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2019 (6) TMI 297 - AT - Income TaxBogus LTCG - Addition u/s. 69 - benami transactions - sale proceeds of equity shares - AO observed that assessee was not involved in activities of transactions in other shares and the assessee has not earned any LTCG from the sale of other shares - HELD THAT - The assessee has purchased the shares from the off market and was in the physical form and later on it was dematerialised. The shares were credited into the assessee s demat account on 20.06.2013. Later on the shares were listed in the BSE and the assessee had sold the shares through M/s. J.M. Financial Services Mumbai. Copy of Contract Note of sale is placed and copy of demat statement is available from which statement we note that it reflects debit entry for the shares from the account. The sale considerations have happened through the banking channel (Vijaya Bank). AO has reproduced certain portions of the general report of Investigation Wing of the Income Tax Department. Nowhere from the general report of Investigation Wing is it seen that the assessee has indulged in any nefarious activities or her broker has carried out any stage managed/pre determined sale of the shares as contended by the AO. SEBI s report also does not in any way point out any wrong action against the assessee s broker or the scrips. We note that there is no specific evidence which have been collected by the AO in coming to a conclusion that the sale consideration from the sale of shares of M/s. GIFL is bogus. Lower authorities erred in holding the assessee s claim on LTCG from the sale of shares of M/s. GIFL as bogus. Therefore we are inclined to allow the assessee s LTCG claim and therefore the appeal of assessee is allowed.
Issues Involved:
1. Confirmation of addition of ?70,07,666/- as sale proceeds of equity shares under Section 69 of the Income-tax Act, 1961. 2. Validity of the assessee's claim of Long Term Capital Gain (LTCG) exemption on the sale of shares. Issue-wise Detailed Analysis: 1. Confirmation of Addition of ?70,07,666/- as Sale Proceeds of Equity Shares under Section 69 of the Income-tax Act, 1961: The main grievance of the assessee was against the action of the Ld. CIT(A) in confirming the addition of ?70,07,666/- being the sale proceeds of equity shares of M/s. Global Infratech & Finance Ltd. (GIFL) under Section 69 of the Income-tax Act, 1961. The Assessing Officer (AO) noted that the assessee claimed total exempt income of ?68,96,192/- on the exempt Long Term Capital Gain (LTCG) from transactions on which Securities Transaction Tax (STT) was paid. The AO observed that the assessee earned LTCG from the sale of 107,500 shares of M/s. Asianlak Capital & Finance Ltd. (ACFL), which was later renamed as GIFL. The AO cited a general report from the Investigation Wing of the Income-tax Department and SEBI’s observations on unscrupulous practices by certain share brokers, concluding that the sale consideration claimed by the assessee as exempt was bogus, leading to the addition of ?70,07,666/-. The Ld. CIT(A) confirmed this addition, which led the assessee to appeal. 2. Validity of the Assessee's Claim of Long Term Capital Gain (LTCG) Exemption on the Sale of Shares: The assessee argued that the AO erred in noting the facts, particularly the claim that ACFL merged with GIFL, whereas it was only a change of name. The assessee provided evidence such as the Certificate of Incorporation, contract notes, demat statements, and bank statements to support the purchase and sale of shares. The AO’s reliance on the general report and SEBI’s observations in other cases, without specific material against the assessee, was challenged. The assessee contended that the AO failed to produce any adverse material specifically against the assessee or the broker/scrips involved. The Department’s representative argued that the rapid appreciation of the shares from ?4,00,000/- to ?70,00,000/- was against human probability and indicative of a systematic nefarious practice involving brokers and paper companies. The modus operandi described involved rigging/manipulating share prices after a holding period, leading to exempt LTCG claims by beneficiaries like the assessee. Tribunal's Findings: The Tribunal noted that the assessee provided substantial evidence supporting the genuineness of the transactions, including contract notes, demat statements, and bank transactions. The AO’s conclusions were based on general observations and third-party statements without specific evidence against the assessee. The Tribunal referenced several judicial precedents, including decisions from the Hon’ble Calcutta High Court and other ITAT benches, which supported the assessee’s position in similar cases. The Tribunal emphasized that the burden of disproving the evidence provided by the assessee rested on the revenue, which was not discharged. The Tribunal concluded that the lower authorities erred in holding the assessee’s LTCG claim as bogus. The AO’s reliance on general reports and third-party statements, without allowing cross-examination or producing specific evidence against the assessee, was insufficient to deny the LTCG exemption. Conclusion: The Tribunal allowed the assessee’s appeal, directing the AO to treat the gains from the sale of shares as LTCG and delete the addition of ?70,07,666/-. The decision was pronounced in the open court on 3rd June, 2019.
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