2018 (11) TMI 988 - AT - Income Tax

Unexplained cash credit U/s 68 r.w.s. 115BBE - bogus long term capital gain - Bogus share transactions - Held that - Assessing Officer has not brought any material on record to controvert the fact duly established by the supporting evidence of purchase bills, payment of consideration through bank, dematerialization of shares in the DEMAT account, allotment of the shares amalgamated new entity in lieu of the earlier two companies of equal number of shares. Sale of shares from the DEMAT account through stock exchange and at the prevailing price as on the date of sale and further payment of STT on the transaction of sale has been duly established. Assessing Officer has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account. Therefore, in absence of any evidence, it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. - Decided in favour of assessee. Unexplained commission expenses U/s 69C - Held that - This is a consequential issue to the addition made by the Assessing Officer U/s 68 of the Act treating long term capital gain as accommodation entries for bogus claim of exempt income and consequently the Assessing Officer has also made an addition on account of expenditure being unexplained commission expenses on such transaction of accommodation entries.Hence there is no basis left for the addition as possible commission paid to brokers/intermediaries to arrange for the accommodation entry. Accordingly, the addition is deleted. - Decided in favour of assessee

Issues Involved:
1. Deletion of addition on account of unexplained cash credit under Section 68 read with Section 115BE of the Income Tax Act, 1961.
2. Deletion of addition on account of unexplained commission expenses under Section 69C of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Cash Credit (?2,59,22,699/-):
The revenue challenged the deletion of the addition made by the Assessing Officer (AO) on account of unexplained cash credit under Section 68 read with Section 115BE of the Income Tax Act, 1961. The assessee had declared a long-term capital gain of ?2,59,22,699/- from the sale of shares of M/s Kailash Auto Finance Limited. The shares were initially purchased from Careful Advisory Ltd. and Panchshul Marketing Ltd., which later amalgamated with M/s Kailash Auto Finance Ltd. The AO doubted the genuineness of the transactions, relying on the report of the DDIT (Investigation), Kolkata, and statements from brokers indicating accommodation entries for bogus capital gains.

The Tribunal noted that the payment for the shares was made through the banking channel, and the transactions were reflected in the bank statements and DEMAT accounts. The shares were sold through the stock exchange, and the sale price was consistent with the prevailing market price. The Tribunal emphasized that the AO did not provide evidence of suppression of the purchase price or any manipulation. The statements from the brokers did not specifically mention the assessee or the companies involved in the purchase of shares.

The Tribunal referred to the detailed findings of the CIT(A), which highlighted that the assessee had provided all necessary documents to prove the genuineness of the transactions, including bank statements, DEMAT accounts, and contract notes. The CIT(A) also considered the SEBI’s order, which did not find adverse findings against the entities involved. The Tribunal concurred with the CIT(A) that the AO’s reliance on third-party statements without corroborative evidence was insufficient to treat the transactions as bogus. The Tribunal upheld the CIT(A)’s decision to delete the addition of ?2,59,22,699/-.

2. Deletion of Addition on Account of Unexplained Commission Expenses (?10,66,155/-):
The revenue also contested the deletion of the addition made by the AO on account of unexplained commission expenses under Section 69C of the Income Tax Act, 1961. The AO had treated the long-term capital gain as an accommodation entry and consequently added a notional commission expense of ?10,68,720/-.

The Tribunal noted that this issue was consequential to the primary issue of treating the long-term capital gain as bogus. Since the Tribunal upheld the CIT(A)’s decision to treat the share transactions as genuine, there was no basis for the addition of the commission expenses. The CIT(A) had rightly deleted the addition of ?10,68,720/- as there was no evidence to support the AO’s claim of commission paid to brokers or intermediaries.

Conclusion:
The Tribunal dismissed the revenue’s appeal, affirming the CIT(A)’s order that the share transactions were genuine and deleting the additions made by the AO on account of unexplained cash credit and commission expenses. The Tribunal emphasized the importance of corroborative evidence and the principles of natural justice, including the right to cross-examine witnesses. The decision was consistent with previous judgments, including those of the Hon’ble Rajasthan High Court, which supported the genuineness of share transactions when supported by documentary evidence.

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