2024 (1) TMI 415 - AT - Income Tax

Bogus LTCG - share price increased multi-fold - Allegation that there is artificial increase by circular trading of shares forming carte - HELD THAT - We observe that the assessee is not the regular investor and had specifically made the investment in the scrip under consideration. It is fact on record that the financials of the company are not commensurate with the purchase and sale price in the market. Assessee has purchased the shares from open market, D-mated the scrips and subsequently sold the same in the stock exchange. It clearly raises several doubt on the purchase and sales transactions recorded in this case. However, there is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38). At the same time, even though all the characteristics of the penny stock exists in the present case, still the revenue has not brought on record any materials linking the assessee in any dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiary in this transactions merely as unsuspecting investor, who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. Decided in favour of assessee.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act, 1961.
2. Addition under Section 69C of the Income Tax Act, 1961.
3. Violation of the principles of natural justice due to lack of opportunity for cross-examination.

Summary:

1. Addition under Section 68 of the Income Tax Act, 1961:
The Assessing Officer (AO) concluded that the long-term capital gains (LTCG) claimed by the assessee from the sale of shares of Kappac Pharma Ltd. were pre-arranged and not genuine. The AO relied on the Directorate of Investigation's report, which indicated that such transactions were part of an organized racket to generate bogus LTCG exempt from tax. The AO observed that the financials of Kappac Pharma did not justify the significant increase in share prices, leading to the conclusion that the transactions were artificially structured to evade taxes. The AO added Rs. 52,27,792/- to the assessee's income under Section 68, treating it as undisclosed income.

2. Addition under Section 69C of the Income Tax Act, 1961:
The AO also made an addition of Rs. 1,58,338/- under Section 69C, considering it as unexplained expenditure related to the alleged bogus transactions. The AO estimated this amount as commission paid for arranging the transactions.

3. Violation of the principles of natural justice:
The assessee contended that the AO did not provide an opportunity for cross-examination of the individuals whose statements were relied upon. The assessee argued that the transactions were genuine, supported by documentary evidence, and that the AO's conclusions were based on assumptions and general findings without specific evidence against the assessee.

Tribunal's Findings:
The Tribunal noted that the assessee had provided all necessary documentary evidence to support the genuineness of the transactions, including contract notes, bank statements, and demat account details. The Tribunal observed that the AO's conclusions were based on circumstantial evidence and the general findings of the Directorate of Investigation without any specific material linking the assessee to the alleged bogus transactions. The Tribunal emphasized that there was no evidence to show that the assessee was involved in any price rigging or that unaccounted money was introduced through the transactions.

Judicial Precedents:
The Tribunal referred to various judicial precedents, including the decisions of the Hon'ble Bombay High Court in the case of Pr. CIT v. Ziauddin A Siddique and the Hon'ble Delhi High Court in the case of Pr. CIT v. Smt Krishna Devi, which held that in the absence of specific evidence linking the assessee to bogus transactions, additions made on the basis of suspicion and assumptions could not be sustained.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that the additions made under Sections 68 and 69C were not justified in the absence of specific evidence against the assessee. The Tribunal emphasized that the principles of natural justice were violated as the assessee was not given an opportunity for cross-examination. The Tribunal directed the AO to delete the additions made under Sections 68 and 69C.