2024 (11) TMI 809 - AT - Income Tax

Bogus LTCG - Addition u/s 68 OR 69A - transactions of the assessee, in shares, leading to Long Term Capital Gain are sham transactions - HELD THAT - Claim of exemption in respect of long term capital gains cannot be denied merely on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences filed by the assessee in support of such transaction viz., broker's contract notes, confirmation of receipt of sale proceeds through regular banking channels, payment of STT and the demat account. AO is required to bring on record cogent corroborative material to establish that the appellant had unaccounted income which was routed back into the books and payments have actually been made to the brokers suspicion cannot take the place of proof. Mere appreciation in the value of shares cannot justify the transactions being treated as fictitious and the capital gains being assessed as undisclosed income. Merely on the basis of report received from Investigation Wing conducting certain enquiries, the assessing officer cannot treat the share transactions as sham on the basis of suspicion. No adverse inference can be drawn against the appellant merely on the basis of ex-parte statements of the third party(ies) which were not confronted to the assessee. The principle of law thus is that the AO cannot treat a transaction as bogus only on the basis of suspicion or surmise. AO has to bring material on record tangible material to support his finding that there has been collusion or connivance between the broker and the assessee for the introduction of its unaccounted money. A transaction of purchase and sale of shares, supported by contract notes and demat statements and account payee cheques cannot be treated as bogus. In the case of the appellant, shares were acquired by way of preferential allotment directly by the Company and not from any broker. Payment was made through banking channels. Deliveries were taken in the DEMAT account, where shares remained for more than one year. Contract notes were issued and shares were also sold on a recognized stock exchange. The SEBI has nowhere held the investee company to be a bogus or sham company. Additions u/s 69A OR 68 - CIT(A) held section 68 is only applicable in case when there are credits in the books of account of the appellant and that the bank statement of the appellant cannot be considered as books of account - In the present case, the CIT(A) had directed to make addition under section 69A of the Act merely on the basis of the presumption that the assessee had redeployed his undisclosed income in the form of capital gains. In concluding so, the CIT(A) had not placed on record any independent tangible material or evidence to both establish that the assessee had undisclosed income and further, that the share transactions undertaken by the assessee were bogus. In the present case, undisputedly, the transaction is duly accounted for and recorded in the books of the assessee and there is no doubt whatsoever as to disclosure of the transaction. All the relevant documentary evidence qua sale of shares, viz., contract notes, copy of demat account, bank statements, etc., was duly furnished. Thus, section 69A of the Act was not at all applicable and the addition made deserves to be deleted. Addition at the rate of 6.5% being unaccounted commission paid u/s 69C - AO presumed that the assessee had paid 6.5% commission to unidentified brokers, for providing accommodation entries in order to introduce the aforesaid bogus capital gains in the books of the assessee. The addition had been made merely on the basis of assumption, surmises and conjectures and accordingly calls for being deleted on this ground alone. Further, even otherwise, the addition made by the Assessing Officer, merely on the basis of presumption, without any corroborative evidence to substantiate that such payments were actually made, is wholly unjustified and calls for being deleted in view of the legal position, as discussed. The ld. CIT(A) has relied on the Hon ble Supreme Court s Judgement in the case of McDowell Co Ltd. 1985 (4) TMI 64 - SUPREME COURT . In this regard, it has been held that the act of questioning the very basis of a transaction and branding it as illegitimate or a camouflage has to be based on substantial, concrete and cogent evidence, wherein the proof of wrong-doing has to be clear and succinct. Assessee appeal allowed.

1985 (4) TMI 64 - SC

Issues Involved:

1. Legitimacy of Long Term Capital Gains (LTCG) claimed by the assessee.
2. Applicability of Section 68 versus Section 69A of the Income Tax Act for additions.
3. Justification for addition under Section 69C for alleged unaccounted commission.

Issue-wise Detailed Analysis:

1. Legitimacy of Long Term Capital Gains (LTCG) Claimed by the Assessee:

The primary issue was whether the LTCG of Rs. 18,31,36,042/- claimed by the assessee from the sale of shares of M/s Maa Jagdambe Tradelink Ltd. was genuine or a sham transaction designed to evade taxes. The assessee argued that the shares were purchased through preferential allotment and sold on a recognized stock exchange, supported by contract notes and bank transactions. The Revenue contended that the transactions were not genuine, citing the abnormal rise in share prices and the lack of substantial business activity by M/s Maa Jagdambe. The CIT(A) and AO relied on investigations and statements, including those from SEBI, indicating manipulation of share prices. However, the Tribunal found that the assessee had provided sufficient evidence of genuine transactions, including bank statements and demat account details, and that the Revenue failed to provide concrete evidence of manipulation or sham transactions. The Tribunal also noted that previous similar additions were deleted by the ITAT in earlier years due to lack of evidence and denied cross-examination opportunities.

2. Applicability of Section 68 versus Section 69A of the Income Tax Act:

The CIT(A) upheld the addition under Section 69A, stating that the bank account could not be considered as the books of account for Section 68 purposes. The Tribunal disagreed, noting that the transactions were recorded in the books of the assessee, and there was no unexplained money as required by Section 69A. The Tribunal emphasized that the Revenue did not prove that the funds were not recorded in the books, making Section 69A inapplicable. The Tribunal also highlighted that the onus was on the Revenue to prove that the apparent was not real, which was not discharged.

3. Justification for Addition under Section 69C for Alleged Unaccounted Commission:

The AO added Rs. 1,19,03,842/- under Section 69C, presuming unaccounted commission payments for arranging the LTCG. The Tribunal found this addition to be based on mere assumptions without any corroborative evidence. The Tribunal held that the Revenue failed to substantiate the claim of commission payments with tangible evidence, making the addition unjustified. The Tribunal reiterated that suspicion, however strong, cannot replace concrete proof, and the addition was deleted.

Conclusion:

The Tribunal allowed the appeals, reversing the CIT(A)'s order. It held that the LTCG transactions were genuine, Section 69A was not applicable, and the addition under Section 69C was unjustified. The Tribunal emphasized the need for concrete evidence rather than presumptions and upheld the assessee's claims based on documented transactions.

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