2025 (4) TMI 861 - AT - Income Tax

Addition u/s 68 - rejection of claim u/s 10(38) on sale of listed equity shares - bogus share transactions - HELD THAT - We observed that the issue involved in the present case is exactly similar to the case of high court Vipin Jain 2024 (3) TMI 1433 - DELHI HIGH COURT individual decided the appeal in favour of the assessee wherein the scrip of Alps Motor Finance Ltd. was involved which is also involved in the present case whwewin held notably it is seen from the impugned order that the AO has failed to corroborate its conclusions on the basis of any cogent material available on record before forming an opinion that the sale transaction was sham and a pre-planned arrangement to claim exemption under the guise of LTCG. An upshot of the above findings of the ITAT coupled with the fact that no irregularity was highlighted by the Securities and Exchange Board of India pertaining to the transaction of the scrips of the Company would lead us to the conclusion that there is nothing adverse against the respondent-assessee which could establish a fictitious LTCG to claim exemption at the behest of the respondent-assessee. Rather the arguments put forth by the Revenue are mere findings of fact. In any case the issues raised by the Revenue in the present appeals already stand covered by the decision of this Court in the case of PCIT v. Krishna Devi 2021 (1) TMI 1008 - DELHI HIGH COURT wherein under similar facts and circumstances it was held that the preponderance of probabilities cannot be a ground to reject the evidence put forth by the parties. Assessee appeal allowed.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the addition of Rs. 4,27,01,703/- as unexplained cash credit under Section 68 of the Income Tax Act was justified.
Whether the rejection of the assessee's claim for exemption under Section 10(38) on the sale of listed equity shares was appropriate.
Whether the Assessing Officer's reliance on statements not subjected to cross-examination was valid.
Whether the imposition of an ad hoc addition of Rs. 21,35,085/- as alleged payment of commission was sustainable.

ISSUE-WISE DETAILED ANALYSIS

1. Addition under Section 68 for Unexplained Cash Credit

Legal Framework and Precedents: Section 68 of the Income Tax Act pertains to unexplained cash credits. The burden of proof lies on the assessee to explain the nature and source of such credits.
Court's Interpretation and Reasoning: The Tribunal observed that the transactions in question were supported by documentary evidence, including share purchase documentation, DEMAT account details, sales transaction records, and bank statements.
Key Evidence and Findings: The assessee provided evidence of the purchase and sale of shares through recognized banking channels and a SEBI-registered broker. No adverse material was found linking the assessee to any accommodation entry providers.
Application of Law to Facts: The Tribunal noted that the assessee's transactions were genuine and properly documented, making the addition under Section 68 unjustified.
Treatment of Competing Arguments: The Revenue's reliance on statements from third parties was deemed insufficient as these statements did not directly implicate the assessee, and no cross-examination was allowed.
Conclusions: The addition under Section 68 was deleted, and the assessee's claim for exemption under Section 10(38) was upheld.

2. Rejection of Exemption Claim under Section 10(38)

Legal Framework and Precedents: Section 10(38) provides for exemption of income from the transfer of long-term capital assets, being equity shares, subject to certain conditions.
Court's Interpretation and Reasoning: The Tribunal found that the transactions were conducted through recognized channels, and there was no evidence of manipulation or price rigging.
Key Evidence and Findings: The shares were purchased and sold through a SEBI-registered broker, and the transactions were supported by proper documentation.
Application of Law to Facts: The Tribunal concluded that the assessee met the conditions for exemption under Section 10(38).
Treatment of Competing Arguments: The Revenue's arguments based on general modus operandi were not supported by specific evidence against the assessee.
Conclusions: The rejection of the exemption claim under Section 10(38) was overturned.

3. Reliance on Statements Not Subjected to Cross-Examination

Legal Framework and Precedents: Principles of natural justice require that statements relied upon in legal proceedings be subjected to cross-examination if requested.
Court's Interpretation and Reasoning: The Tribunal criticized the Assessing Officer's reliance on statements that were not subjected to cross-examination, noting the lack of direct relevance to the assessee's transactions.
Key Evidence and Findings: The statements did not mention the assessee or the specific transactions in question.
Application of Law to Facts: The Tribunal found that the reliance on these statements without cross-examination was improper.
Treatment of Competing Arguments: The Tribunal dismissed the Revenue's arguments based on these statements due to the lack of direct evidence.
Conclusions: The Tribunal found the reliance on these statements to be legally untenable.

4. Ad hoc Addition for Alleged Commission Payment

Legal Framework and Precedents: Any addition for commission payments requires substantive evidence linking the payment to the alleged transaction.
Court's Interpretation and Reasoning: The Tribunal found no material evidence supporting the alleged commission payment.
Key Evidence and Findings: The Revenue's claim was based on conjecture without concrete evidence.
Application of Law to Facts: The Tribunal found the addition to be speculative and without basis.
Treatment of Competing Arguments: The Tribunal dismissed the Revenue's arguments due to lack of evidence.
Conclusions: The ad hoc addition for commission was deleted.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The reliance on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries."
Core Principles Established: The Tribunal emphasized the importance of documentary evidence and the necessity for cross-examination of statements relied upon in assessments.
Final Determinations on Each Issue: The Tribunal allowed the appeal, deleting the addition under Section 68 and the ad hoc commission, and upheld the exemption claim under Section 10(38).

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