2024 (2) TMI 524 - AT - Income Tax

Validity of reopening of assessment u/s 147 - addition made on account of unexplained money u/s 69A - as alleged consideration was obtained by the assessee from the secondary market out of artificial price rigging of shares of KAFL in connivance with the entry operators - off market purchase of shares - exemption for long term capital gains u/s 10(38) - addition made merely by placing reliance on the Kolkata Investigation Wing report - HELD THAT - AO had not proved with any cogent evidence on record that assessee was involved in converting his unaccounted income into exempt long term capital gains by conniving with the so called entry operators and brokers who were involved in artificial price rigging of shares. No evidence is brought on record to prove that assessee was directly involved in price manipulation of the shares dealt by him in connivance with the brokers and entry operators Transactions could not be treated as sham merely because they are done in off-market, if the assessee had discharged his onus of proving the fact that shares purchased by her were dematerialized in the Demat account and held by the assessee till the same were sold from the Demat account of the assessee. The transaction of holding the shares are reflected in Demat account and sale of shares are through Demat account. More so, when there is no dispute regarding the purchase price and sale price of shares. We are unable to persuade to accept to the contentions of the ld. DR that Kolkata Investigation Wing had conducted a detailed enquiry with regard to the scrip dealt by the assessee herein and hence whomsoever had dealt in this scrip, would only result in bogus claim of long term capital gain exemption or bogus claim of short term capital loss. Merely because a particular scrip is identified as a penny stock by the income tax department, it does not mean all the transactions carried out in that scrip would be bogus. So many investors enter the capital market just to make it a chance by investing their surplus monies. They also end up with making investment in certain scrips (read penny stocks) based on market information and try to exit at an appropriate time the moment they make their profits. The transactions of sale of shares were done in online platform of BSE through the registered share broker from whom the received the sale consideration. The broker also receives payments for all his transactions from Stock Exchange. The seller and the buyer cannot know the names of each other as well as their respective brokers, who were involved in the trading transactions in the secondary platform. In such a situation, it cannot be presumed that there could be any transfer of cash between the buyers and sellers to convert the unaccounted money of the beneficiaries as alleged by the ld AO. There is absolutely no evidence brought on record whatsoever to allege that money changed hands between the assessee and the broker or any other person including the alleged exit provider whatsoever to convert unaccounted money for getting benefit of LTCG as alleged. Hence I hold that in the absence of any material to show that huge cash was transferred from one side to another , addition cannot be sustained. Thus all the observations, conclusions and findings of the ld. AO are based on suspicion, surmises and hearsay. It is trite law that the suspicion howsoever strong cannot partake the character of legal evidence. Entire case of the revenue hinges upon the presumption that the assessee has ploughed back her own unaccounted money in the form of bogus LTCG. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that the assessee had brought back her unaccounted income in the form of LTCG. Reopening of assessment had been initiated by mere surmise and conjecture without having any cogent material to form a reasonable belief that income of the assessee had escaped assessment within the meaning of section 147 of the Act. Hence hold that the assumption of Jurisdiction u/s 147 of the Act is void abinitio in the instant case. Even on merits, find that there is no case for making any addition u/s 69A of the Act in the hands of the assessee, thus assessee would be entitled for relief by way of exemption for long term capital gains u/s 10(38) of the Act in the facts and circumstances of the instant case. Accordingly, the grounds raised by the assessee are allowed.

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income-tax Act, 1961.
2. Addition of Rs. 39,51,648/- under Section 69A of the Income-tax Act.
3. Disallowance of exemption of Rs. 38,55,696/- under Section 10(38) of the Income-tax Act.
4. Levy of interest under Sections 234B and 234C of the Income-tax Act.

Summary:

1. Validity of Reopening the Assessment under Section 147:
The assessee challenged the reopening of assessment under Section 147 of the Act. The Assessing Officer (AO) issued a notice under Section 148 based on information from the Kolkata Investigation Wing, alleging that the assessee was a beneficiary of artificially rigged share prices of Kailash Auto Finance Ltd (KAFL). The AO's reasons for reopening included an investigation report indicating bogus LTCG/STCL entries claimed by beneficiaries, including the assessee. The Tribunal found that the AO did not independently verify the matter and merely relied on the investigation report without linking the assessee to the allegations. The Tribunal held that the reopening was based on mere surmise and conjecture without any cogent material, making the assumption of jurisdiction under Section 147 void ab initio.

2. Addition of Rs. 39,51,648/- under Section 69A:
The AO added Rs. 39,51,648/- as unexplained money under Section 69A, alleging that the sale consideration from the shares of KAFL was obtained through artificial price rigging. The Tribunal found that the assessee had provided all necessary documentary evidence to support the purchase and sale of shares, and there was no adverse inference drawn by the AO. The Tribunal noted that neither the assessee nor the stock broker was mentioned in the statements of alleged entry operators. The Tribunal concluded that the entire addition was based on suspicion, surmises, and hearsay without any evidence linking the assessee to price manipulation.

3. Disallowance of Exemption under Section 10(38):
The AO disallowed the exemption of Rs. 38,55,696/- under Section 10(38) for long-term capital gains arising from the sale of shares of KAFL. The Tribunal observed that the assessee had held the shares for more than one year, and the transactions were carried out through a registered stock broker on the Bombay Stock Exchange platform, with all payments made through banking channels. The Tribunal emphasized that the SEBI investigation did not find any adverse evidence against the entities involved in the transactions. The Tribunal held that the disallowance was based on mere suspicion without any material evidence, and the assessee was entitled to the exemption under Section 10(38).

4. Levy of Interest under Sections 234B and 234C:
The Tribunal did not specifically address the levy of interest under Sections 234B and 234C, as the primary issues regarding the reopening of assessment and the additions made were decided in favor of the assessee, rendering the interest levies consequentially invalid.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the reopening of assessment was invalid, the addition under Section 69A was unwarranted, and the disallowance of exemption under Section 10(38) was unjustified. The Tribunal emphasized the need for cogent evidence to support any allegations of bogus transactions and found that the revenue's case was based on mere suspicion and conjecture.

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