2024 (7) TMI 123 - AT - Income Tax

Addition u/s 68 - Bogus Long term capital gain - AO has disbelieved the claim of the assessee only on the basis of the investigation report of the department which identified the scrip of M/s. Sunrise as a penny stock - HELD THAT - We find that investigation report of department is a general-report, which has not spelled out any wrongdoing on the part of assessee or her broker. Therefore, the reliance made by AO on the general-report of investigation wing cannot be accepted. Likewise, the AO has also referred to the statement given by Shri Vipul Bhatt which also does not contain any direct testimony to incriminate the assessee or her broker (Anand Rathi share and stock broker Ltd) in any wrong-doing wrongdoing as reported in the investigation report/modus-operandi ; Further, we note that department s case is not that the name of assessee or her broker finds mention in the list of 83 entities/persons identified by SEBI as having acted in concert with M/s. Sunrise and its directors to manipulate the price as given in SEBI order dated 19.12.2014. It is not disputed that no action has been taken by SEBI against the assessee or her broker M/s. Anand Rathi. So the reliance placed by AO on SEBI order without linking it with assessee or her broker is irrelevant/misplaced and erroneous. Since there is no testimony which incriminate assessee or her broker, reliance made by AO to draw adverse view cannot be countenanced. We note that the AO has also referred to the SEBI report wherein according to him, the SEBI was pleased to suspend the trading of the scrip of M/s. Sunrise for certain period. But, nothing turns on it, because by suspending sale for some time, does not in any way link assessee or her broker with wrongdoing or connected to Shri Vipul Bhat. As decided in Bhavin Vaghasia 2023 (6) TMI 1399 - ITAT MUMBAI material on record supports the case of the Assessee/Legal Heir that transactions of sale of shares of Sunrise Asian were genuine transactions undertaken during normal course by the Assessee who had knowledge of the stock-market and had been making investments in shares since many years. Accordingly, the claim of exemption under Section 10(38) of the Act is allowed in respect of capital gains arising from sale of shares of Sunrise Asian during the previous year - Decided in favour of assessee.

Issues Involved:
1. Disallowance of Long Term Capital Gain (LTCG) claim.
2. Taxation of sale consideration of shares.
3. Validity of the AO's reliance on the investigation report and statement of Shri Vipul Vidur Bhatt.
4. Evidence provided by the assessee to substantiate the LTCG claim.
5. SEBI's role and findings regarding the penny stock.
6. Precedent from the case of Bhavin Vaghasia v ITO.

Detailed Analysis:

1. Disallowance of Long Term Capital Gain (LTCG) claim:
The main grievance of the assessee was the disallowance of the LTCG claim of Rs. 23,37,135/- on the sale of shares of M/s. Sunrise Asian Ltd. The AO concluded that the LTCG claim was part of an organized scam/circular trading to evade tax and launder money. The AO based this conclusion on an investigation report and the statement of Shri Vipul Vidur Bhatt, which indicated that the prices of acquisition and sale of M/s. Sunrise shares were manipulated.

2. Taxation of sale consideration of shares:
The AO added the entire sale consideration of Rs. 25,12,020/- to the income of the assessee, asserting that the transaction was fictitious and merely an accommodation entry for converting unaccounted money into accounted money under the guise of LTCG.

3. Validity of the AO's reliance on the investigation report and statement of Shri Vipul Vidur Bhatt:
The AO relied heavily on the investigation report prepared by the Investigation Wing of the Department (Kolkata) and the statement of Shri Vipul Vidur Bhatt. The assessee argued that the investigation report was a general report and did not specifically incriminate the assessee or her broker. The Tribunal noted that the investigation report and the statement did not provide direct evidence against the assessee or her broker.

4. Evidence provided by the assessee to substantiate the LTCG claim:
The assessee provided various documents to substantiate the LTCG claim, including:
- Bank statements for purchase and sale.
- Share certificates.
- Demat account statements.
- Contract notes from the broker.
- Income Tax Returns (ITR) for AY 2012-13 and 2013-14.
The Tribunal observed that the assessee had proved the purchase and sale of shares through primary documents and the transactions were conducted through banking channels, thus establishing the genuineness of the transactions.

5. SEBI's role and findings regarding the penny stock:
The AO referred to a SEBI order that identified the scrip of M/s. Sunrise as a penny stock and had taken action against certain entities. However, it was noted that SEBI had not taken any action against the assessee or her broker. The Tribunal found that the AO's reliance on the SEBI order was misplaced as it did not directly link the assessee or her broker to any wrongdoing.

6. Precedent from the case of Bhavin Vaghasia v ITO:
The Tribunal referred to a similar case, Bhavin Vaghasia v ITO, where the Tribunal had allowed the LTCG claim on the sale of shares of M/s. Sunrise. The facts and circumstances in the case of the assessee were found to be similar to those in Bhavin Vaghasia. The Tribunal applied the same reasoning and allowed the appeal of the assessee, directing the AO to allow the LTCG claim and delete the addition of Rs. 25,12,070/-.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the AO's reliance on the general investigation report and the statement of Shri Vipul Vidur Bhatt was not sufficient to disallow the LTCG claim. The Tribunal found that the assessee had provided adequate evidence to substantiate the genuineness of the transactions. The appeal was partly allowed, with the LTCG claim being accepted and the addition being deleted. Ground number 4 was dismissed as it was not argued or decided by the CIT(A).

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