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2023 (9) TMI 795 - AT - Income TaxAddition u/s 68 - disallowance of exemption of long-term capital gains claimed u/s 10(38) - AO placing reliance upon the investigation carried out by the Directorate of Investigation, Kolkata in relation to 84 penny stocks, the financial position of the Companies in whose shares assessee has transacted and fluctuation in the share rates in a short span of time - HELD THAT - We find that the AO without commenting on any of the evidence submitted by the assessee placed reliance upon the report of the Investigation Wing, Kolkata, and the price fluctuation of shares of the entities in which the assessee has transacted. The findings of the Investigation Wing, appears to be mere general findings of the investigation without any adverse observation regarding the assessee or the scrips in which the assessee has transacted. Revenue has failed to prove as to how the said findings have any relevance to the present case. The price fluctuation of shares of the entities in which the assessee has transacted also does not support the case of the Revenue, as no material has been brought on record to show that the assessee was involved in such price manipulation even after purchasing and selling the shares on the stock exchange through a SEBI registered stock-broker. As in the statement recorded of the Authorised Representative of the assessee during the assessment proceedings, it was specifically submitted that the assessee has never invested through preferential allotment and also disclosed the name and address of the broker, i.e. HDFC Securities Ltd. However, the AO without finding any fault with the evidence submitted by the assessee proceeded to treat the transaction as non-genuine and the long-term capital gains earned by the assessee as bogus - Decided in favour of assessee.
Issues Involved:
1. Disallowance of exemption of long-term capital gains claimed under section 10(38) of the Income Tax Act. 2. Addition under section 68 of the Income Tax Act. 3. Confirmation of the Assessing Officer's action by the learned CIT(A). 4. Dismissal of appeal by the learned CIT(A) without appreciating the facts and evidence. 5. Raising of demand by the AO. Summary: Disallowance of exemption of long-term capital gains claimed under section 10(38) of the Income Tax Act and Addition under section 68 of the Income Tax Act: The assessee declared a total income of Rs. 20,480 for the assessment year 2014-15 and claimed an exemption of long-term capital gains (LTCG) of Rs. 5,47,190 under section 10(38) of the Act from the sale of shares of Pearl Agriculture Ltd. and Pearl Electronics Limited. The Assessing Officer (AO) disallowed this exemption and made an addition under section 68 of the Act, citing that the gains were from penny stocks and based on investigations by the Directorate of Investigation, Kolkata. Confirmation of the Assessing Officer's action by the learned CIT(A): The learned Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, emphasizing the non-genuine nature of the transactions and the appellant's failure to satisfactorily explain the investments and profits. The CIT(A) referenced several case laws supporting the AO's findings and concluded that the transactions were part of a scheme to obtain bogus capital gains. Dismissal of appeal by the learned CIT(A) without appreciating the facts and evidence: The CIT(A) dismissed the appeal, stating that the appellant's arguments and evidence, including purchase bills, share certificates, broker notes, and Demat account statements, were insufficient to prove the genuineness of the transactions. The CIT(A) relied on the investigation report and judicial pronouncements to support the decision. Raising of demand by the AO: The AO raised a demand of Rs. 2,39,480 based on the disallowed exemption and the addition made under section 68 of the Act. Tribunal's Decision: The Tribunal found that the AO did not adequately address the evidence provided by the assessee, such as contract notes from HDFC Securities Ltd and statements of the Demat account. The Tribunal noted that the AO's reliance on the investigation report and price fluctuations was insufficient without concrete evidence linking the assessee to price manipulation. The Tribunal also highlighted that the SEBI's investigation into Mystic Electronics Limited did not implicate the assessee. Consequently, the Tribunal allowed the appeal, finding no merit in the addition made under section 68 and the disallowance of the LTCG exemption. Conclusion: The appeal by the assessee was allowed, and the Tribunal found that the AO and CIT(A) erred in disallowing the exemption of LTCG and making the addition under section 68 of the Act without sufficient evidence. The order was pronounced on 23/08/2023.
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