2016 (9) TMI 596 - AT - Income Tax

Unexplained cash credit u/s. 68 - search proceedings -share transactions - Held that - The transactions of purchase and sale of RFL shares is done through the stock exchange involving registered brokers in stock. The payments are made through banking channels. We find that the transaction of purchase and sale of shares are executed without violating any procedures prescribed by any law. So far as the assessee is concerned, the documentation involving the said purchase and sale of shares is without any criticism by the AO. The assessee maintained relevant papers properly. In our view, the AO proceeded to invoke the provisions of section 68 of the Act despite the clarity with reference to the issues relating to identity and credit worthiness of the assessee. It appears that the AO is predominantly influenced by the penny stock related issues on the shares of RFL and treated the said transactions as sham. In our view, the decision of the AO is not valid and appropriate as there is no adverse criticism on the relevant documentation involving these share transactions. There is no allegation against the assessee individually as involved in price rigging. Unlike in the shares of Eltrol Ltd., there are no adverse witnesses or statements given by third parties questioning the genuineness of the transactions. In this case, the transactions are done very much through the exchange and the payments are made involving banking channels. No evidence is gathered by the search team during the proceedings u/s. 132 to support the allegation about the genuineness of the transactions. No evidence is gathered about the cash transfers if any either at the purchase point or at the sale point of share transaction. Nothing adverse was brought about by the search team that the assessee is personally involved in price raising of shares from ₹ 2.5/- to ₹ 185/- per share. There is no adverse inference about the bona fides of the assessee in buying and selling of the said shares of RFL. In such circumstances when there is no evidence against the assessee on the transactions involved, we are of the opinion that why not the assessee should be one genuine investor and, therefore, there is no case for invoking the provisions of section 68 for making the additions on account of transactions involving the shares of RFL. - Decided in favour of assessee

Summary

Issues Involved:
1. Addition of ?1,03,33,955/- under Section 68 of the Income Tax Act for A.Y. 2005-06.
2. Addition of ?80,44,460/- under Section 68 of the Income Tax Act for A.Y. 2006-07.

Detailed Analysis:

Issue 1: Addition of ?1,03,33,955/- under Section 68 of the Income Tax Act for A.Y. 2005-06

The Revenue appealed against the deletion of the addition of ?1,03,33,955/- made under Section 68 of the Income Tax Act, which was initially added by the Assessing Officer (AO) as unexplained cash credit instead of Long Term Capital Gain as claimed by the assessee.

Facts:
- The assessee filed the return of income for A.Y. 2005-06 declaring ?18,96,007/-.
- A search action under Section 132 of the Act was conducted on 08.05.2007, covering the assessee.
- The AO issued a notice under Section 153A, and the assessee filed the return declaring the same income.
- The AO made additions on account of capital gains, including ?1,03,33,925/- from the purchase and sale of shares of Ramkrishna Fincap Ltd. (RFL).

Arguments:
- The assessee argued that the shares of RFL were purchased and sold through SEBI-registered brokers, payments were made through banking channels, and transactions were confirmed by brokers and related parties.
- The AO contended that the transactions were sham, as the financials of RFL did not justify the high sale price, and the broker involved was penalized by SEBI for discrepancies.

CIT(A) Decision:
- The CIT(A) deleted the addition, holding the claim of long-term capital gains as genuine, relying on the Bombay High Court judgment in Jamnadevi Agarwal’s case.

Tribunal's Analysis:
- The Tribunal noted that the transactions were executed through the stock exchange, payments were made through banking channels, and there were no adverse findings against the documentation.
- The Tribunal found that the AO's decision to invoke Section 68 was not valid as there was no evidence of sham transactions or involvement in price rigging by the assessee.
- The Tribunal relied on similar cases where transactions involving RFL shares were held genuine, including decisions in the cases of Ms. Indravardhan Jain and Ranjeet Singh Bindra.

Conclusion:
- The Tribunal upheld the CIT(A)’s decision, dismissing the Revenue's appeal for A.Y. 2005-06, confirming the deletion of the addition under Section 68.

Issue 2: Addition of ?80,44,460/- under Section 68 of the Income Tax Act for A.Y. 2006-07

The Revenue appealed against the order of the CIT(A) for A.Y. 2006-07, which involved a similar addition of ?80,44,460/- under Section 68 on account of Long Term Capital Gain.

Arguments and Analysis:
- Both parties agreed that the facts and arguments for A.Y. 2006-07 were identical to those for A.Y. 2005-06.
- The Tribunal applied the same reasoning and conclusions formed for A.Y. 2005-06 to A.Y. 2006-07.

Conclusion:
- The Tribunal dismissed the Revenue's appeal for A.Y. 2006-07, confirming the deletion of the addition under Section 68.

Final Order:
- The appeals by the Revenue for both A.Y. 2005-06 and A.Y. 2006-07 were dismissed by the Tribunal, confirming the deletions of the additions made under Section 68 of the Income Tax Act.