2023 (12) TMI 396 - AT - Income Tax

Bogus LTCG - assessee makes sale of shares of a company having no financial standing/base i.e. a penny stock company - HELD THAT - AO has not doubted the purchase of shares were through banking channels. The assessee has placed on record copies of contract memos in connection with purchase and sale of shares. Besides the above shares, the assessee has also held shares of 84 other companies as well. In the present case, no material has been brought on record to suggest that assessee was involved in any price rigging and not has the case of assessee mentioned in the list of beneficiaries, by the persons whose statements were recorded. In the statements recorded, the name of the assessee as a beneficiary was not specifically mentioned this fact was also specifically taken noted by Hon ble Supreme Court in the case of Renu Aggarwal 2023 (7) TMI 288 - SC ORDER AO has not brought any material to support his finding that there has been collusion or connivance between the broker and the assessee for the introduction of his own unaccounted money. In the present case, despite the assessee s specific request, no opportunity of cross examination was provided to the assessee on the basis of whose statements reliance has been placed to hold that the sale of shares was sham / bogus. ITAT Kolkata and ITAT Mumbai with respect to the very same stock i.e. M/s Global Infratech and Finance Ltd. in three separate judgments (Mukesh Sharma 2019 (5) TMI 1845 - ITAT MUMBAI , Kaushalya Agarwal 2019 (6) TMI 297 - ITAT KOLKATA and Mangilal Jain 2019 (5) TMI 1694 - ITAT KOLKATA ) have decided the issue in favour of the assessee by holding that the assessee was not engaged in bogus purchase and sale of shares. Accordingly, looking at decisions were rendered with respect to the same stock i.e. Global Infratech and Finance Ltd. which the assessee had sold during the impugned assessment year, and the recent decision of Hon ble Supreme Court in the case of Renu Aggarwal 2023 (7) TMI 288 - SC ORDER we are of the considered view the Ld. CIT(Appeals) has not erred in facts and in law in allowing the appeal of the assessee. Unexplained expenses - CIT(Appeals) directed the AO to compute the addition on account of unexplained expenses and unexplained receipt pertaining to the year under consideration on pro rata basis - HELD THAT - we observe that Ld. CIT(Appeals) has given a detailed basis of partially allowing the appeal of the assessee, and, the Ld. DR has not pointed out to any specific infirmity/factual inaccuracy in the observations made by Ld. CIT(Appeals) in the appellate order. Accordingly, looking into the facts of the instant case, we are of the considered view that Ld. CIT(Appeals) has not erred in facts and in law in partly allowing the appeal of the assessee, after taking into consideration the facts of the case. Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition on account of bogus/non-genuine Capital Gain by sale of shares of a penny stock company.
2. Deletion of addition on account of unexplained expenses.

Summary:

Issue 1: Deletion of Addition on Account of Bogus/Non-Genuine Capital Gain

The Department challenged the deletion of additions made by the Assessing Officer (AO) concerning the sale of shares of M/s Global Infratech Finance Ltd., a penny stock company, which the AO deemed as bogus long-term capital gains. The AO argued that the company had no financial standing to justify the steep rise in share prices and relied on statements from brokers admitting to providing accommodation entries. However, the Ld. CIT(A) found that the assessee had invested in shares based on his late father's advice and had conducted transactions through banking channels, with no evidence of involvement in share rigging or unaccounted cash flow. The CIT(A) noted the lack of cross-examination of witnesses whose statements were used against the assessee, thus violating principles of natural justice. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Department failed to prove the assessee's involvement in price rigging or receipt of cash, and referenced various judicial precedents supporting the genuineness of such transactions when conducted through proper banking channels.

Issue 2: Deletion of Addition on Account of Unexplained Expenses

The AO added Rs. 13,26,641/- as unexplained expenses based on loose papers found during a survey, which the CIT(A) partially allowed by correcting the total expenses to Rs. 1,54,28,426/- and giving credit for unaccounted receipts. The Tribunal upheld the CIT(A)'s decision, noting no specific infirmity or factual inaccuracy pointed out by the Department, and found no reason to interfere with the CIT(A)'s order.

Conclusion:

The appeals for the Assessment Years 2014-15, 2015-16, and 2016-17 were dismissed, with the Tribunal finding no error in the CIT(A)'s decisions to delete the additions made by the AO on account of bogus capital gains and unexplained expenses. The Tribunal emphasized the necessity of cross-examination and the lack of concrete evidence against the assessee.