2024 (11) TMI 425 - AT - Income Tax

Addition relating to sale value of shares - addition of estimated commission expenses - HELD THAT - We noticed that the evidences furnished by the assessee to prove the purchase and sale of shares, payment made/received, entry/exit of shares in the demat account of the assessee etc., were not doubted with. In the case of PCIT vs. Smt Krishna Devi 2021 (1) TMI 1008 - DELHI HIGH COURT as noticed that the reasoning given by the AO to disbelieve the capital gains declared by the assessee, viz., astronomical increase in the price of shares, weak fundamentals of the relevant companies are based on mere conjectures. Accordingly, the Hon ble Delhi High Court affirmed the decision rendered by ITAT in deleting the addition of capital gains. We noticed earlier that the AO has assessed the sale consideration of shares as unexplained cash credit u/s. 68 of the Act. It is pertinent to note that the purchase of shares made in an earlier year has been accepted by the Revenue. The sale of shares has taken place in the online platform of the Stock Exchange and the sale consideration has been received through the stock broker in banking channels. Hence, in the facts of the case, the sale consideration cannot be considered to be unexplained cash credit in terms of sec. 68 - Accordingly, we hold that the sale consideration received on sale of shares cannot be assessed as unexplained cash credit u/s. 68 of the Act and the long term capital gains declared by the assessee cannot be doubted with. Accordingly, we set aside the order passed by the Ld.CIT(A) and direct the AO to delete the impugned addition made by him. Since we have held that the transactions of purchase and sale of shares are genuine in nature, the AO was not justified in estimating the commission expenses and adding the same. Appeal filed by the assessee is allowed.

Summary

Issues Involved:

1. Legitimacy of the long-term capital gains declared by the assessee on the sale of shares.
2. Justification for the addition of estimated commission expenses related to the sale of shares.

Detailed Analysis:

1. Legitimacy of the Long-Term Capital Gains:

The primary issue in this case was whether the long-term capital gains declared by the assessee on the sale of shares of M/s Sunrise Asian Ltd. were genuine or bogus. The assessee had declared long-term capital gains of Rs. 2.36 crores, claiming exemption under Section 10(38) of the Income Tax Act, 1961. The Assessing Officer (AO) relied on a report by the Investigation Wing, which alleged price manipulation and generation of bogus long-term capital gains in penny stocks, including the shares sold by the assessee. The AO concluded that the gains were pre-arranged to generate bogus capital gains, leading to the addition of Rs. 2.47 crores as unexplained income under Section 68 of the Act.

The Tribunal observed that the AO primarily relied on a generalized report without concrete evidence linking the assessee to the alleged manipulation. The Tribunal noted that the assessee had conducted transactions through proper banking channels, dematerialized shares, and sold them through the stock exchange, receiving the sale consideration through banking channels. The Tribunal emphasized that the AO did not find any defects in the documentation provided by the assessee, nor was the assessee subjected to any inquiry by SEBI. Furthermore, the AO did not provide the assessee with an opportunity to cross-examine a key witness, Shri Anuj Agarwal, whose statement was heavily relied upon. The Tribunal cited several decisions from the Hon'ble Bombay High Court, which held that transactions supported by credible documentary evidence could not be considered bogus without substantial proof. Consequently, the Tribunal set aside the addition made by the AO, holding that the sale consideration could not be treated as unexplained cash credit under Section 68.

2. Justification for the Addition of Estimated Commission Expenses:

The second issue was the AO's addition of estimated commission expenses at 3% of the sale value of shares, amounting to Rs. 7,41,921/-, under Section 69 of the Act. The AO assumed that the assessee would have incurred commission expenses to generate bogus long-term capital gains. However, the Tribunal found no basis for this estimation, as the transactions were deemed genuine. The Tribunal noted that the AO did not provide any evidence to substantiate the incurrence of such expenses by the assessee. As a result, the Tribunal directed the AO to delete the addition of estimated commission expenses.

Conclusion:

In conclusion, the Tribunal allowed the appeal filed by the assessee, setting aside the order of the CIT(A) and directing the AO to delete both the addition of the sale consideration as unexplained cash credit and the estimated commission expenses. The Tribunal's decision was based on the lack of concrete evidence linking the assessee to any manipulation and the genuineness of the transactions as supported by documentary evidence. The order was pronounced in the open court on 09-10-2024.