2024 (2) TMI 1413 - AT - Income Tax

Addition u/s 68 - sale value of shares of alleged penny stocks -bogus capital gains/capital losses - AO has primarily placed reliance on the report given by the Investigation wing of the Income tax department, Kolkata to arrive at the conclusion that the long term capital gains reported by the assessee is bogus in nature - HELD THAT - We noticed that the evidences furnished by the assessee to prove the purchase and sale of shares, payment made/received, entry/exit of shares in the demat account of the assessee etc., were not doubted with. In the case of PCIT vs. Smt Krishna Devi 2019 (8) TMI 450 - ITAT DELHI has noticed that the reasoning given by the AO to disbelieve the capital gains declared by the assessee, viz., astronomical increase in the price of shares, weak fundamentals of the relevant companies are based on mere conjectures. Accordingly, the Hon ble Delhi High Court 2021 (1) TMI 1008 - DELHI HIGH COURT affirmed the decision rendered by ITAT in deleting the addition of capital gains. Accordingly, we are of the view that the decisions rendered since the AO has not established that the assessee was involved in price rigging and further the AO did not find fault with any of the documents furnished by the assessee. We noticed earlier that the AO has assessed the Sale consideration of shares as unexplained cash credit u/s 68. It is pertinent to note that the purchase of shares made in an earlier year has been accepted by the revenue. The sale of shares has taken place in the online platform of the Stock exchange and the sale consideration has been received through the stock broker in banking channels. The sale consideration cannot be considered to be unexplained cash credit in terms of sec. 68 of the Act. Since we have held that the sale transactions of shares cannot be doubted with, the addition made by the AO with regard to estimated commission expenses is also liable to be deleted. We hold that the sale consideration received on sale of shares cannot be assessed as unexplained cash credit u/s 68 of the Act and the long term capital gains declared by the assessee cannot be doubted with. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the impugned additions made by him. Assessee appeal allowed.

Summary

Issues Involved:
1. Validity of notice issued under section 148 of the I.T. Act.
2. Justification of addition of Rs. 1.51 crores under section 68 of the I.T. Act.
3. Assessment of commission expenses under section 69C of the I.T. Act.

Issue-wise Detailed Analysis:

1. Validity of Notice Issued Under Section 148 of the I.T. Act:
The assessee raised a ground challenging the validity of the notice issued under section 148 of the I.T. Act. However, this ground was not pressed by the learned AR during the hearing. Consequently, the Tribunal dismissed this ground as not pressed.

2. Justification of Addition of Rs. 1.51 Crores Under Section 68 of the I.T. Act:
The primary issue in this case was the addition of Rs. 1.51 crores made by the Assessing Officer (AO) under section 68 of the I.T. Act. The AO observed that the assessee disclosed long-term capital gains of Rs. 1.45 crores from the sale of shares of companies identified as 'penny stocks' by the Investigation Wing, Kolkata. The AO concluded that the transactions were not genuine, relying heavily on a generalized report from the Investigation Wing, which indicated price rigging in penny stocks. Despite the assessee providing evidence of genuine transactions, including purchase and sale through banking channels and dematerialization of shares, the AO assessed the sale value as unexplained cash credit under section 68.

The Tribunal noted that the AO did not bring any material evidence to prove that the assessee's transactions were part of manipulated transactions or that the assessee was involved in price rigging. Furthermore, the SEBI, which regulates stock market operations, had revoked interim orders against some of the companies involved, and no inquiry by SEBI was conducted against the assessee. The Tribunal emphasized that the AO failed to find any defects in the documents furnished by the assessee and that the transactions were carried out through proper banking channels and stock exchange platforms.

3. Assessment of Commission Expenses Under Section 69C of the I.T. Act:
The AO estimated commission expenses of Rs. 7 lakhs incurred by the assessee for procuring alleged bogus long-term capital gains and assessed these expenses under section 69C of the I.T. Act. However, since the Tribunal held that the sale transactions of shares were genuine and could not be doubted, the addition made by the AO regarding estimated commission expenses was also deemed liable to be deleted.

Conclusion:
The Tribunal concluded that the sale consideration received on the sale of shares could not be assessed as unexplained cash credit under section 68 of the I.T. Act. The long-term capital gains declared by the assessee were found to be genuine, and the AO's reliance on a generalized report without specific evidence was insufficient. Consequently, the Tribunal set aside the order passed by the CIT(A) and directed the AO to delete the impugned additions. The detailed analysis and reliance on various judicial precedents reinforced the Tribunal's decision to rule in favor of the assessee.