2022 (10) TMI 649 - AT - Income Tax

Unexplained credit u/s 68 - Bogus purchases - Transaction of Penny Stock companies and Commission paid thereon - commission paid for acquiring such long-term capital gain added u/s 69C - HELD THAT - The report of the SEBI Related to the stock market regulation and its order is not in assistance to the revenue based on these findings the CIT hold view that mere statement of third-party is not enough to make addition in the hands of the assessee and also vacated the findings of the ld. AO. CIT(A) reviewed the copies of the documents filed by the assessee wherein he is reviewed the contract notes, ledger account, bank statement, demat account, affidavit of Anil Agarwal etc. after going through this records he observed that no questions raised before the Anil Agarwal about the transaction entered by the assessee is under his knowledge not only that the Anil Agarwal retracted his statement so even on that count no addition can be made in the hands of the assessee. CIT(A) extracted various decision that has been considered by him while considering the appeal of the assessee and the same were not reiterated here to avoid the duplication but he has mainly considered the various jurisdictional binding decision and based on those findings he allowed the appeal of the assessee. DR reiterated the findings recorded by the AO and submitted that the ld.CIT(A) has deleted the addition merely on technical ground and no merits of the case is discussed. We find that ld. CIT(A) has dealt all the aspects that the ld. AO has raised and given his finding on each one every issue in detailed and has also called for the remand report, now the revenue cannot take a plea on the issue again. Thus, we do not find any reason to deviate from the findings recorded by the CIT(A) in his order and we do not find any mistake of facts as well as in law in the detailed and reasoned findings of the CIT(A). Addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long/short term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Accordingly, we do not find any reasons to deviate from the detailed and reasoned finding of the CIT(A) and thus we dismiss the ground no 1 of the revenue. Addition on account of notional commission u/s 69C - treatment of long/short term capital gain as bogus - Once, we have confirmed the finding of the CIT(A) on the issue of treatment of long/short term capital gain as not bogus then, the consequent addition made by the AO rightly deleted by the CIT(A) and accordingly ground no. 2 raised by the revenue is also dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained credit under Section 68 of the IT Act.
2. Non-application of Section 115BBE regarding the addition under Section 69C of the IT Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Credit under Section 68 of the IT Act:

The core issue was whether the CIT(A) was justified in deleting the addition of Rs. 6,25,76,221/- made by the AO under Section 68 of the IT Act, which pertains to unexplained credit. The AO added this amount based on the findings from a search and seizure operation on the Maverick Group, alleging that the long-term capital gains (LTCG) declared by the assessee were bogus and part of a well-planned scheme involving penny stocks.

The AO based his findings on statements recorded from entry operators and brokers during the investigation, which indicated that the transactions were pre-arranged to convert unaccounted money into tax-exempt income. The AO relied on the statements of Shri Harshvardhan Kayan and Shri Manoj Kumar Agarwal, who admitted to providing accommodation entries through penny stocks. The AO also referenced SEBI's interim report and the Special Investigation Team (SIT) report on the misuse of LTCG exemptions.

The CIT(A) deleted the addition, stating that the AO's reliance on statements without corroborative evidence was insufficient. The CIT(A) emphasized that a statement alone cannot be treated as incriminating material unless it is substantiated by post-search inquiries or linked to material found during the search. The CIT(A) cited several judicial precedents, including decisions from the Rajasthan High Court and the Delhi High Court, which held that mere statements without corroborative evidence cannot justify additions.

The CIT(A) also noted that no incriminating material was found during the search to support the AO's allegations. The assessee provided documentary evidence, such as contract notes, bank statements, and demat account statements, to substantiate the transactions. The CIT(A) observed that the AO did not disprove these documents or provide any evidence to suggest that the transactions were not genuine.

The Tribunal upheld the CIT(A)'s decision, agreeing that the AO's addition was based on suspicion and surmises without any cogent material. The Tribunal emphasized that the assessee had provided substantial evidence to support the genuineness of the transactions, and the AO failed to prove otherwise.

2. Non-application of Section 115BBE regarding the Addition under Section 69C of the IT Act:

The second issue was whether the CIT(A) was justified in not applying Section 115BBE regarding the addition of Rs. 37,57,573/- under Section 69C of the IT Act, which pertains to unexplained expenditure. The AO had added this amount as commission allegedly paid for acquiring the bogus LTCG.

The CIT(A) deleted this addition as well, stating that since the primary addition under Section 68 was deleted, the consequential addition under Section 69C also could not be sustained. The CIT(A) reasoned that if the LTCG was genuine, there could be no question of unexplained expenditure related to it.

The Tribunal upheld the CIT(A)'s decision, noting that the deletion of the primary addition under Section 68 logically led to the deletion of the consequential addition under Section 69C. The Tribunal found no merit in the AO's argument and dismissed the revenue's appeal on this ground as well.

Conclusion:

The Tribunal dismissed the revenue's appeals, affirming the CIT(A)'s decision to delete the additions made by the AO under Sections 68 and 69C of the IT Act. The Tribunal concluded that the AO's additions were based on suspicion and lacked corroborative evidence, while the assessee had provided substantial documentary evidence to support the genuineness of the transactions.