2024 (4) TMI 261 - AT - Income Tax

Bogus LTCG - exemption u/s 10(38) denied - addition of income from undisclosed sources u/s. 68 - Treating long term capital gain as accommodation entries and bogus entries - HELD THAT - The assessee submitted contract note before the assessing officer, bank statement and STT was paid on the transaction. None of the evidences submitted by the assessee have been proved bogus or concocted. The Ld. assessing officer must have to specify and demonstrate with cogent evidence that transactions of purchase and sale of shares made by the assessee are bogus. In the assessee s case nothing was brought by the assessing officer to prove that any of these evidences, as narrated above, filed by the assessee is false or untrue. We note that Hon ble Jurisdictional High Court of Gujarat in the case of Jagat Pravinbhai Sarabhai 2023 (1) TMI 44 - GUJARAT HIGH COURT held that where AO noted that assessee had indulged in scrip of shell company and had claimed long term capital gain on sale of shares and made addition u/s 68 holding that entire transaction was bogus and in the nature of penny stock, however, since genuineness of investment in shares by assessee was substantiated by him by producing copy of transaction statement for period from 01.06.2001 to 01.10.2010 and shares were retained for more than ten years and were sold after such long time, hence investment was not bogus therefore it cannot be treated that investment was made in penny stock. The genuineness of investment in the shares by the assessee was substantiated by him by producing contract note, transaction was through recognised broker, transaction was done through banking channel on which STT was paid. The shares were held by assessee, as an Investor. Thus we delete addition made. Addition on account of commission paid @ 5% - In the assessee's case AsO added 5% - Since, we have deleted the alleged addition hence addition made by Assessing Officer does not have leg to stand, therefore it is hereby deleted. Assessee appeal allowed,.

Issues Involved:
1. Justification of CIT(A)'s confirmation of AO's order u/s 143(3).
2. Confirmation of addition of long-term capital gain as income from undisclosed sources u/s 68.
3. Treatment of long-term capital gain as accommodation and bogus entries.
4. Denial of cross-examination rights.
5. Reliance on external reports and findings.
6. Addition of unexplained expenditure u/s 69C.
7. Initiation of penalty proceedings u/s 271(1)(c).

Summary:

Issue 1: Justification of CIT(A)'s confirmation of AO's order u/s 143(3)
The appellant argued that the CIT(A) erred in confirming the AO's order without considering the facts, evidences, and documents submitted. The Tribunal noted that the AO's assessment was based on detailed scrutiny involving suspicious sale transactions in shares and subsequent notices u/s 143(2) and 142(1).

Issue 2: Confirmation of addition of long-term capital gain as income from undisclosed sources u/s 68
The AO added Rs. 75,13,404/- as income from undisclosed sources, rejecting the assessee's claim of exemption u/s 10(38). The AO relied on the Kolkata Investigation Report and statements from promoters and brokers confirming stock price manipulation. The Tribunal found that the AO's conclusion lacked concrete evidence proving the transactions as bogus.

Issue 3: Treatment of long-term capital gain as accommodation and bogus entries
The AO treated the long-term capital gain as accommodation and bogus entries, based on the modus operandi of penny stocks. The Tribunal noted that the assessee provided substantial evidence, including contract notes, bank statements, and STT payments, which were not disproven by the AO.

Issue 4: Denial of cross-examination rights
The appellant argued that the CIT(A) erred by not allowing cross-examination of the directors, promoters, and brokers involved. The Tribunal did not find any specific mention or resolution of this issue in the judgment.

Issue 5: Reliance on external reports and findings
The AO relied on the Kolkata Investigation Directorate report, SEBI findings, and other external sources. The Tribunal emphasized that the AO must provide cogent evidence demonstrating the transactions as bogus, which was not done in this case.

Issue 6: Addition of unexplained expenditure u/s 69C
The AO added Rs. 3,75,670/- as unexplained expenditure u/s 69C, being 5% of the alleged bogus long-term capital gain. Since the Tribunal deleted the addition of Rs. 75,13,404/-, the related expenditure addition was also deleted.

Issue 7: Initiation of penalty proceedings u/s 271(1)(c)
The appellant contested the initiation of penalty proceedings u/s 271(1)(c). The Tribunal's decision to delete the primary additions rendered the penalty proceedings moot.

Conclusion:
The Tribunal allowed the appeal, deleting the additions made by the AO and confirmed by the CIT(A), based on the lack of concrete evidence and substantial documentation provided by the assessee. The order was pronounced on 03/04/2024.

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