2024 (7) TMI 208 - AT - Income Tax

Bogus LTCG - addition u/s 68 as unexplained cash credit - addition based on the premise of alleged price rigging in the PMC Fin Corp script - HELD THAT - It is noted that the assesses has established its claim before the lower authorities, based upon the documents namely bank details, the purchase/sell documents, the details of the D-Mat Account etc. and that the appellant held the shares for a period of more than one year and sold them through recognized stock exchange and paid STT. Meaning thereby that the assesse has complied all the conditions of section 10(38) of Income Tax Act, 1961 to claim, long term capital gain, earned by the appellant was exempt as per provisions of section 10(38) of the Income Tax Act, 1961 and same has been duly declared in the income tax return of the assessee. Addition made by the AO and upheld by the CIT(A) was solely based on the premise of alleged price rigging in the PMC Fin Corp script. However, this allegation is negated by the Securities Appellate Tribunal Mumbai, in its order by explicitly dismissed these allegations. The tribunal's ruling stated that there is no supporting material on record to substantiate the accusation of the company's involvement in price inflation. Moreover, the order emphasized that purchasing shares from the stock exchange platform is not unlawful, and continuous buying of shares at increased prices does not contravene any provisions of SEBI laws, particularly the PFUTP Regulations. (APB, Pgs. 76-88). Hon ble SUPREME COURT OF INDIA in the case of Principal Commissioner of Income-tax vs. Renu Aggarwal 2023 (7) TMI 288 - SC ORDER dismissed the SLP filed by revenue filed against the Hon ble high court as held there was lack of adverse comments from stock exchange and officials of company involved in these transactions and no material relating to assessee was found in investigation wing report, additions made by Assessing Officer had rightly been deleted. Recently, the Hon ble Apex Court in the case of PCIT v. Dipansu Mohapatra 2024 (3) TMI 217 - SC ORDER dismissed against order of High Court that where assessee provided all details of purchase and sales of shares to AO along with contract notes for purchase and sale, demat account and bank statement and, furthermore no incriminating materials were found during survey conducted in premises of assessee, AO could not deny claim under section 10(38) merely by relying on statements of accommodation entry providers which were recorded much before date of survey. We hold that there was no reason to add capital gains as unexplained cash credit u/s 68. Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of addition of Rs. 66,52,602/- on account of long-term capital gain claimed as exempt under Section 10(38).
2. Validity of reasons recorded by the AO for the addition.
3. Alleged non-disclosure of long-term capital gain in the return of income.
4. Failure of the AO to dispose of objections by a speaking order.
5. Provision of investigation report and other documents by the AO.
6. Prejudice caused by not providing material and cross-examination of Raj Kumar Modi.
7. Necessity of cross-examination under the circumstances.
8. Lack of evidence implicating the assessee in cash transactions.
9. Jurisdiction of assessment under Section 147 versus Section 153C.
10. Basis of addition on price rigging allegations.
11. Addition under Section 68 in the absence of books of accounts.

Detailed Analysis:

1. Confirmation of Addition of Rs. 66,52,602/-:
The CIT(A) confirmed the addition of Rs. 66,52,602/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The assessee contended that the long-term capital gain was duly disclosed in the return of income and met all conditions for exemption under Section 10(38).

2. Validity of Reasons Recorded by the AO:
The assessee argued that the reasons recorded by the AO lacked independent application of mind and amounted to borrowed satisfaction. The AO was uncertain whether the transactions were in respect of equity or derivatives, indicating a flawed basis for the addition.

3. Alleged Non-Disclosure of Long-Term Capital Gain:
The assessee contended that the AO incorrectly stated that the long-term capital gain was not disclosed, which was factually incorrect as it was duly declared in the return of income.

4. Failure to Dispose of Objections by Speaking Order:
The AO failed to address the objections raised by the assessee through a speaking order, which is a procedural lapse affecting the validity of the assessment.

5. Provision of Investigation Report and Other Documents:
The assessee argued that the AO did not provide the investigation report, statement of Raj Kumar Modi, list of 19 scrips, and the document listing the assessee as a beneficiary, thus denying the assessee a fair opportunity to rebut the allegations.

6. Prejudice Caused by Not Providing Material and Cross-Examination:
The CIT(A) presumed that no prejudice was caused to the assessee by not providing the material and cross-examination of Raj Kumar Modi. However, the assessee argued that this was a significant procedural lapse.

7. Necessity of Cross-Examination:
The CIT(A) held that cross-examination was not required, but the assessee contended that since the statement of Raj Kumar Modi was the basis for initiating re-assessment proceedings, cross-examination was essential.

8. Lack of Evidence Implicating the Assessee:
The assessee argued that there was no evidence on record implicating them in getting entry after making payment in cash. The AO and CIT(A) did not conduct any investigation or enquiry directly against the assessee.

9. Jurisdiction of Assessment Under Section 147 Versus Section 153C:
The assessee contended that the assessment should have been initiated under Section 153C, as the material relied upon was seized from the residence of Raj Kumar Modi, a director of PMC Fin Corp.

10. Basis of Addition on Price Rigging Allegations:
The addition was based on allegations of price rigging in the PMC Fin Corp script. However, the Securities Appellate Tribunal, Mumbai, dismissed these allegations, stating there was no material evidence of the company's involvement in price inflation.

11. Addition Under Section 68 in the Absence of Books of Accounts:
The assessee argued that no addition under Section 68 could be made in the absence of books of accounts. The bank passbook cannot be considered as books of accounts, making the addition untenable in law.

Conclusion:
The Tribunal held that the decision of the CIT(A) was infirm and perverse to the facts on record. The assessee had complied with all conditions of Section 10(38) for claiming long-term capital gain exemption. The addition of Rs. 66,52,602/- was deleted as there was no reason to add it as unexplained cash credit under Section 68. The appeal filed by the assessee was allowed.