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2020 (3) TMI 545 - AT - Income TaxAddition u/s 68 - allegation of booking of bogus long term capital gains through penny stock companies - addition on account of commission under section 69C - HELD THAT - In the present case, the assessee submitted sufficient documentary evidences before A.O. to prove genuineness of the transaction. The assessee purchased the shares through banking channel and actually got the shares transferred in his name. The purchases are supported by bank statements. The transaction of the sale have been made through Demat Account which is corroborated by contract note and other details and transaction is carried out through banking channel through stock exchange through Demat Account on which Security Transaction Tax have also been paid. A.O. merely relied upon interim order of the SEBI to make addition against the assessee, otherwise, there were no evidence or material on record to disprove the claim of assessee. Since the interim order of the SEBI have been revoked against the assessee and M/s EBFL, therefore, nothing survives in favour of the A.O. The A.O. did not make any further investigation or enquiry into the matter and merely relied upon the interim order of the SEBI and investigation carried out by the Kolkata Wing. It is not clear from the assessment order whether Investigation Wing report have been confronted to the assessee or any right of cross-examination have been allowed to any statement recorded at the back of the assessee. The assessee asked for the cross-examination of any statement which is used against the assessee for making the addition. But, the assessment order is silent on this aspect. Therefore, the above facts clearly show that assessee entered into the genuine transaction and as such the profit on sale of scrip was exempt from tax. D.R. relied upon decisions of the ITAT, Delhi Benches, Delhi in the cases of Suman Poddar vs., ITO 2019 (9) TMI 1089 - DELHI HIGH COURT and Udit Kalra vs., ITO 2019 (4) TMI 834 - DELHI HIGH COURT in which the findings of the Tribunal had been that these are cases of penny stock companies which fact is not there in the present case. Therefore, these decisions would not support the case of the Revenue as having distinguishable on facts. The authorities below have not rebutted the explanation of assessee that he has indulged in dealing in scrips in earlier year as well as in subsequent years. It would, therefore, show that assessee is regularly dealing in scrips. The A.O. has not brought any adverse material against the assessee so as to make the above additions. Considering the totality of the facts and circumstances of the case and financials of M/s EBFL we set aside the Orders of the authorities below and delete both the additions.
Issues Involved
1. Addition of ?73,58,953/- under section 68 of the I.T. Act, 1961. 2. Addition of ?2,20,768/- on account of commission under section 69C of the I.T. Act, 1961. Detailed Analysis Issue 1: Addition of ?73,58,953/- under Section 68 of the I.T. Act, 1961 Facts of the Case: The assessee filed a return of income declaring ?16,86,200/-. The case was selected for scrutiny due to "suspicious transaction relating to long-term capital gain on shares." The assessee, a director of a company, reported a gross salary of ?16,78,350/- and other sources of income but did not show any income from capital gains. The assessee claimed long-term capital gains (LTCG) on the sale of shares of M/s Esteem Bio Organic Food Processing Ltd. (EBFL), which were not shown in the return of income as they were claimed as exempt. Assessment Officer's (A.O.) Findings: The A.O. noted the modus operandi of tax evasion through bogus LTCG, referencing a report from the Director of Investigation, Kolkata, which categorized companies into two types: dormant companies with accumulated losses and new companies floated for providing LTCG entries. The A.O. referenced an interim order from SEBI that indicted the assessee as a beneficiary of artificial price jacking of EBFL shares, leading to the addition of ?73,58,953/- under section 68 of the I.T. Act, 1961. Assessee's Defense: The assessee provided detailed documentation to support the genuineness of the transactions, including bank statements, dematerialized request forms, and certificates of share allotment. The assessee argued that the transactions were genuine, supported by documentary evidence, and that SEBI's interim order had been revoked. CIT(A)'s Decision: The CIT(A) dismissed the appeal, following the Rule of Preponderance of Probability, despite the revocation of SEBI's interim order. Tribunal's Findings: The Tribunal noted that the A.O. relied solely on SEBI's interim order, which had been revoked. The Tribunal found that the financials of EBFL indicated it was a genuine company dealing in actual business activities, not a penny stock company. The Tribunal emphasized that the A.O. did not conduct further investigations or provide the assessee the right to cross-examine statements used against them. Citing the case of Amar Nath Goenka vs. ACIT, the Tribunal concluded that the transactions were genuine and supported by documentary evidence. Thus, the addition of ?73,58,953/- under section 68 was deleted. Issue 2: Addition of ?2,20,768/- on Account of Commission under Section 69C of the I.T. Act, 1961 Facts of the Case: The A.O. also made an addition of ?2,20,768/- on account of commission paid for the sale of shares, treating it as unexplained expenditure under section 69C of the I.T. Act, 1961. Assessee's Defense: The assessee reiterated that the transactions were genuine and supported by documentary evidence, including the payment of Security Transaction Tax (STT). CIT(A)'s Decision: The CIT(A) upheld the addition, following the Rule of Preponderance of Probability. Tribunal's Findings: The Tribunal found that the A.O. did not provide substantial evidence to support the addition of ?2,20,768/- as unexplained expenditure. The assessee's documentation and the revocation of SEBI's interim order indicated that the transactions were genuine. Consequently, the addition of ?2,20,768/- under section 69C was also deleted. Conclusion The Tribunal set aside the orders of the authorities below and deleted both the additions of ?73,58,953/- under section 68 and ?2,20,768/- under section 69C, concluding that the assessee's transactions were genuine and supported by substantial documentary evidence. The appeal of the assessee was allowed.
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