2024 (3) TMI 1149 - AT - Income Tax

Addition u/s 68 - bogus share transactions - as alleged transactions in shares, penny stock are fraudulent and accommodation entries - HELD THAT - Assessee has filed complete supporting evidences like sale was effected through open market using an authorized SEBI broker, contract notes were also produced before the AO and also submitted Demat statement and bank account statement, where the assessee has made purchase and subsequently, sold the shares and received the amount. AO has nowhere pointed out any defect in assessee s credit note or the shares entered into demat account or the amount paid for purchase of these shares and held these shares in Demat account for more than one year. The AO and CIT(A) both noted only that these are accommodation entries as observed from investigation proceedings, statement recorded from various operators, promoters and related persons, wherein they admitted how the unaccounted money of the beneficiaries get into the books of accounts of various assessee s in the grab of long term capital gain. CIT(A) and AO based their decision only on one investigation report of investigation wing of income-tax department, which does not contain the name of the assessee. Both the parties below also noticed, sharp jump and sharp decline in price, wherein it was noted that the share price of Finalysis Credit and Guarantee Co. Ltd., arose from Rs. 7 in March, 2012 to Rs. 180 in March, 2013 and thereafter dipped to Rs. 5 in October, 2013, in a period between 18 months only. We noted that all these are presumptions of the AO and CIT(A) and AO has nowhere pointed out any defects in the documents furnished by the assessee. Admittedly, the transaction carried on by the assessee is from open market and not grey market. Assessee has produced copy of credit notes, contract notes, demat account and bank statements. The assessee has made payments through banking channel for purchase and even received sale consideration through banking channel only. AO could not find any defect in the above but based his decision on assumptions and presumptions. Hence, we have no hesitation in reversing the order of the lower authorities and allowing the appeal of assessee. Therefore, the appeal of the assessee is allowed.

Summary

Issues involved:
The judgment deals with the issue of whether transactions in shares termed as "penny stock" are fraudulent and accommodation entries.

Comprehensive details of the judgment for each issue involved:

1. The appeal was filed by the assessee against the order of CIT(A) holding the transactions in shares as fraudulent and accommodation entries. The assessee had purchased and sold shares of a company, Finalysis Credit and Guarantee Co. Ltd., and declared long term capital gain. The AO treated the sale consideration as unexplained money u/s 69A of the Act and added it to the assessee's income. The CIT(A) upheld the AO's decision based on an investigation report. However, the assessee provided complete supporting evidence including purchase through an authorized SEBI broker, contract notes, Demat statement, and bank account statements. The AO and CIT(A) relied on presumptions and assumptions without pointing out any defects in the documents furnished by the assessee. The Tribunal found no fault in the assessee's transactions and allowed the appeal.

2. The Tribunal noted that the assessee conducted the transactions in shares through the open market, not the grey market. The assessee had maintained proper documentation such as credit notes, contract notes, Demat account, and bank statements. Payments for purchase and sale were made through banking channels. Despite this, the lower authorities based their decision on assumptions and presumptions. The Tribunal concluded that the assessee's transactions were genuine and not fraudulent. As a result, the appeal filed by the assessee was allowed.

3. The Tribunal highlighted the sharp fluctuations in the share price of Finalysis Credit and Guarantee Co. Ltd., which led the lower authorities to suspect the transactions. However, the Tribunal emphasized that these fluctuations were not indicative of fraudulent activities by the assessee. The assessee's compliance with banking channels for transactions and the submission of relevant documents supported the genuineness of the transactions. The Tribunal overturned the orders of the lower authorities, emphasizing the lack of concrete evidence to deem the transactions as fraudulent. Consequently, the appeal of the assessee was allowed.

Separate Judgement by Judges:
No separate judgment was delivered by the judges in this case.