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2022 (11) TMI 1545 - AT - Income TaxAddition u/s 68 - bogus LTCG - AO has disbelieved the transactions of purchase and sale of shares only for the reason that the shares of M/s Global Infratech and Finance Ltd is identified as one of the penny stocks by the investigation wing of Income tax department HELD THAT - We notice that the AO has not found fault with any of the evidences furnished by the assessee. AO has also not bring any material on record to disprove those evidences. AO has also not shown that the assessee was part of the ring which alleged to have rigged the prices of penny stocks. Thus we notice that the AO has simply placed his reliance on the report given by the investigation wing of the department in order to disbelieve the claim of long term capital gain earned by the assessee. Hence there is merit in the submission of assessee has invested in the shares of M/s Global infratech and Finance Ltd as an ordinary investor on the basis of some market information. Appellant had stated that have brother-in-law was taking care upon trading/investment in shares and that her brother-in-law was in turn advice for investment consultant. It is pertinent to note that the Assessing Officer has not shown that brother-in-law or investment consultant were part of syndicate. We noticed that the assessee has furnished all documents relating to purchase and sale of securities. The shares have entered and exited his demat account. The purchase and sale transactions have been routed through the bank accounts of the assessee. All these documentary evidences produced by the assessee have not been disproved. An identical case of allegation that the assessee has availed accommodation entries by way of capital gains in order to convert unaccounted money into accounted one was examined in the case of Shyam Power 2014 (12) TMI 977 - BOMBAY HIGH COURT Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus then such conclusion of the Tribunal cannot be termed as perverse. Appeal filed by the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Genuineness of Long-Term Capital Gains Relevant Legal Framework and Precedents: The legal framework involves the assessment of capital gains under the Income Tax Act, particularly in the context of securities transactions. The precedents considered include the decisions of the Bombay High Court in the cases of CIT Vs. Shyam R. Pawar and CIT Vs. Mukesh Ratilal Marolia, which emphasize the necessity of concrete evidence to disprove genuine transactions. Court's Interpretation and Reasoning: The Tribunal noted that the assessee had purchased shares through a banking channel and held them in a Demat account before selling them through a reputed broker. The transactions were supported by documentary evidence, including payment of Security Transaction Tax (STT), which the Tribunal found credible. The Tribunal emphasized that the Assessing Officer (AO) relied solely on the investigation wing's report without disproving the evidences provided by the assessee. Key Evidence and Findings: The assessee provided evidence of share purchase and sale, including Demat account statements and banking records. The Tribunal found no fault with these documents, and the AO failed to present material evidence to counter them. Application of Law to Facts: The Tribunal applied the legal principles from the cited precedents, concluding that the AO's reliance on the investigation report was insufficient to declare the capital gains as bogus. The Tribunal found the transactions genuine based on the documentary evidence provided. Treatment of Competing Arguments: The Tribunal considered the Department's argument that the shares were identified as penny stocks and that the assessee lacked knowledge of the stock market. However, it found these arguments unsubstantiated by evidence connecting the assessee to any fraudulent scheme. Conclusions: The Tribunal concluded that the long-term capital gains declared by the assessee were genuine and directed the AO to delete the addition made on this basis. Issue 2: Addition Towards Expenses in Procuring Bogus Capital Gains Relevant Legal Framework and Precedents: The addition towards expenses was based on an estimation by the AO, which lacked specific legal backing or precedent in the absence of evidence of bogus transactions. Court's Interpretation and Reasoning: Since the Tribunal found the capital gains genuine, it logically followed that the associated expenses were also genuine. The Tribunal noted that the AO's estimation of expenses was based on the presumption of bogus transactions, which was not proven. Key Evidence and Findings: The Tribunal found no evidence presented by the AO to justify the estimated expenses for procuring capital gains, given the transactions' genuineness. Application of Law to Facts: The Tribunal applied the principle that without evidence of bogus transactions, any estimation of related expenses lacks a factual basis. Treatment of Competing Arguments: The Department's argument for expenses was contingent on the transactions being bogus, which the Tribunal had already rejected. Conclusions: The Tribunal directed the deletion of the addition made towards expenses, as the underlying assumption of bogus transactions was not established. 3. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal emphasized, "We notice that the AO has not found fault with any of the evidences furnished by the assessee. The AO has also not bring any material on record to disprove those evidences." Core Principles Established:
Final Determinations on Each Issue:
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