2024 (10) TMI 1083 - AT - Income Tax

Bogus LTCG - share transaction being ingenuine and not supported by proper documentation - Addition u/s 68 - unexplained cash credit - assessee beneficiaries of penny stock acquired shares of TFC through preferential allotment i.e. off market transaction or by way of amalgamation or merger and once one year has passed, the shares price was rigged and beneficiaries sold their shares - HELD THAT - Assessee made sale of shares through BSE and paid security transaction tax and there is no allegation against the share broker through whom assessee has made sales that they were indulging any price manipulation. Therefore, no justification in treating the LTCG as unexplained cash credit under section 68, particularly when the holding period of such scrips are of seven years. In the result, the addition of undisclosed income under section 68 is deleted. In the result, ground No. 3 of appeal is allowed. Addition on account of difference in salary income - AO made addition by taking view that as per data of Form AS-26, the assessee has not offered complete salary for taxation and thus made addition on account of difference in salary income - CIT(A) has already held that addition on the basis of Form 26-AS is factually wrong - HELD THAT - We find that assessee has placed on record, copy of Form 26-AS wherein the total amount of salary is only of Rs. 4,05,000/- only. Thus, there is no mismatch in the salary offered by assessee, thus, the Assessing Officer is directed to delete the addition - Ground No.4 is allowed.

Summary

Issues Involved:

1. Validity of proceedings under Sections 147 and 148 of the Income Tax Act.
2. Addition of Rs. 11,33,225 under Section 68 as unexplained cash credit.
3. Addition of Rs. 4,45,000 due to mismatch in salary income.
4. Charging of interest under Sections 234B, 234C, and 234D.

Issue-wise Detailed Analysis:

1. Validity of Proceedings under Sections 147 and 148:

The appellant initially challenged the proceedings under Sections 147 and 148 of the Income Tax Act, arguing that the entire process and the consequent assessment order were invalid and unjustified. However, during the hearing, the appellant's representative did not press these grounds, leading to their dismissal as "not pressed." Therefore, no further analysis was conducted on this issue.

2. Addition of Rs. 11,33,225 under Section 68:

The core issue was whether the long-term capital gains (LTCG) from the sale of shares in 'Twenty First Century (India) Ltd.' should be treated as unexplained cash credit under Section 68. The appellant argued that the shares were purchased in the financial year 2004-05 and sold in 2012-13, with the transaction being genuine and supported by proper documentation, including contract notes, demat account statements, and bank statements. The appellant claimed exemption under Section 10(38) for LTCG, asserting that the shares were sold through a recognized stock exchange and STT was paid.

The revenue's position, based on an investigation report, was that the shares were part of a penny stock scam, with prices artificially inflated to claim bogus LTCG. The CIT(A) upheld the addition, relying on the investigation report and a Calcutta High Court decision.

However, the Tribunal found that the appellant had provided sufficient evidence to prove the genuineness of the transactions. It noted that there was no allegation against the appellant's broker for price manipulation and that the long holding period of seven years supported the bona fide nature of the transaction. The Tribunal referred to several jurisdictional High Court decisions, which held that genuine transactions supported by documentation should not be treated as unexplained cash credits. Consequently, the Tribunal deleted the addition under Section 68, allowing this ground of appeal.

3. Addition of Rs. 4,45,000 due to Mismatch in Salary Income:

The appellant contested the addition made by the Assessing Officer due to a perceived mismatch in salary income reported in Form 26-AS. The appellant argued that the Assessing Officer incorrectly interpreted the salary data, considering it twice, leading to an erroneous addition.

The CIT(A) acknowledged the potential mismatch and directed a verification of the correct salary income. The Tribunal found that the appellant had provided evidence showing the correct salary amount, which matched the Form 26-AS data. As a result, the Tribunal directed the deletion of the Rs. 4,45,000 addition, allowing this ground of appeal.

4. Charging of Interest under Sections 234B, 234C, and 234D:

The appellant challenged the interest charged under Sections 234B, 234C, and 234D, arguing that it was based on unjustified and unlawful additions. Since the Tribunal deleted the primary additions related to unexplained cash credit and salary mismatch, the issue of interest charging became consequential and required no further adjudication.

Conclusion:

The Tribunal partly allowed the appeal, deleting the additions related to unexplained cash credit and salary mismatch, which were the primary grounds contested by the appellant. The decision emphasized the importance of substantiating claims with proper documentation and the precedence of jurisdictional High Court rulings in tax matters.