2019 (10) TMI 970 - AT - Income Tax

Bogus LTCG - addition of unexplained cash credit u/s 68 read with section 115BBE - HELD THAT - Transaction of the assessee of deriving long term capital gains by selling shares of M/s Trinity Tradelink Ltd. was treated as bogus by the Revenue only on the basis of suspicion and probability and without finding any defect in the various documentary evidences filed by the assessee and further the finding recorded by ld CIT (A) that the addition has been made on independent analysis of the documents is contrary to material available on record. As on perusal of the order of assessment we find that no independent inquiry was made with regards to alleged entry operator Sh. Vikrant Kayan. Whereas the sole basis of making the impugned addition was statement of Sh. Vikrant Kayan which too was recorded behind the back of assessee by DIT (Inv) Kolkata and the statement alone cannot be the conclusive evidence to nail the assessee and hence needs to be excluded for consideration as the said person has not been allowed cross examination by assessee even though various requests were made by assessee. As such the transaction of the assessee was duly supported by relevant documentary evidences without there being any rebuttal by lower authorities; the addition made by the Assessing Officer by treating the LTCG as bogus is unsustainable Unexplained expenditure on commission - As transaction of long term capital gains derived by the assessee as genuine and as such further addition made by the Assessing Officer on account of alleged commission is consequential and is also liable to be deleted - Decided in favour of assessee

Summary

Issues Involved:
1. Justification of the addition made as alleged unexplained cash credit under Section 68 read with Section 115BBE of the Income Tax Act, 1961.
2. Justification of the addition made towards unexplained expenditure on commission.

Detailed Analysis:

1. Justification of the Addition Made as Alleged Unexplained Cash Credit under Section 68 Read with Section 115BBE of the Income Tax Act, 1961:

Background and Facts:
The assessee filed a return of income for AY 2014-15, declaring an income of ?11,56,260/-. The assessee claimed exempt income under Section 10(38) of the Act for long-term capital gains (LTCG) derived from the sale of shares of M/s Trinity Trade Link Ltd. (TTL). The shares were purchased at ?10 per share and sold at prices ranging from ?970.10 to ?988.10 per share, resulting in a claimed LTCG of ?1,93,56,813/-. The assessee provided documentary evidence, including purchase and sale contract notes, bank statements, and Demat statements, to substantiate the transactions.

Assessment Officer's Findings:
The AO observed that the share price of TTL increased without financial backing, suggesting artificial inflation. Statements from brokers and operators indicated TTL was used to provide bogus LTCG. The AO treated the LTCG as unexplained cash credit under Section 68 and taxed it at 30% under Section 115BBE.

CIT(A) Findings:
The CIT(A) confirmed the AO's order, stating that the documents submitted by the assessee were make-believe and the transactions were arranged to create bogus profits.

Tribunal's Analysis:
The Tribunal noted that the transactions were supported by documentary evidence and conducted through a registered broker on a recognized stock exchange with payment of Securities Transaction Tax (STT). The rise and fall of share prices depend on various factors, not just financial performance. The financials of TTL showed steady growth and high turnover, contradicting the AO's findings. The Tribunal also highlighted the failure to provide cross-examination of Sh. Vikrant Kayan, whose statement was heavily relied upon by the AO.

Conclusion:
The Tribunal found the addition under Section 68 unjustified as the transactions were genuine and supported by evidence. The addition of ?1,93,56,813/- was deleted.

2. Justification of the Addition Made Towards Unexplained Expenditure on Commission:

Background and Facts:
The AO also added ?3,87,136/- as unexplained expenditure on commission, assuming the LTCG was non-genuine.

Tribunal's Analysis:
Since the Tribunal found the LTCG transactions genuine, the consequential addition for commission was also deemed unsustainable.

Conclusion:
The addition of ?3,87,136/- for commission was deleted.

Decision:
The Tribunal allowed the appeal of the assessee, deleting both the addition of ?1,93,56,813/- under Section 68 and the addition of ?3,87,136/- for commission. The order was pronounced on 28th June 2019.