2024 (5) TMI 692 - AT - Income Tax

Addition made u/s 68 - Bogus LTCG - unexplained cash credits - suspicious transactions in shares - bogus capital gain generated in penny stock - HELD THAT - The discrepancies and adverse evidence collected by the AO in the course of assessment were not explained by the assessee and the thrust was always on the documentary evidence of the transactions. As already discussed earlier, the documentary evidences cannot be relied upon and treated as conclusive in view of various unanswered questions as already discussed earlier and the dubious nature of transactions. The surrounding circumstances of the transactions establish that the transactions entered into by the assessee was not genuine. Assessee had not discharged her onus against the overwhelming adverse evidences that has been brought on record by the Revenue authorities. We are of the considered opinion that the transactions entered into by the assessee are not genuine. From the purchase of shares of M/s. Basukinath Real Estate Pvt. Ltd. to the sale of shares of M/s. Unno Industries Ltd., the assessee has not discharged her onus against the adverse evidences brought on record by the AO and no satisfactory reply was given to explain the same. The approach of the CIT(A) to allow the appeal of the assessee without considering the facts and the surrounding circumstances was fallacious and cannot be upheld. CIT(A) did not consider the attending facts and circumstances of the case at all and the transactions cannot be held as genuine only on the basis of documentary evidence of sale consideration and payment of the STT thereon. The unusual sequence in the purchase transactions, the preponderance of probabilities and the surrounding circumstances as discussed above, are heavily loaded against the genuineness of the transactions and, therefore, we have no hesitation in reversing the findings of the CIT(A). As the Revenue had invoked the provisions of Section 68, the onus was squarely on the assessee to prove the genuineness of the credit transaction, which has not been discharged. Revenue has brought enough materials on record to exhibit the transactions as sham or bogus and the assessee has miserably failed to establish the genuineness of the impugned credit entry appearing in the accounts. Since the exempted LTCG claim of the assessee was only a fa ade created to conceal the true nature of the credit entry appearing in the accounts, the addition as made by the AO is confirmed. Decided in favour of revenue.

Summary

Issues Involved:

1. Deletion of addition made u/s 68 of the Act regarding suspicious transactions in shares.
2. Justification of exemption claimed u/s 10(38) of the Act for Long Term Capital Gain (LTCG).
3. Examination of the genuineness of transactions and documentary evidence provided by the assessee.

Summary:

Issue 1: Deletion of addition made u/s 68 of the Act regarding suspicious transactions in shares

The Revenue challenged the CIT(A)'s decision to delete the addition of Rs. 33,30,995/- made u/s 68 of the Act, arguing that the transactions in shares were suspicious and part of a larger scam of organized tax evasion through bogus capital gains in penny stocks. The AO concluded that the transactions were sham, aimed at bringing unaccounted money in the guise of exempt LTCG.

Issue 2: Justification of exemption claimed u/s 10(38) of the Act for LTCG

The AO found that the shares of M/s. Unno Industries Ltd., a penny stock company, were used to generate bogus LTCG. The assessee had not disclosed the LTCG in the return of income, claiming it was an inadvertent error. The CIT(A) allowed the appeal of the assessee by merely relying on previous decisions without independently examining the evidences brought on record by the AO.

Issue 3: Examination of the genuineness of transactions and documentary evidence provided by the assessee

The Tribunal found that the CIT(A) had not independently examined the evidences and had merely followed previous decisions. The AO had conducted detailed enquiries and found that the transactions were manipulated, with the shares of M/s. Unno Industries Ltd. being used for generating bogus LTCG. The Tribunal emphasized that the genuineness of the entire transaction, including the purchase of shares, needed to be examined.

The Tribunal noted several discrepancies and adverse evidence, such as the off-market purchase of unlisted shares from an unknown broker, payment made after 4 & ½ months, and the dematerialization of shares just before the sale. The Tribunal concluded that the transactions were not genuine and that the assessee had not discharged her onus against the adverse evidences brought on record by the Revenue.

The Tribunal reversed the CIT(A)'s decision and confirmed the addition made by the AO, concluding that the exempted LTCG claim was a facade to conceal the true nature of the credit entry of Rs. 33,30,995/-.

Order:

The appeal preferred by the Revenue is allowed.