2024 (2) TMI 330 - AT - Income Tax

Addition u/s 56(2)(x) - sale of flats - difference between the value taken by the assessee and the fair market value (FMV) u/s 50C - HELD THAT - We find that the value adopted by the assessee and FMV of the flats u/s 50C is within the range of 10% and, therefore, the provision of Section 56(2)(x) of the Act are not applicable which provides that where the market value of the property is more than the sale consideration received by the assessee then the difference between the two shall be considered. The case of the assessee finds support from the decisions of the coordinate benches in the Sandeep Patil 2020 (10) TMI 923 - ITAT BANGALORE , John Flower India Ltd. 2017 (1) TMI 1682 - ITAT MUMBAI and Dulari Devi Hetampuria 2020 (6) TMI 468 - ITAT KOLKATA - Hence Ground of assessee allowed. Bogus Short term capital loss on sale of equity shares - assessee s claim u/s 10(38) rejected - CIT(A) concluded assessee has incurred bogus short term capital loss which was bogus and was rightly disallowed by the AO - HELD THAT - As there is no adverse comment in the form of general and specific statement by Pr. Officer of the Stock Exchange or by the company whose shares were involved in the above said transactions. We note that the AO only referred to the report of the investigation wing which was based upon the statements of several persons who were wholly unrelated. The same is the position with regard to report of the SEBI. In the instant case also the name of the assessee was neither quoted by any of such persons nor any materials relating to the assessee was found at any place where investigation/searches were carried out by the Wing. Thus find the of decision in Raigarh Jute Textile Mills Pvt. Ltd. 2023 (6) TMI 1309 - ITAT KOLKATA squarely applies to the instant case. Also decided in Dipansu Mohapatra ( 2023 (2) TMI 392 - ORISSA HIGH COURT has held that tribunal was justified in allowing assessee s claim u/s 10(38) of the Act where the assessee has filed the details of purchase and sales of shares alongwith contract notes for purchase and sale, D-mat A/C and bank statement and furthermore no incriminating materials were found against the assessee in the survey conducted in the premises of the assessee and therefore the AO could not deny the claim u/s 10(38) of the Act merely by relying on the statements of accommodation entry providers which were recorded much before the date of survey. In the present case before us the facts of the assessee are on better footing even as there is no survey on the assessee s premises and AO relied on the statements of entry providers which were recorded long ago. Besides there was no incriminating materials against the assessee found even in the premises of entry operators/stock brokers. AO has failed to carry out any independent investigations/enquiries into the evidences filed by the assessee and has rejected the claim by the assessee qua loss from shares trading only on the basis of surmises and conjectures and relying on the statements of entry operators who never named the assessee and their statements were recorded long before. Therefore, we set aside the order of first appellate authority and direct the AO to delete the allow the loss - Decided in favour of asessee.

Summary

Issues Involved:

1. Confirmation of addition on account of difference between the value taken by the assessee and the fair market value (FMV) u/s 50C of the Act.
2. Confirmation of addition by disallowing the short-term capital loss on the sale of equity shares.

Summary of Judgment:

Issue 1: Confirmation of Addition u/s 50C of the Act

The assessee sold two flats for an aggregate consideration of Rs. 3,00,00,000/-, leading to an addition of Rs. 3,26,37,314/- to the income. The appellate authority upheld the Assessing Officer's decision. However, the tribunal found that the value adopted by the assessee and the FMV of the flats u/s 50C is within the range of ±10%, making the provisions of Section 56(2)(x) of the Act inapplicable. The tribunal allowed Ground Nos. 2 to 4, supporting the assessee's case with decisions from coordinate benches in similar cases.

Issue 2: Disallowance of Short-Term Capital Loss on Sale of Equity Shares

The assessee incurred a loss of Rs. 3,19,65,849/- on the sale of shares, which was adjusted against long-term capital gains. The Assessing Officer disallowed the loss, treating it as bogus based on the modus operandi in stock market scams involving penny stocks. The appellate authority confirmed this decision, citing the Hon'ble Jurisdictional High Court's decision in PCIT vs. Swati Bajaj & Ors.

The assessee argued that all necessary documents were furnished, and no independent verification was conducted by the Assessing Officer, who relied solely on the investigation wing's report and SEBI's list of manipulated shares. The tribunal found merit in the assessee's argument, noting that the Assessing Officer failed to conduct specific enquiries or issue notices to corroborate the allegations. The tribunal emphasized that the burden of proof shifted to the revenue once the assessee provided sufficient evidence.

The tribunal referenced several judicial precedents, including the Hon'ble Supreme Court's decision in Andaman Timber Industries CCE and the Hon'ble High Court's decision in PCIT vs. Dipansu Mahapatra, which supported the assessee's position. The tribunal concluded that the principles of natural justice were violated as the assessee was not given an opportunity to cross-examine witnesses or respond to adverse evidence.

The tribunal distinguished the facts of the case from the decision in PCIT vs. Swati Bajaj & Ors., noting that the transactions were conducted on a recognized stock exchange with proper documentation. The tribunal allowed Ground Nos. 5 to 9, directing the deletion of the disallowed loss.

Conclusion:

The appeal of the assessee was allowed, with the tribunal directing the deletion of the additions made by the Assessing Officer under both issues. The tribunal emphasized the importance of adhering to the principles of natural justice and conducting independent verifications before disallowing claims.