2020 (7) TMI 38 - AT - Income Tax

Validity of reopening of assessment u/s 147 - sale consideration on sale of equity shares under section 68 - HELD THAT - In the present case, the assessee has furnished all the information available with him. The learned assessing officer had the investigation wing report available with him. Undoubtedly in the report of the Principal Director Of Investigation, Kolkata dated 27 April 2015 contains the name of 84 companies, out of which one company at serial number 71 is Nouvea global venture limited (NOUVEAU) wherein total alleged transactions took place. It is alleged to be bogus transaction. The assessee has shown that he has earned the long-term capital gain exempt u/s 10 (38) of the income tax act of this company. In the same report at Chapter number 3, the list of all these 84 companies are given with reference to action taken on them by Securities and Exchange Board of India SEBI . At serial number 71 is the name of this company against which no such action has been mentioned. It has shown that there are 18 exit providers and 5 accommodation entry providers in the whole scheme. Thus, if it is true that assessee has obtained a bogus long-term capital gain, assessee should have obtained the accommodation entry of the purchase of those shares from any of the accommodation entry providers and when the shares are sold the sales should have been taken as a purchase by any of the exit providers. In such circumstances to prove that the assessee has obtained the bogus long-term capital gain. Financial of the above company of which assessee has sold the shares. It is shown before us a detailed chart showing the financials of the company for last several year - there is no allegation against the company about any wrongdoing either in the securities market or under The Companies Act - profit and loss account the assessee has shown payment of tax and therefore it is also income tax assessee - for year ended on 31st of March 2012 company that company has paid a tax of ₹ 24.50 lakhs and for the earlier year 26.14 lakhs. Therefore, it cannot be said to be penny stock company at all. The learned assessing officer has not brought on record any material to show that this company is not having the genuine shareholding. We disagree with the argument of the ld AR that assessee if he is a habitual investor cannot enter in to the penny stock transaction of obtaining bogus long term capital gain. Assessee has shown that he has earned long term capital gain in many companies in subsequent year, but many of those companies are also in the list of penny stock prepared by the Investigation wing such as UNNO Industries . Therefore we reject that argument. Addition in the hands of the assessee is not sustainable when the details furnished by the assessee were not at all controverted by bringing cogent material and investigation made thereon by the ld AO. The assessee has shown the long-term capital gain exempt u/s 10 (38) of the act amounting to ₹ 3,866,678. The purchase value of those shares was ₹ 1,756,121/ . The learned AO has made the addition of the full value of the consideration received by the assessee on sale of those shares amounting to ₹ 5,643,084/-. Thus, ground number two of the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of reopening of assessment.
2. Addition of ?56,43,084 on account of sale consideration of equity shares under section 68 of the Income Tax Act.

Detailed Analysis:

1. Validity of Reopening of Assessment
The assessee challenged the reopening of the assessment on multiple grounds, including lack of specific, relevant, reliable, and tangible material to form a reason to believe that income had escaped assessment. The assessee argued that the material relied upon by the Assessing Officer (AO) was not provided, and the reopening was based on borrowed satisfaction without independent application of mind.

The Tribunal referred to the Supreme Court's decision in ACIT v. Rajesh Jhaveri Stock Brokers P Ltd, which clarified that the AO needs a "reason to believe" and not conclusive evidence of income escapement at the initiation stage. The Tribunal found that the material available with the AO, including the investigation report from the Directorate of Investigation, Kolkata, provided sufficient cause for reopening the assessment. The AO had applied his mind to the material and formed a belief that income had escaped assessment. The Tribunal rejected the argument that the reopening was based on borrowed satisfaction and found no infirmity in the AO's action.

2. Addition of ?56,43,084 on Account of Sale Consideration of Equity Shares
The AO made an addition of ?56,43,084 under section 68 of the Income Tax Act, considering the sale of shares of Nouveau Global Ventures Ltd. as bogus long-term capital gain (LTCG). The AO noted that the assessee had purchased the shares at an abnormally high price from paper companies controlled by entry operators and sold them at a significantly higher price, claiming exemption under section 10(38).

The assessee provided evidence of the purchase and sale of shares through recognized stock exchanges, payment through banking channels, and maintenance of shares in a Demat account for three years. The Tribunal observed that the AO did not conduct any further investigation to substantiate the claim of bogus LTCG. The Tribunal emphasized that the AO should have examined the brokers, obtained details from the stock exchange, and verified the Demat account transactions to establish the link between the assessee and the alleged entry operators.

The Tribunal found that the AO's addition was based on mere rejection of the assessee's explanation without any supporting investigation. The Tribunal noted that the financials of Nouveau Global Ventures Ltd. did not indicate it as a penny stock company, and there was no evidence of wrongdoing against the company. The Tribunal concluded that the assessee had discharged the onus of proving the genuineness of the transactions, and the AO failed to bring any cogent material to counter the assessee's evidence.

Conclusion:
The Tribunal upheld the validity of the reopening of the assessment but deleted the addition of ?56,43,084 made by the AO under section 68 of the Income Tax Act. The appeal of the assessee was partly allowed.