2023 (7) TMI 1091 - HC - Income Tax

Unexplained cash credit u/s 68 - penny stock - bogus share transactions - HELD THAT - In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent s bank account has been debited. The shares were also transferred into respondent s Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkata Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instructions slip and also received payment from Kolkata Stock Exchange. The cheque received was deposited in respondent s bank account. CIT A found there was no reason to add the capital gains as unexplained cash credit u/s 68 - The tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The ITAT therefore, in our view, rightly concluded that there was no merit in the appeal.

Summary

Issues involved:
The appeal challenges the order of the Income Tax Appellate Tribunal (ITAT) rejecting two appeals filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2005-06 regarding long term capital gain treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961.

Issue 1: Addition of long term capital gain as unexplained cash credit

The Revenue contended before the ITAT that the Commissioner of Income Tax (Appeals) was erroneous in deleting the addition made by the Assessing Officer in respect of long term capital gain treated as unexplained cash credit under Section 68 of the Act.

Issue 2: Allegations regarding the transaction

The Respondent had shown sale proceeds of shares in Ramkrishna Fincap Ltd. (RFL) as long term capital gain and claimed exemption under the Act. The Assessing Officer believed the capital gain to be accommodation entries due to the scrip being a penny stock and the involvement of a broker in price manipulation through synchronized and cross deals in RFL shares.

Issue 3: Decision of the Commissioner of Income Tax (Appeals)

The Commissioner of Income Tax (Appeals) deleted the addition made under Section 68 of the Act, stating that SEBI's independent enquiry proved the broker's involvement in inflating the price of RFL shares. The Commissioner found no fault in the Respondent's single transaction with the broker, as the shares were purchased through a registered share broker, payment was made by cheque, shares were transferred to the Demat account, and sold on the Stock Exchange.

Issue 4: Decision of the Income Tax Appellate Tribunal (ITAT)

The ITAT upheld the decision of the Commissioner of Income Tax (Appeals), emphasizing that the shares were purchased on the Stock Exchange, deliveries were taken, contract notes were issued, and shares were sold on the Stock Exchange. The ITAT concluded that there was no merit in the Revenue's appeal.

Conclusion:
The High Court found no fault in the ITAT's decision and determined that no substantial questions of law arose from the appeal. Therefore, the appeal was dismissed.