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2024 (2) TMI 881 - AT - Income TaxAddition u/s 68 - bogus LTCG - penny stock transaction - AO heavily relied on the investigations carried out by the Investigation Wing of the Department - 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. The 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. There is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. 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. We can only presume that the assessee is one of the beneficiary in this transactions merely an 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. Thus grounds raised by the assessee allowed.
Issues Involved:
1. Validity of Long Term Capital Gains (LTCG) claim under Section 10(38) of the Income Tax Act. 2. Addition under Section 68 for unexplained cash credits. 3. Addition under Section 69C for alleged commission paid for arranging share transactions. Summary: Issue 1: Validity of LTCG Claim under Section 10(38): The assessee filed an appeal against the order of the Ld. CIT(A) which denied the exemption of LTCG under Section 10(38) of the Income Tax Act. The assessee had declared LTCG from the sale of shares of SRK Industries Ltd. The Assessing Officer (AO) reopened the assessment based on information received from the Investigation Wing, which indicated that the assessee was involved in penny stock transactions. The AO concluded that the LTCG claimed was bogus, relying on various judicial pronouncements and the principle of human probabilities. The Ld. CIT(A) upheld this view, stating that the transactions were pre-arranged to generate bogus capital gains. Issue 2: Addition under Section 68 for Unexplained Cash Credits: The AO observed that the assessee did not show any share transactions in the return of income and concluded that the income of Rs. 1,53,23,114/- had escaped assessment. The AO made an addition under Section 68, treating the LTCG as unexplained cash credits. The Ld. CIT(A) dismissed the appeal, supporting the AO's view that the transactions were not genuine and were part of a scheme to convert black money into white. Issue 3: Addition under Section 69C for Alleged Commission Paid: The AO also made an addition of Rs. 51,860/- under Section 69C, alleging that this amount was paid as a commission for arranging the share transactions. The Ld. CIT(A) upheld this addition, stating that the expenses were related to bogus LTCG transactions and therefore disallowed. Tribunal's Decision: The Tribunal observed that the assessee had provided sufficient documentary evidence to support the genuineness of the share transactions, including contract notes, demat account statements, and bank statements. The Tribunal noted that the AO had not found any discrepancies in these documents. It was also noted that the revenue had not brought any material evidence linking the assessee to dubious transactions or price rigging. The Tribunal relied on various judicial precedents, including decisions from the Bombay High Court and Delhi High Court, which held that mere suspicion or preponderance of probabilities is not sufficient to deny the exemption under Section 10(38). The Tribunal concluded that the AO's additions were based on presumptions and not on concrete evidence. Conclusion: The Tribunal allowed the appeal, directing the AO to delete the addition of Rs. 1,53,23,114/- under Section 68 and the addition of Rs. 51,860/- under Section 69C. The Tribunal emphasized that the transactions were genuine and the LTCG claimed by the assessee was valid.
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