2024 (6) TMI 933 - AT - Income Tax

Addition u/s 68 - Bogus LTCG claimed exempt u/s 10(38) - assessee had failed to discharge the onus to establish the genuineness of the transactions - Onus to prove - AO concluded that the assessee had failed to explain as to why the shares of LDPL and MARL were purchased in off market transactions when the assessee maintained a de-mat account and regular trading in market was done through the demat account and assessee had also not explained why the purchased shares were kept in pool account of the broker when the assessee was maintaining its own demat account - 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. 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 were not genuine. Assessee had not discharged its onus against the overwhelming adverse evidences that has been brought on record by the Revenue authorities. The thrust of the assessee s argument is that the sale consideration was received by cheque on which STT was paid and, therefore, the LTCG earned was genuine cannot be accepted in view of multiple adverse evidences collected by the Revenue and the assessee cannot be treated as a passive beneficiary of the transactions. The Hon ble Supreme Court held in the case of Security And Exchange Board of India vs. Rakhi Traders Pvt. Ltd., ( 2018 (2) TMI 580 - SUPREME COURT ) that in trade transactions with huge price variations of the transactions, it will be too na ve to hold that the transactions were through screen based trading and hence anonymous. According to the Apex Court, such conclusion would be overlooking the prior meeting of minds involving synchronization of buy and sale order and that such transactions were manipulative/deceptive device to create a desired loss and/or profit. The transactions entered into by the assessee are not genuine. The manner of purchase of shares of LDPL MARL in off-market transactions, inordinate delay in dematerialization of those shares and their dematerialization just days before their sale; the assessee has not discharged its onus against the adverse evidences brought on record by the AO and no satisfactory reply was given to explain the same. 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 confirming the findings of the AO which was upheld by the ld. CIT(A). As the Revenue had invoked the provisions of Section 68 of the Act, the onus was squarely on the assessee to prove the genuineness of the credit transaction, which has not been discharged. The objection of the Ld. AR that the Revenue didn t add the entire sale consideration u/s 68 of the Act is also not relevant. The facts remains that the LTCG claim of the assessee was credited to books of the assessee and when the addition is made to the extent of LTCG credit we can t expand it to include the entire sale consideration. What is relevant is that the Revenue has brought enough materials on record to exhibit the transactions as sham or bogus as well as unexplained and the assessee has miserably failed to establish the genuineness of the impugned credit entry of LTCG 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 and the order of the ld. CIT(A) is upheld. Decided against assessee.

Issues Involved:

1. Addition of Rs. 73,29,100/- on account of investment in shares.
2. Non-provision of inquiry papers and notice u/s 133(6).
3. Purchase of shares from regular income and acceptance of books of accounts.
4. Consideration of various submissions and case laws.

Summary:

Issue 1: Addition of Rs. 73,29,100/- on account of investment in shares

The assessee claimed Long Term Capital Gain (LTCG) of Rs. 73,29,100/- as exempt u/s 10(38) of the Income Tax Act, 1961. The Assessing Officer (AO) added this amount u/s 68, questioning the genuineness of the transactions. The AO found that the shares were purchased in cash, despite the assessee having an operational bank account, and the companies involved were identified as penny stock companies with manipulated share prices. The AO concluded that the LTCG was a colorable device to introduce unaccounted money into the books without paying tax.

Issue 2: Non-provision of inquiry papers and notice u/s 133(6)

The assessee argued that the AO did not provide inquiry papers and notice u/s 133(6) and did not allow cross-examination of individuals whose statements were used against the assessee. The Tribunal noted that the statements did not specifically implicate the assessee, and the right to cross-examine was not a necessity in this context, as per legal precedents.

Issue 3: Purchase of shares from regular income and acceptance of books of accounts

The assessee contended that the shares were purchased from regular income, and the books of accounts were accepted without invoking Section 145. The Tribunal found that the purchase transactions in cash, the delay in dematerializing the shares, and the off-market purchase raised doubts about the genuineness of the transactions. The Tribunal emphasized that the genuineness of both purchase and sale transactions must be examined.

Issue 4: Consideration of various submissions and case laws

The assessee cited various judicial pronouncements to support the claim. However, the Tribunal held that each case rests on its own facts and circumstances. The Tribunal relied on the principle of preponderance of human probability and surrounding circumstances, as established by the Supreme Court in cases like Smt. Sumati Dayal vs. CIT and CIT vs. Durga Prasad More. The Tribunal found that the assessee failed to discharge the onus of proving the genuineness of the transactions.

Conclusion:

The Tribunal upheld the addition of Rs. 73,29,100/- made by the AO, dismissing the appeal of the assessee. The Tribunal concluded that the transactions were not genuine, and the LTCG claim was a facade to conceal the true nature of the credit entry. The order of the CIT(A) was confirmed.

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