2023 (10) TMI 1309 - AT - Income Tax

Addition u/s 68 - Denial of Exemption u/s 10(38) - bogus LTCG on purchase and sale of shares - disallowance brokerage expense - penny stock transaction - HELD THAT - In the case in hand the assessee has produced all the evidences to prove the purchase of the shares as well as sale of the shares and holding all these shares in the Demat account and also recorded in the books of account. The purchase consideration was paid through banking channel by account payee cheque and the sale transaction is carried out through stock Exchange from the Demat account of the assessee. Once the assessee has discharged its onus to show that the transaction of purchase and sale is a real and genuine transaction then the burden is shifted to AO to disprove the claim of the assessee by some tangible material brought on record. The AO has held these transactions as bogus only on the basis of suspicion and not on the basis of conclusive evidence whereas the assessee has produced all the relevant evidence to establish that the transaction is genuine and assessee is eligible for claim u/s 10(38) We hold that the assessee has successfully proved the genuineness of the transaction of purchase and sale as well as holding of the shares which is also not disputed by the AO and therefore, in absence of any material brought on record to controvert these facts substantiated by the evidence produced by the assessee the claim of the assessee cannot be held as bogus - addition made by the AO on account of long term capital gain claimed as exempt u/s 10(38) of the Act and consequently, the disallowance of brokerage expenses is deleted. Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the addition of long-term capital gains as bogus under Section 68 of the IT Act, 1961, is justified.
2. Whether the disallowance of brokerage expenses is justified.

Summary:

Issue 1: Addition of Long-Term Capital Gains as Bogus

For the assessment year 2014-15, the assessee contested the addition of Rs. 15,82,057/- under Section 68 of the IT Act, 1961, towards alleged bogus long-term capital gain. The assessee argued that all transactions were established by independent third-party evidence, including purchase and sale through SEBI-registered brokers, and payment through banking channels. The AO doubted the genuineness of the transactions, proposing that the long-term capital gain was income from undisclosed sources. The assessee provided all relevant third-party evidence, such as contract notes, demat account statements, and bank statements. The Tribunal noted that the AO had not disputed the evidence but relied on investigations involving third parties. The Tribunal held that the assessee had discharged its onus by producing all relevant records and that the AO's conclusion was based merely on suspicion. It was emphasized that the department must show an inherent weakness in the explanation or rebut it with evidence. The Tribunal concluded that the transactions were genuine and the addition was not justified.

For the assessment year 2015-16, the assessee raised similar grounds regarding the addition of Rs. 17,76,008/- under Section 68 of the IT Act, 1961. The Tribunal noted that the issue was identical to the previous year and decided in favor of the assessee, holding that the transactions were genuine.

Issue 2: Disallowance of Brokerage Expenses

For the assessment year 2014-15, the assessee contested the disallowance of Rs. 31,641/- on account of alleged bogus brokerage expenses. The Tribunal held that since the transactions of purchase and sale of shares were genuine, the brokerage expenses should also be allowed. Consequently, the disallowance was deleted.

For the assessment year 2015-16, the assessee raised similar grounds regarding the disallowance of brokerage expenses. The Tribunal noted that the issue was identical to the previous year and decided in favor of the assessee, allowing the brokerage expenses.

Conclusion:

The Tribunal allowed all three appeals, holding that the transactions of purchase and sale of shares were genuine and the additions under Section 68 of the IT Act, 1961, and the disallowance of brokerage expenses were not justified. The orders of the authorities below were set aside.