2019 (2) TMI 226 - AT - Income Tax

Bogus LTCG - addition u/s 68 - denial of exemption u/s 10(38) - share price has a risen to more than 37 times - Held that - General observation about the modus operandi of long term capital gain would be of no use unless and until there is some specific information and material qua the assessee. Once purchase of the shares are not doubted and sale has been made through Bombay Stock exchange routed through DMAT account then consideration received has to be treated from amount of sale of shares whether the price has been rigged or not. One factor which has weighed heavily on the authorities below in the present case is that . Once the SEBI has held that there is no adverse evidence or material that there was any violation of provision of PFUT regulation in respect of Kailash Auto Finance Limited and restrain order on the trading has been revoked, then it follows that the share price of which has been sold for genuine quoted price and therefore, the sale proceeds has to be reckoned from sale of such shares and would be treated as explained credit or investment. Accordingly, on the facts and circumstances of the case, we hold that the long term capital gain shown by the assessee is genuine and consequently liable for exemption u/s 10(38). - Decided in favour of assessee.

Issues Involved:
Appeals against order dated 16.10.2017 and 17.10.2017 for assessment year 2014-15; confirmation of addition under section 68 of IT Act; levy of interest under section 234; validity of long term capital gain; reliance on statement of Shri Sunil Dokania; accommodation entries from penny stocks; scrutiny of purchase and sale of shares; SEBI findings on Kailash Auto Finance Ltd.; genuineness of long term capital gain; applicability of section 10(38) for exemption.

Analysis:

1. Confirmation of Addition under Section 68:
The appeals challenged the addition under section 68 of the IT Act concerning long term capital gain claimed as exempt under section 10(38). The issue revolved around the evidentiary value of statements recorded by DDIT (Inv), Kolkata in the absence of the appellant, lack of cross-examination, and reliance on documentary evidence. The contention was that provisions of section 68 did not apply to the appellant's case.

2. Validity of Long Term Capital Gain:
The case involved scrutiny of the purchase and sale of shares of M/s. Careful Project Advisort Ltd., which amalgamated into M/s. Kailash Auto Finance Ltd. The assessing officer concluded that the appellant benefited from accommodation entries, leading to the addition of long term capital gain under section 69. The CIT (A) upheld the addition based on general observations and statements confirming the use of scrips for bogus gains.

3. Reliance on Statement of Shri Sunil Dokania:
The authorities relied on the statement of Shri Sunil Dokania, a Chartered Accountant, confirming the use of scrips for providing bogus gains. However, the appellant argued that the statement lacked evidentiary value due to lack of access to relevant material and cross-examination. The appellant emphasized the legitimate purchase and sale of shares through registered brokers.

4. SEBI Findings on Kailash Auto Finance Ltd.:
The SEBI findings played a crucial role in determining the genuineness of the long term capital gain. SEBI's investigation did not find adverse evidence of price manipulation in the scrip of Kailash Auto Finance Ltd., leading to the revocation of trading restrictions. This finding supported the appellant's claim of genuine transactions and legitimate gains.

5. Genuineness of Long Term Capital Gain:
Considering the absence of specific evidence linking the appellant to accommodation entries, the Tribunal held that the long term capital gain was genuine and qualified for exemption under section 10(38). The Tribunal emphasized the legitimate purchase and sale of shares through recognized channels, rejecting the presumption of involvement in fraudulent activities.

6. Final Decision:
The Tribunal allowed the appeals of both assessees, emphasizing the genuine nature of the transactions and the lack of concrete evidence implicating them in fraudulent practices. The judgments highlighted the importance of thorough scrutiny and the need for specific evidence to support allegations of wrongdoing in tax assessments.

This detailed analysis covers the key issues addressed in the judgment, focusing on the legal arguments, evidentiary considerations, and the final decision rendered by the Tribunal.

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