2023 (9) TMI 1491 - HC - Income Tax

Bogus LTCG - exemption u/s 10(38) - pre-arranged and sham transaction - transaction carried out by the assessee are similar to the modus operandi of penny stock was misplaced - Tribunal confirmed the findings of the CIT(A) as, it held in favour of the assessee - HELD THAT - Tribunal held, and in our opinion rightly so that there was no evidence available on record suggesting that the assessee or his broker was involved in rigging up of the price of the script of M/s Shree Nath Commercial Finance Ltd. The assessee had acted in good faith. Tribunal, therefore, correctly held that the AO had acted only on assumption which was misconceived. CIT(A) order dismissing the revenue's appeal was confirmed.

Summary

Issues:
Challenge to order of Income-tax Appellate Tribunal regarding deletion of addition on account of LTCG claimed as exempt u/s 10(38) of the Act due to pre-arranged and sham transaction.

Detailed Analysis:
The respondent-assessee filed a return of income and sold shares, leading to long term capital gain. The Assessing Officer issued a show cause notice, alleging a penny stock transaction to avail bogus benefit. The AO treated the purchase as bogus, adding the amount to total income. However, the CIT(A) found the purchases genuine, considering the evidence submitted, like bills, bank statements, and STT payment. The shares were held for over a year and sold through a recognized stock exchange, with all transactions verifiable. The CIT(A) deemed the transaction genuine, directing the deletion of the addition.

The Tribunal upheld the CIT(A)'s findings, noting the AO's contradictory stance on the transaction's genuineness. While the AO alleged the transaction was sham, allowing the cost of acquisition indicated the purchases were genuine. The rise in share price was questioned, but the Tribunal emphasized the need for detailed investigation beyond mere price fluctuations. Notably, no evidence suggested rigging up share prices or malpractice. The Tribunal concluded that the AO's assumptions were misconceived, affirming the CIT(A)'s decision to dismiss the revenue's appeal.

Considering the concurrent findings, the High Court found no substantial question of law for consideration and dismissed the appeal without costs. The judgment emphasized the importance of thorough investigation and evidence-based conclusions in tax matters to prevent unjustified additions to taxable income.