2013 (12) TMI 771 - AT - Income Tax

Unexplained investment - Held that - The purchase and sale of shares were done through Off Market Transactions, meaning thereby that the shares were not routed through Demat account nor through BOLT - After year 2000, when the SEBI has made it mandatory to transact through Demat Account, thereby completely banning the physical transactions of the shares through BOLT , the assessee is still transacting in physical shares Offline - The genuineness of the transaction needs further verification at the assessment stage - The issue was restored for fresh adjudication.

Summary

Issues:
1. Addition of Rs. 15,91,260/- as income under Section 68 of the Act.
2. Addition of Rs. 1,59,126/- under Section 69C of the Act.

Analysis:
1. The appellant raised two substantive grounds of appeal against the order of the CIT(A)-I, Thane, related to Assessment Year 2004-2005. The AO observed that the appellant showed long term capital gains from the sale of shares of M/s Highland Industries Ltd. purchased in cash and sold for a substantial profit. The AO suspected the transaction as an attempt to launder unexplained money. Despite the appellant's claims, the AO treated the sum as unexplained credit and added an expenditure of Rs. 1,59,126. The CIT(A) upheld the AO's decision due to lack of credible evidence supporting the transactions.

2. The appellant contended before the ITAT that the shares were purchased through registered brokers, not via Demat account, and supported this with contract notes and broker bills. The appellant received the sale consideration through a pay order from ABN-Amro Bank, contrary to the CIT(A)'s assertion of cash receipt. The appellant presented evidence such as balance sheet entries and a company-issued certificate confirming shareholding. The ITAT noted discrepancies and directed the AO to verify the transaction through brokers, assess the genuineness in light of external reports on broker credibility, and examine the company certificate. The ITAT emphasized the need for the appellant to provide substantial evidence to explain the source and nature of the funds involved, ensuring a fair hearing before a fresh decision.

In conclusion, the ITAT allowed the appeal for statistical purposes, highlighting the necessity for thorough verification and substantiation of claims in cases involving unexplained income under Section 68 of the Act and related additions.