2017 (9) TMI 1104 - HC - Income Tax

Undisclosed investment - iniquity of capital gain - non-genuine transaction - Held that - AO has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all the material facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohi. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant - Decided in favour of the assessee

Summary

Issues:
1. Deletion of addition on account of bogus share transactions
2. Deletion of addition on account of undisclosed investment in land

Analysis:

Issue 1: Deletion of addition on account of bogus share transactions
The appellant challenged the Tribunal's decision confirming the CIT(A)'s order deleting the addition of ?98,56,872 made by the Assessing Officer on the grounds of bogus share transactions. The substantial question of law framed by the Court questioned the justification of deleting the addition, considering the transactions were accommodation entries facilitated by an entry provider, despite the assessee denying any share transactions during a survey. The AO concluded that the entries were arranged to convert undisclosed money into white money, treating the amount as undisclosed income. However, the Tribunal and CIT(A) found the transactions genuine based on detailed evidence presented, including contract notes, company details, and demat account records. They observed that the transactions were supported by documents, payments were made through cheques, and routed through the stock exchange, indicating genuineness. The Tribunal's decision to delete the addition was upheld, emphasizing that the AO failed to provide concrete evidence of non-genuineness, leading to a ruling in favor of the assessee.

Issue 2: Deletion of addition on account of undisclosed investment in land
The second issue pertained to the deletion of an addition of ?1,06,34,000 made by the Assessing Officer on account of undisclosed investment in land. The Tribunal directed to compute 10% profit on the investment as the assessee's income, despite holding that the investment was the assessee's own turnover in land dealing. The Court revised the substantial question of law to address whether the Tribunal was justified in confirming the deletion without giving any finding on the matter. The Tribunal and CIT(A) justified not confirming the addition, highlighting that the transactions were accommodation entries exchanged with a broker. The Tribunal emphasized the genuineness of the transactions supported by various documents and the absence of evidence proving non-genuineness. The Court upheld the Tribunal's decision, ruling in favor of the assessee due to the lack of substantial evidence provided by the department to challenge the genuineness of the transactions.

In conclusion, both issues were decided in favor of the assessee, leading to the dismissal of the appeals. The Court upheld the Tribunal's decisions based on the detailed analysis of the transactions and the lack of concrete evidence proving non-genuineness, ultimately ruling in favor of the assessee against the department.