2023 (5) TMI 728 - AT - Income Tax

Bogus LTCG on shares - Addition u/s 68 - unexplained 'nature and source' of the receipt - whether the assessee has discharged its initial onus cast upon him or not? - AO relied upon the report of the investigation wing from Calcutta to make the addition - HELD THAT - Each transaction needs to be tested on its own facts and circumstances. If it passes through the three tests as laid down u/s 68 of the Act, script, company and all other criteria are immaterial. It is also the facts that SEBI has exonerated the assessee for violation. It may so happen that SEBI might not have got any evidence, which is violation of that law, but LD AO might have got information, which is relevant for making addition u/s 68 - Needless to say, that SEBI Act, SCRA Act and PFUTP Regulations have different aspects to be tested. Findings of those may help the assessee in discharging his onus, but those matters does not sail the case of the assessee, if LD AO has material. Therefore, the prime important piece of evidence is inquiry by LD AO and his findings with evidences. In this case, SEBI has given a clear-cut answer that assessee and other who are named as exit providers are not at all involved any kind of price rigging of shares of this company. This was available with lower authorities When all these details have been produced by the assessee before the learned assessing officer, the assessee has discharged his initial onus under section 68 of the act. After that it is the duty of the learned assessing officer to throw back the onus back on assessee by making a concrete enquiry with respect to the evidence submitted by the assessee and if any adverse information is collected by him, to confront the assessee with that information. The case before us is that AO has relied upon the report of the investigation wing from Calcutta to make the addition. AO was also of the view that securities and board of India has carried out any enquiry against the assessee and those exist providers holding that they are involved in the price rigging of the shares of the company. Thus, the regulator who monitors, whether there is any irregularity committed by the assessee in transaction of shares has exonerated and categorically held that assessee is not at all involved any of the transactions which can be held to be fraudulent. Further price rise, market data etc have been held by the regulator in Dhanukas' case 2021 (6) TMI 1144 - SECURITIES APPELLATE TRIBUNAL MUMBAI as mere conjectures and surmises. For making an addition holding that transaction are bogus, the LD AO should have made inquiries on the documents submitted by the Assessee. Most important is the inquiry based on date and Time stamp of the transactions at stock exchanges. Buy and sale timing based on date and time stamp of trade would have led to exit providers and where the securities have travelled after sale, who provided the funds to the buyers, how the broker of buyer of shares are involved in these transactions. Synchronized trade of sale is generally not possible unless the brokers of the buyer and sellers in collusion. There is not even a single inquiry by the LD AO. We are not at all impressed by the arguments of the assessee about the cross examination etc as we do not find that LD AO has made addition only on the basis of statements of third parties. When also it is the claim of the assessee that his name nowhere figures, in those statements, assessee does not have any reason to ask for their cross-examination. Thus, in view of categorical finding of the regulator SEBI exonerating the assessee, absence of any inquiry by the LD AO are the only reason for our decision in holding that the lower authorities have made the addition based on conjectures and surmises. Thus, we do not have any hesitation in deleting the addition made for both the years - Decided in favour of assessee.

Issues Involved:
1. Addition under Section 68 of the Income Tax Act for Long Term Capital Gains on sale of shares.
2. Treatment of transactions as bogus and involvement in price rigging.
3. Compliance with Section 10(38) of the Income Tax Act.
4. Addition under Section 69C for assumed commission paid.
5. Procedural and document-related irregularities.

Issue-Wise Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act for Long Term Capital Gains on sale of shares:
The assessee filed appeals against the confirmation of additions under Section 68 for A.Y. 2014-15 and 2015-16, amounting to Rs. 5,18,95,425/- and Rs. 2,10,02,400/- respectively, related to Long Term Capital Gains (LTCG) on the sale of shares of Pine Animation Limited. The assessee argued that the transactions were genuine, supported by purchase bills, bank statements, Demat accounts, and broker notes. The Assessing Officer (AO) noted unusual price movements and alleged that the transactions were not genuine, relying on external data and third-party statements. The Tribunal found that the assessee had discharged the initial onus under Section 68 by providing comprehensive documentation and that the AO did not conduct a concrete inquiry into the evidence submitted by the assessee.

2. Treatment of transactions as bogus and involvement in price rigging:
The AO and CIT(A) treated the transactions as bogus, alleging price rigging without concrete evidence. The assessee highlighted that SEBI had exonerated him, finding no adverse evidence of manipulation or connection with the company's promoters. The Tribunal emphasized that SEBI's investigation, which found no involvement of the assessee in price manipulation, was a significant factor. The Tribunal criticized the AO for relying on conjectures and failing to conduct a thorough inquiry into the transactions' genuineness.

3. Compliance with Section 10(38) of the Income Tax Act:
The assessee contended that the AO and CIT(A) did not point out any non-compliance with Section 10(38), which exempts LTCG from tax. The Tribunal noted that the AO's rejection of the assessee's claim was based on assumptions and external reports rather than specific evidence of non-compliance. The Tribunal concluded that the assessee had complied with the provisions of Section 10(38), and the exemption should be granted.

4. Addition under Section 69C for assumed commission paid:
For both assessment years, the AO made additions under Section 69C, assuming that the assessee paid commission for the alleged bogus transactions. The amounts added were Rs. 15,56,863/- for A.Y. 2014-15 and Rs. 6,32,072/- for A.Y. 2015-16. The Tribunal found that these additions were based on assumptions without concrete evidence. The Tribunal directed the AO to delete these additions.

5. Procedural and document-related irregularities:
The assessee argued that there were procedural and document-related irregularities in the AO's assessment process, including the denial of cross-examination opportunities. The Tribunal noted that the AO did not rely solely on third-party statements for the additions and found no substantial procedural irregularities that would affect the outcome. However, the Tribunal emphasized the lack of a thorough inquiry by the AO into the evidence provided by the assessee.

Conclusion:
The Tribunal allowed the appeals for both assessment years, directing the AO to delete the additions made under Sections 68 and 69C. The Tribunal emphasized that the assessee had discharged the initial onus of proving the genuineness of the transactions and that the AO's reliance on external reports and assumptions without concrete evidence was insufficient to justify the additions. The Tribunal's decision was influenced significantly by SEBI's findings, which exonerated the assessee from any involvement in price manipulation.

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