2023 (10) TMI 301 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - claim of exemption u/s 10(38) denied - As per DR signature in the documents pertaining to preferential allotment of shares to the assessee and his family members was forged and accordingly, the entire transaction of purchase and sale of shares were pre-meditated - HELD THAT - We find that independent enquiries were conducted by SEBI for the relevant period and SEBI had passed an order in the case of MARL after its final investigation, wherein only three persons were held to be involved in artificial rigging of share prices of MARL and hence they were prohibited from accessing the securities market for a period of 3 years. This SEBI order in the case of MARL did not even mention the name of the assessee or his broker through whom the shares were sold by the assessee in the open market. Hence this goes to prove that the assessee or his broker were not involved in artificial rigging of price of shares of MARL in connivance with any person. When even SEBI does not allege any involvement of the assessee herein with the manipulation of share prices, how can the revenue herein state that long term capital gains derived by the assessee is merely an accommodation entry and is bogus. We are unable to persuade ourselves to accept to the contentions of the ld. DR that Kolkata Investigation Wing had conducted a detailed enquiry with regard to the scrip dealt by the assessee herein and hence whomsoever had dealt in this scrip, would only result in bogus claim of long term capital gain exemption or bogus claim of short term capital loss. Merely because a particular scrip is identified as a penny stock by the income tax department, it does not mean all the transactions carried out in that scrip would be bogus in the hands of all the investors. In this case only logical recourse would be to place reliance on the orders passed by SEBI pointing out the malpractices by certain parties and taking action against them. Since assessee s name does not even figure in the list of parties who were involved in manipulation of shares prices of MARL in the order of SEBI dated 30.8.2019 after its detailed investigations, the transaction carried out by the assessee cannot be termed as bogus. In any case, we find that the assessee had duly proved the nature and source of credit representing sale proceeds of shares of MARL within the meaning of section 68 of the Act. The sale proceeds have been received by the assessee from the stock exchange through the SEBI registered share broker by account payee cheques through regular banking channels. We find that the three ingredients of section 68 of the Act are duly fulfilled by the assessee in the instant case. Hence there is no question of making any addition as unexplained cash credit u/s 68 of the Act in the instant case. We hold that there is no case for the revenue to deny the claim of exemption u/s 10(38) of the Act and to sustain the disallowance of estimated commission expenditure thereon in the proceedings framed u/s 153A of the Act on the assessee. Decided in favour of assessee.

Issues Involved:
1. Validity of proceedings under Section 153A.
2. Time-barred assessment.
3. Incriminating material and preponderance of probability.
4. SEBI's findings and their impact.
5. Addition of commission expenses.
6. Initiation of penalty proceedings under Section 271(1)(c).
7. Charging of interest under the Income-tax Act.

Summary of Judgment:

1. Validity of Proceedings under Section 153A:
The Tribunal found that no incriminating documents were found during the search at the assessee's premises. The search warrant was issued based on information from other sources, not directly implicating the assessee. The Tribunal emphasized that the assessment could not be based on materials found during searches on other persons unless proceedings were initiated under Section 153C.

2. Time-Barred Assessment:
The assessee argued that the assessment order was time-barred under Section 153B. However, this ground was not pressed by the assessee during the hearing and was dismissed as not pressed.

3. Incriminating Material and Preponderance of Probability:
The Tribunal noted that the report from the DIT Investigation Wing, Kolkata, did not find any material against the assessee. The principle of "preponderance of probability" was discussed, but the Tribunal concluded that the addition could not be based on materials found in third-party searches without following Section 153C procedures.

4. SEBI's Findings and Their Impact:
The Tribunal observed that SEBI's investigation did not find any material against the assessee. The SEBI order dated 30.8.2019 did not mention the assessee or his broker in connection with artificial rigging of share prices. Thus, the Tribunal held that the assessee's transactions could not be deemed bogus based on SEBI's findings.

5. Addition of Commission Expenses:
The Tribunal found no evidence to support the addition of commission expenses at 6% of the exempt Long Term Capital Gain. The assessee had made payments through regular banking channels and there was no money trail proving the alleged commission expenses.

6. Initiation of Penalty Proceedings under Section 271(1)(c):
The Tribunal deemed the initiation of penalty proceedings under Section 271(1)(c) as premature and dismissed this ground.

7. Charging of Interest under the Income-tax Act:
This ground was considered consequential and did not require specific adjudication.

Conclusion:
The Tribunal allowed the appeal in part, holding that the proceedings under Section 153A were invalid without incriminating material found during the search at the assessee's premises. The additions made by the AO were deleted, and the penalty proceedings were deemed premature. The appeal was partly allowed.

← Previous Next →