2023 (3) TMI 926 - HC - Income Tax

Addition u/s 68 - bogus LTCG - sale proceeds of the shares as undisclosed income - HELD THAT - As decided in 2021 (12) TMI 1127 - ITAT SURAT CIT(A) was not justified in upholding the addition of sale proceeds of the shares as undisclosed income of the assessee u/s 68 - Decided against revenue.

Summary

Issues Involved:
1. Validity of reassessment proceedings u/s 147 of the Income Tax Act, 1961.
2. Evaluation of the merits of the case regarding the addition of income and disallowance of claimed exemptions.

Summary:

Issue 1: Validity of reassessment proceedings u/s 147

The revenue questioned whether the ITAT erred in quashing the reassessment proceedings u/s 147 without considering that the assessing officer had sufficient tangible material to form a bona fide belief that the income had escaped assessment for AY 2013-14. The Gujarat High Court examined the material produced, including the order dated 29.11.2021 by the ITAT and the assessment order dated 28.12.2017. It was noted that the Assessing Officer observed that the penny share stock transactions were controlled by a group of promoters, operators, and brokers who arranged bogus LTCG in favor of the assessee. Consequently, the claim of long-term capital gain u/s 10(38) was denied, and the income was added u/s 68, along with a commission disallowed u/s 69C as unexplained expenditure. The CIT(A) upheld these findings, emphasizing the pre-arranged nature of the transactions to evade capital gain taxation.

Issue 2: Evaluation of the merits of the case

The ITAT, Surat, allowed the assessee's appeal, stating that all evidences of sales, including contract notes, were submitted and found no fault in the documents by the Assessing Officer. The transactions were through recognized stock exchanges, and there was no evidence of cash recycling. The ITAT noted that the assessee had no nexus with the company, its directors, or operators and was not involved in price rigging. The ITAT found that the assessee provided sufficient evidence, such as ledger accounts, contract notes, bank statements, share certificates, and transfer forms, proving the genuineness of the transactions. The ITAT concluded that the addition u/s 68 could not be made based on generalizations, suspicion, or conjectures.

Conclusion:

The Gujarat High Court, agreeing with the ITAT's findings, held that the questions of law formulated by the Revenue were more factual than legal and did not constitute a substantial question of law. Consequently, the appeals were dismissed.