2022 (11) TMI 879 - AT - Income Tax

Addition u/s 68 - bogus LTCG - Addition relying on the report of the investigation wing and the steep increase in the price of the shares - HELD THAT - Assessment order in the present case does not have any mention about the independent inquiry that was conducted by the AO relevant to the impugned transaction. It is also observed that the AO has failed to examine the alleged Directors of M/s. Diamant Infrastructure Limited as to the nature of business carried out by the said company nor has the AO examined the alleged brokers involved in the impugned transactions. As decided in Swati Bajaj 2022 (6) TMI 670 - CALCUTTA HIGH COURT on similar issue which held that the AO should conduct enquiry on the impugned transaction to substantiate that the claim of the assessee for LTCG/STCL is non genuine and further held that the AO can rely on circumstantial evidence based on the doctrine of preponderance of probabilities in such cases where it is beyond the reach to carve out direct evidences. But, in the present case we find that the AO has made no enquiry other than relying on the report of the investigation wing and the steep increase in the price of the shares. We are of the considered opinion that the AO should have done a further analysis and enquired into the genuineness of the alleged transaction. In the present case in hand the assessment order is flawed by lack of enquiry by the AO. Appeal filed by the assessee is allowed.

Summary

Issues:
Challenge to addition under section 68 of the Income Tax Act and non-granting of exemption under section 10(38) for long term capital gain.

Analysis:
The appeal was filed challenging the order of the Commissioner of Income Tax (Appeals) regarding the addition of Rs.5,79,775 under section 68 of the Income Tax Act as unexplained investment in shares of a listed company and the denial of exemption for long term capital gain under section 10(38). The assessee, a partner in a wholesale business, had filed its income return declaring total income of Rs.12,98,762, which was later revised by the Assessing Officer to Rs.18,78,540 due to the addition made on account of unexplained investment in shares. The Commissioner upheld the addition stating that the transactions were not genuine and the profit earned was questionable. The assessee contended that the shares were purchased through regular market channels, supported by documentary evidence like contract notes, ledgers, and statements. The Assessing Officer's decision was based on information from the investigation wing, without conducting independent inquiries into the transactions or the involved parties.

The Tribunal observed that the Assessing Officer failed to conduct a thorough inquiry into the transactions, including examining the company's directors and brokers. Relying on precedents, the Tribunal emphasized that suspicion alone cannot deem a transaction as bogus, and the burden lies on the AO to prove collusion for introducing unaccounted money. Citing relevant case laws, the Tribunal highlighted the necessity for the AO to substantiate claims of non-genuineness with concrete evidence. In this case, the AO's reliance on investigation reports and share price fluctuations was deemed insufficient, emphasizing the need for a more detailed analysis. Referring to a Supreme Court decision, the Tribunal concluded that the assessment order lacked necessary inquiries, leading to the direction to delete the addition under section 68 of the Act.

The Tribunal's decision to allow the appeal was based on the inadequate inquiry conducted by the Assessing Officer, highlighting the importance of substantiating claims of non-genuineness with concrete evidence rather than relying solely on circumstantial factors. The Tribunal's reliance on legal precedents underscored the necessity for thorough investigations into transactions to avoid erroneous additions under the Income Tax Act.