2019 (1) TMI 276 - AT - Income Tax

Addition u/s 68 - bogus long term capital gain - exemption under section 10(38) denied - Held that - As decided in similar issues in SHRI AMAR NATH GOENKA case 2018 (12) TMI 754 - ITAT DELHI in the case of the assessee, both twin conditions are satisfied. He has filed copy of the shares certificate with transfer form, copy of debit note issuedc opy of cash receipt, copy of ledger account ,copy of form for evidence for payment of securities transaction tax on transaction entered in a recognized stock exchange and copy of the bank statement of the assessee AO had not produced any evidence whatsoever in support of the suspicion. On the other hand, although the appreciation is very high, the shares were traded on the National Stock Exchange and the payments and receipts were routed through the bank. There was no evidence to indicate for instance that this was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner. A.O. did not mention any fact as to how the claim of assessee was sham or bogus. The assessee thus, satisfied the conditions of Section 10(38) of the I.T. Act - decided in favour of assessee

Issues Involved:
1. Addition under Section 69 of the I.T. Act for alleged bogus sale of shares.
2. Addition under Section 68 of the I.T. Act for not allowing exemption under Section 10(38) of the I.T. Act, 1961.

Detailed Analysis:

Issue 1: Addition under Section 69 of the I.T. Act for Alleged Bogus Sale of Shares
1. Facts of the Case: The assessee filed a return of income of ?6,66,100/- and claimed exemption of ?26,40,725/- under section 10(38) on account of sale of securities. The case was selected for scrutiny assessment based on information from the Investigation Wing regarding "Suspicious Transaction relating to Long Term Capital Gain on sale of shares." The A.O. noted that the assessee purchased and sold shares of M/s. Lifeline Drugs and Pharma Ltd. and made an addition of ?26,40,725/- under section 69, treating the transaction as a sham aimed at bringing unaccounted money in the guise of exempted long-term capital gains.

2. Assessee's Argument: The assessee provided written submissions, computation details, bank statements, and long-term capital gains details. It was argued that the shares were purchased and sold through recognized stock exchanges, and all transactions were conducted electronically with payments received through banking channels. The statement of the broker, Shri Sanjay Vora, was not subjected to cross-examination, and hence, could not be used as evidence against the assessee.

3. Tribunal's Findings: The Tribunal noted that the assessee filed all necessary documentary evidence to prove the genuineness of the transaction. The Tribunal emphasized that the statement of Shri Sanjay Vora, which was crucial to the A.O.'s case, was not subjected to cross-examination and thus could not be read in evidence against the assessee. The Tribunal relied on the decision of the Hon'ble Supreme Court in the case of Kishan Chand Chela Ram (125 ITR 713) and concluded that there was no other evidence to justify the addition. The Tribunal allowed the appeal of the assessee, deleting the addition of ?26,40,725/-.

Issue 2: Addition under Section 68 of the I.T. Act for Not Allowing Exemption under Section 10(38) of the I.T. Act, 1961
1. Facts of the Case: The assessee claimed exemption under section 10(38) for long-term capital gains of ?28,14,180/- from the sale of shares of M/s. Kappac Pharma Ltd. The A.O. made an addition under section 68, treating the transaction as non-genuine based on statements from brokers recorded by the Investigation Wing, Kolkata.

2. Assessee's Argument: The assessee submitted documentary evidence including share certificates, purchase bills, Demat account statements, and bank statements. It was argued that the transactions were genuine, conducted through recognized stock exchanges, and that the statements of the brokers were not subjected to cross-examination.

3. Tribunal's Findings: The Tribunal found that the assessee had provided sufficient documentary evidence to support the genuineness of the transactions. The Tribunal noted that the statements of the brokers were not subjected to cross-examination and thus could not be used as evidence against the assessee. The Tribunal followed the reasoning in the case of Smt. Radhika Garg and concluded that the addition was not justified. The Tribunal allowed the appeal, deleting the addition of ?28,14,180/-.

Conclusion:
The Tribunal allowed both appeals, deleting the additions made under sections 68 and 69 of the I.T. Act. The Tribunal emphasized the importance of cross-examination of statements used as evidence and found that the assessee had sufficiently demonstrated the genuineness of the transactions through documentary evidence.

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