2014 (4) TMI 238 - HC - Income Tax

Genuineness of the Transaction LTCG on sale of shares shares of listing company were purchased in cash - Allowanbility of claim of exemption u/s 54F of the Act - Held that - The assessee has not been able to prove that the shares were purchased on November 12, 1999, inasmuch as there is no documentary evidence proving the fact inasmuch as the said purchase was made in cash - the assessee has also not been able to show that the shares were listed in the stock market at Rs. 2.50, on the day of purchase, inasmuch as the assessee has produced the quotation of the shares as on the date of sale issued by the Guwahati Stock Exchange but no such quotation on the date of purchase was produced by the assessee. The assessee although has produced documentary evidence to show that shares were sold at a price prevailing in the stock market on the date of sale but no documentary evidence were produced to show that on the date of purchase, the market price of the shares was the same at which the shares were claimed to have been purchased - it cannot be said that the explanation offered by the assessee as regards long-term capital gain was rejected unreasonably and that the finding that the amount was not on account of long-term capital gain is based on no evidence thus, the transaction was bogus and it was simply a sort of modus operandi to convert the undisclosed income into a long-term capital gain claiming the same to be exempted. The AO had not committed any error in rejecting the claim of the assessee and, in fact, applying the test of human probabilities, the AO rightly concluded that the assessee s claim about the amount, being the long term capital gain is not genuine and that the finding arrived at by the AO cannot be said to be a finding, which is not based on no evidence thus, the order of the Tribunal is set aside Decoded in favour of Revenue. Addition of undisclosed source of income - Whether the Tribunal was justified and correct in directing the AO to delete the addition as income from undisclosed source Held that - The Tribunal rightly held that the assessee had established the identity of the creditor, namely, Venus Hospital Ltd. - The assessee has also discharged its burden, which rested on her, under section 68 of the Act by proving that the amount received by her in cash by the said creditor was duly recorded in the books of account of Venus Hospital Ltd. and the same was examined and verified by the Assessing Officer - The identity of the Venus Hospital has also been established inasmuch as it has filed all relevant documents like income-tax return, balance-sheet, etc. - the identity of the creditor and the genuineness of transaction have been proved. The burden shifted to the AO to prove the contrary - The AO has failed to show either directly or with the help of circumstantial evidence that the amount belonged to the assessee - In the absence of any such evidence on record, more particularly, the identity of the creditor and the genuineness of the transaction in question having been proved the Assessing Officer could not have treated the said amount as income derived from undisclosed sources thus, there was no infirmity in the order of the Tribunal Decided against Revenue. Addition of undisclosed source of income Genuineness of the transaction - Whether the Tribunal was justified and correct in directing the AO to delete the addition as income from undisclosed source from the income Held that - The identity of creditor, the genuineness of the transaction as well as the creditworthiness of the creditor have been established the Tribunal was justified in deleting the addition made u/s 68 of the Act Decided against Revenue.

Issues Involved:
1. Validity of Long-Term Capital Gain Transaction
2. Eligibility for Exemption under Section 54F
3. Addition of Rs. 15 Lakhs as Income from Undisclosed Sources
4. Addition of Rs. 80,000 as Income from Undisclosed Sources

Issue-wise Detailed Analysis:

1. Validity of Long-Term Capital Gain Transaction:
The primary issue was whether the Tribunal was justified in directing the Assessing Officer to treat the transaction relating to long-term capital gain as genuine. The assessee had shown a long-term capital gain of Rs. 18,33,160 from the sale of shares of Birdhichand Pannalal Agency Ltd. The Assessing Officer found discrepancies, including the non-existence of the company at the provided addresses and the lack of documentation for the purchase of shares. The Tribunal, however, set aside the Assessing Officer's findings, stating that the documents provided by the assessee were not proven false. The High Court, upon review, found that the Tribunal failed to consider the surrounding circumstances and the principle of human probability, which indicated that the transaction was not genuine. Thus, the High Court restored the Assessing Officer's decision, treating the transaction as bogus.

2. Eligibility for Exemption under Section 54F:
This issue was closely tied to the first issue. The Tribunal had directed the Assessing Officer to allow the exemption under Section 54F based on the genuineness of the long-term capital gain transaction. However, since the High Court found the transaction to be bogus, the claim for exemption under Section 54F was also disallowed.

3. Addition of Rs. 15 Lakhs as Income from Undisclosed Sources:
The assessee had shown Rs. 15 lakhs as an advance from M/s. Venus Hospitals Pvt. Ltd. for the sale of a flat. The Assessing Officer found that the company did not exist at the given address and that the transactions were made in cash. The Tribunal reversed the Assessing Officer's decision, stating that the transactions were recorded in the company's books of account. The High Court, however, upheld the Tribunal's decision, stating that the identity of the creditor and the genuineness of the transaction were established, and the onus had shifted to the Assessing Officer to prove otherwise, which was not done.

4. Addition of Rs. 80,000 as Income from Undisclosed Sources:
The assessee claimed to have received an advance of Rs. 80,000 in cash for the sale of a car. The Assessing Officer added this amount as undisclosed income due to the lack of delivery of the car and the non-appearance of the purchaser. The Tribunal found the transaction to be genuine, supported by the purchaser's balance sheet. The High Court agreed with the Tribunal, noting that the identity of the purchaser and the genuineness of the transaction were established, thus justifying the deletion of the addition.

Conclusion:
The appeal was partly allowed. The High Court set aside the Tribunal's order regarding the long-term capital gain transaction and the exemption under Section 54F, restoring the Assessing Officer's original findings. However, the Tribunal's decisions regarding the additions of Rs. 15 lakhs and Rs. 80,000 were upheld. No order as to costs was made.

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