker was involved in the rigging up of the price of the script of M/s Comfort Fincap Ltd. Thus, it appears that the assessee acted in the given facts and circumstances in good-faith. Respectfully, following the judgment of Pr. CIT vs. 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. Capital gain earned by the assessee cannot be held as bogus merely on the basis of some report unearthed in case of third party/parties unless cogent material is brought against particular assessee on record. Therefore, we hereby 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 s appeal are allowed.
Issues Involved:
1. Addition of Rs. 1,15,49,320/- treating Long Term Capital Gain as unexplained cash credit under Section 68 of the Income Tax Act, 1961. 2. Onus of proof under Section 68 of the Income Tax Act, 1961. 3. Allegation of bogus transaction and pre-arranged scheme. 4. Failure to provide cross-examination opportunity to the assessee. 5. Reliance on circumstantial evidence and human probability. Detailed Analysis: 1. Addition of Rs. 1,15,49,320/- Treating Long Term Capital Gain as Unexplained Cash Credit under Section 68: The assessee declared a long-term capital gain of Rs. 1,15,49,320/- from the sale of shares of M/s Comfort Fincap Ltd., claiming it as exempt under Section 10(38) of the Income Tax Act, 1961. The Assessing Officer (AO) treated this gain as bogus and added it as unexplained cash credit under Section 68. The AO based this conclusion on the grounds that the company was not well-known at the time of investment, shares were purchased offline, and the share price increased sharply without corresponding financial strength. 2. Onus of Proof under Section 68: The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing that Section 68 places the onus of proof on the taxpayer to explain the nature and source of any credited sum to the AO's satisfaction. The CIT(A) noted that the assessee failed to rebut the presumption that the transaction was bogus, especially given the statements from key persons involved in Comfort Fincap Ltd. admitting to providing accommodation entries for Long Term Capital Gains (LTCG). 3. Allegation of Bogus Transaction and Pre-arranged Scheme: The AO and CIT(A) both highlighted several factors casting doubt on the genuineness of the transaction: - The company had nominal business activity and financial strength. - The share price increased dramatically and then fell sharply. - Statements from key individuals and brokers involved in the company suggested a scheme of pre-arranged transactions to generate bogus LTCG. 4. Failure to Provide Cross-examination Opportunity: The assessee argued that they were not provided with the investigation report or statements from key individuals for rebuttal and cross-examination. The Tribunal found merit in this argument, noting that the AO did not provide these crucial documents, which could have allowed the assessee to challenge the allegations effectively. 5. Reliance on Circumstantial Evidence and Human Probability: The Tribunal observed that the AO relied heavily on circumstantial evidence and the principle of human probability without conducting an independent inquiry or providing concrete evidence linking the assessee to the alleged bogus transactions. The Tribunal emphasized that mere suspicion or modus operandi cannot substitute for solid evidence. Tribunal's Conclusion: The Tribunal concluded that: - The assessee had provided sufficient documentary evidence to support the genuineness of the transactions, including payment through banking channels, dematerialization of shares, and sale through the stock exchange. - The AO's reliance on circumstantial evidence and statements from third parties without providing an opportunity for cross-examination was insufficient to justify the addition under Section 68. - The Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition of Rs. 1,15,49,320/-, allowing the assessee's appeal. Final Order: The appeal of the assessee was allowed, and the addition made by the AO was deleted. This Order was pronounced in Open Court on 26/08/2022.
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