2018 (3) TMI 1020 - AT - Income Tax

Addition u/s 68 - long term capital gain as claimed by the assessee rejected - Held that - The assessee just wanted to enter into the transaction to earn exempted capital gain, but the assessee did not sell all the share 45000 shares instead of sale of a part i.e. 8000 shares only when that time was the best price ever. All the transaction were made through account payee cheque / banking channel and assessee had purchased share in financial year 2009-10 and sold the same in the financial year 2013-14 resulting in Long Term Capital Gain. The assessee has submitted various documentary evidences to prove the genuineness of the transaction of sale and purchase of shares which includes a copy of purchase bill dated 22.02.2010; a copy of share transfer form in the favour of the assessee; Copy of bank statement highlighting the payment made against the share purchased; Transaction statement of the stock broker i.e. Pace Stock Broking Services (P) Ltd., account; copy of bank statement in which sale proceed from the sale of shares received; copy of calculation of long term capital gain, which was not faulted by the AO. Lower authorities have not considered the aforesaid documents and rejected all the claims made by the assessee by relying on the report of the Investigation Wing and thereby made the addition, which is not sustainable in the eyes of law. Further find that the AO has given detailed explanation in the order regarding the modus-operandi of bogus LTCG scheme but failed to substantiate how the assessee fell in the purview of the same without bringing any material on record and proving that the assesssee was directly involved in the so called bogus transaction. The addition in dispute made by the AO and upheld by the CIT(A) u/s 68 as unexplained credit instead of long term capital gain as claimed by the assessee, however, the source identity and genuineness of the transaction having been established by documentary evidences and there is no case for making addition u/s 68 hence, the same deserve to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of the assessment framed by the Assessing Officer.
2. Genuineness of the Long Term Capital Gain (LTCG) claimed as exempt under Section 10(38) of the Income Tax Act, 1961.
3. Validity of the addition of ?18,46,600/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
4. Consideration of documentary evidence provided by the assessee.
5. Reliance on the investigation report against stock broking entities.

Issue-wise Detailed Analysis:

1. Legitimacy of the Assessment Framed by the Assessing Officer:
The appellant argued that the assessment was flawed as the Assessing Officer (AO) did not consider the facts and documents submitted. The AO based the addition on presumption and presuppositions without appreciating the genuine sale and purchase of shares. The Tribunal noted that the AO's assessment was primarily based on assumptions and did not substantiate the appellant's involvement in any bogus transactions.

2. Genuineness of the Long Term Capital Gain (LTCG) Claimed as Exempt under Section 10(38) of the Income Tax Act, 1961:
The appellant claimed LTCG of ?18,46,600/- from the sale of 8,000 shares of Unisys Software Holding Industries Ltd, which was exempt under Section 10(38). The appellant purchased 45,000 shares in the financial year 2009-10 and sold a portion in 2013-14. The Tribunal observed that the transactions were made through account payee cheques and the appellant provided substantial documentary evidence to support the genuineness of the transactions.

3. Validity of the Addition of ?18,46,600/- as Unexplained Cash Credit under Section 68 of the Income Tax Act, 1961:
The AO treated the LTCG as unexplained cash credit under Section 68, suspecting it to be unaccounted income brought into the books through bogus LTCG. The Tribunal found that the AO failed to provide concrete evidence linking the appellant to any bogus transactions and relied excessively on the investigation report without considering the appellant's documentation.

4. Consideration of Documentary Evidence Provided by the Assessee:
The appellant submitted various documents, including purchase bills, share transfer forms, bank statements, and transaction statements from the stock broker. The Tribunal noted that these documents were not faulted by the AO. The lower authorities dismissed these documents arbitrarily, relying solely on the investigation report, which the Tribunal found unsustainable.

5. Reliance on the Investigation Report Against Stock Broking Entities:
The AO's conclusion was heavily influenced by an investigation against stock broking entities, which suggested a sudden increase in trading volume of the shares. The Tribunal emphasized that the appellant was not directly involved with the broker's activities and had no control over them. The nature of the transactions remained genuine as per the provided documentation.

Judgment:
The Tribunal concluded that the AO and CIT(A) erred in their assessment by not considering the appellant's documentary evidence and relying solely on the investigation report. The addition of ?18,46,600/- as unexplained cash credit under Section 68 was deleted. The Tribunal allowed the appeal, recognizing the genuineness of the LTCG claimed by the appellant.

Order Pronounced on 19-03-2018.