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2024 (4) TMI 1219 - AT - Income Tax
Addition u/s 68 - unexplained cash credit - penny-stock transaction - exemption claimed by assessee under section 10(38) disallowed - AO has disallowed the LTCG claim of assessee by mainly taking note of report submitted by Investigation Wing (Kolkata) as well as he doubted the financial prudence of the assessee to have purchased the shares - as submitted assessee has discharged the burden of proving the genuineness of her claim regarding LTCG on sale of share by submitting primary documents to substantiate the claim (LTCG) - HELD THAT - As relying on cases of Shyam Pawar 2014 (12) TMI 977 - BOMBAY HIGH COURT Ziauddin A Siddique 2022 (3) TMI 1437 - BOMBAY HIGH COURT Mukesh R Marolia 2005 (12) TMI 457 - ITAT MUMBAI Jamna Devi Agarwal 2010 (9) TMI 81 - BOMBAY HIGH COURT wherein held there is no adverse comment in the form of general and specific statement by the Pr. Officer of stock exchange or by the company whose shares were involved in these transactions - AO had only cited statements of unrelated persons on basis of unfounded presumptions. On these given facts the Hon ble High Court upheld the order of lower authorities deleting the addition made in relation to LTCG derived on sale of shares. Thus we direct AO to delete the addition made u/s 68. And we direct the AO to allow the LTCG/exemption claimed by assessee u/s 10(38) - Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment are:
- Whether the addition of Rs. 62,02,308/- under Section 68 of the Income Tax Act, 1961, as unexplained cash credit, was justified.
- Whether the assessee's claim of Long Term Capital Gain (LTCG) on the sale of shares of M/s. Greencrest Financial Services Ltd was genuine and thus exempt under Section 10(38) of the Income Tax Act, 1961.
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 burden of proof lies on the assessee to establish the genuineness of the transaction.
- Court's interpretation and reasoning: The Tribunal noted that the assessee had provided substantial documentary evidence to support the genuineness of the share transactions, including share certificates, demat statements, and bank statements.
- Key evidence and findings: The assessee furnished primary documents such as share certificates, demat account statements, and bank statements showing the purchase and sale of shares through recognized channels.
- Application of law to facts: The Tribunal found that the assessee had discharged her burden of proof by providing credible evidence of the transactions. The AO's reliance on third-party statements without allowing cross-examination was deemed insufficient to disprove the assessee's claims.
- Treatment of competing arguments: The Tribunal considered the AO's reliance on the investigation report and statements from third parties but found no direct evidence linking the assessee to any wrongdoing or involvement in price rigging.
- Conclusions: The Tribunal concluded that the addition under Section 68 was not justified, as the assessee had adequately substantiated her claim of LTCG.
Issue 2: Genuineness of LTCG Claim
- Relevant legal framework and precedents: Section 10(38) of the Income Tax Act provides exemption for LTCG arising from the sale of equity shares subject to certain conditions.
- Court's interpretation and reasoning: The Tribunal emphasized that the assessee had met all statutory requirements for claiming the exemption, including holding the shares for the requisite period and conducting transactions through recognized stock exchanges.
- Key evidence and findings: The Tribunal noted the absence of any adverse findings against the assessee in the investigation reports or SEBI orders. The assessee's transactions were conducted through legitimate channels, with taxes duly paid.
- Application of law to facts: The Tribunal applied the legal principles to the facts, highlighting that the assessee's transactions were genuine and supported by documentary evidence.
- Treatment of competing arguments: The Tribunal rejected the AO's argument that the transactions were part of a larger modus operandi for generating bogus LTCG, citing a lack of direct evidence against the assessee.
- Conclusions: The Tribunal concluded that the assessee's claim of LTCG was genuine and exempt under Section 10(38) of the Act.
3. SIGNIFICANT HOLDINGS
- Verbatim quotes of crucial legal reasoning: "The assessee has discharged her burden to prove the LTCG claim on sale of shares... and the AO has failed to rebut/produce contrary material/evidence to counter/question the veracity of the primary documents produced by assessee."
- Core principles established: The Tribunal reiterated the principle that the burden of proof lies on the assessee to substantiate claims of LTCG, but once credible evidence is provided, the onus shifts to the Revenue to disprove it.
- Final determinations on each issue: The Tribunal directed the AO to delete the addition of Rs. 62,02,308/- under Section 68 and allow the LTCG exemption claimed by the assessee under Section 10(38).