2022 (11) TMI 1061 - AT - Income Tax

Addition u/s 68 - Bogus LTCG - claim for exemption of capital gains u/s 10(38) - HELD THAT - The appellant deliberately withheld the information from the AO as well as the ld. CIT(A) which is within exclusive knowledge of appellant to establish the genuineness of transactions of purchase of shares of that company. It is nothing but a fraud played by the appellant against the AO as well as the ld. CIT(A) who are quasi judicial authorities employed for execution of the provisions of the Income Tax Act. Therefore, the principle of fraud can be squarely applied to the facts of the present case and principles of natural justice have no application. Applying the said doctrine, we have no hesitation to hold that the transaction of purchase and sale of shares of SRK Industries under consideration before us is void ab-initio, this is nothing but sham, make believe and colourful device adopted with excellent paper work with intention bringing the undisclosed income into books of account. Accordingly, we confirm the orders of the Assessing Officer as well as the ld. CIT(A) and find no merits in the appeal preferred by the assessee before us. Appeal filed by the assessee stands dismissed.

Issues involved:
1. Denial of claim for exemption of capital gains under section 10(38) of the Income Tax Act.
2. Allegations of involvement in suspicious transactions related to long term capital gains on the sale of shares.
3. Failure to substantiate the genuineness of transactions of purchase and sale of shares.
4. Application of the doctrine of human probabilities in confirming the action of the Assessing Officer.
5. Consideration of the principle that fraud vitiates everything in determining the validity of the transaction.

Issue 1: Denial of claim for exemption of capital gains under section 10(38) of the Income Tax Act:
The appellant's claim for exemption of capital gains under section 10(38) was denied by the Assessing Officer based on suspicions regarding the transactions involving the purchase and sale of shares of SRK Industries Ltd. The appellant failed to substantiate the genuineness of these transactions, leading to the denial of the claim.

Issue 2: Allegations of involvement in suspicious transactions related to long term capital gains on the sale of shares:
The Assessing Officer alleged that the appellant was a beneficiary of accommodation entries or long term capital gains from a Calcutta Entry Provider. The investigation revealed a modus operandi involving paper companies and dummy directors used to provide accommodation entries. Despite opportunities to rebut these findings, the appellant failed to do so, leading to the addition of sale proceeds of the shares as unexplained cash credit.

Issue 3: Failure to substantiate the genuineness of transactions of purchase and sale of shares:
Throughout the assessment proceedings, the appellant could not provide sufficient evidence to establish the genuineness of the transactions of purchase and sale of shares. Despite being provided with statements from entry providers and directors of dummy companies, the appellant failed to rebut the findings of the Assessing Officer, resulting in the addition of sale proceeds under section 68 of the Act.

Issue 4: Application of the doctrine of human probabilities in confirming the action of the Assessing Officer:
The ld. CIT(A) confirmed the action of the Assessing Officer by invoking the doctrine of human probabilities, relying on judicial precedents such as the decision of the Hon'ble Supreme Court in the case of Sumati Dayal vs. CIT. The appellant contested this decision, claiming to have discharged the onus of proving the genuineness of the transactions. However, the decision was upheld based on the established factual scenario of fraudulent dealings.

Issue 5: Consideration of the principle that fraud vitiates everything in determining the validity of the transaction:
The Tribunal considered the principle that fraud vitiates everything in the context of the transaction under review. Citing judicial precedents, including the decision of the Hon'ble Supreme Court in Friends Trading Co. vs. Union of India, the Tribunal held that the transaction of purchase and sale of shares was void ab initio due to deliberate withholding of information by the appellant. The Tribunal concluded that the transaction was a sham, make-believe, and a colorful device to bring undisclosed income into the books of account, confirming the orders of the Assessing Officer and the ld. CIT(A).

This detailed analysis of the judgment highlights the issues involved, the findings of the Assessing Officer and the ld. CIT(A), as well as the Tribunal's decision based on legal principles and precedents cited in the judgment.

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