2024 (4) TMI 529 - AT - Income Tax

Bogus LTCG - Addition u/s 68 - Exemption u/s 10(38) denied - price manipulation or in providing entry of penny stock - HELD THAT - We find that in the case of Himani M. Vakil 2012 (9) TMI 1099 - GUJARAT HIGH COURT held that where assessee duly proved genuineness of sale transaction by bringing on record contract notes of sale and purchase, bank statement of broker and demat account showing transfer in and out of shares, Assessing Officer was not justified in bringing to tax capital gain arising from sale of shares as unexplained cash credit. Hon'ble jurisdictional High Court in the case of Parasben Kasturchand Kochar 2020 (2) TMI 1344 - ITAT AHMEDABAD also held that when assessee discharged his onus by establishing that transactions were fair and transparent and all relevant details with regard to transfer furnished by Income Tax Authority and the Tribunal have also took the notice of fact that the shares remained in the account of assessee, the assessee also furnished demat account and details of bank transaction about the sale and purchase of shares, the addition was deleted. As in the case of PCIT Vs. Indravadan Jain, HUF 2023 (7) TMI 1091 - BOMBAY HIGH COURT also held that when AO 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, we do not find any justification in treating the LTCG as unexplained cash credit in absence of any cogent evidence. So far as reliance in case of case of PCIT vs. Swati Bajaj 2022 (6) TMI 670 - CALCUTTA HIGH COURT we find We find in the case of Himani M. Vakil 2012 (9) TMI 1099 - GUJARAT HIGH COURT held that when the assessee proved genuineness of sale transaction by bringing on record contract notes of sale and purchase, bank statement of broker and demat account showing transfer in and out of shares, Assessing Officer was not justified in bringing to tax capital gain arising from sale of shares as unexplained cash credit. Thus, the decision of jurisdictional high Court is binding precedent in the territory of Gujarat. In the result, the addition of undisclosed income under section 68 is deleted. In the result, the ground of appeal raised by the assessee is allowed.

Summary

Issues Involved:
1. Addition in quantum assessment.
2. Rectification in the assessment order u/s 154.

Summary:

1. Addition in Quantum Assessment:
The assessee challenged the addition of Rs. 46,96,881/- made by the AO on account of disallowance of exempt income u/s 10(38) of the IT Act, being LTCG on shares of Sunrise Asian Ltd., treated as bogus u/s 68 of the IT Act. The AO relied on the Investigation Wing, Kolkata's report, claiming market manipulation in certain listed companies, including Sunrise Asian Ltd. Despite the assessee providing substantial evidence such as contract notes, demat details, and bank statements, the AO disregarded these and upheld the addition. The NFAC/Ld. CIT(A) confirmed the AO's decision without independent findings, relying on the case of PCIT vs. Swati Bajaj.

2. Rectification in the Assessment Order u/s 154:
The AO rectified the assessment order on 15.03.2021, taxing the addition u/s 68 at a special rate of 30% and adding undisclosed expenditure of Rs. 2,34,844/-. The assessee appealed against this rectification, arguing that no show-cause notice was served, and the addition was unjustified.

Tribunal's Decision:
The Tribunal condoned the delay of 24 days in filing the appeals, attributing it to frequent password changes by the assessee's CA. On the merits, the Tribunal found that the AO's addition lacked justification as the assessee had provided sufficient evidence to prove the genuineness of the transactions. The Tribunal noted that the AO's reliance on the Investigation Wing's report without adverse findings against the assessee or the broker was insufficient to disallow the LTCG. The Tribunal cited several precedents, including the jurisdictional High Court's decisions, supporting the assessee's claim. Consequently, the addition of undisclosed income u/s 68 was deleted, and the appeal (ITA No. 15/SRT/2024) was allowed.

Regarding the rectification order (ITA No. 16/SRT/2024), the Tribunal ruled that since the primary addition was deleted, the related rectification and additional tax u/s 115BBE would not survive. The Tribunal also noted the lack of a show-cause notice before the rectification. Hence, this appeal was also allowed.

Conclusion:
Both appeals were allowed, and the additions made by the AO were deleted. The Tribunal emphasized the importance of substantial evidence and proper procedural conduct in tax assessments and rectifications.