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2014 (5) TMI 432 - AT - Income TaxSTCG treated as income from undisclosed sources Genuineness of trading of scrip - Held that - The SEBI has analysed and investigated the credibility and the reliability of Karuna Cables Ltd. and also the possible fraudulent practice of hiking the share value in the stock exchange by leaps and bounds - SEBI order is only a credible information which can only go to create a doubt, but after having received such information, it was incumbent upon the AO to carry out necessary enquiry in the case of the assessee, as to whether the shares have been purchased and the amount which has been received in the bank account of the assessee is also fictitious - the SEBI order has recognised that Karuna Cables Ltd. was a listed company in BSE and NSE and it has also accepted that its share price has arisen from Rs. 22.40 per share to Rs.159 per share during the period. Any transaction has been undertaken by any person in the open market, then it cannot be held that such person was in connivance with the said company - In the entire assessment order, the AO has only spoken about general modus operandi and the order of the SEBI without carrying out any independent enquiry to prove that the assessee has not made any sales or any unaccounted money has been routed through this channel - What is apparent has to be taken as real, unless any material or evidence has been brought on the record to prove the contrary - the short term capital gain shown by the assessee cannot be held to be non-genuine so as to be taxed under the head income from other sources - Decided in favour of Assessee.
Issues Involved:
1. Treatment of Short Term Capital Gain as Income from Undisclosed Sources. 2. Addition of Unexplained Expenditure under Section 69C. Issue-wise Detailed Analysis: 1. Treatment of Short Term Capital Gain as Income from Undisclosed Sources: The assessee challenged the order of the Commissioner (Appeals) upholding the Assessing Officer's treatment of short-term capital gain of Rs. 44,66,911 from transactions in shares of Karuna Cables Ltd. as income from undisclosed sources, alleging the trades were not genuine. The Assessing Officer required the assessee to provide evidence supporting the short-term capital gain transactions, including sales contract notes, demat account copies, and broker accounts. The assessee submitted the necessary documents, including contract notes from the broker, confirmation of Security Transaction Tax (STT) payment, and demat account details. The Assessing Officer concluded the transactions were not genuine, noting Karuna Cables Ltd. as a penny stock with minimal market activity and financial performance, and referenced a SEBI order dated 25th July 2006 that indicated fraudulent activities involving the stock. Consequently, the Assessing Officer treated the short-term capital gain as income from undisclosed sources. The Commissioner (Appeals) confirmed this view, emphasizing the significant rise in the share value and the lack of evidence for the purchase consideration. The Commissioner noted that the shares were purchased for Rs. 8,10,589 and sold for Rs. 52,77,500 within a short period, which was deemed improbable. The assessee's counsel argued that the transactions were conducted through a recognized stock exchange and supported by proper documentation, including demat account entries and STT payment. It was also noted that the SEBI order came after the transactions were completed, and no adverse inference should be drawn without specific enquiry into the assessee's transactions. The Tribunal observed that the purchase of shares was not disputed, and the transactions were conducted online through demat accounts with STT paid, indicating genuine transactions. The Tribunal criticized the lack of independent enquiry by the Assessing Officer and reliance solely on the SEBI order, which was not directly relevant to the assessee's case. Consequently, the Tribunal held that the short-term capital gain could not be treated as income from undisclosed sources, allowing the assessee's appeal on this ground. 2. Addition of Unexplained Expenditure under Section 69C: The assessee also challenged the addition of Rs. 2,23,345 as unexplained expenditure under Section 69C, presumed to be commission paid for obtaining the short-term capital gain. Given the Tribunal's finding that the short-term capital gain was genuine, the hypothetical addition based on presumption was deemed unsustainable. Thus, this ground was also allowed in favor of the assessee. Conclusion: The Tribunal allowed the assessee's appeal, holding that the short-term capital gain from the sale of shares of Karuna Cables Ltd. was genuine and not income from undisclosed sources. The addition of unexplained expenditure under Section 69C was also dismissed. The judgment emphasized the need for specific enquiry and evidence before drawing adverse inferences against the assessee.
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