2024 (1) TMI 1428 - AT - Income Tax

Addition u/s 68 - presuming the genuine long term capital gain (LTCG) earned from sale of listed shares on the platform of stock exchange and claimed exempted u/s 10(38) as non-genuine and arranged LTCG - HELD THAT - We find on similar set of facts SMC Bench of this Tribunal 2023 (8) TMI 1611 - ITAT SURAT wherein in the case of PCIT Vs. Indravadan Jain HUF 2023 (7) TMI 1091 - BOMBAY HIGH COURT also held that when Assessing Officer nowhere alleged that transactions made by assessee with a particular broker or share broker was bogus merely because investigation was done by SEBI against the broker or its activities the assessee cannot be said to have entered into ingenuine transaction. We find that assessee made sale of shares through BSE and paid security transaction tax and there is no allegation against the share broker through whom assessee has made sales that they were indulging any price manipulation. Therefore no justification in treating the LTCG as unexplained cash credit in absence of any cogent evidence. Addition of undisclosed income under section 68 is deleted. Have accepted the LTCG by deleting the addition made u/s 68 therefore the addition of alleged commission payment is also deleted. Addition of commissions expenses @5% u/s 69A - We find that the assessing officer while treating the long term capital gain on share transaction as unexplained credit and made addition under section 68 also added commissions expenses. We have already deleted the addition u/s 68 therefore this addition being consequential is also deleted. In the result this ground of appeal is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the addition of Rs. 25,26,325/- under Section 68 of the Income Tax Act, 1961, treating the long-term capital gain (LTCG) from the sale of shares as non-genuine, is justified.
• Whether the addition of Rs. 1,26,316/- under Section 69C for unexplained expenditure presumed to have been incurred is justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition under Section 68 of the Income Tax Act

• Relevant legal framework and precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. The precedents considered include judgments from jurisdictional High Courts that emphasize the necessity of proving the genuineness of transactions with adequate evidence.
• Court's interpretation and reasoning: The Tribunal noted that the assessee had provided comprehensive evidence, including contract notes, demat account details, and bank statements, to substantiate the genuineness of the transactions. The absence of adverse findings from the SEBI investigation against Mishka Finance & Trading Ltd. was also highlighted.
• Key evidence and findings: The assessee furnished evidence such as contract notes, demat account details, and bank transactions. The Tribunal found no adverse evidence against these documents.
• Application of law to facts: The Tribunal applied the principle of consistency, considering the identical nature of facts with the previous assessment year (AY 2014-15), where a similar addition was deleted.
• Treatment of competing arguments: The Tribunal considered the Revenue's argument regarding the involvement of the company in providing accommodation entries and the alleged abnormal profit. However, it found no cogent evidence to support these claims.
• Conclusions: The Tribunal concluded that the addition under Section 68 was unjustified and deleted it, allowing the assessee's appeal on this ground.

Issue 2: Addition under Section 69C for unexplained expenditure

• Relevant legal framework and precedents: Section 69C pertains to unexplained expenditure. The Tribunal considered the consequential nature of the addition following the treatment of LTCG under Section 68.
• Court's interpretation and reasoning: Since the addition under Section 68 was deleted, the Tribunal found that the consequential addition under Section 69C for commission expenses was also unjustified.
• Key evidence and findings: The Tribunal found no evidence of actual expenditure incurred by the assessee warranting the addition.
• Application of law to facts: The Tribunal applied the principle of consistency and the lack of evidence to delete the addition under Section 69C.
• Treatment of competing arguments: The Tribunal dismissed the Revenue's presumption of unexplained expenditure due to the absence of evidence.
• Conclusions: The Tribunal concluded that the addition under Section 69C was not sustainable and allowed the appeal on this ground.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "I find that assessee made sale of shares through BSE and paid security transaction tax and there is no allegation against the share broker through whom assessee has made sales that they were indulging any price manipulation. Therefore, I do not find any justification in treating the LTCG as unexplained cash credit in absence of any cogent evidence."
• Core principles established: The judgment reinforces the principle that additions under Sections 68 and 69C require substantial evidence. The mere existence of allegations or investigations against third parties does not suffice to deem transactions ingenuine.
• Final determinations on each issue: The Tribunal allowed the appeal, deleting both the addition under Section 68 concerning LTCG and the consequential addition under Section 69C for unexplained expenditure.

The judgment underscores the importance of evidence in substantiating claims of genuineness in financial transactions and the application of consistency in judicial decisions across assessment years with similar facts.