2024 (4) TMI 1070 - AT - Income Tax

Addition u/s 68 r.w.s. 115BBE - Bogus LTCG - sale of equity shares alleged to be penny stocks - assessee during the impugned assessment year had declared these scrips and transactions in the return of income and generated loss - HELD THAT - The assessee had made the transactions and generated loss through the transaction of scripts ACI and Tilak. The assessee s holding was more than 2 years. There is no such direct communication reflected in the order of the Ld.AO that the entire transaction was made a sham transaction. In the observation of recorded reasons, the Ld. AO mentioned that the transactions are undisclosed whereas during the assessment and appellate stages before the authorities were unable to substantiate that the entire transaction was not disclosed in the return. In recorded reason the ld. AO specifically mentioned that the transacted amount is not reflected in capital gain column of return filed U/s 139 of the Act. Whereas, the assessee declared the transaction as business transaction in return, not as capital gain. Respectfully, we rely on the order of Arvind Sahdeo Gupta 2023 (8) TMI 522 - BOMBAY HIGH COURT for quashing of assessment order for wrong observation of the ld. AO. The Hon ble Bombay High Court in the case of PCIT vs. Ziauddin A Siddique 2022 (3) TMI 1437 - BOMBAY HIGH COURT held that where (a) the transaction of purchase and sale of shares which is alleged to be a penny stock is done through Stock Exchange or through registered broker, the payments have been made through banking channel, STT is paid and the ld. Assessing officers has not criticised the documents and (b) assessee is not involved in price rigging, the transaction is genuine. - CIT(A) had made the enhancement u/s 68 - AR only challenged the addition of CIT(A). Though the addition of the Ld.AO is duly quashed, so the enhancement by the CIT(A) has no leg to stand, so the amount is duly deleted. DR was not able to produce any contrary orders against the submission of the AR. So, the appeal order is duly set aside. The addition made by the AO and enhancement by the CIT(A) are deleted. Decided in favour of assessee.

Issues Involved:
1. Legality of Reopening u/s 148 of the Income-tax Act, 1961.
2. Addition of Rs. 62,03,535/- u/s 68 of the Act.
3. Double Taxation of the same income.
4. Determination of current year business loss.
5. Limitation of addition to the extent of profit/loss after considering purchase cost.

Summary:

1. Legality of Reopening u/s 148 of the Income-tax Act, 1961:
The assessee contended that the reopening of the case was "bad in law" as the necessary sanction u/s 151 was not provided, and the objections to reopening were not disposed of before proceeding with reassessment. The Tribunal noted that the reopening was based on the alleged non-disclosure of transactions related to shares of ACI Infocom Ltd and Tilak Ventures Ltd, treated as penny stock transactions. The Tribunal relied on the judgment of the Hon'ble Bombay High Court in Arvind Sahdeo Gupta vs. ITO, which held that reopening based on incorrect facts or conclusions cannot be sustained.

2. Addition of Rs. 62,03,535/- u/s 68 of the Act:
The CIT(A) upheld the AO's action and enhanced the addition under section 68 from Rs. 20,18,348/- to Rs. 62,03,535/-, considering the sale proceeds of equity shares as unexplained credits despite the assessee explaining the nature and source of the credits. The Tribunal observed that the AO and CIT(A) relied on third-party statements and data without giving the assessee an opportunity to cross-examine those parties. The Tribunal found no direct evidence of sham transactions and noted that the assessee had disclosed the transactions as business income, not as capital gains.

3. Double Taxation of the same income:
The assessee argued that the sale consideration of Rs. 62,03,535/- on the alleged penny stocks was already offered as business income, leading to double taxation if taxed again under section 68. The Tribunal quashed the addition, finding no basis for treating the transactions as undisclosed income.

4. Determination of current year business loss:
The assessee contended that the AO/CIT(A) should have determined the current year business loss excluding the sale consideration of the alleged penny stocks and allowed the set-off of such loss against the additions made under section 68. The Tribunal did not specifically address this issue as the primary addition itself was quashed.

5. Limitation of addition to the extent of profit/loss after considering purchase cost:
The assessee argued that the AO/CIT(A) should have restricted the addition to the extent of profit/loss after considering the purchase cost of the equity shares. The Tribunal quashed the entire addition, rendering this argument moot.

Conclusion:
The Tribunal allowed the appeal, quashing the addition made by the AO and the enhancement by the CIT(A). The Tribunal found that the reopening was based on incorrect facts, and the transactions were genuine as they were conducted through recognized stock exchanges with payments made through banking channels. The Tribunal relied on the judgments of the Hon'ble Bombay High Court and the coordinate bench of Jodhpur in similar cases. The appeal in ITA No. 4035/Mum/2023 was allowed, and the order was pronounced in the open court on 24th April 2024.

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