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2019 (8) TMI 700 - AT - Income TaxBogus LTCG/LTCL - gain derived from sale of shares held in various scrips - treating the impugned STCL pre-arranged bogus loss - HELD THAT - Identical action holding the assessee s STCL as bogus since derived from rigging of the scrip prices in issue and involving accommodation entry in collusion with the concerned entry operators. Hon'ble apex court s decisions in Sumati Dayal vs. CIT 1995 (3) TMI 3 - SUPREME COURT and CIT vs. Durga Prasad More 1971 (8) TMI 17 - SUPREME COURT are quoted during the course of hearing at the Revenue s behest. It strongly argues that the department has disallowed/added the impugned STCL based on circumstantial evidence unearthed after a series of search actions / investigations undertaken by the DDIT(Inv). Find no merit in Revenue s instant arguments. The fact remains that the assessee has duly placed on record the relevant contract notes, share certificate(s), detailed corroborative documentary evidence indicating purchase / sale of shares through registered brokers by banking channel, demat statements etc., The Revenue s only case as per its pleadings and both the lower authorities unanimously conclusion that there is very strong circumstantial evidence against the assessee suggesting bogus STCL accommodation entries. I find that there is not even a single case which could pin-point any making against these assessees which could be taken as a revenue nexus. CBDT s circular dated 10.03.2003 has itself made it clear that mere search statements in the nature of admission in absence of supportive material do not carry weight. I notice that this tribunal s coordinate bench s decision in Mahavir Jhanwar vs. ITO 2019 (3) TMI 210 - ITAT KOLKATA has taken into consideration identical facts and circumstances as well as latest developments on legal side whilst deleting the similar bogus LTCG addition Coupled with this, hon'ble jurisdictional high court s other decisions in CIT vs. Rungta Properties Pvt. Ltd. 2017 (6) TMI 521 - CALCUTTA HIGH COURT to hold such transactions in scrips supported by the corresponding relevant evidence to be genuine. Assessee had filed all of her detailed evidence during scrutiny. The Assessing Officer s show cause notice(s) u/s. 142(1)/143(2) of the Act nowhere sought to treat the impugned profits as bogus. I adopt the above extracted reasoning mutatis mutandis therefore to delete the impugned STCL disallowance / addition of ₹ 36,48,564/-. Unexplained commission expenditure disallowance, if any shall automatically follow suit as a necessary corollary. No other argument or ground has been agitated before me during the course of hearing. - Decided in favour of assessee.
Issues Involved:
1. Genuineness of Long Term Capital Gains (LTCG) and Short Term Capital Loss (STCL) from sale of shares. 2. Allegation of bogus LTCG/STCL involving unexplained cash credits under Section 68 of the Income Tax Act, 1961. 3. Examination of circumstantial evidence and pattern of trading in penny stocks. 4. Reliance on judicial precedents and legal principles such as human probabilities and surrounding circumstances. 5. Evaluation of documentary evidence provided by the assessee. Issue-Wise Detailed Analysis: 1. Genuineness of Long Term Capital Gains (LTCG) and Short Term Capital Loss (STCL) from Sale of Shares: The primary issue revolves around the genuineness of LTCG and STCL claimed by the assessee from the sale of shares held in various scrips. The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] treated the gains/losses as bogus, alleging that they were derived from pre-arranged transactions involving penny stocks. The AO highlighted that the trading pattern of these stocks followed a "bell-shaped" curve, indicating price manipulation. The shares in question were of companies with no substantial financial credentials, no fixed assets, turnover, or profitability, suggesting that these companies were used solely for generating bogus LTCG/STCL. 2. Allegation of Bogus LTCG/STCL Involving Unexplained Cash Credits Under Section 68: The AO, supported by information from the Directorate of Income Tax (Investigation) [DIT(Inv.)], Kolkata, argued that the assessee's claims of LTCG/STCL were fictitious and involved unexplained cash credits under Section 68 of the Income Tax Act. The AO noted that the investment in shares appreciated significantly within a short span, which was not justified by the companies' financial performance. The AO concluded that the transactions were part of a scam involving accommodation entries, as corroborated by statements from share brokers and entry providers during search and survey operations. 3. Examination of Circumstantial Evidence and Pattern of Trading in Penny Stocks: The CIT(A) upheld the AO's findings, emphasizing the suspicious nature of the transactions based on circumstantial evidence. The CIT(A) observed that the trading pattern of the shares followed a bell-shaped curve, indicative of price rigging. The companies involved had no substantial business activities or growth prospects to justify the sharp increase in share prices. The CIT(A) referenced judicial principles, including the Supreme Court's rulings in CIT vs. Durga Prasad More and Sumati Dayal vs. CIT, which allow for the rejection of apparent facts when the surrounding circumstances suggest otherwise. 4. Reliance on Judicial Precedents and Legal Principles Such as Human Probabilities and Surrounding Circumstances: The CIT(A) and AO relied on various judicial precedents to support their conclusions. They cited cases such as CIT vs. Sanjoy Bimalchand Jain and Usha Chandresh Shah vs. ITO, where courts upheld the rejection of LTCG claims based on suspicious circumstances and lack of credible evidence. The CIT(A) emphasized the importance of considering human probabilities and the surrounding circumstances to determine the genuineness of transactions. 5. Evaluation of Documentary Evidence Provided by the Assessee: The assessee presented various documents, including bank statements, contract notes, delivery instructions, and demat statements, to substantiate the genuineness of the transactions. However, the CIT(A) dismissed these documents as self-serving and insufficient to prove the legitimacy of the gains. The CIT(A) argued that the mere use of banking channels does not validate the transactions, especially when the companies involved had no substantial business activities. Tribunal's Decision: The Tribunal, after considering the rival contentions, found merit in the assessee's arguments. It noted that the assessee had provided detailed documentary evidence supporting the purchase and sale of shares through registered brokers and banking channels. The Tribunal highlighted that the Revenue's case relied heavily on circumstantial evidence and general reports without specific evidence against the assessee. It referenced the CBDT's circular, which states that mere search statements without supportive material do not carry weight. The Tribunal also referred to its own decision in Mahavir Jhanwar vs. ITO and other jurisdictional High Court rulings, which held that transactions supported by relevant evidence should be considered genuine. Consequently, the Tribunal deleted the disallowance/addition of ?36,48,564/- and allowed the assessee's appeals. Conclusion: The Tribunal concluded that the AO and CIT(A) had failed to provide concrete evidence to substantiate the allegations of bogus LTCG/STCL. The assessee's documentary evidence was deemed sufficient to prove the genuineness of the transactions. The appeals were allowed, and the disallowances/additions were deleted.
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