2023 (10) TMI 769 - AT - Income Tax

Addition u/s 68 - bogus sale consideration received on sale of shares of listed shares - return of notices issued to two of the exit providers - HELD THAT - AO has identified the purchasers of shares, which have been sold by the assessee and he issued notices u/s 133(6) to two persons. Since the said notices were returned back/not responded, the AO has doubted the sale transactions of shares. As it is pertinent to note that the assessee has sold the shares on the recognised stock exchange. It is not shown by the AO that the assessee was aware of the exit providers or part of the group involved in rigging the prices. Hence, mere fact of return of notices issued to two of the exit providers cannot be a ground to suspect the genuineness of sales, without bringing any other substantial evidence on record. We notice that AO has not found fault with any of the documentary evidences furnished by the assessee to prove the purchases and sale of shares. AO has not brought on record any material to show that the assessee was part of the group which involved in the manipulation of prices of shares. Hence, there is no reason to suspect the purchase and sale of shares undertaken by the assessee. Thus we are of the view that the decision rendered in the case of Shyam R Pawar 2014 (12) TMI 977 - BOMBAY HIGH COURT and Ziauddin A Siddique 2022 (3) TMI 1437 - BOMBAY HIGH COURT shall apply in the present case, since the AO has not established that the assessee was involved in price rigging and further the AO did not find fault with any of the documents furnished by the assessee. Thus sale consideration received on sale of shares cannot be assessed as unexplained cash credit u/s 68 of the Act and the long term capital gains declared by the assessee cannot be doubted with. Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the sale consideration received on the sale of shares of M/s. Radford Global Limited should be treated as unexplained cash credit under section 68 of the Act.
2. Whether the long-term capital gains declared by the assessee on the sale of shares are genuine and exempt under section 10(38) of the Act.

Summary:

Issue 1: Treatment of Sale Consideration as Unexplained Cash Credit

The assessee challenged the addition of Rs. 1.05 crores as unexplained cash credit under section 68 of the Act, which was confirmed by the learned CIT(A). The Assessing Officer (AO) had relied on the SEBI report and the Investigation Directorate's findings, which identified the shares of M/s. Radford Global Limited as penny stocks involved in price manipulation. Despite the assessee providing evidence of the purchase and sale of shares through a SEBI registered broker and receiving consideration through banking channels, the AO doubted the genuineness of the transactions. The AO issued notices under section 133(6) to the purchasers and the seller of the shares, which went unanswered, leading to the assessment of the sale consideration as unexplained cash credit.

Issue 2: Genuineness and Exemption of Long-Term Capital Gains

The assessee argued that all necessary evidence was provided to prove the genuineness of the transactions. The SEBI's final report did not find any adverse evidence against the assessee for violating SEBI regulations. The Tribunal noted that the AO did not establish that the assessee was part of the group manipulating share prices. The purchase of shares was made through M/s. Atherton Glass Works Ltd, and the transactions were conducted through recognized stock exchanges. The Tribunal relied on the decisions of the Hon'ble Bombay High Court in the cases of Shyam R. Pawar and Ziauddin A. Siddique, which emphasized the need for concrete evidence to prove the involvement of the assessee in price manipulation. The Tribunal concluded that the AO failed to find any fault with the documentary evidence provided by the assessee and did not prove the assessee's involvement in any fraudulent activities.

Conclusion:

The Tribunal held that the sale consideration received on the sale of shares cannot be assessed as unexplained cash credit under section 68 of the Act. The long-term capital gains declared by the assessee were considered genuine and exempt under section 10(38) of the Act. Consequently, the order passed by the learned CIT(A) was set aside, and the AO was directed to delete the impugned addition. The appeal filed by the assessee was allowed.