2023 (12) TMI 646 - AT - Income Tax

Bogus LTCG - capital gains arising on sale of shares cannot be regarded as sham profit - addition u/s 69A - unexplained transaction expense u/s 69C - HELD THAT - As pointed out on behalf of the assessee, the transaction of existence of purchase and sale of CCL Ltd. giving rise to LTCG claimed to be exempt under section 10(38) of the Act is fully corroborated by the documentary evidences. The shares have been credited in the demat account and transferred out of demat account at the time of sale. Both purchase and sale transactions are carried out through banking channel and by transfer of shares. The prima facie bonafides of existence of transaction executed cannot thus be doubted. It is not the case of the revenue that the capital gain arising to Assessee in not in the nature of LTCG. The case of revenue is that such transactions is an accommodation entry and thus sham. The abnormal increase in prices of share has led to suspicion on bonafides of transaction and was treated as accommodation entry of sham nature. As decided in the case of Karuna Garg 2022 (12) TMI 858 - DELHI HIGH COURT as well as Krishna Devi 2021 (1) TMI 1008 - DELHI HIGH COURT has held that an astronomical increase in the share price of a company in itself is not a justifiable ground for holding the LTCG to be an accommodation entry. As pointed out on behalf of the assessee large number of decisions pronounced by Co-ordinate benches holds the field in favour of the assessee in respect of same scrip of CCL International Ltd. . AO in another case namely Parth Yadav has framed the reassessment order without making any additions on account of LTCG derived from sale of CCL Ltd. Shares despite reopening the assessment on such ground. Thus, the Revenue itself, in other case, broadly accepted the view point canvassed. On the substratum of the company financials, the assessee has also demonstrated that CCL Ltd. is engaged in substantial business with significant turnover and fixed assets base. We are of the view that the addition is not justified based on conjecture and surmise and the assessee is discharged primary onus which lay upon it. The Revenue, on the other hand, could not dislodge the perception that apparent is not real. We see potency in the plea of the assessee that such capital gains arising on sale of shares cannot be regarded as sham profit and consequently, additions u/s 69A of the Act is not justified. AO has not provided anything on record to justify additions under section 69C of the Act either. The modus operandi spelt by itself is not a adequate ground to impeach the transactions. Decided in favour of assessee.

Summary

Issues:
The judgment involves the denial of exemption of Long Term Capital Gain (LTCG) claimed under section 10(38) of the Income Tax Act, 1961, additions on account of LTCG under section 69A of the Act, and addition of unexplained transaction expense under section 69C of the Act.

Denial of Exemption of LTCG under Section 10(38):
The Assessing Officer (AO) observed that the LTCG claimed by the assessee was an accommodation entry to launder unaccounted income. The AO referred to an Investigation Report explaining the modus operandi for rigging prices of penny stocks abnormally high to claim exempt income. The AO treated the LTCG as unaccounted income under section 69A of the Act, as the onus to support the claim of exemption was not discharged by the assessee. Despite the genuine nature of the company, CCL International Ltd., and documentary evidence supporting the transactions, the AO deemed the transactions implausible based on the investigation report.

Additions under Section 69A and 69C:
The AO treated the LTCG arising from the sale of CCL shares as unaccounted income under section 69A of the Act. Additionally, the AO added an amount towards unexplained transaction expense under section 69C. The total income returned by the assessee was assessed at a higher amount by the AO based on these additions.

Appellate Proceedings:
The assessee appealed before the Commissioner of Income Tax (Appeals) (CIT(A)), who denied any relief to the assessee. Further aggrieved, the assessee preferred an appeal before the Tribunal, challenging the denial of exemption and the additions made by the AO.

Tribunal's Decision:
After considering the submissions and case laws cited by both parties, the Tribunal found that the transactions of purchase and sale of CCL Ltd. shares giving rise to LTCG claimed as exempt were supported by documentary evidence. The Tribunal noted that the bonafides of the transactions could not be doubted, and the abnormal increase in share prices alone was not sufficient to treat the LTCG as an accommodation entry. The Tribunal referred to previous judgments supporting the assessee's case and highlighted that the Revenue had accepted similar transactions in another case.

Conclusion:
In light of the factual matrix and case laws, the Tribunal held that the additions under section 69A and 69C were not justified. The Tribunal found that the assessee had discharged the primary onus, and the Revenue failed to dislodge the perception that the transactions were not genuine. Therefore, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the additions in question, ultimately allowing the appeal of the assessee.