2024 (8) TMI 866 - AT - Income Tax

Addition u/s 68 - bogus LTCG on sales transactions of shares - denial of exemption u/s. 10(38) - SEBI has passed an order wherein it has found that the share price of Sunrise Asian Limited was manipulated and the trading of said scrip was banned by the SEBI - HELD THAT - We are not going into details of various judgments wherein additions have been deleted on this scrip of M/s. Sunrise Asian Ltd and statement of Shri Vipul Vidur Bhatt has been discarded on the ground assessee was not given cross examination. We have given our finding based on various other factors and the most crucial one, the order of the SEBI brought on record before us wherein there is detailed investigation and enquiry and finding in the case of M/s. Sunrise Asian Ltd. and how various other entities and persons connected with the manipulation and rigging of the prices in the stock exchange recommend to provide accommodation entry. Thus, the addition made u/s. 68 is confirmed. Addition of brokerage alleged to have been paid to the broker - Though we have confirmed the aforesaid addition that assessee s transaction is not genuine based on the discussion made above, however, the presumptive addition on account of brokerage which assessee might have paid to the broker cannot be sustained without any actual material of outgoing by the department. Accordingly, addition made by the ld. AO is deleted. Appeal of the assessee is partly allowed.

Summary

Issues Involved:

1. Addition of Rs. 2,70,01,771/- under Section 68 for alleged bogus Long Term Capital Gain (LTCG) on sales transactions of shares of M/s. Sunrise Asian Limited.
2. Addition of presumptive brokerage alleged to have been paid to the broker at Rs. 8,10,053/-.

Issue-wise Detailed Analysis:

1. Addition of Rs. 2,70,01,771/- under Section 68 for alleged bogus Long Term Capital Gain (LTCG):

The assessee, an individual deriving income from salary and house property, declared long-term capital gains from the sale of shares for the A.Y. 2014-15. The shares in question were those of M/s. Sunrise Asian Limited, which were acquired through a series of transactions involving the purchase of shares from M/s. Conart Traders Ltd. and subsequent amalgamation with M/s. Sunrise Asian Ltd.

The Assessing Officer (AO) doubted the genuineness of the transactions, citing the lack of substantial profit or financial results of the companies involved. The AO referred to the survey and statements recorded from the Director of Sunrise Asian Ltd., who admitted to being unaware of the company's activities and being a dummy director. Further investigation revealed that Shri Vipul Vidur Bhatt, an established entry operator, managed and controlled several bogus entities, including Sunrise Asian Ltd., to provide accommodation entries for bogus LTCG.

The AO's findings were supported by the SEBI's investigation, which confirmed manipulative trading practices and price rigging in the shares of Sunrise Asian Ltd. The SEBI's order highlighted that the price of the shares was artificially inflated through circular trading among connected entities, contributing to a significant positive LTP (Last Traded Price).

The assessee argued that the purchase and sale of shares were genuine, supported by contract notes, demat account statements, and bank transactions. However, the AO rejected these documents, considering the entire transaction as dubious and non-genuine, and added the entire sale proceeds under Section 68.

The CIT(A) upheld the AO's decision, noting that the financials of Sunrise Asian Ltd. did not justify the rise in share prices and that the statements from key individuals involved in the manipulation were credible, despite retractions.

The Tribunal, considering the SEBI's detailed investigation and findings, concluded that the transaction was not genuine. The SEBI's order provided substantial evidence of price manipulation and fraudulent practices, corroborating the AO's and CIT(A)'s findings. The Tribunal emphasized that the test of genuineness should be based on the 'preponderance of probabilities,' and in this case, all factors indicated that the transaction was a sham.

2. Addition of presumptive brokerage alleged to have been paid to the broker at Rs. 8,10,053/-:

The AO added a presumptive brokerage of Rs. 8,10,053/-, assuming that the assessee paid a commission for the accommodation entry. The CIT(A) confirmed this addition.

However, the Tribunal found no actual material evidence of such an outgoing payment by the assessee. Therefore, the presumptive addition on account of brokerage was not sustained and was deleted.

Conclusion:

The Tribunal confirmed the addition of Rs. 2,70,01,771/- under Section 68, finding the transaction to be non-genuine based on substantial evidence from the SEBI's investigation and other factors. However, the presumptive addition of Rs. 8,10,053/- for brokerage was deleted due to a lack of material evidence. The appeal of the assessee was partly allowed.