2024 (12) TMI 492 - AT - Income Tax

Addition u/s 68 r.w.s. 115BBE - unexplained cash credit - treating the sale proceeds of shares as not genuine and thereby denying exemption u/s 10(38) - scrip was considered by the learned AO as a penny stock and the learned AO held that price of this scrip was artificially rigged in connivance with certain entry operators and the assessee being the beneficiary of the same, the sale proceeds received on sale of shares could not be said to be a genuine transaction HELD THAT - As can be seen from the magnitude, volume and surgical precision of the entire operation, it was an exercise which was targeted to introduce unaccounted money into the books, that too without paying taxes, by abusing the exemption provisions (u/s 10(38) of the statute, to circumvent the law of the land, evade taxes and deprive the exchequer of its rightful due. The plethora of cases quoted by the AO all lend support to his decision, especially in such scam ridden cases, wherein it is essential to pierce the veil of legitimacy and innocence/ ignorance and look behind the charade woven to evade taxes. On the other hand, after due consideration of arguments put forth by the appellant, it is held that the Ld. AR has not been able to controvert/ successfully distinguish the judicial pronouncements quoted by the AO. Accordingly, the addition u/s 68 of the IT Act by the AO, is confirmed. Decided against assessee.

Summary

Issues Involved:

1. Justification of the addition of Rs. 54,94,000/- under Section 68 of the Income-tax Act by treating the sale proceeds of shares as not genuine.
2. Denial of exemption under Section 10(38) of the Income-tax Act.
3. Procedural fairness in providing relevant investigation reports and opportunities for cross-examination.

Issue-wise Detailed Analysis:

1. Justification of the Addition under Section 68:

The core issue in the appeal was whether the Commissioner of Income-tax (Appeals) [CIT(A)] was justified in confirming the addition of Rs. 54,94,000/- under Section 68 of the Income-tax Act. The Assessing Officer (AO) treated the sale proceeds from shares as unexplained cash credit, alleging that the transaction was not genuine. The AO's decision was based on the premise that the shares in question were penny stocks and the prices were artificially inflated through manipulation. The CIT(A) upheld this view, citing a detailed investigation report from the Investigation Wing, Kolkata, which identified the shares as part of a larger scheme involving numerous beneficiaries and shell companies to generate bogus long-term capital gains (LTCG). The CIT(A) emphasized that the scheme was designed to introduce unaccounted money into the books without paying taxes, thus abusing the exemption provisions.

2. Denial of Exemption under Section 10(38):

The assessee claimed an exemption under Section 10(38) for the long-term capital gains from the sale of shares. However, the CIT(A) denied this exemption, supporting the AO's stance that the transaction was a sham. The CIT(A) reasoned that despite the documentation appearing in order, the transaction's nature and the broader context of the investigation indicated an intent to evade taxes. The CIT(A) highlighted that the exemption provisions were misused as part of a well-orchestrated plan to convert black money into white, thus justifying the denial of exemption.

3. Procedural Fairness:

The assessee raised concerns about procedural fairness, arguing that the AO did not provide the investigation report or allow for cross-examination of witnesses. The CIT(A) addressed these concerns by stating that the laws of evidence are not strictly applicable in income tax proceedings, where the principle of "preponderance of probability" is followed. The CIT(A) noted that the investigation report was publicly accessible and that the demands of natural justice were satisfied as long as the party charged had a fair opportunity to comment on the evidence. The CIT(A) cited various judicial precedents to support the view that formal cross-examination is not a mandatory requirement in such cases.

In conclusion, the Tribunal found no infirmity in the order of the CIT(A) and dismissed the appeal, confirming the addition under Section 68 and the denial of the exemption under Section 10(38). The decision was based on the extensive investigation and the circumstantial evidence pointing to the misuse of tax provisions for money laundering. The Tribunal emphasized the need to look beyond the apparent legitimacy of transactions in cases involving tax evasion schemes.