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2019 (7) TMI 858 - AT - Income TaxBogus LTCG - addition u/s 68 - exemption of LTCG u/s 10(38) disallowed - penny stock companies - AO has not made any enquiry - HELD THAT - AO failed to bring on record any part of the said report wherein the name of the appellant or his broker has even been named or implicated. The lower authorities have failed to bring on record any evidence to prove that the transactions carried out by the assessee were not genuine or that the said documents furnished in support thereof were not authentic. It would not be out of place to mention here that no specific enquiry or investigation was conducted in the case of the assessee and/or his broker either by the INV Wing or by the AO during the course of assessment proceedings. SEBI looks into irregular movements in share prices and range and warns investors against any such unusual increase in share price. No such warning was issued by SEBI nor there is any evidence that the company ETTL was ever delisted by SEBI or that the transactions in the shares of ETTL were ever suspended by SEBI. AO by making the impugned addition, has acted merely on suspicions and surmises and failed to produce any evidence whatsoever to prove that the proceeds received against the sale of shares represented the assessee s undisclosed income. AO has also failed to produce any material/evidence to dislodge or controvert the genuineness of the conclusive documentary evidences produced by the assessee in support of his claim. Surprisingly, neither the assessee nor his broker are named as illegitimate beneficiary to bogus LTCG in any of the alleged statements of the operators/brokers or reports/orders of SEBI or INV wing. In our considered view, the additions made by AO and confirmed by the CIT(A) are heavily guided by surmises, conjectures and presumptions and therefore, has no legs to stand on. Assessee has successfully discharged the onus cast upon him by provisions of section 68 and as mentioned elsewhere, such discharge of onus is purely a question of fact and therefore, the judicial decisions relied upon by the ld. DR would do no good on the peculiar plethora of evidences in respect of the facts of the case in hand. We, accordingly, direct the Assessing Officer to accept the LTCG - Decided in favour of assessee.
Issues Involved:
1. Disallowance of exemption of Long Term Capital Gain (LTCG) under Section 10(38) of the Income-tax Act, 1961. 2. Assessment based on information from the Directorate of Income Tax (Investigation), Kolkata. 3. Examination of evidence and enquiry by the Assessing Officer. 4. Validity of the addition under Section 68 of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Disallowance of Exemption of LTCG under Section 10(38): The assessee challenged the correctness of the CIT(A)'s order confirming the disallowance of LTCG exemption amounting to ?11,93,55,564. The assessee had declared this gain from transactions on which Securities Transaction Tax (STT) was paid, claiming exemption under Section 10(38) of the Income-tax Act, 1961. The assessee provided extensive documentation, including proof of payment for shares, board resolutions, SEBI/BSE approvals, share certificates, demat account statements, and proof of receipt of sale consideration. 2. Assessment Based on Information from DIT (Investigation), Kolkata: The Assessing Officer (AO) relied heavily on a report from the Directorate of Income Tax (Investigation), Kolkata, which indicated large-scale manipulations in the capital market involving penny stocks, including Effingo Textiles & Trading Ltd (ETTL). The AO concluded that the LTCG claimed by the assessee was bogus and treated it as unexplained credits under Section 68, adding the amount back to the total income. 3. Examination of Evidence and Enquiry by the Assessing Officer: The AO did not conduct any independent enquiry or investigation into the assessee's transactions. Instead, the AO based the assessment solely on the report from the DIT (Investigation), Kolkata, without verifying the evidence provided by the assessee. The CIT(A) also dismissed the appeal without considering the specific facts and evidence presented by the assessee, relying instead on the general findings of the investigation report. 4. Validity of the Addition under Section 68: The tribunal noted that the AO and CIT(A) failed to substantiate their claims with concrete evidence or conduct a proper enquiry. The tribunal emphasized that the AO should have conducted an independent investigation and corroborated the information received from the investigation wing. The tribunal found that the assessee had successfully discharged the onus of proving the genuineness of the transactions through substantial documentary evidence. Conclusion: The tribunal concluded that the AO and CIT(A) acted on mere suspicion and failed to provide any concrete evidence to disprove the assessee's claims. The tribunal directed the AO to accept the LTCG declared by the assessee and deleted the consequential addition. The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 12.06.2019.
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