2018 (8) TMI 276 - AT - Income Tax

LTCG on sale of shares treated as unaccounted income - not allowing the exemption u/s. 10 (38) as claimed - Held that - Assessee has taken to various documents in the paper book as referred to above which specifically prove the purchase of shares made by assessee genuinely which were also sold genuinely. The transactions were carried through Demat account and banking channel on which STT has been paid by assessee. Report of the SEBI was not adverse in nature against the assessee because name of the assessee did not appear therein for conducting dubious transaction. The report of the Investigation Wing and other material was not confronted to assessee, therefore, the same cannot be read in evidence against the assessee. More so, the general enquiry conducted about modus operandi without verifying bogus long term capital gains could be indicated to take action against some of the assessees. A specific query and material against the assessee should have been brought on record to put assessee under liability. However, in the present case, the entire documentary evidence on record have not been disputed by the authorities below and there is no rebuttal to the explanation of assessee. No adverse material have been brought on record against the assessee. Further, no proper enquiry have been conducted by the A.O. on the documentary evidences filed by assessee. Whatever statements have been referred to in the order were general in nature with whom assessee did not have any transaction. As relying on Meenu Goel vs. ITO 2018 (3) TMI 1020 - ITAT DELHI assessee has entered into genuine transaction of sale and purchase and therefore, satisfied the conditions of Section 10(38) of the I.T. Act. The assessee is entitled for exemption under the same provision. - decided in favour of assesse

Summary

Issues Involved:
1. Assessment of Long Term Capital Gains (LTCG) as unaccounted income.
2. Denial of exemption under Section 10(38) of the Income Tax Act.
3. Non-confrontation with adverse material and denial of cross-examination.

Issue-wise Detailed Analysis:

1. Assessment of Long Term Capital Gains (LTCG) as unaccounted income:

The assessee filed a return declaring NIL income for the assessment year 2014-2015, claiming LTCG of ?46,63,728/- from the sale of shares of HPC Biosciences Ltd. and Esteem Bio Organic & Food Processing Ltd., which was exempt under Section 10(38) of the Income Tax Act. The Assessing Officer (A.O.) issued a show-cause notice questioning the exponential rise in share prices and proposed that the transactions were arranged through penny stock companies. Despite the assessee providing documentary evidence such as bank statements, Demat accounts, and broker notes, the A.O. concluded that the LTCG claim was bogus and added ?47,16,264/- to the income. The CIT(A) upheld this addition based on the A.O.'s reasoning and the SEBI order.

2. Denial of exemption under Section 10(38) of the Income Tax Act:

The assessee argued that the shares were purchased through banking channels and Demat accounts, held for more than 12 months, and sold on recognized stock exchanges with Security Transaction Tax (STT) paid. The assessee provided substantial documentary evidence supporting the genuineness of the transactions. The A.O. and CIT(A) dismissed these claims, relying on the SEBI report and statements from third parties, which were not directly related to the assessee. The Tribunal, referencing similar cases and judgments, found that the assessee had met the twin conditions of Section 10(38) and that the transactions were genuine. Consequently, the Tribunal allowed the appeal, granting the exemption under Section 10(38).

3. Non-confrontation with adverse material and denial of cross-examination:

The assessee contended that the adverse material and statements from individuals like Mr. Somain Choudhary and Mr. Sanjay Vora, used against them, were neither confronted nor subjected to cross-examination. The Tribunal noted that these statements and the SEBI report were general in nature and not specific to the assessee. The Tribunal emphasized that the assessee's name did not appear in the SEBI report and that the A.O. failed to conduct a proper inquiry into the documentary evidence provided by the assessee. The Tribunal concluded that the authorities' findings were without basis and justification, and the addition made by the A.O. was deleted.

Conclusion:

The Tribunal set aside the orders of the lower authorities and allowed the appeal of the assessee, recognizing the genuineness of the transactions and granting the exemption under Section 10(38) of the Income Tax Act. The Tribunal's decision was based on the comprehensive evidence provided by the assessee and the lack of specific adverse material against them.